CLIENT TALKING POINTS
EUROPE
We shorted France yesterday in Real-Time Alerts, and European equities are down across the board this morning. The bull thesis on Europe has shifted from “Growth is accelerating” to “The ECB is easing.” The problem with easing is that a lot of large sell-side firms are projecting an ECB rate cut next week, and interest rates are already reflecting this.
CHINA
Chinese equities sold off late in the day yesterday, somewhat coincidental with Europeans returning to their trading desks. Chinese industrial profits came in at 13.5% in July, a sequential decline from the June number (+17%).
HOUSING
Interesting note regarding outstanding mortgage debt: A CFPB study shows 30% of Americans 65 or older have mortgage debt (up from 22% in 2001). Loan balances increased to $79k from $43k. In aggregate, what you have is the retirement-age class seeing a meaningful increase in both mortgage debt and the amount of outstanding debt.
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.
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. After almost a year of pushing for change at Bob Evans, activist investor Sandell Asset Management is claiming a big victory. Activist investor Sandell won at least five seats on the board of the restaurant operator and food processor, based on preliminary results from the company’s annual shareholder meeting last week. This is precisely the sort of bullish catalyst that was central to our high conviction on BOBE.
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 | 56% | US EQUITIES | 0% | |
| INTL EQUITIES | 12% | COMMODITIES | 4% | |
| FIXED INCOME | 24% | INTL CURRENCIES | 4% |
THREE FOR THE ROAD
TWEET OF THE DAY
New Test May Detect Organic Food Fraud: Is Your Produce Really Organic?: "nuclear magnetic resonance spectroscopy" http://www.scienceworldreport.com/articles/16845/20140827/new-test-detect-organic-food-fraud-produce-really.htm …
@HedgeyeHWP
QUOTE OF THE DAY
You can never cross the ocean until you have the courage to lose sight of the shore.
-Christopher Columbus
STAT OF THE DAY
France is experiencing a 16-year low in housing starts.
