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Client Talking Points

UST 10YR

The yield finally crashes after our TAIL riskline of 2.61% on the 10-year signaled the point of entropy was pending. I see nothing but backpedaling from people who are still positioned for what they should have been last year (#RatesRising). Consensus needs to come our way as inflation slows real growth.

FINANCIALS (XLF)

Back into the red for 2014 year-to-date, and they should be – Down Rates = Yield Spread Compression = Financials Down. It still looks very 2011 stagflation to me – as inflation slows growth, you get equity market multiple compression (and bond market multiple expansion).

COMMODITIES

The CRB Commodities Index is up +9.6% year-to-date versus Growth (Russell2000) down -5.9%. #timestamped. Meanwhile, if it ain’t broke, don’t change it – stay with the long inflation, short US growth program.

Asset Allocation

CASH 20% US EQUITIES 6%
INTL EQUITIES 8% COMMODITIES 22%
FIXED INCOME 22% INTL CURRENCIES 22%

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

Portugal -1.6% looking more and more like the roundtrip Greek stocks have been @KeithMcCullough

QUOTE OF THE DAY

"If opportunity doesn't knock, build a door." - Milton Berle

STAT OF THE DAY

Swiss voters go to the polls this weekend in a nationwide referendum on whether to introduce what would be the highest minimum wage anywhere in the world. If approved, employers would be obliged to pay workers a monthly minimum of 4,000 Swiss francs ($4,470) - which works out as just over $53,600 a year. (BBC)