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Dollar Ugly

Client Talking Points

RUSSIA

Post the bond auction failing this week, risk is getting real in Russia – faster. The CDS is ticking up to +282 (greater than 300 is what we call the “Lehman Line”) as the Russian stock market continues to crash (down -1.5% to -22% year-to-date). We’re keeping a close eye on these developments.

USD

It’s just plain ugly and, for American cost of living, this is getting worse. Faster too. The CRB Commodities Index is holding on to its year-to-date highs at +11.5%  as American rents rip and the Fed continues to print/devalue ($4.3 trillion Fed balance sheet, up another +$12.4 billion week-over-week).

UST 10yr

While US equity market centric investors might be confused by the no-volume bounce to lower highs into month end, the bond market gets that #InflationAccelerating is slowing real consumption growth. The 10-year is at 2.67% this morning and falling.

Asset Allocation

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

Another fantastic UK #GrowthAccelerating data pt w/ #StrongPound - Retail Sales for MAR +4.2% y/y @KeithMcCullough

QUOTE OF THE DAY

“We can't change the course of events, but we can attempt to protect capital in the face of foreseeable risks.” – David Einhorn

STAT OF THE DAY

Tokyo’s consumer prices rose 2.7 percent in April from a year earlier, the biggest jump since 1992, pumped up by a sales-tax increase and a year of unprecedented stimulus from the Bank of Japan. Inflation excluding fresh food accelerated from 1 percent in the previous month, while nationally the same price gauge rose 1.3 percent in March from a year earlier, statistics bureau data showed. (Bloomberg)