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Client Talking Points

CAN$

It’s Canada Day! And the Loonie is starting to breakout vs Burning Bucks ($1.08 USD/CAN is the TREND breakout line). Being long #InflationAccelerating via the Canadian Stock Market (TSX +12.9% year-to-date) beats being long U.S. growth too.  

OIL

WTI kicks off Q3 with another +0.4% bounce to $105.77/barrel; no immediate-term TRADE resistance to $106.94, then a lot higher if the U.S. Dollar continues to break down. Big U.S. #ConsumerTax remains intact as real wages in the US go negative for the 1st time in 2 years.

GERMANY

DAX trying to bounce this morning after a soggy end to Q2, but the 2nd derivative of the German economy data is starting to slow (PMI 52.0 JUN vs 52.4 MAY) as the DAX falls below its immediate-term TRADE line of 9902 – something new to monitor.

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

TREASURIES: 2.55% 10yr Yield continues to confound consensus growth bulls

@KeithMcCullough

QUOTE OF THE DAY

“He who will not economize will have to agonize.”

-Confucius

STAT OF THE DAY

75% of U.S. businesses make under $100K in annual revenue.