Welcome to 2015!

Client Talking Points

EURO

Mario Draghi is out daily now with jawboning and lobbying for QE at the JAN 22nd meeting – he’s clearly concerned about A) what markets have been signaling (#deflation) and B) not having German support (yet). The Euro moves to immediate-term oversold within its $1.20-1.22 risk range.

OIL

Oil up on the EUR/USD oversold signal? That’s definitely what you should be thinking about with the USD overbought – any Down Dollar day should provide a bone for knife catchers who continue to buy oil futures/options contracts – risk range for WTI is finally tightening (implies less volatility) to 52.61-55.38.

PMIs

If you ask the global manufacturing PMI data for December, the world slowed – not only did the U.S. Markit PMI readings slow, but both China and all of Europe was either flat to down month over month vs. November. Global #GrowthSlowing + #Deflation keeps the Long Bond (TLT) my top Big Macro Long idea right now.

Asset Allocation

CASH 55% US EQUITIES 5%
INTL EQUITIES 2% COMMODITIES 0%
FIXED INCOME 30% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
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.

Three for the Road

TWEET OF THE DAY

COMMODITIES: after crashing in the last 6 months of 2014 #deflation remains an obvious risk

@KeithMcCullough

QUOTE OF THE DAY

Don't be a spectator, don't let life pass you by.

-Lou Holtz

STAT OF THE DAY

German bonds yields hit a new record low on Tuesday, ending 2014 with their biggest annual fall in six years.