CLIENT TALKING POINTS
#DEFLATION
Both on a reported basis in Europe this morning (Spain CPI for DEC -1.1% year-over-year vs. -0.4% NOV; Italy PPI -1.2% year-over-year NOV) and in real-time market price terms (Oil down, Russia -2.3%, CRB Index crashing to year-to-dare lows, etc.), this is obvious now; don’t lose money being long it.
UTILITIES
When you have global growth slowing and #deflation you buy the Long Bond (TLT), and anything liquid equities that looks like a bond – Utilities led U.S. Equity gainers (again) yesterday, +1.2% on the day to a monster +29.3% year-to-date.
VOLUME
Total U.S. Equity Market Volume (including dark pool) at the all-time closing high for SPY was -14% and -33% vs. its 1 month and year-to-date averages yesterday. In size, we would much rather be long TLT than SPY with this illiquidity setup in stocks looking very similar to the end of SEP and NOV (before the 10% and 5% abrupt corrections in early OCT and DEC).
TOP LONG IDEAS
EDV
The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1. Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.
TLT
As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.
XLP
Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deflation. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative. Consumer Staples is as good as any place to hide as the world clamors for low-beta-big-cap-liquidity.
Asset Allocation
| CASH | 56% | US EQUITIES | 3% | |
| INTL EQUITIES | 2% | COMMODITIES | 0% | |
| FIXED INCOME | 32% | INTL CURRENCIES | 7% |
THREE FOR THE ROAD
TWEET OF THE DAY
RUSSIA: so much for the "bounce", Russian stock market down another -2.3% to -43.8% YTD #deflation
@KeithMcCullough
QUOTE OF THE DAY
The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth in what seems to be an instant.
-Robert Kiyosaki
STAT OF THE DAY
Only about 9% of the wealthiest 1% of Americans’ total net worth is tied up in their home. That’s compared to 63% for the broad middle class.
