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Client Talking Points

Sentiment

What isn’t bearish is how people were positioned at the SEP $SPX highs and this morning’s – II Bull Bear Spread (bulls minus bears) is +99% to the bullish side since OCT 13th (14.8% Bears tracking all-time lows).

Europe

Saw a lot of “charts” in which people were claiming Europe was “breaking out yesterday” – in other news this morning, Italy leads losers -1.6% - MIB Index, the DAX -0.9%, and Eurostoxx50 -0.9% all confirming bearish TREND @Hedgeye).

UST 10YR

UST 10YR Yield is down 3 bps this morning (after falling last week on a bad jobs report) to 2.33%, continues to crash (-23% year-to-date) vs. misplaced U.S. growth expectations of +3-4%; we still see sub 2% for the year when it’s all said and done (Q4 slowing).

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

BoE growth outlook cut:  2015 GDP at 2.9% vs 3.1% in August and 2016 GDP at 2.6% vs 2.8%. Inflation outlook also revised down #EuropeSlowing

@HedgeyeEurope

QUOTE OF THE DAY

Either write things worth reading or do things worth writing.

-Ben Franklin

STAT OF THE DAY

Wal-Mart isn’t concerned about slowing growth in China; the Company is sticking by a plan to have around 480 Wal-Mart stores in China by the end of 2016.