USD, Oil and the UST 10YR

Client Talking Points

USD

The risk range for the U.S. Dollar is now 87.64 to 89.21. The good jobs number is good for the USD, the USD has been well bid for 6 months and we don’t think that will change today. 

OIL

On the other side of a good jobs number and up U.S. Dollar is down oil. Europe's redo of the central planning messaging puts #deflation right back into Energy markets. The risk range for WTI Crude is 62.99 to 70.64.

UST 10YR

Deflationary forces vs. people thinking that the jobs market is back is most definitely what people in the bond market are going to have to debate today. Bond yields should go up today  - just one of the many buying opportunities in $TLT this year. 

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

2/3 of Americans in a recession, and Old Wall Media continues to gloat that things are awesome

@KeithMcCullough

QUOTE OF THE DAY

Let him who would enjoy a good future waste none of his present.

-Roger Babson

STAT OF THE DAY

15, the number of animals a lion usually kills a year.


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