Client Talking Points
EPI (WisdomTree India Earnings Fund) remains one of our top long ideas. India’s new “management team”, led by RBI Governor Dr. Rajan and Prime Minster Modi, is implementing the kinds of policies needed to structurally elevate India’s growth potential (TREND and TAIL durations.)
We continue to think the shaky foundation on which the Chinese economy currently resides will force officials to ease monetary and fiscal policy, at the margins. This should be supportive of industries tethered to China’s fixed asset investment bubble (TREND duration).
Purchase demand declined for a third week, holding below the 170 level for a 6th consecutive week, that is the longest such soft streak since August 1995. The Composite index gained 1.4% week-over-week, buttressed fully by refi activity, which was higher by 2.7%, while Purchase activity declined -0.4%.
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Top Long Ideas
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.
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.
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
GMO labeling measure makes Colorado’s November ballot http://wapo.st/1BCPf9F via @washingtonpost $HAIN $WWAV $BDBD $BNNY
QUOTE OF THE DAY
Really great people make you feel that you, too, can become great.
-Mark Twain quotes
STAT OF THE DAY
Wal-Mart said it will sell the iPhone 5c for 97 cents and the 5s for $79, down from their regular prices of $99 and $199, respectively.