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Conclusion: We are firm believers in the year-end Santa Claus rally – in the long-end of the U.S. Treasury bond market.

Earlier today, Keith reopened a long position in the iShares Barclays 20+ Year Treasury Bond Fund (TLT) in our Virtual Portfolio. We’ve been trading around the volatility in long-term U.S. Treasury bonds with a bullish bias since 2Q and we continue to have conviction in our belief that U.S. growth is slowing from a cyclical perspective and structurally impaired from a secular perspective absent a shift towards strong dollar policy in D.C. This is a position that has worked throughout much of 2011 and our research suggests it will continue to work over the intermediate term.

Saaanta Claus Is Coming to Town: TLT Trade Update - 1

Today, our quantitatively-driven risk management process signaled to us that, while consensus remains hopeful for a year-end Santa Claus rally in equities (SENTIMENT), domestic and international economic growth is still slowing from an intermediate-term TREND perspective (DATA/CATALYSTS). But don’t just take our word for it:

“Rather than saying interest rates are too low, investors should be more concerned about what low rates are telling them about economic growth and expected returns on risky assets.”

- Robert Mead, Portfolio Manager at PIMCO

Treasuries are “expensive” for a reason and a great many stocks appear “cheap” for similar reasons. Moreover, as Keith penned in his Early Look this morning, Dynamic Risk Management (i.e. fluid asset allocation and trading the ranges) has been the winning strategy in 2011. Buy & hold isn’t the best short-to-intermediate term P&L risk management strategy with a VIX > 30 (yes, performance pressures do exist in our business). Eventually, the time will come to get really long of U.S. equities – our models are merely suggesting that time is not now.

Darius Dale


Saaanta Claus Is Coming to Town: TLT Trade Update - 2