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Client Talking Points

VIX

Front-month volatility continues to signal a series of higher-lows in our model and actually closed back above Hedgeye TREND support of 14.71 yesterday. Add that to a wicked wide II Bull Bear Spread this morning (Bulls up +3,770 basis points over Bears). People, we have officially entered the land of serious complacency for US Equities.

JAPAN

Unlike US Equities, Japanese stocks are already getting totally smoked in 2014. The Nikkei was down another -2.6% overnight to essentially 9.0% year-to-date as the Yen strengthens versus America’s Burning Buck, which is at YTD lows. The rate of change in Japanese growth should slow well into Q314. This going to get interesting. Fast.

RUSSIA

The Russian Ruble crashing was the leading indicator for the subsequent crashing of the Russian stock market. It's down another -1.6% this morning to -22.6% year-to-date. Since October it's dropped -26.7%. Nice Olympic bump, right? Sorry Vlad.

Asset Allocation

CASH 27% US EQUITIES 6%
INTL EQUITIES 8% COMMODITIES 14%
FIXED INCOME 25% 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

The purchasing power and currency of The People are inseparable #USDollar @KeithMcCullough

QUOTE OF THE DAY

"Any fool can criticize, condemn and complain and most fools do." - Benjamin Franklin

STAT OF THE DAY

"Veronica Mars" shattered crowdfunding records last year; this weekend we'll find out if that translates to box office success. A Kickstarter campaign last spring raised $5.7 million to bring the cult TV hit to the big screen. With backing from 91,585 fans, the film received more contributions than any other project in the crowdfunding platform's history. It is currently the third highest-funded Kickstarter project ever. (CNN