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Client Talking Points

JAPAN

Japan released a horrendous Household Spending report of -5.9% year-over-year in JUL (vs -3% JUN) and Housing Starts in Japan tanked -14.1% in JUL too – this is what happens when you print inflation but don’t get real consumption. But anyone who has studied monetary policy history already knows that. 

RUSSELL 2000

It’s been a tight race between the Nikkei (-4.4%) and U.S. growth expectations (Russell 2000) all year, and now the Russell is right back to breakeven at 1165. After the no-volume ramp into month-end, what’s next in SEP? We say sell, but you already know that too!

UST 10YR

UST 10YR Yield of 2.34% drives our Best Macro Idea (TLT) to +17.2% for 2014 (that’s pre dividends) and we still can’t understand why consensus doesn’t get the rate of return on slow-growth vs Russell 2000. Watching too much TV, perhaps.

Asset Allocation

CASH 60% US EQUITIES 0%
INTL EQUITIES 12% COMMODITIES 2%
FIXED INCOME 22% 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. 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.

Three for the Road

TWEET OF THE DAY

RUSSIA: Ruble on its knees and the Russian Trading System is down -0.6% to -12.8% YTD

@KeithMcCullough

QUOTE OF THE DAY

I prefer to be true to myself, even at the hazard of incurring the ridicule of others, rather than to be false, and to incur my own abhorrence.

-Frederick Douglass

STAT OF THE DAY

Cattle and Coffee prices both up over +1% yesterday to +15% and +76% year-to-date, respectively.