CLIENT TALKING POINTS
DEFLATION
Expectations continue to rise as prices linked to inflation expectations continue to crash (Russia down another -1.9% this morning to -38.5% year-to-date); the domino risk of deflation from Oil to Energy Stocks and Bonds doesn’t stop there – Policies to Inflate have dominated headlines for half a decade.
OIL
Oil crashed clocked in at -42% (from June!) then bounced right off that $62.21 oversold level we gave you yesterday; dynamic and non-linear situation continues with a refreshed risk range of $61.27-68.02/barrel; you’d need to bounce well beyond the top-end of that range to get energy stock/bond bulls back to breakeven.
VOLUME
The trend of accelerating volume on DOWN days continues – yesterday’s Total U.S. Equity Market Volume was +25% and +17% vs. its 1mth and 3mth averages, respectively.
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 | 62% | US EQUITIES | 0% | |
| INTL EQUITIES | 0% | COMMODITIES | 0% | |
| FIXED INCOME | 31% | INTL CURRENCIES | 7% |
THREE FOR THE ROAD
TWEET OF THE DAY
RUSSIA: stock market crash continues to be vicious - down another -1.9% today to -38.5% YTD #NoWorries
@KeithMcCullough
QUOTE OF THE DAY
There is only one way to avoid criticism: do nothing, say nothing, and be nothing.
-Aristotle
STAT OF THE DAY
68, the number of victories for Green Bay quarterback Aaron Rodgers in his first 100 starts in the NFL. Rodgers led his team to a 43-37 win over Atlanta last night in his 100th start.
