Bubble Bursting (Don’t Say We Didn’t Warn You)

Client Talking Points

Bubbles

Who’s been warning you about market froth and social media bubbles? Exactly. Current corrections from all-time-bubble-highs right now:  Nasdaq -7.0%, Russell -6.7%, $SPX -3.0%. We are still banging the non-consensus bubble warning drum hard and advising our customers to short highflyers like YELP and TWTR and to buy Gold, buy Utilities. Risk happens fast—be prepared. Our Asset Allocation Model remains: Cash 34%, FX 22%, Bonds 20%, Commodities 16%, Intl Stocks 8%, US Stocks 0%.

$JPM

Our Financials co-sector head Josh Steiner is one of the best in the game. His takeaway on JPM this morning > The good: A clean quarter - the first in a long, long time. The bad: They missed on top and bottom line. Total Revs down 15% year-over-year in line with their guidance but there are big pockets of weakness with FICC trading down 21%.

Asset Allocation

CASH 34% US EQUITIES 0%
INTL EQUITIES 8% COMMODITIES 16%
FIXED INCOME 20% INTL CURRENCIES 22%

Top Long Ideas

Company Ticker Sector Duration
HOLX

Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration.  The first survey tool measures 3-D Mammography placements every month.  Recently we have detected acceleration in month over month placements.  When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner.  With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds.  Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.

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

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QUOTE OF THE DAY

"Life is really simple, but we insist on making it complicated." – Confucius

STAT OF THE DAY

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