No Volume

Client Talking Points

FUND FLOWS

As #InflationAcclerating slows US growth, confidence flows right back to slow-growth bonds – this week’s flows into Fixed was +$3.9B (versus the year-to-date weekly average of +$2.1B) whereas Equity fund outflows of -$1.0B (versus YTD average weekly inflow of +$3.1B) are starting to explain why there is no volume to chase the up days.

UST 10YR

Yields don’t seem to care much about the US equity short-covering conniption consensus tends to have on up-days for spoos. A 2.55% 10 year is another lower-high and well below our TAIL risk yield line of 2.61% resistance. Buy bonds.

OIL

Just on time for the long weekend, WTI crude is higher again at $103.85, testing year-to-date highs – whatever we do, we shouldn’t call these real-world realities inflation, because the Fed said. so. Energy (XLE) stocks still look great. Buy inflation.

Asset Allocation

CASH 28% US EQUITIES 0%
INTL EQUITIES 8% COMMODITIES 18%
FIXED INCOME 24% 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.

LM

Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.

Three for the Road

TWEET OF THE DAY

AUSTRALIA: +0.2% for the ASX to end the wk at +5.3% YTD and we continue to like that equity market @KeithMcCullough

QUOTE OF THE DAY

"If you learn from defeat, you haven't really lost." - Zig Ziglar

STAT OF THE DAY

Barclays Bank has been fined 26 million pounds ($43.8 million) by UK regulators after one of its traders was discovered attempting to fix the price of gold.  (BBC)


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