CLIENT TALKING POINTS
RUSSELL 2000
After doing nothing in November (literally flat for 4 straight weeks), the Russell 2000 dropped -1.7% yesterday in a straight line and is back to down -0.9% for 2014. Bull market? Or still a #bubble popping? (-4.5% since July).
VOLUME
Total U.S. Equity Market Volume +14% vs. its 1 month average yesterday, so the TREND of U.S. equity volume accelerating only on DOWN days continues to signal that the Liquidity Trap, especially in small caps, remains.
GOLD
Gold was straight up yesterday, then straight back down -1.4% this morning after failing @Hedgeye TREND resistance of $1225; WTI Oil failed to recover our 1st line of $69.69 resistance too; still looks like #deflation risk.
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 | 29% | INTL CURRENCIES | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
1/3 of the distressed high yield issues in the U.S. are, you guessed it, energy http://mobile.reuters.com/article/idUSL2N0TG1S720141202
@HedgeyeDJ
QUOTE OF THE DAY
The pain of discipline is far less than the pain of regret.
-Sarah Bombell
STAT OF THE DAY
Russia's largest bank, Sberbank, which holds roughly half of all retail deposits for the country, is now trading at over 400 basis points on its credit default swaps. The "danger zone" is generally regarded as anything north of 300 basis points.