CLIENT TALKING POINTS
Euro
Last day of the quarter is a good one to reiterate that one of our Top 3 Macro Themes for Q3 and beyond remains #EuropeImploding – a protracted recession in the South of Europe looks like a high probability outcome; it should manifest in reported GDP throughout 2017 – Draghi and European Banks will have to react in kind.
Gold
Since it’s going to be one of the big winners of the Currency War (devalued currencies and the credibility of central bankers lose), it’ll end the month and quarter on a strong note, +0.5% = +25.1% YTD with an immediate-term risk range of $1311-1352/oz.
Rates
My inbox went from choke full of “why rates are gonna rip” mail (2-4 weeks ago) to crickets as the entire complex of long-term global yields falls alongside GDP growth expectations; UST 10yr 1.54% vs. Swiss 10yr -0.60%, 10yr Bund -0.16%; even Dutch 10s go negative this am -3bps to -0.03%.
TOP LONG IDEAS
GLD
We named the current monetary policy committee a group of “dovish hawks” in a research note after Wednesday’s FOMC statement where the Fed tried to convince the market that the case for a December rate hike had strengthened.
“The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”
However, a look under the hood at the committee’s “summary economic projections” provides incremental dovish color (all of which are good for slow-growth allocations and why our macro long positions in Investing Ideas had positive performance w/w).
- The Fed’s dot plot was taken down at all durations into the future
- 2016: revised to +0.625% from 0.875%
- 2017: 1.125% from 1.625%
- 2018: 1.875% from 2.875%
- The median forecast for the Fed Funds Rate in the “long run” was revised down to 2.875% from 3% prior
- 2016 GDP forecast: revised to +1.7%-1.9% from 1.9%-2.0% prior
- 2016 PCE Price Index: revised to +1.2-1.4% from +1.3-1.7% prior
So growth continues to slow, and from our analysis, a significant amount of risk is on the table for investors who have chased reflationary asset prices in 2016.
VYM
See update above.
TLT
See update above.
Asset Allocation
CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
---|---|---|---|---|---|---|
9/29/16 | 65% | 2% | 3% | 8% | 18% | 4% |
9/30/16 | 61% | 2% | 3% | 10% | 20% | 4% |
Asset Allocation as a % of Max Preferred Exposure
CASH | US EQUITIES | INTL EQUITIES | COMMODITIES | FIXED INCOME | INTL CURRENCIES | |
---|---|---|---|---|---|---|
9/29/16 | 65% | 6% | 9% | 24% | 55% | 12% |
9/30/16 | 61% | 6% | 9% | 30% | 61% | 12% |
THREE FOR THE ROAD
TWEET OF THE DAY
Currency Wars: Who Wins, Who Loses app.hedgeye.com/insights/54217… via @KeithMcCullough #fx #euro $GLD pic.twitter.com/Ash3EnbeDv
@Hedgeye
QUOTE OF THE DAY
“That's why I'm very proud of being American. I'm proud to pay taxes. I pay a lot of taxes, but it sure beats the alternative.”
–Payne Stewart
STAT OF THE DAY
Andy Dalton was 22-31 and threw for 296 yards in a win against the Dolphins last night.