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Client Talking Points

CHINA

Evidently Chinese #GrowthSlowing has the Chinese worried enough that they cut rates overnight – I didn’t see that coming. Everything commodity #deflation is ripping higher on that move this morning; Shanghai Comp +1.8%.

COPPER

If you knew China was going to cut, you’d have the most bang for your central planning buck buying Copper futures, +1.5% to the top end of my 2.96-3.06/lb risk range – selling opportunity there (and in Oil, again).

EURO

To add fuel to the “futures are up” fire, Draghi told the Germans (he’s in Frankfurt speaking today) that he’ll do whatever it takes now that whatever it took didn’t work – European Stocks ripping +1-2% on that (after selling off hard yesterday on NOV PMI #GrowthSlowing data).

Asset Allocation

CASH 65% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 5%

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

FX: Euro takes its turn being burnt by an un-elected bureaucrat, -0.9% to $1.24 #Draghi

@KeithMcCullough

QUOTE OF THE DAY

“Insanity: doing the same thing over and over again and expecting different results.”

Albert Einstein

STAT OF THE DAY

5.6%, China’s new lending rate, which the country lowered by 0.4 percentage points today.