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Client Talking Points

EURO

An (allegedly) big macro move yesterday (that didn’t actually occur) on the “big” ECB move. People thought the euro would go down, instead it went up. People thought bonds would go down, instead they went up. People thought gold would go down, instead it went up. If the euro holds our long-term tail line of support of $1.35 versus the dollar, you want to buy it. Long euros here, short the Dollar ahead of what we think is next downside catalyst for USD which is upcoming Fed meeting.

10-YR UST

Simply put, this morning’s U.S. jobs report does not provide nearly enough economic cowbell. The jobs picture is not improving at an accelerating rate. Sorry. Bond yields have the story right. Yes – we reiterate being  bullish on bonds following this morning’s lackluster report. There’s no support really to 2.41%.

RUSSELL 2000

We didn’t put out the signal yesterday to re-short the Russell 2000—yet. As you know, we have not been short the S&P 500 from a signal perspective, but if the RUT is up today, in light of the jobs report, we will likely be sending out a sell signal. On an overbought signal, coupled with the jobs number, it’s a relatively easy spot to sell it. No support for the Russell to 1108; after that, no support to 1098.

Asset Allocation

CASH 14% US EQUITIES 0%
INTL EQUITIES 12% COMMODITIES 26%
FIXED INCOME 26% 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

Probability of the US unemployment rate going 2% higher instead of lower (from here) = high @KeithMcCullough

QUOTE OF THE DAY

"Change your thinking, change your life." - Ernest Holmes

STAT OF THE DAY

The U.S. added 217,000 jobs in May, while the unemployment rate remains at 6.3%. (New York Times)