Client Talking Points
If consensus didn’t have inflation expectations (instead of #quad4 deflation), oil wouldn’t be moving like this; with the refreshed risk range of $63.86-71.12, realize that a lot of bad things happen to levered equities (MLPs) and high yield debt, even if this crash in oil “bounces” back to the top-end of my range.
Ruble down 6% since Friday (-40% year-to-date) making this the biggest FX crash since 1998 (global macro market #Intereconnectedness mattered then, and it should now) – Russian stocks -3.4% to -32.1% year-to-date.
Amidst a broad base of slowing global economic data this morning (Japanese Auto Sales -13.5% year-over-year for NOV!), Italy reminds ECB President Mario Draghi that he has not been able to ban recessions; Italy Q3 GDP -0.5% year-over-year and the Italian stock market -1.3% remains bearish TREND despite huge QE expectations going into ECB on Thursday.
|FIXED INCOME||30%||INTL CURRENCIES||6%|
Top Long Ideas
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.
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).
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
Bulls will point to Cyber Monday as saving grace to poor brick&mortar sales. They'd better be right. No room for error at these valuations.
QUOTE OF THE DAY
Only those who dare to fail greatly can ever achieve greatly.
-Robert. F. Kennedy
STAT OF THE DAY
CRB Commodities Index had a -5.5% weekly loss to -9.2% year-to-date and Silver moved into crash mode, dropping -5.5% on the week to -20.4% year-to-date.