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Client Talking Points


Yellen’s comments to Congress on Tuesday were deemed as more Hawkish, she defended keeping interest rates low but opened the door to quicker rate hikes if the labor market strength continues. We remain on the other side of that as we see economic growth continuing to slow into Q3.


Has Portugal reached a bottom? The country is now leading Europe on the upside. Now Riforte Investments SA, a holding company in the Espiritu Santo family, missed a $1.2B payment of commercial paper yesterday. Central Bank Governor, Carlos Costa, made a statement saying shareholders of the parent company were standing ready to inject capital into the bank if need be. Without being on the ground, it seems surprising Banco Espiritu Santo’s bonds and stocks have recovered a portion of the losses today with the news of another missed payment unless a big buyer came in to support the market. The 7.125s of 2023 jumped 8.8 points to 79% of par (10.6% yield) and the shares rallied 18%. Portuguese ten-year sovereign yields are down -8 bps currently.


The VIX closed at 11.96 1 day percent change of 1.18%, our immediate term risk range is now 10.32-12.94. Volatility has been at generational lows across asset allocations and continues to tick lower, we see the risk increasing the more you push the ball under water.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

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.


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.


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


$INTC does the right thing, moves biz to net cash neutral reqmt. To repurchase $7B of stock in 2H14 & $10B more in 2015. Wow.



Hard work spotlights the character of people: some turn up their sleeves, some turn up their noses, and some don't turn up at all.

-Sam Ewing


Today in 1941, Joe DiMaggio had his 56th consecutive game with a hit - that's still a record.