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Client Talking Points

COMMODITIES

The CRB Index (19 commodities) deflated another full -1% yesterday and remains bearish TREND @Hedgeye. Energy stocks (XLE) were down another -0.9% on the day. Commodity risk ranges have mostly all opened up to the downside (signaling lower-lows for Oil, Copper, etc.) – immediate-term risk range for WTI crude is now 75.69-79.16.

XLY

Popular consensus is that Down Oil = Up Consumer Stocks, but that isn’t working; Consumer Discretionary (XLY) was both down on a market up week (last week) and down again on a market up day yesterday; by our math 2/3 of the country is in a spending recession (no wage growth and highest cost of living, all-time).

VOLUME

Very similar market dynamics to the SEP highs in the U.S. stock market (SPX made all-time highs, while Russell made lower-highs on decelerating volume); Total U.S. Equity Market Volume (including dark pool) was -8% and -25% vs. the 1 month and year-to-date averages yesterday.

Asset Allocation

CASH 69% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 28% INTL CURRENCIES 3%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). U.S. real GDP growth is unlikely to come in anywhere in the area code of consensus projections of 3-plus percent. And it is becoming clear to us that market participants are interpreting the Fed’s dovish shift as signaling cause for concern with respect to the growth outlook. We remain on other side of Consensus Macro positions (bearish on Oil, bullish on Treasuries, bearish on SPX) and still have high conviction in our biggest macro call of 2014 - that U.S. growth would slow and bond yields fall in kind.

TLT

We continue to think long-term interest rates are headed in the direction of both reported growth and growth expectations – i.e. lower. In light of that, we encourage you to remain long of the long bond. The performance divergence between Treasuries, stocks and commodities should continue to widen over the next two to three months. As it’s done for multiple generations, the 10Y Treasury Yield continues to track the slope of domestic economic growth like a glove. We certainly hope you had the Long Bond (TLT) on versus the Russell 2000 (short side) as the performance divergence in being long #GrowthSlowing hit its widest for 2014 YTD (ex-reinvesting interest).

XLP

The U.S. is in Quad #4 on our GIP (Growth/Inflation/Policy) model, which suggests that both economic growth and reported inflation are slowing domestically. As far as the eye can see in a falling interest rate environment, we think you should increase your exposure to slow-growth, yield-chasing trade and remain long of defensive assets like long-term treasuries and Consumer Staples (XLP) – which work decidedly better than Utilities in Quad #4. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.

Three for the Road

TWEET OF THE DAY

GOLD: widening risk range (not good) = $1121-1201/oz $GLD

@KeithMcCullough

QUOTE OF THE DAY

It's about work before glory, and what's inside of you.

-Michael Jordan

STAT OF THE DAY

According to Moody’s Analytics, adults under age 35 currently have a savings rate of negative 2%, that compares with a positive savings rate of about 3% for those age 35 to 44, 6% for those 45 to 54, and 13% for those 55 and older.