Stick With Inflation Slowing Growth

Client Talking Points

JAPAN

The Yen (up +2.8% year-to-date versus the US Dollar) is not selling off this morning because the US Dollar continues to make a series of lower-highs. It’s easy to be bearish on the Nikkei if you are bearish on USD – Nikkei is down -10.3% YTD with no support to 13,808.

FOOD

The CRB Food Index was up another +2.7% last week to +21.6% year-to-date (Soybeans were up +3.8% last week to +18.8% and Coffee is up another +0.3% to +77.3%, etc.). It’s a major tax on US #ConsumerSlowing – stay with the inflation slows consumption growth theme.

UST 10YR

The 10-year yield is down 2 basis points to start the week, so the bond market continues to agree with our slowing growth call. At 2.70% (and no support to 2.59%), the 10 year is down -33 basis points year-to-date and is frustrating bond bears.

Asset Allocation

CASH 37% US EQUITIES 0%
INTL EQUITIES 8% COMMODITIES 15%
FIXED INCOME 20% INTL CURRENCIES 20%

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

FX: #StrongPound punches $1.68 vs USD as Carney teaches Yellen a lesson @KeithMcCullough

QUOTE OF THE DAY

"Ability can take you to the top, but it takes character to keep you there." - Zig Ziglar

STAT OF THE DAY

Nearly 36,000 people 9,000 more than usual — are expected to run in the 118th Boston Marathon today, a year after two bombs exploded at the finish line, killing three people and injuring many more. The runners range in age from 18 to 83. Some were among the 5,600 runners who were unable to cross the finish line last year after the explosions had stopped the race. (New York Times)


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