Sell Baby, Sell

Client Talking Points

RUSSIA

The bear is back in Russia. That one day bounce for Vladimir Putin’s stock market? It has ended. Abruptly. That puts the Russian Trading System down -1.6% this morning to -19.5% year-to-date. Policies have consequences.

UST 10YR

Both the US currency and bond markets are baking in US #GrowthSlowing. The 10-year yield of 2.70% this morning is A) bearish versus our Hedgeye TREND resistance of 2.80% and B) has an immediate-term downside to 2.59%. What does this mean? Buy bonds.

FINANCIALS

If you agree with our macro call (inflation slowing US growth), then you sell Financials (XLF) on the open. Any downside pressure on bond yields from here on out pressures the Yield Spread, (10s minus 2s) which is signaling lower-highs. Incidentally, despite another US #GrowthSlowing data point yesterday (ISM non-manufacturing), we’re still at all-time highs on the S&P 500. #Sell.

Asset Allocation

CASH 31% US EQUITIES 3%
INTL EQUITIES 10% COMMODITIES 16%
FIXED INCOME 20% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
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.

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.

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

FX: Euro and Pound continue to signal solid vs Burning Buck @KeithMcCullough

QUOTE OF THE DAY

“An intellectual is someone whose mind watches itself.” - Albert Camus

STAT OF THE DAY

Wal-Mart just announced price cuts on the Samsung Galaxy S4, as well as Apple's 16-gigabyte iPhone 5s and 5c, for customers signing two-year contracts with AT&T and Verizon. A Galaxy S4 is now $49, down from $99. The 16-gigabyte 5s is dropping from $145 to $119, while the 5c is now $29, down from $45. In addition, customers who purchase any Samsung phone with a two-year contract between March 9 and March 22 will receive a free $50 Wal-Mart gift card. The move will fuel speculation Apple is planning a new iPhone release this spring, rather than its usual fall launch. (CNN)


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