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Client Talking Points

US DOLLAR

Well, it was yet another no-bid day for the credibility of the US Dollar yesterday. The omnipotent Janet Yellen regime is transitioning away from being data dependent on inflation and employment and shifting towards price fixing – or rate targeting. Down Dollar and Down Rates? That simply means up Gold (+10% year-to-date!) and slowing real growth.

#InflationAccelerating

So, oil joined the raucous inflation party yesterday, taking the CRB Commodities Index up another +1.8% to +6.8% year-to-date. No small potatoes. Compare that to Consumer stocks which are down -3.5%. Nat Gas? It's going KaBoom...up a blistering +37% year-to-date. That has to be “deflationary” right? Right? $110 Oil too. It just has to be ... the government says so!

RUSSIA

Bad news for Putin as #Sochi getting slammed by bad news Ukrainian headlines this morning. The Russian Bear stock market takes another -1.8% hit to the head down to -8.5% year-to-date. Incidentally, today in 1861, the Russians abandoned serfdom. Sort of.

Asset Allocation

CASH 47% US EQUITIES 0%
INTL EQUITIES 7% COMMODITIES 16%
FIXED INCOME 16% INTL CURRENCIES 14%

Top Long Ideas

Company Ticker Sector Duration
LVS

Las Vegas Sands has transformed into that rare stock that should appeal to “Growth,” “Value”, and “Dividend/Cash Flow” investors alike.  The stock now yields higher than the S&P 500 (43% sequential quarterly dividend increase), and the company is buying back $200 million + in stock a quarter, yet still retains a pristine balance sheet.  The significant capital deployment opportunities can be funded out of annual free cash flow of nearly $4 billion. Management has indicated they are willing to raise leverage 1.5x which would still keep them well below industry average and if directed toward dividends, would result in a yield of over 6%.  And we haven’t gotten to the $10-14 billion in mall assets that could be monetized. We know of no other stocks in consumer land that provide this combination of cash flow, growth, cash return to shareholders, and value levers.

FXB

We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.

DRI

Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.

Three for the Road

TWEET OF THE DAY

Natural Gas +36.7% YTD and Oil breaking out again - whatever you do, don't call it inflation @KeithMcCullough

QUOTE OF THE DAY

"The American heroes are the ones wearing camo". -T.J. Oshie

STAT OF THE DAY

Raising the U.S. federal minimum wage to $10.10, as President Obama and Democrats are proposing, could result in about 500,000 jobs being lost by late 2016, the non-partisan Congressional Budget Office (CBO) estimated.