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Client Talking Points

EUROPE

This is the first time both USA and Europe have slowed (in rate of change terms) at the same time since 2011. German GDP has now fallen to the annualized rate of change the USA had in 1H of 2014 (+0.8-0.9%). The DAX, CAC, and MIB index = all remain bearish TREND signals @Hedgeye.

GOLD

When U.S. rates fall, you buy Gold and usually win. Question now is whether or not Gold can breakout above our long-term TAIL signal line of $1323. For now, it’s doing its job for you in your portfolio on down USA/European Equity days = Gold +9.4% vs Russell (IWM) -2% year-to-date.

INDIA

India is still our favorite Equity market in the world as Eastern Equities continue to diverge (positively) vs Western ones – this happened in 2011 as well don’t forget. India’s wholesale inflation ticked down to 5.2% vs 5.4% last. Raising rates, Dr Raj is crushing it with BSE Sensex +25.1% 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.

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.

Three for the Road

TWEET OF THE DAY

The biggest apparel retailer in the US (sans $WMT and $TGT) misses on the same day US Gov't Retail Sales disappoint. Not a good combo. $M

@HedgeyeRetail

QUOTE OF THE DAY

Growth is never by mere chance; it is the result of forces working together.

-James Cash Penney

STAT OF THE DAY

Headline retail sales were disappointing – rising 0.0% month-over-month (missing estimates & worst since January) and decelerating on both a 1-year and 2-year basis.