Banging Your Head Against Wall?

Client Talking Points

JAPAN

Down Dollar means Up Yen --> Up Yen means Down Nikkei (down -11.4% year-to-date). Mother’s Index got hammered for a -5.7% loss last night as the Japanese dudes get margin calls. #GrowthSlowing in Japan continues as confidence falls.

UST 10YR

The 10-year yield at 2.73% this morning after failing once again at Hedgeye TREND resistance of 2.81% on last week’s misplaced #RatesRising fears (that was last year’s call). The risk range for the 10-year is 2.62% to 2.81%. So, what do you do on down days? You keep buying bonds.

GOLD

Are you banging your head against #OldWall debating why the Dow is down -1.8% year-to-date versus just buying Gold on the pullbacks? Gold is up +0.5% to +9.3% YTD. It remains one of the best ways to be long of inflation slowing US growth. TRADE support is $1,301/oz.

Asset Allocation

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

Home Prices in the UK continue to follow the path of purchasing power +6.8% y/y FEB vs +5.5% last #StrongPound @KeithMcCullough

QUOTE OF THE DAY

"Life is the art of drawing without an eraser." - John W. Gardner

STAT OF THE DAY

Malaysia Airlines has offered initial financial assistance of $5,000 per passenger to the families of Flight 370 passengers, and promised that additional compensation was being prepared. The airline is eventually likely to pay next of kin compensation that ranges into the millions of dollars per passenger. Under an international treaty known as the Montreal Convention, the airline must pay relatives of each deceased passenger an initial sum of around $150,000 to $175,000. (CNN)


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