RELATIVE WEAKNESS IN EUROPE

Client Talking Points

USD

U.S. Dollar down for 2 straight weeks (and not bouncing this morning) following the Fed getting easier in terms of both its growth forecast and timing on rates; this is not a position for the faint of heart as #InflationAccelerating is already slowing U.S. consumption growth.  

UST 10YR

UST 10YR yield down another 7 basis points last week (-49bps year-to-date) to 2.53% and not bouncing this morning; Yield Spread (10yr – 2yr) compressed 8 basis points to +207 basis points wide; inflation slowing U.S. growth into Q3 remains our out-of-consensus call; bond market agrees.

EUROPE

EuroStoxx600 -1.8% last week and not seeing much of a bid into month-end today either; both the DAX and Italian MIB Index have broken our immediate-term TRADE lines of support; this relative weakness is new and noteworthy if it were to continue.

Asset Allocation

CASH 18% US EQUITIES 6%
INTL EQUITIES 15% COMMODITIES 22%
FIXED INCOME 24% 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

DUBAI: back into crash mode, -4.5% this morning (-23% since the beginning of June)

@KeithMcCullough

QUOTE OF THE DAY

“Nobody's a natural. You work hard to get good and then work to get better. It's hard to stay on top.”

-Paul Coffey

STAT OF THE DAY

$42.6 million, the amount of money Miami Heat guard Dwyane Wage would have earned over the next two years had he not opted out of his current contract.


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