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Client Talking Points

CHINA

China’s 48.1 PMI in March versus 48.5 February is nothing new. It’s the fifth straight month of slowing. But what remains is the equity markets speculating on a Chinese stimulus as the Shanghai Comp and Hang Seng bounced +0.9% to +1.9% on the news.

DAX

In the last week, two #GrowthSlowing data points have come out of Germany (ZEW and PMI) with a 53.8 in March versus 54.8 in February. Since all that really matters in our model is rate of change, these bearish deltas are A) new and B) impacting DAX, which has gone bearish on our immediate-term TRADE duration with 9377 resistance. Both Chinese and European PMI’s slowed sequentially in March – it wasn’t the “weather”.

OIL

With Food Inflation (CRB Food Index) up another +1.8% last week, bringing it to +18.1% year-to-date, Oil needs to deflate to offset. And it needs to deflate a lot. It’s down -0.3% this morning and both Brent and WTIC remain bearish TREND Hedgeye.

Asset Allocation

CASH 22% US EQUITIES 8%
INTL EQUITIES 10% COMMODITIES 18%
FIXED INCOME 20% INTL CURRENCIES 22%

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 (etf FXB), 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 strong underlying economic fundamentals. In follow-up BOE minutes, the asset purchase program was held flat by a vote of 9-0 and the interest rate was held unchanged by a vote of 9-0. This week the UK’s Office for Budget Responsibility updated its forecasts and sees 2014 GDP at +2.7% versus forecasts of +1.8% a year ago and +2.4% in December. It also increased the 2015 growth forecast to +2.3% from +2.2% previously. The OBR sees budget deficit at -6.6% of GDP in 2013-14 from -6.8% previously forecast, and sees debt peaking at 78.7% of GDP in 2015-16, and falling to 74.2% of GDP in 2018-2019. News out this week discussed Chancellor Osborne closing in on a deal that would see the City of London become an offshore center for trading the Chinese currency. The British Pound is holding its Bullish Formation, trading above its intermediate term TREND and long term TAIL levels of support.

Three for the Road

TWEET OF THE DAY

RUSSIA: bounces +1.3% on the RTSI, -20.2% YTD @KeithMcCullough

QUOTE OF THE DAY

"He who is not everyday conquering some fear has not learned the secret of life." - Ralph Waldo Emerson

STAT OF THE DAY

Put on auction as the only camera that made it to the moon and back, the Hasselblad 500 sold over the weekend at nearly $760,000. The camera is described by Vienna auctioneers Galerie Westlicht as part of the equipment carried by the 1971 Apollo 15 mission — and the only camera ever brought back from the moon. It says the others were left behind to make room for mineral samples. (New York Times)