Fading Yellen

Client Talking Points

USD

If you’re still staring at Q3/Q4 2013 US growth and inflation data and think everything in between was the “weather”, you’d be bullish on growth, USD, and rates here – we’re not – that was last year’s call.  Yes, USD ripped off its year-to-date lows. But, it remains well below TREND resistance of $81.14 on the US Dollar Index. Short it here.

UST 10YR

The UST 10-year yield bounced off its oversold lows from last week, and it grabbed headlines, but I wouldn’t confuse this as a change in TREND. I’d have to see a breakout above 2.81% (our TREND line) on the 10 year to stop buying bonds on corrections. Fed Chair Janet Yellen wants inflation, and she’s getting it. It slows real growth, and her forecast should get dovish again, but on a lag.

Gold

After signaling immediate-term TRADE overbought at $1,385 on Friday and the biggest net long (futures/options contracts) position in a year, yes, Gold corrected. But it didn’t break any line of support that matters in my model. At up +10.4% year-to-date, buy it if you missed the move towards +15% YTD. This is going to be your chance.

Asset Allocation

CASH 26% US EQUITIES 8%
INTL EQUITIES 9% COMMODITIES 20%
FIXED INCOME 18% INTL CURRENCIES 19%

Top Long Ideas

Company Ticker Sector Duration
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.

Three for the Road

TWEET OF THE DAY

TREASURIES: no follow through in the 10yr to yesterday's freakout on #RatesRising, 2.76% last @KeithMcCullough

QUOTE OF THE DAY

"The greatest achievement is to outperform yourself." - Denis Waitley

STAT OF THE DAY

If taxes were romantic, April 15 would make for the world's biggest singles mixer. That's because single people, including heads of household as well those who are widowed or divorced, account for the majority of federal tax filers in the United States. In 2011, they filed 61% of all returns, according to an analysis of IRS data by the Tax Foundation. Unmarried Americans who are 18 and older now comprise 44% of U.S. households, according to the latest Census data. And Americans who live alone accounted for 27% of all households in 2012, up from 17% in 1970. (CNN)