A Growing Sell List

Client Talking Points

VOLUME

Price/volume/volatility – that’s our quantitative signal, and we’re sticking to it. Total U.S. Equity Market Volume was -5% and -26% vs. its 1 month and year-to-date averages yesterday – that provided the immediate-term TRADE Overbought signal for the SPY as trending volatility continues to signal bullish (not bearish like it was all of 2013).

JAPAN

Bank of Japan Governor Haruhiko Kuroda “reiterated his upbeat assessment of the economy” overnight – seriously… with household spending -6% year-over-year and the economy in recession. Apparently fin media can parrot central planners from Russia to Japan lying to the world on economic matters. The Yen is burnt right through $116.94 support vs. USD to $117.57.

OIL

Down Yen, Up Dollar, Down Oil – and a big % of the high yield energy market continues to see spread risk widen inasmuch as oily (and levered) illiquid upstream MLP stocks do; Oil testing a breakdown of $74 this morning – that’s big time #deflation, down -31% since June.

Asset Allocation

CASH 67% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 4%

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

TREASURIES: old faithful Long Bond continues to perform as Global Growth Slows, 10yr 2.32% $TLT @KeithMcCullough

QUOTE OF THE DAY

We learn more by looking for the answer to a question and not finding it than we do from learning the answer itself.

-Lloyd Alexander

STAT OF THE DAY

The National Weather Service said Tuesday afternoon that some parts of Western New York could get nearly 6 feet of snow by Thursday from a lake effect snow storm.