Arrest Economic Gravity

Client Talking Points

DRAGHI

Since both the Fed and BOJ have proven that Policies To Inflate do not perpetuate sustainable economic growth (Kuroda acknowledged Japan’s slowdown last night, but blamed the “weather”, lol), the ECB definitely has to double down on that – or will he? He will. Draghi cut rates this morning.  Easing #expectations were huge ahead of this morning’s announcement.

VOLUME

The good news is that on yesterday’s AAPL down move, some U.S. equity volume came back (the bad news is that, in rate of change terms, it only comes back on down days); Total U.S. Equity Market Volume = +8% vs. the 1 month average, flat vs. the 3 month average.

UST 10YR

One down day for yields does not a trend make, but Old Wall media keeps writing about the “risk of rising rates” (our 2013 call) when the real risk is not buying the long bond on dips; UST 10Yr Yield 2.40% after failing @Hedgeye 2.46% TRADE resistance; no support to 2.33%.

Asset Allocation

CASH 52% US EQUITIES 0%
INTL EQUITIES 18% COMMODITIES 2%
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. 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.

Three for the Road

TWEET OF THE DAY

$MCD preparing for launch of NFC-based mobile payments system and making a bet $AAPL IPHONE6 has NFC http://www.mobilecommercedaily.com/mcdonalds-preparing-for-launch-of-mobile-payment-system-memo-shows

@HowardPenney

QUOTE OF THE DAY

Once you say you’re going to settle for second, that’s what happens to you in life.

-John F. Kennedy

STAT OF THE DAY

Aggregate coffee demand next year is expected to be around 34 million bags. Due to a current stock deficit and severe crop damage, Brazil’s production yield will be just 27 million bags in 2015.