Is Bad News Good Again?

Client Talking Points

UK

One of these major economies in the West is not like the others (the one that’s had austerity and a #StrongCurrency). UK GDP accelerates again to +3.2% year-over-year in Q2 and while that might be a sequential peak (for now), it certainly beats the USA’s sub 1% 1H14 annualized number.

EUROPE

Sell the bounce. There’s nothing in it that changes our view (i.e. not one line of resistance in the DAX, CAC, MIB, etc. has been breached to the upside) – looking forward to putting European Equity shorts back on in #RealTimeAlerts as we get the signals.

UST 10YR

UST 10YR Yield hits a fresh year-to-date low this morning at 2.39% as the #YieldChasing associated with US #Q3Slowing is obvious again. The Yield Spread (10s minus 2s) is at +197bps wide – that’s a fresh year-to-date low too and why we signaled SELL in KRE (banks) again on green yesterday.

Asset Allocation

CASH 50% US EQUITIES 0%
INTL EQUITIES 12% COMMODITIES 6%
FIXED INCOME 26% INTL CURRENCIES 6%

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.

BOBE

The level of activism in the restaurant industry has never been more rampant.  In the past year alone, we’ve seen CBRL, DAVE, DRI, BJRI and BOBE attract largely uninvited attention from these investors. BOBE has a long history of mismanagement, evidenced by flawed strategic rationale, an excessively bloated cost structure and severe underperformance relative to peers.  Fortunately, its poor operating performance presents a tremendous opportunity. We believe activist investor Sandell has identified significant, largely feasible, opportunities to enhance shareholder value.  Particularly, we see tremendous upside value in selling the foods business, transitioning to an asset light model and refocusing capital allocation.

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

GOLD (our only remaining long idea in Commodities) flat at $1313 this morn = +9.2% YTD

@KeithMcCullough 

QUOTE OF THE DAY

In this world a man must either be an anvil or hammer.

- Henry W. Longfellow

STAT OF THE DAY

U.S. auto loans surge to 8-year high. Home loans tumble to 14-year low.


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