Personal Finance
Hint, bet against the US.
Morgan Stanley’s global cross-asset strategy team, led by Greg Peters, is out with its Top 10 Asset Allocation Trades for 2013.
The trades sum up investment bank’s macro views and are fairly straightforward: all of the trades consist of stocks, bonds, and currencies.
One interesting aspect of the team’s recommendations: they are mostly skewed away from investing in U.S. assets, as Morgan Stanley sees other areas they think represent bigger opportunities.
….view the 10 Top Asset Allocation Trades HERE
INSTITUTIONAL ADVISORS
THURSDAY, DECEMBER 27, 2012
BOB HOYE
PUBLISHED BY INSTITUTIONAL ADVISORS
The following is part of Pivotal Events that was
published for our subscribers December 20, 2012.
SIGNS OF THE TIMES
“FOMC is probably the most academically driven in history.” – Dallas Fed President, Richard Fisher, Dec 14
He was, again, commenting on Fed policy and if you think it is Fed-Speak for “dangerously impractical”, you’re right. He continued with:
“We’re going to have an engorged balance sheet and we may never be able to leave this position. We are at risk of what I call a ‘Hotel California’ monetary policy, going back to the Eagles song which is, you can check-out any time you want, but you can’t leave.”
The old saying is “Never fight the Fed”, but what do you do when the Fed is fighting itself?
“The biggest year for debt backed by leveraged loans since the peak in 2007 will be eclipsed in 2013.” – Bloomberg, December 12
“Spanish regional governments have accumulated EU13 billion of unpaid supplier bills in the first nine months of the year.” – Bloomberg, December 12
“Mohammad Safi, a graduate of a medical school in Afghanistan, began working as psychologist at a California mental hospital, making $90,680 in his first six months. Last year, he took home $822,302, all of it paid by taxpayers. A court forced the state to improve inmate care, forcing a bidding war.” – Bloomberg, December 12
PERSPECTIVE
It seems to be time to recall some comments on financial manias by Ludwig von Mises:
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
It is a valid assessment, but the last line should end with catastrophe of the credit system. That would be the next step in our post-bubble contraction. Essentially, Richard Fisher is boldly making sense in a world of wild policymakers. Benjamin Anderson was an economist who wrote a monthly comment when he was with Chase National Bank during the “Roaring Twenties”. While many were not fully aware of what was going on, Anderson got it right. Will the next liquidity crisis arrive “sooner….or later”? Will it be triggered by central bank decision, or by market forces?
CREDIT MARKETS
As the saying goes, “Credit is money of the mind”. In the early 1900s, J.P. Morgan said that he would make a loan to a man, based solely on strength of character. Showing less discrimination, the Fed has been able to “create it out of thin air”. More lately, Bernanke has the ability to “throw it out of helicopters”.
However, another old saying may apply “Credit is suspicion asleep”.
Essentially, the two older observations represent generations of financial wisdom – learned the hard way. As the term implies, credit markets are market driven. And we have noting that the no matter how intense the current central bank experiment has become it will not be successful. The harder the push now, the more severe the pushback.
In the meantime, while we’ve been complacent about corporate bonds there has been a couple of reversals. After reaching an exceptional oversold, the Ted-Spread has taken a turn to widening. We don’t know how significant this is. With T-bill rates at almost zero a few ticks one way or the other can change the yield ratio between bill and the euro rates by an impressive amount. Especially when the Libor rate shows little change.
We’re not sure if it really means anything, but the trend has changed.
It could have something to do with the latest Fed folly. The policy of selling bills to buy bonds (a ploy called Operation Twist) was changed in favor of buying bonds and not selling bills. Just buy everything, other than bills!
Fiduciary responsibility has been displaced by academic theories.
Over in the municipals, the MUB soared up to the most overbought since September 2010 – just before that mini-panic. The price plunged from 99.4 to 90. This time around the plunge from the end of November was fast and amounted to only five points.
A December 12 news report of a downgrade for Illinois from stable to negative might have helped the slide. Oversold now, stability should follow.
Credit markets will remain fascinating until the bubble bursts. The usual technical tools have anticipated modest moves when bigger ones seem possible.
COMMODITIES
Last week, we noted that the stair-step decline in agricultural commodities was approaching an oversold condition. The GKX has continued its decline from 470 last week to 450. At the high of 533 in the July drought concerns, the daily RSI topped at 75, it is now at 28.
Stability is just around the corner.
The interesting thing is that this sector is indicating that, so far as inflation goes, the Fed just can’t the some old “bang for the buck” that they could in the 1970s. Much of the inflationary stimulus has been going into the bond markets.
Coming out of the early November low, base metals enjoyed a decent rally. Last week we reviewed out position for a rally into January. The conclusion was that while the RSI was approaching an overbought, it was time to “declare a victory” and have some Christmas Punch.
Last week’s high was 397 and now it is at 382. There is support at the 375 to 380 level.
Overall, the CRB and crude are at neutral momentum and could trade in a range over the next six weeks.
Link to December 21 ‘Bob and Phil Show’ on TalkDigitalNetwork.com:
http://talkdigitalnetwork.com/2012/12/uh-oh-cliff-hits-the-fan/
BOB HOYE, INSTITUTIONAL ADVISORS
E-MAIL bhoye.institutionaladvisors@telus.net
WEBSITE: www.institutionaladvisors.com
Rising Euro, Falling Dollar and… Correlations Turned Upside Down
This week has brought in some calm after recent declines in the precious metals sector. Everybody seems to be waiting for some more decisive moves (both in the markets and on the part of the government, as the “fiscal cliff” issue has not been resolved yet), but these are not very likely before the beginning of the New Year.
Meanwhile, currency markets have been moving in the direction that makes precious metals investors happy – or should make them happy, were the situation “normal” – i.e. were the correlations between precious metals and the U.S. dollar strong and negative. Quite unfortunately, the situation is far from normal, but this is likely due to the abovementioned “fiscal cliff” problem and the uncertainty caused by the lack of final solution. Let us then move on to the technical part of today’s essay and see what we can figure out from the “gold silver charts” charts and correlations – we’ll start with the euro’s long-term chart (charts courtesy of http://stockcharts.com.)
Recall that “Free Gold, Silver, Precious Metals Articles” two weeks ago, we had discussed that if the index closed above 132, the breakout would be confirmed and higher values likely. A small decline was seen last Friday, but the Euro Index is once again above the 132 level. If it closes the week in this trading range, the breakout above the September high will be confirmed and a further move to the upside likely. The 138 level appears to be within reach if this holds true. All-in-all, the Euro Index picture this week has bearish implications for the dollar.
Now, let’s move on to the U.S. currency – we’ll start with the medium-term chart.
A consolidation has been ongoing for over a month, and the index now appears ready to move lower. The decline and consolidation here are a reflection of the upswing and consolidation seen recently in the Euro Index.
Let’s have a look at the short-term USD Index chart now.
In the chart, there is an interesting development. A small rally lasting a few days has been seen and this makes the current situation quite confusing. The cyclical turning point is upon us and if it wasn’t preceded by a pullback, higher values would be likely to follow. The very short-term trend however has already been to the upside, so we could see a reversal and lower index values. (The Euro Index could continue to rally without a pause as well, or more precisely, after a small pause that is not visible on the above chart that is created based on weekly candlesticks.) In short, it seems that lower values are more than likely to be seen in the USD Index. If the precious metals begin to respond positively to this weakness in the dollar, the short-term picture could quickly become bullish for gold, silver and mining stocks.
To put the above analysis into proper perspective, let’s check the current correlation values.
The “Correlation Matrix “ is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector.
The Correlation Matrix is quite confusing this week as it shows that the coefficients have truly turned upside down. They are pretty much neutral for silver when it comes to the 30-day period, but clearly upside down for the 10-day one, as well as for gold and the precious metals mining stocks.
The strangest picture here is between gold and the USD. Gold generally moves opposite of the USD Index but has been pretty much in tune with it for the last 30 days and has moved in the opposite direction of stocks. In short, the situation is far from normal. However, it seems that this situation will turn back to normal quite soon and the chart below explains why.
The decline in the above chart does quite a good job in representing the simultaneous slide in the dollar and the price of gold (the thing that made the correlations turn upside down in the past 30 trading days). On the above chart we see that the decline is excessive and likely to end or at least pause very soon, so the correlation might return to its normal state in a week or two.
The RSI levels are not much above 30, so further short-term strength is suggested here. If the breakdown is invalidated, the picture then would become clearly bullish.
Summing up, the situation in the Euro Index improved this week while it deteriorated in the USD Index. Since the cyclical turning point in the latter is quite close and a small rally was seen this week, the implications are bearish. If the precious metals sector begins to respond, then much more strength will likely be seen in gold, silver and mining stock prices.
We expect to see a return of the negative correlation between the USD Index and the precious metals very soon.
Use the following link to sign up for a free, no-obligation trial of our Premium Service and read the complete version of this study that is over 10 times bigger. You’ll also receive Market Alerts on a daily basis and when the trial expires, you’ll start receiving our free newsletter. Additionally, you will also receive 12 “best gold practices” gold best practice emails.
Thank you for reading. Have a great and profitable week!
Przemyslaw Radomski, CFA
Founder, Editor-in-chief Sunshine Profits
“trade and invest in gold and silver” Gold & Silver Investment & Trading Website – SunshineProfits.com
* * * * *
About Sunshine Profits
Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of HYPERLINK “http://www.sunshineprofits.com/services-products/investment-tools/gold-stocks-ranking/” \o “gold mining stocks”best gold stocks and HYPERLINK “http://www.sunshineprofits.com/services-products/investment-tools/silver-stock-ranking/” \o “silver mining stocks”best silver stocks), proprietary HYPERLINK “http://www.sunshineprofits.com/services-products/charts/sp-indicators/” \o “gold indicator”gold & silver indicators, buy & sell signals, weekly newsletter, and more. HYPERLINK “http://www.sunshineprofits.com/services-products/services-overview/” \o “gold & silver services overview” Seeing is believing.
Disclaimer
All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski’s, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
This Canadian understands America’s dire situation better than most Americans.
On this lackluster Boxing Day dominated by illiquid moves in every asset class, we thought a few succinct minutes spent comprehending the US and European government policies of social welfare and their outcomes was time well spent. Canadian MP Pierre Poilievre delivers a rather epic speech destroying the myths of US and European ‘wealth’ noting that “Once the US citizen is in debt, the US government encourages them to stay in debt,” noting that “the US government encouraged millions of Americans to spend money they did not have on homes they could not afford using loans they could never repay and then gave them a tax incentive never to repay it.” His message, delivered seamlessly, notes the inordinate rise in the cost of all this borrowing, adding that “through debt interest alone, soon the US taxpayer will be funding 100% of the Chinese Military complex.” From Dependence to Debt to the Welfare State and back to Dependence, this presentation puts incredible context on the false hope so many believe in the US and Europe. Must watch.
Take the 9 minutes or so to listen as he and I think alike.
http://www.zerohedge.com/news/2012-12-26/canadian-summarizes-americas-collapse-everyone-takes-nobody-makes-money-free-and-mon
Peter Grandich
Grandich Publications www.grandich.com
Trinity Financial, Sports & Entertainment Management Co. www.trinityfsem.com
Fiscal Cliff issues continue to weigh on equity markets. The issue intensified after the close yesterday when Secretary Treasurer Timothy Geithner informed the Senate that the statutory debt ceiling will be exceeded on December 31st. The government has the ability to continue to operate until March using various short term accounting measures. However, the pressure is increasing on Congress to reach at least a short term “kick the can down the road” deal that addresses specific issues that expire January 1st. The VIX Index jumped more than 9% yesterday.
…..9 more interesting charts & commentary at top of the page HERE
One of the best known seasonal events on Wall Street and Bay Street is the Santa Claus Rally. The event traditionally happens from just before Christmas Day to just after New Year’s Day. Investors consider price gains during this period as Santa’s gift to equity markets. The event is more than a guy in a red suit coming to town. Influencing factors include upbeat investor sentiment, lighter trading volumes, encouraging economic news, bullish reports by investment dealers highlighting prospects for the following year, expectations for seasonally strong fourth quarter earnings and the investment of year-end bonuses. In addition, equities pressured by year-end tax loss selling frequently rebound from bargain prices.
The Santa Claus rally is the strongest three week period of the year for U.S. and Canadian equity markets. Thackray’s 2012 Investor’s Guide notes that average return per period for the S&P 500 Index from December 15th to January 6th during the past 61 periods was 2.0 per cent. Profits were realized in 46 of the past 61 periods. Returns from the NASDAQ Composite Index were jollier. Average return during the past 40 periods was 3.0 per cent. Profits were realized in 31 of the past 40 periods. The TSX Composite Index since its reconstruction in 2000 has gained in 10 of the past 11 periods. Average gain per period was 3.0 per cent.
Conditions for a Santa Claus rally this year are favourable. Chances are high that Congress and President Obama will resolve the “Fiscal Cliff” before the end of the year. A resolution will remove a major uncertainty for equity market and will set the stage for U.S. and Canadian corporations to employing their huge cash positions. Canadian corporations hold cash equivalent positions valued at more than $560 billion. S&P 500 companies excluding financial institutions hold cash positions valued in excess of $1.5 trillion.
Other news also could help during the current Santa Claus rally. Economic news is improving. Recent economic reports show that growth in Canada and the U.S. is slightly accelerating albeit from a very low level. Growth is supported by record low interest rates in both countries. In addition, investors will begin to anticipate the release of encouraging fourth quarter and annual earnings reports when chief executive officers traditionally try to give shareholders good news. Earnings news from Canadian companies is expected to be better than news from major U.S. companies. Consensus for fourth quarter earnings by the S&P 500 companies is a year-over-year gain of 3.0 per cent. Consensus for Canada’s top 60 companies is a year-over-year gain of 6.3 per cent.
A wide variety of sectors are available with a history of outperforming the market during the year-end rally period: Best performing sectors include Small Caps, Home Builders, Metals & Mining, Biotech, Technology, Industrials and Consumer Discretionary. Exchange Traded Funds with exposure to these sectors include iShares Russell 2000 Index (Symbol: IWM US$84.12), SPDR S&P Homebuilders Index (Symbol: XHB US $26.77), S&P Metals & Mining (Symbol: XME US$29.32), NASDAQ Biotech (IBB US$139.07), Technology SPDRs (XLK US$29.32), Industrial SPDRs (XLI US$38.25) and Consumer Discretionary SPDRs (XLY US$47.91). Equivalent ETFs, that trade in Canadian Dollars, include iShares Russell 2000 Index Canadian Dollar Hedged (XSU $18.30), Global Metals and Mining iShares (CMW $17.63) and BMO Equally Weighted Metals and Mining (ZMT $13.52). All currently have a favourable technical profile.
-
I know Mike is a very solid investor and respect his opinions very much. So if he says pay attention to this or that - I will.
~ Dale G.
-
I've started managing my own investments so view Michael's site as a one-stop shop from which to get information and perspectives.
~ Dave E.
-
Michael offers easy reading, honest, common sense information that anyone can use in a practical manner.
~ der_al.
-
A sane voice in a scrambled investment world.
~ Ed R.
Inside Edge Pro Contributors
Greg Weldon
Josef Schachter
Tyler Bollhorn
Ryan Irvine
Paul Beattie
Martin Straith
Patrick Ceresna
Mark Leibovit
James Thorne
Victor Adair