CLIENT TALKING POINTS
SP500
It took a few weeks for overbought bubbles to deflate, but the S&P 500 dropping from its year-to-date high of 1881 to 1841 left its mark with immediate-term TRADE oversold. The SPX risk range is now 1.Trade it.
OIL
Oil broke Hedgeye TREND support of $108.57 (Brent) last week and is down another -0.7% this morning. Seems that Saint Patty himself knows that with #InflationAccelerating, U.S. consumers need a Tax Cut at the pump. This could be it. Consensus is way long on crude.
GOLD
Gold’s immediate-term TRADE overbought line is $1,385 within a big league breakout ($1,328 is now TRADE support). Up a whopping +15% year-to-date (versus the Dow, which is down -3.1%), it’s easy to sell some Gold up here and buy best ideas in U.S. stocks. At this price, my top three are Lorillard (LO), Owens Corning (OC), and T. Rowe Price Group (TROW).
TOP LONG IDEAS
OC
Construction activity remains cyclically depressed, but has likely begun the long process of recovery. A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating. Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms. As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.
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.
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.
Asset Allocation
| CASH | 42% | US EQUITIES | 8% | |
| INTL EQUITIES | 10% | COMMODITIES | 12% | |
| FIXED INCOME | 12% | INTL CURRENCIES | 16% |
THREE FOR THE ROAD
TWEET OF THE DAY
RUSSIA: +1% for the Russian Trading System, but still crashing YTD -25.7% @KeithMcCullough
QUOTE OF THE DAY
"We learn by doing." – Aristotle
STAT OF THE DAY
More than 78,600 clean energy jobs were created in 2013, according to research group Environmental Entrepreneurs. Though impressive, clean energy job creation is actually down about 30% since 2012, the group says, due to economic headwinds and policy shifts. (Fox)
