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

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

VYM

See update above.

TLT

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%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

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.