It’s Not Different This Time

Client Talking Points

OIL

Epic #Quad4 Deflation (commonly called a crash) continues with WTI down another -3% to $54.25/barrel this morning taking the crash to -49.5%, since June and our refreshed risk range to 53.27-61.15 #LowerLows.

RUSSIA

Mainstream media is figuring out that Russia has been crashing (for months) – that’s helpful; Russia’s panic move (raising rates another +650 basis points) was not – this is how central planning expectations end, abruptly – Russia’s stock market -6.8% this morning to -51.6% year-to-date (Argentina was -8.8% yesterday; Saudi stocks -7.9% this morning).

YEN

Don’t forget that A) volatility in FX, Fixed Inc, Equity, etc. is coming off all-time lows (July) and that B) panic in FX policy perpetuates the volatility accelerating in Global Macro trading; Yen rips to immediate-term overbought this morning and Nikkei loses another -2% (-3.6% in 2 days) in kind.

Asset Allocation

CASH 59% US EQUITIES 3%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 32% 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

$LINE $LNCO Investor Relations (per BBRG News): “The volatility in commodity prices is making it more difficult to put together a budget.”

@HedgeyeENERGY

QUOTE OF THE DAY

Goals live on the other side of obstacles and challenges. Be relentless in pursuit of those goals, especially in the face of obstacles. Along the way, make no excuses and place no blame.

-Ray Bourque

STAT OF THE DAY

The Norwegian krone has fallen to 0.993 per Swedish krone, the lowest since 1992 and below parity for the first time since 2000.


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