Client Talking Points
Get the US Dollar right (i.e. get the Yen/USD right) and you’re getting the Nikkei right – with the USD smoked to a fresh year-to-date low yesterday, it was no surprise to see Japanese stocks rocked for a -2.9% Nikkei loss overnight = down -13.2% YTD.
The yield bounced (2 beeps) then failed to 2.58%, so the TAIL risk (to the downside for both yields and consensus growth expectations) remains on. Yesterday’s Core Logic (US Housing) price decline (2nd derive) was flat out nasty – both US #ConsumerSlowing and #HousingSlowdown are currently in our Top 3 Macro Themes.
This isn’t the SP500. This is growth expectations slowing, faster – RUT is down -8.3% from its all-time-bubble-high and the high multiple stocks are down a lot more than that. Our risk management playbook says when A) inflation accelerates and B) growth slows, you get equity multiple compression (bond multiple expansion).
|FIXED INCOME||20%||INTL CURRENCIES||20%|
Top Long Ideas
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.
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.
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
2 most bearish TREND risk S&P Sectors in our model = Consumer $XLY and Financials $XLF @KeithMcCullough
QUOTE OF THE DAY
"Today I will do what others won't, so tomorrow I can accomplish what others can't." - Jerry Rice
STAT OF THE DAY
Most of the people choosing health plans under the Affordable Care Act — about 80% — are paying their initial premiums as required for coverage to take effect. But the health insurance industry said the total of eight million people who signed up included “many duplicate enrollments” for consumers who tried to enroll more than once because of problems on the website. (New York Times)