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Client Talking Points

COMMODITIES

The CRB Index (19 commodities) and CRB Food index powered fresh year-to-date highs last week of +11.8% and +22.8%, respectively. Oil is higher again this morning and even Copper is trying to breakout as Gold holds @Hedgeye $1285 support.

ENERGY (XLE)

But but the SPX is up; yep, powered by Energy +2.6% to +14% year-to-date (and Utilities +2.2% to +14.5% year-to-date) last week as U.S. Consumer Discretionary (XLY) continues to eat it (-1.1% year-to-date); inflation slows real consumption growth; we continue to like long XLE + XLU; short XLY.

DUBAI

Pardon? Stock market down -6.2% this morning and has fallen -18% since June 1st. We don’t think the commodity complex has the energy side of the Middle East trade wrong; neither do the locals.

Asset Allocation

CASH 10% US EQUITIES 6%
INTL EQUITIES 12% COMMODITIES 24%
FIXED INCOME 30% INTL CURRENCIES 18%

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

U.S. GDP for Q114 should be revised to anywhere b/t down -1.5%-3%, depending on what inflation # the govt makes up

@KeithMcCullough

 

QUOTE OF THE DAY

“The privilege of a lifetime is being who you are.”

-Joseph Campbell

STAT OF THE DAY

Fance's June PMI slows again to 47.8 vs 49.6 last month.