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Client Talking Points

KOSPI

The Korea Composite Stock Price Index broke our intermediate-term TREND line of 1983 support (it closed down -0.23% overnight at 1964) – see our macro analyst Darius Dale’s bearish research note yesterday on South Korea heading into what we call “quad 3” in our GIP model (stagflation).

UK

UK continues its playbook follow through as tighter monetary policy = stronger currency = stronger purchasing power, home price appreciation, confidence, etc… and UK GDP ramps to +3.1% year-over-year in Q1 (double the USA which you’ll get tomorrow – oh, the UK had “weather” too). $1.68 GBP/USD last continues to look great.

VOLUME

Our reading of total US equity market volume weakened (down -7% and -20% versus the one-month and three-month volume averages, respectively) on yesterday’s +0.3% SPX bounce. Both the Nasdaq and Russell were down on the day (-6.5% to -7.5%, respectively) from their bubble highs. Tread carefully out there.

Asset Allocation

CASH 30% US EQUITIES 0%
INTL EQUITIES 10% COMMODITIES 20%
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

COMMODITIES: Corn and Oil up another +0.5-6% this morning #InflationAccelerating @KeithMcCullough

QUOTE OF THE DAY

"Your assumptions are your windows on the world.  Scrub them off every once in a while, or the light won't come in." - Isaac Asimov

STAT OF THE DAY

Shares of Facebook have slumped 10% since the company released a widely celebrated first-quarter earnings report a week ago. (MarketWatch)