Yellen’s Fictional Depiction of Inflation

Client Talking Points

AUSTRALIA

#StrongCurrency setup developing here – and, similar to the UK’s #StrongPound setup. I like it. Aussie Equities led gainers in the East overnight (up +0.8% to +4.2% year-to-date) after another solid 5.8% unemployment rate repeat for April.

RUSSIA

Three-day mean reversion bounce to sell into in Russian Equities – best way to do that is through the RSX, unless you want to fade Putin locally (still one of the nastiest Equity markets on my risk management screen). Good hedge against long Oil. 

UST 10YR

The yield bounces 3 beeps this time #hooray. There’s a series of lower-highs developing as Yellen preps the runway for oncoming dovish commentary at the June meeting. That’s Dollar bearish and bullish for all your inflation and/or slow-growth-yield-chasing longs (Utilities XLU up another +1.7% yesterday to +14.2% YTD!). Likewise, Yellen’s fictional depiction of inflation is entertaining – at least she’s on the #HousingSlowdown call now.

Asset Allocation

CASH 26% US EQUITIES 2%
INTL EQUITIES 8% COMMODITIES 24%
FIXED INCOME 22% INTL CURRENCIES 18%

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

TURKEY: up another +1.2% to +13.5% YTD as some EM's love the smell of USA's Burning Buck @KeithMcCullough

QUOTE OF THE DAY

"When you come to a fork in the road, take it." - Yogi Berra

STAT OF THE DAY

Barclays has announced it will cut 19,000 jobs by 2016, with about half to go in the UK. Barclays' investment bank has been hit by a slowdown in the demand for government and company debt. (BBC)


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