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Client Talking Points

JAPAN

Nikkei bounces a whopping +0.6% after moving to oversold at -14% year-to-date. Here’s a piece of trivia: If you are -14% in a drawdown, you need to be up +16.3% from the lows to get back to break-even. #Unlikely for the new Japanese stock bulls with Yen strong versus the US Dollar.

GERMANY

A big whiff on the German ZEW at 43.2 for April (versus 46.6 in March) is just one of a string of less than good German economic data in the last month. The DAX is trading back below Hedgeye TREND resistance of 9391 now, too (we don’t have any European longs currently in #RTA). The rate of change in German #GrowthAccelerating is starting to slow – alongside United States and Japan. Add it to the list.

UST 10YR

A 2.65% 10-year yield continues to signal the nasty – if 2.57% TAIL risk support snaps, watch out below. There are a lot of people who are still long US #GrowthAccelerating in the back half of 2014 – we think the consumer slows well into the third quarter (tough comps).

Asset Allocation

CASH 40% US EQUITIES 0%
INTL EQUITIES 6% COMMODITIES 18%
FIXED INCOME 18% INTL CURRENCIES 18%

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

After yesterday's no volume bounce, the Nasdaq and Russell are still -7.7% from their YTD highs $IWM @KeithMcCullough

QUOTE OF THE DAY

"Education is what remains after one has forgotten what one has learned in school." - Albert Einstein

STAT OF THE DAY

The UK inflation rate as measured by the Consumer Prices Index (CPI) fell to 1.6% in March from 1.7% in February, according to the Office for National Statistics (ONS). It is the third consecutive month inflation has been below the Bank of England's 2% target rate, and the lowest rate since October 2009. (BBC)