Client Talking Points
The Shanghai Composite tried to go positive last week for the year-to-date. What happened? It got slammed -1.8% overnight (down -1.9% YTD). Ex-ramping credit (which isn’t the answer to their problems), the Chinese data is just terrible. Guess what? That matters to global growth consensus remaining too high.
Last year, we were the bulls on US #GrowthAccelerating. This year? We’re sticking with inflation’s ramp. Check out commodities with the CRB Index up another +2.8% to +7.8% YTD last week (compared to S&P 500 -0.1% to -0.7% YTD). That's a big deal that consensus is still missing. With Mario Draghi saying there is no “deflation” risk, that’s good for the Euro (bad for USD), and good for commodities. Got correlation?
Gold is up another +0.7% to +10.9% year-to-date this morning as A) 10-year yields remain bearish TREND @Hedgeye and B) US Dollar remains under pressure ahead of both Janet Yellen’s regime and Obama’s 2015 budget (#Spending). Gold loves inflation slowing growth (and Team Canada Hockey). Couldn't resist.
|FIXED INCOME||14%||INTL CURRENCIES||16%|
Top Long Ideas
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.
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.
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
QUOTE OF THE DAY
"What a man can be, he must be." - Abraham Maslow
STAT OF THE DAY
The G20 has pledged to install policies that will add $2 trillion to the world economy over the next five years. The world's 19 richest nations and the European Union -- said the reforms aim to lift collective GDP by more than 2%. (CNN)