CLIENT TALKING POINTS
RUSSIA
Will Putin retaliate to sanctions? Both Brent and WTI say probably this morning (both up +0.5%) after testing (and holding) their intermediate-term TREND lines of support. Russia’s stock market continues to crash -1% to -20.7% year-to-date.
COMMODITIES
The CRB Index finally corrected this week (-1.6% from its year-to-date highs), but there is nothing getting me off this #InflationAccelerating theme. It’s a good spot to buy basically anything here (Oil, Corn, Cows, etc).
RATES
Wow has consensus been crushed – a 10-year yield of 2.63% looks primed to test A) its year-to-date low and B) our TAIL risk line of 2.59%. Stay tuned – the slow-growth-yield-chasing asset allocation that has worked all year cares on this. Big time.
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 | 30% | US EQUITIES | 0% | |
| INTL EQUITIES | 10% | COMMODITIES | 24% | |
| FIXED INCOME | 18% | INTL CURRENCIES | 18% |
THREE FOR THE ROAD
TWEET OF THE DAY
Being long the long bond $TLT vs US growth (the Russell $IWM) has been fantastic #GrowthSlowing @KeithMcCullough
QUOTE OF THE DAY
"Any fool can fight a winning battle, but it needs character to fight a losing one, and that should inspire us." - W.B. Yeats
STAT OF THE DAY
Job creation accelerated in April as the U.S. economy added 288,000 new positions, while the unemployment rate plummeted to 6.3%. (CNBC)