EUROPE SLOWING TOO?

Client Talking Points

EURO

Is the U.S. Dollar strengthening because the U.S. economy is, or is it signaling immediate-term TRADE overbought versus the EURO because Europe is slowing now too? We’ll take the latter – because the early cycle growth components of everything from the Russell 2000, Housing, and UST 10YR Yield are.

GERMANY

We see bearish @Hedgeye TREND signals across European Equities  - and while the DAX is down the least (compared to Portugal -1.6%, Spain -1.3%, Italy -1.1%) this morning, at -0.7% to 9523, it’s well below our 9788 TREND resistance line.

UST 10YR

Newsflash: One up-day to lower-highs within a bearish TREND for U.S. 10yr yields doesn’t a new bear market in the long bond make. 2.54% 10yr yield within a 2.44-2.56% immediate-term risk range. We reiterate our #Q3Slowing USA theme this morning.

Asset Allocation

CASH 32% US EQUITIES 4%
INTL EQUITIES 16% COMMODITIES 12%
FIXED INCOME 26% INTL CURRENCIES 10%

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

Former CEO of PepsiCo Americas Foods, Brian Cornell, is named as new CEO and chairman of the board of Target.

@HedgeyeStaples

QUOTE OF THE DAY

Creativity comes from trust. Trust your instincts. And never hope more than you work.

-Rita Mae Brown

STAT OF THE DAY

Another solid session for Chinese stocks, Shanghai Composite up +0.9% to +7.2% year-to-date.


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