CLIENT TALKING POINTS
CHINA
Another solid move for our two favorite macro equity markets overnight (China and India) with the Shanghai Comp +1.4% to a new year-to-date high of +10.4% and India at a new year-to-date high of +29.7%.
EUROPE
Hope springs eternal that QE (quantitative easing) will once again save the day (ECB decision Thursday) – not the bull case European growth bulls were looking for 9 months ago, but who cares! DAX and CAC @Hedgeye TREND resistance lines = 9642 and 4452, respectively.
INDUSTRIALS
Total U.S. Equity Volume was -40% vs its year-to-date average last week but it was interesting to see the weekly divergence between Industrials (XLI) which were down -0.2% on the week vs slow-growth #YieldChasing Utilities (XLU) which were +2.0% to +14% year-to-date #EarlyCycleSlowdown.
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 month. 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 | 16% | COMMODITIES | 2% | |
| FIXED INCOME | 22% | INTL CURRENCIES | 4% |
THREE FOR THE ROAD
TWEET OF THE DAY
FX: Yen testing fresh 3mth lows vs USD at $104.89 with whispers of incremental Japanese easing
@KeithMcCullough
QUOTE OF THE DAY
If it doesn’t challenge you, it won’t change you.
-Fred Devito
STAT OF THE DAY
AAA Travel projected 34.7 million Americans would journey 50 miles or more from home during the Labor Day holiday weekend, the highest volume for the holiday since 2008 and a 1.3% increase over 2013.