Client Talking Points
Don’t forget what triggered #Deflation’s Dominoes to begin with (Japan and Europe burning their currencies = Dollar Up, Oil Down, Commodity Correlation Crash, High Yield Spread Rip, etc.) – we signaled short Yen, buy Nikkei on Tuesday (#timestamped 10:29AM in Real Time Alerts), and still like that Macro Idea to express #Quad4 deflation.
3 big things happened this morning (German deflation of -0.9% year-over-year in the NOV PPI, central planning talk of making QE the periphery’s burden, and Italian, Spanish, Russian equity markets all resuming their bearish TREND declines); we do not think ECB President Mario Draghi can get a big thing done in JAN to stem this European Equity draw-down.
XOP (Oil & Gas Stocks)
On the bounce yesterday we registered another big time SELL signal not in the almighty navel gazing Dow, but where the alpha is at on the short side = Energy Stocks! From a Macro Themes perspective, we’ve had this SELL idea on for the entire quarter, and say short more into the end of the quarter.
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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
Watch @KeithMcCullough on @FoxBusiness w/ @MariaBartiromo at 9am ET for a full hour. They'll talk markets, economy and more.
QUOTE OF THE DAY
Stop walking through the motions of a conditioned routine and start consciously taking action on your visualized intent.
STAT OF THE DAY
Russia derives about 50% of its budget revenue from oil and natural gas taxes and 25% of its GDP is linked to the energy industry.