Italy, Commodities and the Russell 2000

Client Talking Points

ITALY

The first major European Equity market to snap my 21,311 (MIB Index) TREND line in June is the first to roll over at lower-highs this morning – in Real-Time Alerts I haven’t signaled re-short Italy, France, and Portugal (yet) but if they fail here, that call is coming.

Commodities

Best consumption news of the last month is deflating what was our #InflationAccelerating call from JAN-JUN; CRB Index is now only +3% YTD and bearish TREND (295 resistance); only commodity I like long side right here is Gold w/ upside to $1321 resistance

Russell 2000

It’s now only -0.5% YTD so everything is fixed, right? Sell it. Consensus hedge funds shorting the lows and covering the highs is providing for quite the year of fading beta. Sell the high end of my risk range and cover the low (1115-1161); stay with the process 

Asset Allocation

CASH 54% US EQUITIES 0%
INTL EQUITIES 12% COMMODITIES 6%
FIXED INCOME 24% INTL CURRENCIES 4%

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

“ASIA: another strong session for stocks - China and India remain two that we like, long side” -- @KeithMcCullough

QUOTE OF THE DAY

Success is liking yourself, liking what you do, and liking how you do it. -- Maya Angelou

STAT OF THE DAY

65, The number of yards Cleveland Browns’ quarterback Johnny Manziel threw for in last night’s highly anticipated preseason NFL game against the Washington Redskins.


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