Client Talking Points
Argentina, Brazil and Chile equities were all down another -1.2% to -1.6% yesterday, taking the MSCI Emerging Markets Latin America Index to -10% year-to-date. Meanwhile, food and energy inflation rages higher in the face of these countries seeing Keynesian currency declines. No, this is not good news for companies like Procter & Gamble, Coca-Cola, etc.
Gold loves the stagflation trend that’s manifesting. It always has. It’s up another +0.5% to +12% year-to-date this morning (versus the Dow which is down -0.4% YTD) after holding support on what was barely a correction. Needless to say, #InflationAccelerating remains Hedeye’s Top Q114 Macro Theme.
The UST 10-year yield of 2.79% hasn’t budged in the last 24 hours. This remains one of the most important live quotes on my risk management screen. Now it just needs to verify lower-highs beneath Hedeye’s 2.81% TREND line to confirm our U.S. #GrowthSlowing theme. We're watching this closely.
|FIXED INCOME||24%||INTL CURRENCIES||20%|
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
"To produce we must be able to make endless mistakes." - Lesley Garner
STAT OF THE DAY
Colorado made about $2 million in marijuana taxes in January, state revenue officials reported Monday in the world’s first accounting of the recreational pot business. The tax total reported by the state Revenue Department indicates that $14.02 million worth of recreational pot was sold. The state collected about $2.01 million in taxes. (Washington Post)