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Client Talking Points

EUROPE

There is no “Candy Crush” in the Denmark index (up +1.3% this morning to +14.6% year-to-date). European stocks are having an outstanding week relative to the USA social media bubble. Just look at the DAX which is up +1% and back above its TREND line of 9377. Italy continues to rip, too. It’s up +1.2% this morning at +13% YTD.

COMMODITIES

As the 50-day moving monkeys freak out about Gold (up +7.8% year-to-date versus the Dow down -1.8%), the CRB Index (19 commodities) closed up another +0.9% yesterday to +8.5% YTD. It’s all very #InflationAccelerating.

UST 10YR

The 2.69% yield agrees with us that inflation slows US growth. While Gold may have some short-term mean reversion issues (after being up +15% year-to-date a few weeks ago) being long #GrowthSlowing in long-bond terms has been great this week. The 10-year TREND resistance of 2.81% is firmly intact. Incidentally, the SPX risk range is 1842 – 1878.

Asset Allocation

CASH 20% US EQUITIES 10%
INTL EQUITIES 12% COMMODITIES 18%
FIXED INCOME 20% INTL CURRENCIES 20%

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.

Three for the Road

TWEET OF THE DAY

Utilities $XLU +7.9% remains the best sector as inflation slows growth and forces yield chasing @KeithMcCullough

QUOTE OF THE DAY

"Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man."  –  Ronald Reagan

STAT OF THE DAY

Foreign buyers are snapping up homes in London , distorting prices and forcing policymakers to levy new taxes in an attempt to control the market. Nearly 70% of newly built properties in prime areas of central London were bought by foreign nationals between 2011 and 2013, according to realtor Knight Frank. (CNN)