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MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER

Takeaway: Junk bond rates look set to re-test the Spring 2013 lows. Meanwhile, 2-10 yield spreads continue to drop and take bank stocks with them.

Current Best Ideas:

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 19

 

Key Callouts:

The rise in yield spreads was short-lived as last week we saw the 2-10 spread collapse another 9 bps, bringing the spread down to 210 bps. The pressure on bank stocks is growing as the KRE regional bank ETF is down ~9% vs its early April closing price. Separately, Euribor-OIS continues to widen out, slowly but steadily. Historically, rising Euribor-OIS has coincided with rising stress in the  EU banking system so we're keeping one eye on it even though individual EU bank swaps are signaling ongoing improvement. Finally, high yield rates dropped sharply on the week, coming in by 8.3 bps last week and ending the week at 5.53%. This puts high yield on track to re-test the lows (in yields) seen in May of 2013.

 

 

Financial Risk Monitor Summary

 • Short-term(WoW): Positive / 4 of 12 improved / 1 out of 12 worsened / 7 of 12 unchanged

 • Intermediate-term(WoW): Negative / 3 of 12 improved / 3 out of 12 worsened / 6 of 12 unchanged

 • Long-term(WoW): Negative / 3 of 12 improved / 4 out of 12 worsened / 5 of 12 unchanged

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 15

 

1. U.S. Financial CDS -  Swaps tightened for 25 out of 27 domestic financial institutions. While the moves were small, -2 bps on average, the direction of the move was broad-based. The only outlier this week was Assured Guaranty (AGO), which rose by a modest 5 bps w/w.

 

Tightened the most WoW: GS, MS, UNM

Widened the most/ tightened the least WoW: AGO, XL, AON

Tightened the most WoW: AXP, MBI, SLM

Widened the most MoM: GNW, WFC, HIG

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 1

 

2. European Financial CDS - Swaps mostly tightened in Europe last week outside of Greece, where swaps widened notably at two of the three banks we track. Overall, 36 European banks were tighter on the week while just 4 were wider.

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 2

 

3. Asian Financial CDS - There was material tightening of Chinese bank swaps last week with an average decline of 21 bps. Meanwhile, the tightening in Indian banks continued again last week, tightening a further 7 bps, on average. Japanese financials were nominally wider on the week.

 

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4. Sovereign CDS – Sovereign swaps were tighter across the board last week except for in the US, where they widened by 1 basis point to 17 bps. Portugal and Italy tightened the most, falling by 21 and 11 bps, respectively. 

 

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MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 4

 

5. High Yield (YTM) Monitor – High Yield rates fell 8.3 bps last week, ending the week at 5.44% versus 5.53% the prior week.

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 5

 

6. Leveraged Loan Index Monitor – The Leveraged Loan Index rose 2.0 points last week, ending at 1,872.

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 6

 

7. TED Spread Monitor – The TED spread fell 0.2 basis points last week, ending the week at 19.4 bps this week versus last week’s print of 19.64 bps.

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 7

 

8. CRB Commodity Price Index – The CRB index fell -0.8%, ending the week at 305 versus 308 the prior week. As compared with the prior month, commodity prices have decreased -0.5% We generally regard changes in commodity prices on the margin as having meaningful consumption implications.

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 8

 

9. Euribor-OIS Spread – The Euribor-OIS spread (the difference between the euro interbank lending rate and overnight indexed swaps) measures bank counterparty risk in the Eurozone. The OIS is analogous to the effective Fed Funds rate in the United States.  Banks lending at the OIS do not swap principal, so counterparty risk in the OIS is minimal.  By contrast, the Euribor rate is the rate offered for unsecured interbank lending.  Thus, the spread between the two isolates counterparty risk. The Euribor-OIS spread widened by 1 bps to 20 bps.

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 9

 

10. Chinese Interbank Rate (Shifon Index) –  The Shifon Index fell 2 basis points last week, ending the week at 2.51% versus last week’s print of 2.53%. The Shifon Index measures banks’ overnight lending rates to one another, a gauge of systemic stress in the Chinese banking system.

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 10

 

11. Chinese Steel – Steel prices in China rose 0.4% last week, or 12 yuan/ton, to 3,233 yuan/ton. We use Chinese steel rebar prices to gauge Chinese construction activity, and, by extension, the health of the Chinese economy.

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 12

 

12. 2-10 Spread – Last week the 2-10 spread tightened to 210 bps, -9 bps tighter than a week ago. We track the 2-10 spread as an indicator of bank margin pressure.

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 13

 

13. XLF Macro Quantitative Setup – Our Macro team’s quantitative setup in the XLF shows 0.5% upside to TRADE resistance and 1.2% downside to TRADE support.

 

MONDAY MORNING RISK MONITOR: HIGH YIELD & YIELD SPREADS COMPRESS FURTHER - 14

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


Fund Flows, Refreshed

Takeaway: It was another week of decent fixed income subscriptions at the expense of equities with stock fund flow lackluster.

Editor's Note: This research note was originally sent to subscribers on May 29, 2014 by Hedgeye’s Financials analyst Jonathan Casteleyn. Follow Jonathan on Twitter @HedgeyeJC.  

 

Fund Flows, Refreshed - wall street  

 

ICI Mutual Fund Data and ETF Money Flow

In the most recent 5 day period, the combination of taxable and tax-free bond funds had a decent week of production with $2.3 billion in inflow, slightly above the running year-to-date average of $2.1 billion. Conversely, equity funds mustered just a $678 million inflow, well below the year-to-date average of a $3.0 billion inflow. In our charts of weekly fund production herein, the 12 week linear charts depict the intermediate term trends of these fund flows displaying the more positive backdrop for fixed income versus the ongoing decline in interest in equities.

 

Total equity mutual fund flows put up only a slight inflow in the most recent 5 day period ending on May 21st with just $678 million coming into the all stock category as reported by the Investment Company Institute. The composition of the slight inflow was again made up of a moderate outflow of $1.8 billion within domestic stock funds which was offset by the $2.4 billion inflow into international products. Both equity categories ran below their respective 2014 weekly averages with the combined weekly mean for all equity products settling in at $3.0 billion inflow, now in-line with the $3.0 billion weekly average inflow from 2013. 

 

Conversely, fixed income mutual fund flows continued on much strong footing for the week ending May 21st, with a solid $2.3 billion flowing into all fixed income funds. While this production was a deceleration from the $3.9 billion that came into bond products the week prior, the inflow into taxable products was the 15th consecutive week of positive flow and the inflow into municipal or tax-free products was the 19th consecutive week of positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $2.1 billion weekly inflow, a vast improvement from 2013's weekly average outflow of $1.5 billion, but still a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow). 

 

ETFs followed in suite with mutual fund flows during the week with weak production in the equity ETF category offset by a substantial inflow into bond exchange traded funds. Equity ETFs experienced a sizeable $7.0 billion outflow, while fixed income ETFs put up a $5.4 billion subscription. The 2014 weekly averages are now a $476 million weekly inflow for equity ETFs and a $1.2 billion weekly inflow for fixed income ETFs. 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $14.1 billion spread for the week ($6.3 billion of total equity outflow versus the $7.7 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.0 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

Fund Flows, Refreshed - ICI chart 1 large

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product

 

Fund Flows, Refreshed - ICI chart 2

 

Fund Flows, Refreshed - ICI chart 3

 

Fund Flows, Refreshed - ICI chart 4

 

Fund Flows, Refreshed - ICI chart 5

 

Fund Flows, Refreshed - ICI chart 6

 

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds

 

Fund Flows, Refreshed - ICI chart 7

 

Fund Flows, Refreshed - ICI chart 8

 

Net Results

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a negative $14.1 billion spread for the week ($6.3 billion of total equity outflow versus the $7.7 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.0 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

Fund Flows, Refreshed - ICI chart 9  

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LEISURE LETTER (06/02/2014)

Tickers:  BYI, CZR, BEE, RCL, NCLH

EVENTS TO WATCH

  • Mon June 2: Goldman Sachs Lodging, Gaming, Restaurant and Leisure Conference, New York
  • Mon June 2 - Tues June 3: NYU Int'l Hospitality Industry Conference, New York
  • Mon June 2 - Tues June 3: Midwest Gaming Summit, Rosemount, IL
  • Tues June 3 - Thurs June 5: REITWeek, New York, NY
  • Wed June 4 - Thurs June 5: Russian Gaming Week 2014
  • Thurs June 5 - Todd in Vegas for slot suppliers mgmt meetings
  • Tues June 10 - Thurs June 12: Bally Systems User Conference
    Mohegan Sun

COMPANY NEWS

BYI – amended and restated its Corporate Credit Facility whereby the Company increased the facility by an additional $370 million to a maximum of $1.07 billion, extend the maturity date of the Company’s Term Loan A and revolving credit facility to May 27, 2019, and revise interest rate equal to either the applicable base rate or LIBOR, plus in each case a margin determined by the Company’s consolidated total leverage ratio, with a range of base rate margins from 0% to 1.00% and a range of LIBOR margins from 1.00% to 2.00%.

Takeaway: More buybacks or should we expect a small acquisition? 

 

BEL:PM - Belle Corp (SINO:PM) – announced its intention to undertake a reorganization of its gaming assets under a separate listed entity.  The Board of Directors of Belle Corporation approved a re-organization under which Belle will inject its 100% ownership of Premium Leisure Amusements Inc (PLAI) and its shares representing 34.5% of Pacific Online Systems Corporation into Sinophil (SINO:PM) Corporation, a subsidiary of Belle that is listed on the Philippine Stock Exchange.  PLAI is part of the consortium that holds the PAGCOR license for "City of Dreams Manilla" to be operated by Melco Crown Philippines and located in PAGCOR Entertainment City. Belle will retain direct ownership of the land and building of City of Dreams Manilla, from which Belle will receive rental income. The reorganization is expected to be completed on or about August 2014.

Takeaway: Belle is a conglomerate and given the highly regulated nature of the gaming business, this separation makes sense.


CZR – Harrah's Tunica will close its doors today.

Takeaway:  Tough market

 

FB promoted Tarquin Henderson, head of gaming sales for Europe and MEA, to head up the company's real-money gambling project following the departure of former head Will Collins, who departed to start his own gaming consultancy firm. 

Takeaway: Online gaming revenues may not be living up to expectations and early forecasts for FB? 

  

BEE –  closed on a $120 million limited recourse loan secured by the Loews Santa Monica Beach Hotel.  The financing replaces the $108 million loan previously placed on the property.  The loan carries a floating interest rates of LIBOR plus 225 bps and has an initial three-year term with four, one-year extension options pending certain financial and other conditions. Wells Fargo Bank originated the loan.

Takeaway: As expected but a modestly larger loan amount. 

 

Equity Inns – American Realty Capital Hospitality Trust (a $2 billion non-traded REIT) announced it entered into an agreement to acquire the Equity Inns lodging portfolio of 126 hotels totaling 14,934 rooms across 35 states for $1.925 billion from subsidiaries of W2007 Grace I, LLC and WNT Holdings LLC - both of which are indirectly owned by one or more Goldman Sachs Whitehall Real Estate Funds. 

Takeaway: Whitehall made a sizable return for its shareholders. Industry veterans will recall Whitehall announced its intention to acquire ENN in June 2007 for $1.27 billion – $23 a share in cash, 19% premium to the previous day's share price and closed on the acquisition on October 26, 2007.  At the time, Equity Inns owned 132 limited-service hotels covering 15,700 rooms.

 

HLT – announced the launch of Curio - A Collection by Hilton. Curio - A Collection by Hilton (curiocollection.com) is a global collection of distinctive hotels. Letters of intent have been signed for the following properties: SLS Las Vegas Hotel & Casino; The Sam Houston Hotel in Houston, Texas; Hotel Alex Johnson in Rapid City, S.D.; The Franklin Hotel in Chapel Hill, N.C.; and a soon to be named hotel development in downtown Portland, Ore.

Takeaway: Everyone is in the boutique business.

 

RCL - (Travel Weekly)  Celebrity Cruises will pay commission on what is typically invoiced as noncommissionable cruise fare (NCF) on some cruises sold in June by travel agents in North America.  The extra commission applies to 2015 sailings, if agents book veranda cabins and above.  NCFs can account to 10-15% of the total cruise price. Dondra Ritzenthaler, Celebrity's senior VP of Sales said that 2015 bookings were not notably behind or in need of a boost.  “It’s a 30 day way to say thank you to all of our travel partners who have really supported us through all of our promotions,” she said.

Takeaway:  This short-term promotion could give an early boost for Celebrity 2015 bookings, particularly on the heels of the success of its 123Go! program.

 

NCLH - Hawaii's Visitor Spending and Arrivals Continue to Dip (Travel Agent Central)

Fewer visitors came by cruise ships (-22.2% YoY) and that led to a slight drop in total arrivals to Hawaii (-0.7%) at 662,553 visitors.  The dip in cruise passengers can be attributed to poor access to Hawaii’s harbors, says Mike McCartney, president and CEO of the Hawaii Tourism Authority.  “We recently issued a request for proposals for maritime vessel scheduling software, which will help to establish an integrated system that will ease vessel scheduling to optimize the use of dock space to accommodate more cruise ships throughout the Hawaiian Islands...Visitor arrivals and expenditures will continue to plateau in 2014, in comparison to the past two record-breaking years," added McCartney.

Takeaway: Could the slowdown in this expensive tourist destination continue?  Hawaii cruise pricing has been dipping as well.  NCLH itineraries have 7% exposure in 2014.

 

Insider Transactions:

RCL – EVP Harri U. Kulovaara sold 41,985 shares of the stock on Thursday, May 29th at an average price of $54.60, and he now directly owns 32,905 shares. 

SHO – CFO Bryan Giglia sold 15,763 shares of stock on Thursday, May 29th at an average price of $14.61, and he now directly owns 115,449 shares.

Takeaway: More insider selling in the Cruise and Lodging sectors. Buying seems to be on Gaming side.

INDUSTRY NEWS

Japan Gaming Expansion – late on Friday, Japanese Prime Minister Shinzo Abe who had remained silent on the issue of casinos, gave a strong endorsement to legislation that would legalize casino gambling in Japan.  Abe visited both RWS and MBS during his recent trip to Singapore.  The initial gaming legislation is expected to pass the Diet this fall,  at which time, legislation and debate will move on to a second bill concerning concrete regulations, which proponents hope can be passed in 2016.  Allowing for three years of construction prior to the 2020 Tokyo Summer Olympics which open on July 24, 2020 and close on August 9, 2020.

Takeaway: We're hearing as long as Abe remains in power, casino legislation will happen.  There is more than sufficient time to approve the required two-step legislation as well as complete construction prior to the opening of the 2020 Tokyo Summer Olympics.

 

Zhuhai-Macau-Hong Kong Bridge – The Infrastructure Development Office conceded that it had encountered a serious delay in the reclamation work of urban Zone A just across the waters from Areia Preta, which is a major public infrastructure project linking Macau to the Hong Kong-Zhuhai-Macau Bridge. Zone A, the biggest of the five reclaimed zones, is located across the waters from Areia Preta – the northeastern district of the Macau Peninsula. The 138-hectare zone is to be linked to the Zhuhai-Macau artificial island to its east, where the Hong Kong-Zhuhai-Macau Bridge will land.  The bridge is expected to be in use by 2016

Takeaway:  More infrastructure project delays

 

Pennsylvania Online Poker Legislation – Pennsylvania State Senator Edwin Erickson announced his intention to formally introduce State Bill 1386 (legislation that would authorize Interactive Gaming in the form of online poker). Gross gaming revenue would be taxed at 14% – less than New Jersey but higher than Nevada.

Takeaway: More support for our contention that legal online gaming will ultimately take the place of interstate online poker.

MACRO

China Economic Growth - China Manufacturing PMI rises in May to 50.8 versus expectations of 50.7, up from 50.4 in April and February's low of 50.2

 

LEISURE LETTER (06/02/2014) - ChinaPMI

 

Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


Just Charts - The Protein Buzz

INVESTMENT IDEAS

The table below lists our current investment ideas as well as a list of potential ideas we are in the process of evaluating (watch list).  We intend to update this table regularly and will provide detail on any material changes.

 

Just Charts - The Protein Buzz - 1

 

Consumer Staples rose +1.9% week-over-week versus the broader market (S&P500) up +1.6%.  XLP is up 4.8% year-to-date versus the SPX at 4.1%.

EVENTS THIS WEEK

6/02/14 MNST Annual General Meeting 4pm EST

6/03/14 SAFM Stephens Spring Conference 9am EST

6/04/14 SAM Annual General Meeting 9am EST

6/04/14 BF/B Earnings Call 10am EST

6/04/14 TAP Annual General Meeting 1pm EST

6/05/14 RCO FP Earnings Call 3am EST

6/05/14 SJM Earnings Call 8:30am EST

 

XLP remains bullish on immediate term TRADE and intermediate term TREND durations from a quantitative set-up.

 

Just Charts - The Protein Buzz - 2

 

The Hedgeye U.S. Consumption Model has shown steady improvement over the past month, with 5 of the 12 U.S. Economic Indicators flashing green.

 

Just Charts - The Protein Buzz - 3

 

Despite the bullish quantitative set-up for the sector, we continue to believe that the group is facing numerous headwinds, including:

  • U.S. consumption growth is slowing as inflation rises, in-line with the Macro team’s 1Q14 theme of #InflationAccelerating, and Q2 2014 theme of #ConsumerSlowing
  • The economies and currencies of the emerging market – once the sector’s greatest growth engine – remain weak with the prospect of higher inflation in 2014 eroding real growth
  • The sector is loaded with a premium valuation (P/E of 19.8x)
  • Less sector Yield Chasing as Fed continues its tapering program
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index (recently rescaled for cosmetic and not component reasons) has not seen any real improvement over the past 6 months, and fell to 33.3 versus 34.1 in the prior week

Just Charts - The Protein Buzz - 4

Just Charts - The Protein Buzz - 5

Just Charts - The Protein Buzz - 6

TOP 5 WEEK-OVER-WEEK DIVERGENT PERFORMANCES

Positive Divergence:  HSH 47.0%; SAFM 9.0%; TSN 8.5%; HRL 6.3%; REV 5.0%

Negative Divergence:  SAM -3.5%; SODA -2.3%; TUP -1.0%; HAIN -0.7%; DEO -0.6%

RECENT NOTES

QUANTITATIVE SETUP 

In the charts below we look at the largest companies by market cap in the Consumer Staples space from both a quantitative perspective and fundamental aspect where we can offer one.  As you will see over time, sometimes our fundamental view does not align with the quantitative setup (though not often).

 

BUD – bullish intermediate-term TREND intact with @Hedgeye TREND support confirmed at $106.38

Just Charts - The Protein Buzz - 7

 

DEO – bullish intermediate-term TREND confirmed here as well with TREND support = $125.96

Just Charts - The Protein Buzz - 8

 

KO – slow-growth big-cap #YieldChasing remains in vogue; TREND support confirmed at $39.93

Just Charts - The Protein Buzz - 9

 

PEP – rip-roaring #YieldChasing fun last week with PEP breaking out on good volume after holding $84.82 TREND support

Just Charts - The Protein Buzz - 10

 

GIS – has been one of the best looking stocks on this list for all of 2014; overbought now but bullish TREND w/ $51.71 support

Just Charts - The Protein Buzz - 11

 

MDLZ – looks as good as it has looked now for the last 6 weeks; intermediate-term TREND support = $35.76

Just Charts - The Protein Buzz - 12

 

KMB – tested the bulls patience and held intermediate-term TREND support of $108.92 like a champ

Just Charts - The Protein Buzz - 13

 

PG – worst looking stock on the list but its bullish TREND too; intermediate-term TREND support near last price at $80.36

Just Charts - The Protein Buzz - 14

 

MO – got slow-growth #YieldChasing? Yep. Overbought last week but remains bullish TREND w/ support = $38.81

Just Charts - The Protein Buzz - 15

 

PM – bearish to bullish TREND reversal confirmed, big time, as slow-growth Style Factors dominate; TREND support = $84.68

Just Charts - The Protein Buzz - 16

 

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst

 


Weak PMI Numbers in Europe, Rising Oil Prices and a Slowing Consumer

Client Talking Points

EUROPE

Sequential slowdowns pretty much across the board in the PMI data for May (Swiss PMI of 52.5 May versus 55.8 April was the biggest miss), and European Equities aren’t doing much on that yet. The EUR/USD down -0.3%.

OIL

After taking a breather last week (CRB Index down -0.9% on the week to +9% year-to-date), WTI crude is back up +0.4% this morning to $103.12 and natural gas is testing another TREND breakout = US consumption taxes.

UST 10YR

The yield is down 6 basis points in an up (no volume) US Equity tape last week (month-end) as US consumer spending data slowed (again). Falling bond yields and compressing yield spread continue to signal US housing and #ConsumerSlowing.

Asset Allocation

CASH 18% US EQUITIES 0%
INTL EQUITIES 10% COMMODITIES 24%
FIXED INCOME 24% INTL CURRENCIES 24%

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.

OC

Construction activity remains cyclically depressed, but has likely begun the long process of recovery.  A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating.  Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms.  As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.

LM

Legg Mason reported its month ending asset-under-management for April at the beginning of the week with a very positive result in its fixed income segment. The firm cited “significant” bond inflows for the month which we calculated to be over $2.3 billion. To contextualize this inflow amount we note that the entire U.S. mutual fund industry had total bond fund inflows of just $8.4 billion in April according to the Investment Company Institute, which provides an indication of the strong win rate for Legg alone last month. We also point out on a forward looking basis that the emerging trends in the mutual fund marketplace are starting to favor fixed income which should translate into accelerating positive trends at leading bond fund managers. Fixed income inflow is outpacing equities thus far in the second quarter of 2014 for the first time in 9 months which reflects the emerging defensive nature of global markets which is a good environment for leading fixed income houses including Legg Mason.  

Three for the Road

TWEET OF THE DAY

ASIA: Nikkei finally has a real up day of +2.1%; India rips another +1.7% to +16.7% YTD (China closed) @KeithMcCullough

QUOTE OF THE DAY

"I've failed over and over and over again in my life and that is why I succeed." - Michael Jordan

STAT OF THE DAY

Just 36% of Americans under the age of 35 own a home, according to the Census Bureau. That's down from 42% in 2007 and the lowest level since 1982, when the agency began tracking homeownership by age. (CNN)

 


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