Client Talking Points
That's right. Janet Yellen just loves that passive Burning Buck policy. The US Dollar continued lower as she spoke yesterday, reminding America and the world that she now has completely qualitative commentary of prices/employment and really just wants to price fix rates. Not good. Longer term #inflationary. The inverse correlation between the USD and S&P 500 is now -0.75 (USD vs Gold = -0.95). In other words, pay attention.
No... the Nikkei no likey the Burning Buck. Why? Simple. Because Japan is supposed to be burning yen. Check out the Yen which is up another +0.3% versus the US Dollar and the Nikkei is down for the third straight day to -8.8% year-to-date. The global currency war is on.
So all I did yesterday was buy Euros, Pounds, and German stocks. Those who understand #StrongCurrency will have less inflation (and more consumption growth). EUR/USD is ripping a new year-to-date high this morning at $1.38.
|FIXED INCOME||12%||INTL CURRENCIES||21%|
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
TWEET OF THE DAY
Dollar Down, Rates Down is the best path to economic misery @KeithMcCullough
QUOTE OF THE DAY
"I don’t see evidence at this point in major sectors of asset-price misalignment, at least at the level that would threaten financial stability."
- Janet Yellen
STAT OF THE DAY
Freddie Mac just reported a record annual profit of $48.7 billion for 2013 powered by a strong rebound in U.S. home prices and a series of legal and accounting benefits that reversed earlier losses. Freddie will pay $10.4 billion to the U.S. Treasury after it posted an $8.6 billion Q4 profit, the ninth-straight quarter in which the company has been profitable. The bulk of those gains were due to either one-time benefits or to home-price gains that are likely to moderate.