CLIENT TALKING POINTS
EUROPE
We learn a lot more from bounces within bearish TRENDs @Hedgeye than from the selloffs. The weakest (Portugal and Greece) are leading today’s bounce +1.1-1.2%, but are well below every line of resistance that matters.
COPPER
Interesting breakdown in Copper given that Chinese and Hong Kong listed stocks acted well on the Chinese data (Hang Seng up another +0.8% to +10.1% year-to-date). The TREND line for Copper is $3.15, and we’re looking at $3.12 last after lots of shorts covered (there’s a net long position now of 7,439 CFTC futures/options contracts vs the 6 month average net short position of -10,000 contracts.
UST 10YR
The UST 10YR bounced to 2.47% - hooray – now you can buy more long term Treasuries as the risk range continues to signal a series of lower-highs and lower-lows (for yields) for the best looking bullish TREND @Hedgeye (long the Long Bond).
TOP LONG IDEAS
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.
TLT
Fixed income continues to be our favorite asset class, so it should come as no surprise to see us rotate into the Shares 20+ Year Treasury Bond Fund (TLT) on the long side. In conjunction with our #Q3Slowing macro theme, we think the slope of domestic economic growth is poised to roll over here in the third quarter. In the context of what may be flat-to-decelerating reported inflation, we think the performance divergence between Treasuries, stocks and commodities may actually be set to widen over the next two to three months. This view remains counter to consensus expectations, which is additive to our already-high conviction level in this position. Fade consensus on bonds – especially as growth slows. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove.
Asset Allocation
| CASH | 46% | US EQUITIES | 0% | |
| INTL EQUITIES | 12% | COMMODITIES | 6% | |
| FIXED INCOME | 28% | INTL CURRENCIES | 8% |
THREE FOR THE ROAD
TWEET OF THE DAY
RUSSIA: +0.9% on the bounce (+4.5% from the AUG low), but still bearish TREND -13.2% YTD
@KeithMcCullough
QUOTE OF THE DAY
Life has many ways of testing a person’s will, either by having nothing happen at all or by having everything happen all at once.
-Paulo Coelho
STAT OF THE DAY
People in Germany work just under 1,400 hours a year, compared with nearly 1,800 in the U.S.