CLIENT TALKING POINTS
EURO
The risk range for the Euro is 1.23 to 1.25. The market is pricing in a potent dose of ECB President Mario Draghi drugs, but what if he doesn’t deliver? European (EuroStoxx 600) equities are overbought. France's unemployment rate accelerates to 10.4% - in case you didn’t know Draghi's drugs aren’t doing anything for the real economy.
YEN
The risk range for the Yen is 117.03 to 119.99, we signaled a buy for FXY (Yen) in Real-time Alerts yesterday. In the immediate term Japanese (Nikkei) equities are overbought and the Yen is oversold, the market is pricing in an ultra-smooth election bid for Abe.
OIL
If the Euro and the Yen bounce you could easily see the price of oil bounce. Watch for the counter-trend move here USD Down = Yen (and/or Euro) UP = Nikkei Down = Oil Up = High Short International Energy Stocks Up. The risk range for WTI Oil is 63.76 to 71.72.
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 | 63% | US EQUITIES | 0% | |
INTL EQUITIES | 0% | COMMODITIES | 0% | |
FIXED INCOME | 31% | INTL CURRENCIES | 6% |
THREE FOR THE ROAD
TWEET OF THE DAY
Seems like Western Canadian oil sands and LNG projects are the first ones feeling the heat with lower prices. COS cuts its div. nearly 50%
dty
QUOTE OF THE DAY
Winners make commitments, losers make promises.
-Anonymous
STAT OF THE DAY
Purchase demand rose +2.5% week-over-week and the year-over-year rate of decline improved to -4.9% from -11% prior as the index held above the 170-level for the 3rd straight week – the longest streak at that level since June.