For a Bounce

Client Talking Points

VOLUME

At the all-time-high (Friday), total US Equity Market volume was down -23% and -41%, respectively, versus its one- and three-month averages. I still much prefer being short growth (Russell2000) than this crowded SPX short (-114,248 net short contracts as of Friday in the CFTC non-commercial data versus the six-month average net long position of +9,810 contracts).

USD

US Dollar up (+) Rates up last week was good for anything growth, for a bounce. If we were to see USD and Rates up beyond Hedgeye TREND signals, I’d be getting ready to change my mind on the growth call – unfortunately they are not.

DAX

Big rip to higher-highs for the German stock market yesterday and this morning is seeing another positive +0.4% of follow through. Contrary to central planning ideology, European stocks need a stable/strong Euro, so we’ll see if EUR/USD can hold its long term TAIL line of $1.35 support.

Asset Allocation

CASH 23% US EQUITIES 0%
INTL EQUITIES 10% COMMODITIES 20%
FIXED INCOME 24% INTL CURRENCIES 23%

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 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

India -0.8%, S Korea -0.6%, Singapore -0.2%, Japan +0.2% @KeithMcCullough

QUOTE OF THE DAY

"The important thing is not to stop questioning." - Albert Einstein

STAT OF THE DAY

One in every four Americans is not saving for retirement at all, either because they are not thinking about it, do not really know how or, worse, do not feel they can afford to, according to a new report. (MSN)