CLIENT TALKING POINTS
YEN
Ah that smell of Burning Yen to an immediate-term TRADE oversold signal of $118.64 vs. USD… and the levered long trade to Weimar Nikkei and SPY do not seem to be responding to it (Nikkei only +0.07% on the “bounce”) – what happens if the Yen goes up, for a day – or a week? #CorrelationRisk is massive right now.
EUROPE
Don’t you hate it when the data doesn’t fit the bullish “recovery” narrative? European PMI’s (both Services and Manufacturing) are awful this morning with our favorite country short posting the worst of the lot (France PMI drops to 47.6!) as Germany teeters on snapping the 50.0 PMI line #EuropeSlowing.
RUSSELL 2000
After dropping another -1% yesterday, the Russell is right back into the red for 2014 year-to-date (down -4.2% from its all-time #bubble high of 1208 in July), which begs a very simple question? How high are U.S. GDP expectations for Q414? A: way too high. Stay with #GrowthSlowing Long Bond, Consumer Staples (XLP), Healthcare (XLV) and REITS instead.
TOP LONG IDEAS
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.
Asset Allocation
| CASH | 65% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 0% | |
| FIXED INCOME | 30% | INTL CURRENCIES | 5% |
THREE FOR THE ROAD
TWEET OF THE DAY
Real Conversations: A Dire Appraisal of Our ‘Broken Global Economy’
@KeithMcCullough
QUOTE OF THE DAY
If you walk in the footsteps of a stranger, you’ll learn things you never knew.
-Pocahontas
STAT OF THE DAY
German PMI for November slows at 50.0 vs. 51.4 October, Germany's Service PMI slows too, 52.1 November vs. 54.4 October.
