SLOWING GROWTH EXPECTATIONS

Client Talking Points

UST 10YR

Yield straight back down to 2.51% this morning and remains in what we call bearish TAIL risk mode – no support to the year-to-date closing lows and from an intermediate-term perspective closer to 2.21%. Keep buying bonds and equities that look like bonds versus U.S. #ConsumerSlowing.

RUSSELL 2000

Same story as bond yields – Russell 2000 is back to down year-to-date and bearish TREND (our TREND resistance line = 1175) and this is a much purer (and profitable) hedge on U.S. domestic consumption growth than SPY.

GOLD

Bond yields down, Russell down, Gold up – call us crazy, but in our opinion this all rhymes with slowing growth expectations. For Gold to make a run for its year-to-date highs, we think we need to see a breakout above $1324 – stay tuned.

Asset Allocation

CASH 14% US EQUITIES 8%
INTL EQUITIES 10% COMMODITIES 22%
FIXED INCOME 24% INTL CURRENCIES 22%

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

Kinder Morgan Energy Partners reports Q2 distributable cash flow $561M vs. FactSet consensus $588M @HedgeyeEnergy

QUOTE OF THE DAY

You’ve got to look for tough competition. You’ve got to want to beat the best.

-Grete Waitz

STAT OF THE DAY

6, the number of years since Tiger Woods won his last major golf tournament. Woods is playing in the British Open at the Royal Liverpool Golf Club in England, which begins today. 


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