Yen, Russia and Sentiment

Client Talking Points

YEN

Selling Burning Yens (on the bounce) vs. ramping U.S. Dollars made sense again last week. The Yen is down another -0.3% to $119.81 with no immediate-term support to $120.63 (still bullish for Nikkei, which was +0.1% overnight and is closed tomorrow), this is also bearish for Oil on the bounce (Dollar Up).

RUSSIA

Things that crash…bounce. The RTSI is +4.2% this morning after being up big on Friday, but still -42% year-to-date (which means only +72%, from here, to get whoever owned it up there back to breakeven!); massive resistance for the Russian Trading System in the 885-912 range (no support to 623).

SENTIMENT

Someone definitely didn’t want the S&P 500 to fall into year end; massive ramp in SPX (Index + Emini) futures/options of +104,196 contracts last week, putting the net LONG position at +153,107 contracts (vs. the 3 month average of +19,661 and easily the biggest net long position of the year).

Asset Allocation

CASH 56% US EQUITIES 5%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 31% INTL CURRENCIES 8%

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

OIL: #deflation of -4.6% since June (needs to be +82%, from here, to get back to that breakeven) #DrawDownMath

@KeithMcCullough

QUOTE OF THE DAY

Practice isn't the thing you do once you're good. It's the thing you do that makes you good.

-Malcolm Gladwell

STAT OF THE DAY

Today, UPS will deliver 34 million packages, more than any other in its history.


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