CLIENT TALKING POINTS
USD
The world woke up this morning to new year-to-date lows for the U.S. Dollar. Monetarily or fiscally, it’s clear the U.S. has no policy to protect the purchasing power of its People. Down Dollar, Down Rates is a flat out policy to inflate asset prices, and its slowing real (inflation adjusted) growth. Not good.
GOLD
Well, Gold loves the Down Dollar, Down Rates -> Stagflation expectation. It’s up another +0.4% this morning to +14.1% year-to-date with the Dow down YTD and SP500 treading hard to stay up for the year. This is definitely not what growth investors want to see.
SECTORS
From an S&P Sector Style perspective, unless you are long Utilities (XLU), Healthcare (XLV) or Materials (XLB) - i.e., long slow-growth-inflation, and short the consumer stocks - this is not where you want the major index performance divergences tracking into Q1 end. Utilities being up +6.1% year-to-date is pretty much the same thing as being long Gold. What we’re looking at is the same playbook as Q1 of 2011.
TOP LONG IDEAS
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.
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.
Asset Allocation
| CASH | 34% | US EQUITIES | 6% | |
| INTL EQUITIES | 7% | COMMODITIES | 13% | |
| FIXED INCOME | 20% | INTL CURRENCIES | 20% |
THREE FOR THE ROAD
TWEET OF THE DAY
TREASURIES: 10yr 2.73% straight down since the jobs rpt as #InflationAccelerating slows US growth @KeithMcCullough
QUOTE OF THE DAY
"A stumbling block to the pessimist is a stepping-stone to the optimist." - Eleanor Roosevelt
STAT OF THE DAY
Cornerback Darrelle Revis and the New England Patriots have reached agreement on a one-year, $12 million deal, according to league sources. Revis still needs to pass his physical and sign his contract. Once he does, it will continue Revis' reign as the NFL's highest paid cornerback and gives the Patriots the player they needed to replace cornerback Aqib Talib, who unexpectedly bolted for the Denver Broncos late Tuesday night. (ESPN)
