CLIENT TALKING POINTS
UST 10YR
The yield faded fast on yesterday’s no-volume US equity squeeze (total US Equity market volume down -29% versus its three-month average) and has ticked down again this morning to 2.50% (down -20 basis points month-over-month) ahead of the 2014 US GDP consensus forecasts that need to come down. Stay long bonds.
US STOCK SENTIMENT
Forcing consensus to cover/chase, the II Bull/Bear Spread is now re-testing five-year highs (to the bullish side) at +4,100 basis points wide (58.3% Bulls, 17.3% Bears). That and front month VIX with an 11-handle on it is not the all systems go chase-high signal. Sell/short IWM and KRE.
SWITZERLAND
As the Swiss Franc ripped, so did Swiss Exports and GDP (Swiss exports and GDP up +2% year-over-year in Q1 – but what about the weather?). It’s a good thing Keynesian policy makers begging for weak currencies aren’t held accountable to data like this or the UK’s.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 21% | US EQUITIES | 0% | |
| INTL EQUITIES | 10% | COMMODITIES | 22% | |
| FIXED INCOME | 24% | INTL CURRENCIES | 23% |
THREE FOR THE ROAD
TWEET OF THE DAY
COMMODITIES: correction day (yesterday) sees no follow through selling this morning @KeithMcCullough
QUOTE OF THE DAY
"Being challenged in life is inevitable, being defeated is optional." - Roger Crawford
STAT OF THE DAY
40 and 10, the number of points and assists, respectively, from Oklahoma City Thunder basketball star Russell Westbrook last night in his team’s 105-92 victory over the San Antonio Spurs in the NBA’s Western Conference Final. That best-of-seven series is now tied at two games apiece.
