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    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

Client Talking Points

JAPAN

Taiwan and the Nikkei led Asian losers overnight in what was an uncharacteristically weak relative session, but if the Nikkei can hold 15,062 TREND support we may be looking at a bearish to bullish TREND reversal in the making – stay tuned.

VIX

The front-month VIX corrected from overbought highs last week, but didn’t A) didn’t break 11.94 TREND support and B) has a wicked wide immediate-term risk range now of 13.84-17.82 (usually means more volatility pending).

GOLD

Gold is up +0.3% to $1291 and while it held $1271 TREND support, we don’t like how it or the commodity complex (CRB Index) acts as of late – could be QUAD 4 in our model (Inflation and Growth Slowing).

Asset Allocation

CASH 36% US EQUITIES 4%
INTL EQUITIES 16% COMMODITIES 8%
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

RUSSIA: leads losers (again) -1.1% to new 2mth lows, -13.8% YTD

@KeithMcCullough

QUOTE OF THE DAY

The quality of an individual is reflected in the standards they set for themselves.

-Ray Kroc

STAT OF THE DAY

Toyota Motor Corp. surprised with record profits as U.S. SUV Sales surged, net income in the April-to-June period rose to 587.8 billion yen ($5.7 billion).