Be Careful

Client Talking Points

EURO

The Euro is ripping versus the US Dollar. Both US fiscal and monetary policy dovish versus ECB President Mario Draghi who is starting to understand that a #StrongEuro means Consumption Tax Cut. That is driving stronger European growth. Risk range is signaling a higher-high of $1.39 now. #EuroBulls

GOLD

That shiny, yellow metal called Gold loves it when inflation slows real US growth. At +12.1% year-to-date, Gold is beating the inflating CRB Index which is currently up +10.1% YTD. #InflationAccelerating in the USA is crystal clear now.

INDIA

Dr Raj (who raised rates to fight inflation) gets it big time. And now, India’s stock market is starting to get it too. It has risen +1.9% overnight to lead what was a wet Kleenex session for anything China. Sensex is up +3.7% year-to-date and is on Hedgeye’s bullish TREND list.

Asset Allocation

CASH 27% US EQUITIES 3%
INTL EQUITIES 10% COMMODITIES 18%
FIXED INCOME 22% 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

COMMODITIES: continue to rip humanity a new one, +10% CRB Index YTD #InflationAccelerating @KeithMcCullough

QUOTE OF THE DAY

"To conquer fear is the beginning of wisdom." - Bertrand Russell

STAT OF THE DAY

Boeing has frozen defined-benefit pensions for 68,000 employees, including management and executives. From January 2016, the funds paid out by new Boeing pensions will be market-dependent. The switch affects non-unionised employees and follows a pension deal struck with unions in January. Boeing said the move would curb the "unsustainable growth" of its long-term pension liability. (BBC)