CLIENT TALKING POINTS
JAPAN
Not surprisingly, Abe wins re-election – surprisingly, the Yen is Up (small) on that and the Weimar Nikkei drops -1.6%. The Yen (vs. USD is right in the middle of its 117.06-121.68 risk range) and the Nikkei are now bearish TRADE (Nikkei 17,769 resistance); bullish TREND (Nikkei 16,451 support); the rest of Asian Equities acted poorly, again – Thailand led losers -3.1%.
UST 10YR
After crashing to 2.08% on the close of last week, bounces to 2.12% this morning (immediate-term risk range is now 2.08-2.22%) and while we would love to see another big buying opportunity (if, say, the Fed removed the “considerable time” language), we don’t think we’re going to get that this week – Long Bond is still our favorite Macro LONG idea (TLT, EDV, etc.).
SENTIMENT
Hedge fund consensus remains as long of S&P 500 futures/options as it is bearish on long-term Treasuries. As of last week’s CFTC futures/options contracts data, there’s a +48,911 net LONG position in SPX (Index + Emini) vs. its 6 month average of a -21,000 net short position, and a 10YR Treasury net SHORT position at its year-to-date high of -214,778 contracts!
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 | 61% | US EQUITIES | 2% | |
| INTL EQUITIES | 0% | COMMODITIES | 0% | |
| FIXED INCOME | 32% | INTL CURRENCIES | 5% |
THREE FOR THE ROAD
TWEET OF THE DAY
You can ask @KeithMcCullough questions live on @HedgeyeTV at 830am ET. Watch here: http://youtu.be/vsuii37pyX0
@Hedgeye
QUOTE OF THE DAY
There is nothing more genuine than breaking away from the chorus to learn the sound of your own voice.
-Po Bronson
STAT OF THE DAY
Latin American Equities moved closer to #crash mode, down -6% on the week to -16.1% year-to-date.
