CONSENSUS STARTS TO CATCH UP

Client Talking Points

UK

No need to cut any growth expectations in the UK, provided that they continue to talk up a rate hike and let the Pound rise. CPI is lowest since 2009 at +1.5% year-over-year in May, and UK consumers like it. Home prices accelerated again to +9.9% in May (vs 8%) too (we still like UK and India’s growth profiles).

OIL

After ramping +4.3% last week both Brent and WTI have corrected a whopping 1/10th of that this morning; with U.S. rents at all-time highs and Food prices +21% year-to-date, its intellectually dishonest to not call cost of living #InflationAccelerating in the U.S. at this point of 2014.

UST 10YR

U.S. 10-Year Yield back down to 2.59% seems to agree wholeheartedly with inflation slowing U.S. consumption growth; the immediate-term risk range for the 10yr is 2.46-2.65% ahead of what we think will be a dovish Fed statement tomorrow on U.S. economic growth.

Asset Allocation

CASH 10% US EQUITIES 4%
INTL EQUITIES 12% COMMODITIES 22%
FIXED INCOME 30% 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

BOE talking rate hikes again this morning - love that @KeithMcCullough

QUOTE OF THE DAY

“The positive thinker sees the invisible, feels the intangible, and achieves the impossible.”

-Winston Churchill 

STAT OF THE DAY

29, the number of seconds it took the United States to score its first goal In the 2-1 victory over Ghana in a World Cup Match yesterday. Ghana completed 445 passes to just 283 for the Red, White and Blue. Per the official FIFA match stats, Ghana had 65 dangerous attacks to just 22 for the U.S., including 21 attempts at the goal to just eight for the U.S. side.