Oil, Russia and the UST 10YR

Client Talking Points

OIL

Chinese central planning bounce (rate cut) looks short lived for everything “China Demand”; WTIC tested the top end of our risk range and failed - no support to $73.04/barrel heading into OPEC; Energy Stocks (XLE) led decliners (again) yesterday -0.8%.

RUSSIA

Russia bounced on the China rate cut thing last week (as did most things #deflation), then failed, trading down -1.2% this morning to -23.3% year-to-date on the Russian Stock Market; Ruble remains in crash mode too, down another -1% to 45.28 vs. USD.

UST 10YR

UST 10YR Yield reads Japanese, Chinese, European panic (i.e. global growth slowing) as bearish as it should; 2.29% UST 10YR this morning is a 2 week low as the total return of the Long Bond in 2014 continues to be A) higher than most U.S. stock market averages and B) without the SEP-OCT volatility.

Asset Allocation

CASH 64% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 31% 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

Macro pros who bought $TLT on central planning gone wild in 2014 (as growth slowed) continue to get paid +19% YTD

@KeithMcCullough

QUOTE OF THE DAY

Never confuse a single defeat with a final defeat.

-F. Scott Fitzgerald

STAT OF THE DAY

Russia is losing up to $140 billion per year because of falling oil prices and sanctions with Western nations, according to estimates from Russia's finance minister Anton Siluanov.


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