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Client Talking Points

EURO

One way to keep the USD up is to have an un-elected central planner burn the Euro as the elected ones in Japan do the same to the Yen. Don’t confuse these unprecedented and coordinated currency devaluations with the next global economic expansion, but DAX did recover our 9648 TREND line!

UST 10YR

Tepper (David Tepper, founder of Appaloosa Management) talk gave those who haven’t been long the Long Bond one more chance to buy them on sale yesterday. The UST 10YR Yield backs off again this morning to 2.44% with no support to 2.32%. We’re one bad employment report away from Yellen looking like Draghi has for the last month.

VOLUME

Yes! It came back (sort of) on yesterday’s down move (that’s when we get volume accelerations, on the down moves) with Total U.S. Equity market volume up +29% and +21%, respectively, vs. its 1 and 3 month averages. Biggest risk to U.S. small and mid cap stocks remains liquidity (on the way down).

Asset Allocation

CASH 52% US EQUITIES 0%
INTL EQUITIES 16% COMMODITIES 2%
FIXED INCOME 26% 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

CHINA: in a down wk for US stocks, Chinese stocks ripped higher to +13.3% YTD (Russell is flat YTD)

@KeithMcCullough

QUOTE OF THE DAY

While you’re sitting there thinking about it someone else is out there doing it.

-Rodger Halston

STAT OF THE DAY

It only takes $10,400 to be richer than most millennials (Wall Street Journal).