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Client Talking Points

DAX

The DAX is down another -0.8% this morning, making the correction -10.5% since it topped on July 3rd (the Russell 2000 topped July 7th, and is -7.4% since); with no Draghi drugs, we don’t see the catalyst for a bounce that gets back above TREND resistance.

GOLD

Gold is up +0.3% to +9.6% year-to-date. It  is beating every major U.S. Equity Index year-to-date and making another bid to breakout above my long-term TAIL line of $1323 – watching this one closely; consensus is a lot longer of Gold than it was 8 months ago.

UST 10YR

UST 10YR yield is slamming into an oversold signal down at 2.36% this morning, so you can sell some l-term bonds, but there’s absolutely no reason to change the Long Bond as our best macro long idea in 2014 (TLT +15% year-to-date).

Asset Allocation

CASH 46% US EQUITIES 0%
INTL EQUITIES 12% COMMODITIES 6%
FIXED INCOME 28% INTL CURRENCIES 8%

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

Long Bond, in $TLT terms, moving towards +15% YTD - huge relative and absolute move #GrowthSlowing

@KeithMcCullough

QUOTE OF THE DAY

When everything seems to be going against you, remember that the airplane takes off against the wind, not with it.

-Henry Ford

STAT OF THE DAY

66, world number one golfer Rory McIlroy’s score in the first round of the PGA Championship, which puts him one shot behind the leaders entering today’s second round.