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TAX HIKE AT THE PUMP

Client Talking Points

VIX

So far so good – it’s not different this time. The VIX has never held below 10 and it stopped going down this time at 10.61 (June 18); +14.3% from there, if front month VIX can start to make a series of all-time-higher-lows, this should get interesting, faster.

OIL

WTI crude continued higher this morning, then backed off small – higher-lows and higher-highs continue to signal there’s going to be one heck of a tax hike at the pump in the summer months for U.S. consumers; bond yields agree.

UST 10YR

UST 10YR yield back down to 2.58% and the Yield Spread (10s minus 2s) continues to compress (down to 209bps wide this morning, breaking down to fresh year-to-date lows, which is an explicit #GrowthSlowing signal).

Asset Allocation

CASH 12% US EQUITIES 6%
INTL EQUITIES 15% COMMODITIES 24%
FIXED INCOME 28% INTL CURRENCIES 15%

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

I published an updated deck on $DRI yesterday - the issues will never be fixed unless the company’s vision changes.

@HedgeyeHWP  

 

QUOTE OF THE DAY

“There is far more opportunity than there is ability. “

-Thomas A. Edison

STAT OF THE DAY

On June 20th the most-traded gold option the previous day was a $1,350 August call. The contract surged more than four-fold to $8.60, from $1.80 the previous day - the biggest gain since at least November 2012. (Bloomberg)