Client Talking Points
Big #divergences continue to manifest across Asian Equity markets – KOSPI down another -1.3% overnight to -3.3% year-to-date and it remains bearish TREND @Hedgeye. The bounces in India and the Hang Seng were quite weak; Thailand (straight down in December) down another full 1% #GlobalGrowthSlowing.
The FTSE got hammered yesterday and doesn’t have much of a bounce this morning either – its obviously more Energy weighted than the DAX is, so you have a #divergence here of bearish FTSE/bullish DAX, as the weakest (most illiquid) European Equity markets (Greece and Portugal) continue to crash this morning (-23% and -21% year-to-date, respectively).
Sentiment (U.S. Equities) – the spread in the weekly II Bull/Bear survey is one of the few that backtests as a relevant contrarian indicator, and the Bears finally bounced off all-time lows this week (to a whopping 14.8% from 13.8%, where it bottomed at NOV end); Bull/Bear Spread is -14% less bullish than where it was 2 weeks ago at +3670 bps wide to the Bull side.
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Top Long Ideas
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.
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).
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
Reiterating the SELL calls on everything Oil, Energy, Copper, etc #Deflation
QUOTE OF THE DAY
Hardships often prepare ordinary people for an extraordinary destiny.
STAT OF THE DAY
Amazon is now on the list of companies receiving $5 million in tax credits for creating jobs in New York, Amazon must now create 500 jobs.