CLIENT TALKING POINTS
Pound
Getting pounded to new post Brexit lows of $1.31 this morning and the UK 10yr Gilt Yield is down another -4bps to a new low of 0.79%... *burning your currency and breaking the mechanism by which banks make money doesn’t work, in the end.
Europe
European stocks had their bear market bounce last week (EuroStoxx600 +3.2% on the week), but have given back a large % of those gains already this week and mostly remain in crash mode, with France’s CAC40 re-entering that risk zone at -1.7% this am (-20.5% from the 2015 Global Equity #Bubble high); Spain -2% to -32% from its 2015 cycle high.
UST 10YR
While “stocks” have these 1 week ramps, you have to take on a lot of volatility to time those returns – with the Long Bond and it’s proxies, both absolute and volatility adjusted returns have been awesome. All-time low this am for the US 10yr of 1.38% ahead of the Friday jobs report and the Q2 Earnings Recession season.
TOP LONG IDEAS
TLT
Since equity markets peaked last summer, TLT has been a resilient and less volatile source of absolute alpha, and the good news is that spotting the opportunity requires a daily data grind and a wrestling with reality more than a sky-high IQ:
- S&P 500: +0.1% Y/Y
- TLT: +22.0% Y/Y
Brexit, Frexit, Yuan devaluation – whatever the story, investors are paying higher premiums for the safety and appreciation potential of the long bond, a source of long-standing outperformance in this #GrowthSlowing environment. Moving into 2015, net futures and options positioning shows that traders had the largest net short position in the 10-year Treasury of the entire cycle, as most were positioned for rate hikes and a “lift-off economy."
GLD
It was another week of all-time lows in long-term Treasury yields and YTD highs in Gold (GLD), Treasury Inflation-Protected Securities (TIP), and Long Bonds (TLT is at a new all-time high!) as the rotation out of volatile equity markets continues.
TIP
See above update on TLT/GLD.
Asset Allocation
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 7/4/16 | 58% | 0% | 0% | 12% | 26% | 4% |
| 7/5/16 | 60% | 0% | 0% | 10% | 26% | 4% |
Asset Allocation as a % of Max Preferred Exposure
| CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
|---|---|---|---|---|---|---|
| 7/4/16 | 58% | 0% | 0% | 36% | 79% | 12% |
| 7/5/16 | 60% | 0% | 0% | 30% | 79% | 12% |
THREE FOR THE ROAD
TWEET OF THE DAY
CHART OF THE DAY: The March To All-Time Lows In Sovereign Yields app.hedgeye.com/insights/52120… via @KeithMcCullough #Bonds
@Hedgeye
QUOTE OF THE DAY
“The price of freedom is eternal vigilance.”
–Thomas Jefferson
STAT OF THE DAY
Madison Bumgarner has a career ERA of 2.96.