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Client Talking Points

NIKKEI

The Nikkei was +0.3% overnight, taking its centrally planned ramp to +22% since Oct 17th, and now (into the FX event in Europe tomorrow) the Yen is signaling immediate-term TRADE oversold at $119.56 (and, not surprisingly, the Nikkei is signaling immediate-term TRADE overbought). If there was a spot to play for a short-term reversal, we think this is it…

EURO

Especially when you have serial money torchers running the show, you need a catalyst to do something like cover Yen – so why not a bounce off the $1.23 EUR/USD line? How much ECB President Mario Draghi can do tomorrow vs. what a lot of shorter-term U.S. based investors think he’ll do remains the question…

UST 10YR

The UST 10YR bounced to yet another lower-high of 2.29% into A) ECB meeting and B) U.S. jobs report Friday – if A and/or B disappoint, we can see 2.16% on the UST 10YR, fast – and that’s what we would be setting up for. Long the Long Bond in the U.S. remains our best Macro long idea in 2014 as Italian 10s break below 2.0% this morning.

Asset Allocation

CASH 63% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 6%

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

Check out @KeithMcCullough today on Fox Business with @MariaBartiromo for the full hour at 10am. Always a great show.

@HedgeyeRetail

QUOTE OF THE DAY

If we did all the things we are capable of doing we would literally astound ourselves.

- Thomas Edison

STAT OF THE DAY

Russian stock market crash update, down -0.3% to -33.4% year-to-date.