CLIENT TALKING POINTS
USD
Burn baby burn. US Dollar Index continues to front-run (as rates do) what I think will be a more dovish Fed (on the margin versus tapering) come summer time. Inflation slows growth, and the Fed gets easier (i.e. devalues Dollars) when growth slows – consumer stocks (XLY) are down -6% versus slow-growth-yield-chasing Utilities (XLU) up +12% year-to-date.
OIL
Now the only thing US consumer bulls ping me on (oil not going up) is going up. Both Brent and WTIC (up +1% and +0.7%, respectively, this morning) are confirming bearish to bullish Hedgeye TREND reversals. Love those…but the consumer doesn’t. Inflation is an unlegislated tax that will continue to matter to the 80% of America getting crushed by it (see our Q2 Macro Themes slide deck for details).
UST 10YR
The 10-year yield at 2.64% is down a beep in the last 24 hours (i.e. they might have bounced the Nasdaq and Russell off two-month lows on no-volume yesterday), but that didn’t change what the FX, Bond, and US Equity markets are pricing in – slower growth sequentially into Q314.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 40% | US EQUITIES | 0% | |
| INTL EQUITIES | 6% | COMMODITIES | 18% | |
| FIXED INCOME | 18% | INTL CURRENCIES | 18% |
THREE FOR THE ROAD
TWEET OF THE DAY
EUROPE: 2014 YTD leaders leading this morning's rally - Italy +2% (+12% YTD), Denmark +1.3% (+12% YTD) @KeithMcCullough
QUOTE OF THE DAY
"Do not look where you fell, but where you slipped." - African Proverb
STAT OF THE DAY
President Barack Obama plans to announce an expansion of job-training and apprenticeship programs with a $600 million effort intended to equip workers with the skills sought by employers. The first initiative is a $500 million competitive grant program for community colleges linked with businesses to create programs to teach the specific skills needed for open jobs. (Bloomberg)
