#Deflation

Client Talking Points

EURO

After being burnt another -1.3% last week (-10.1% in the last 6 months), the Euro is making fresh year-to-date lows this morning at $1.22 vs. USD – via #StrongDollar, this is only going to perpetuate the #deflation. Swiss CPI is -0.1% year-over-year for NOV. 

OIL

Oil saw no bounce last week (-0.8% WTI week-over-week) and is down another -1.1% this morning to $65.10 with no immediate-term support to $62.21. In energy land, small/mid cap equity and high yield/junk do not like the #deflation risk.

UST 10YR

The UST 10YR Yield bounced on the 1st good jobs data in over a month (jobless claims rising), but we think it’s just another head-fake within the UST 10YR’s current 2.16%-2.34% immediate-term risk range; #deflation is going to freak the Fed out. 

Asset Allocation

CASH 60% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 33% INTL CURRENCIES 7%

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

We're going live with @KeithMcCullough on @HedgeyeTV at 830ET. Watch here:

https://www.youtube.com/watch?v=fVWiGdPpZas&feature=youtu.be

@Hedgeye

QUOTE OF THE DAY

The only lifelong, reliable motivations are those that come from within, and one of the strongest of those is the joy and pride that grow from knowing that you've just done something as well as you can do it.

-Lloyd Dobens

STAT OF THE DAY

Japanese Yens burned another -2.3% last week (lost -15.6% of their value in the last 6 months) and the U.S. Dollar Index rose another +1.1% on the week (+11.2% in the last 6 months).


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