From a U.S. source but not verified, FYI
In light if today’s massive move higher in risk markets we thought that we might share with you a few pertinent dates. Swap lines were initiated between the Federal Reserve - ECB and Swiss Central Bank on 12/12/07. Remember TAF?? The market closed at 13473 on 12/12/07 only to find itself at 12000 within a month’s time.
Lehman Collapsed on 9/15/08. Swap Lines were initiated with the Bank of Japan, Bank of Canada and the Bank of England on 9/18/08. Those lines were expanded to include Australia, Norway and Denmark on 9/24/08. The market was at 10600 on 9/17/08 and would rally 700 points in the next 2 trading days. It would reverse course and close at 8450 in 3 weeks on 10/10/08.
On October 13, 2008 the Fed took off the limits on Swap Lines and the market rose 930 points the next day from 8451 to close at 9387. The market would reverse course again and close at 8175 within two weeks.
Swap lines were extended with the Central Banks of New Zealand, Brazil, Mexico, Korea and Singapore on 10/28-29/08. The market rallied 1400 points in 5 trading days from 8200-9600 only to find itself at 7550 within the next month.
The difference in 2011 is that we haven’t had a large systemically importance institution fail – yet. Was this response to the crisis done with the knowledge of an impending failure? This was the response that worked to settle markets – eventually- last time. The Fed is trying to stay out in front of this crisis. Did they get out in front of a looming large systemic failure which would have been brought on by a lack of liquidity??
Arthur Cashin would always say that history doesn’t repeat but it does tend to rhyme. I have been getting the feeling that we have been whistling past the Graveyard of 2008. Feels like things are starting to rhyme. Stay patient. Stay nimble.
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Thursday, December 1, 2011
Friday, June 17, 2011
Beware of Divergences!
Recent market behavior would suggest that analysts may be clinging to overly optimisitc expectations. Weakness in energy, metals, semiconductors, machinery, and economically sensitive Aussi and Cdn dollars is telegraphing a belief that risks are rising. Complacency is the enemy of investment success. We have to understand the message that the market is sending and pay attention.
When consensus says one thing and the market says the other, the market generally gets it right.
Wednesday, June 1, 2011
Barometer Readings - June 1, 2011
We continue to experience broad based rotation across asset classes into stable yield generating securities which include high dividend paying common stocks, REIT's, High Yield Bonds and virtually all fixed income including government debt. The Barometer team believes that our investors are best compensated with the generous spreads in the Canadian high yield bond market and common equity that has a record of raising dividends and stable cash flow yield.
Barometer Capital Management's broad cross section of equity risk indicators continue to point toward consolidation. When coupled with a steady stream of weakening economic indicators, our process dictates we remain focused in market leading themes which include defensive sectors, dividend paying equities and an elevated cash position.
Please find enclosed this week's Private Pool Holdings, as of May 30, 2011.
We continue to experience broad based rotation across asset classes into stable yield generating securities which include high dividend paying common stocks, REIT's, High Yield Bonds and virtually all fixed income including government debt. The Barometer team believes that our investors are best compensated with the generous spreads in the Canadian high yield bond market and common equity that has a record of raising dividends and stable cash flow yield.
Barometer Capital Management's broad cross section of equity risk indicators continue to point toward consolidation. When coupled with a steady stream of weakening economic indicators, our process dictates we remain focused in market leading themes which include defensive sectors, dividend paying equities and an elevated cash position.
Please find enclosed this week's Private Pool Holdings, as of May 30, 2011.
http://bit.ly/kMUVdP
Barometer Capital Management's broad cross section of equity risk indicators continue to point toward consolidation. When coupled with a steady stream of weakening economic indicators, our process dictates we remain focused in market leading themes which include defensive sectors, dividend paying equities and an elevated cash position.
Please find enclosed this week's Private Pool Holdings, as of May 30, 2011.
We continue to experience broad based rotation across asset classes into stable yield generating securities which include high dividend paying common stocks, REIT's, High Yield Bonds and virtually all fixed income including government debt. The Barometer team believes that our investors are best compensated with the generous spreads in the Canadian high yield bond market and common equity that has a record of raising dividends and stable cash flow yield.
Barometer Capital Management's broad cross section of equity risk indicators continue to point toward consolidation. When coupled with a steady stream of weakening economic indicators, our process dictates we remain focused in market leading themes which include defensive sectors, dividend paying equities and an elevated cash position.
Please find enclosed this week's Private Pool Holdings, as of May 30, 2011.
http://bit.ly/kMUVdP
Tuesday, May 24, 2011
80 - 60 - 40 Rule Spells Correction
One of our favorite indicators of equity market conditions looks at the percent of stocks within a market that are trading above their long term moving averages (% above the 30 week MA). After hitting a recent high at over 86% in January the % above the 30 dropped to below 60% this week indicating that market breadth is waning.
According to work done by our friends at Dorsey Wright and Associates, of 17 occasions this occured since 1970, the indicator fell to below 40% before the correction had run its course in all but one of the instances. In some cases this measure of market breadth ultimately fell to between 10 and 30% by the time it was done.
16 of 17 occasions over 40 years is a powerful statistic. This would indicate that there could be considerable room for this correction to run before we set up for the next sustainable rally.
Given this and other global equity risk indicators that point to correction, the various Barometer equity mandates currently are playing defence with a significantly reduced equity exposure and an elevated cash weight.
According to work done by our friends at Dorsey Wright and Associates, of 17 occasions this occured since 1970, the indicator fell to below 40% before the correction had run its course in all but one of the instances. In some cases this measure of market breadth ultimately fell to between 10 and 30% by the time it was done.
16 of 17 occasions over 40 years is a powerful statistic. This would indicate that there could be considerable room for this correction to run before we set up for the next sustainable rally.
Given this and other global equity risk indicators that point to correction, the various Barometer equity mandates currently are playing defence with a significantly reduced equity exposure and an elevated cash weight.
Wednesday, May 18, 2011
A More Defensive Stance
A sharp correction in small and mid cap risk assets globally has been well masked at
the index level by active rotation into more heavily weighted, large cap, defensive,
yield oriented, positions. We are now in the third year of a cyclical bull market and
there are rising concerns that the end to QE2, sovereign debt problems in Europe,
tightened reserve requirements in China and focus on deficit reduction in the US
could curtail the recovery. These concerns serve to put more emphasis on the value
of a steady stream of income. It is clear that investors continue to favor yield with
some inflation protection as we see continued strength in common shares with
growing dividends, reits and high yield bonds.
In the world of equities, commodities fell victim to coordinated hikes in margin
requirements which has driven liquidation across the complex. If the goal was to
cool speculative interest, it is clear that in at least the short run, policy makers are
having success.
As is our strategy, we don't fight the tape. Defense in risk assets appears to be the
path best followed until there is evidence to the contrary. Risk models for Canada,
Brazil, China, India and Australia have turned lower. Equity portfolios holdings are
focused in targeted large cap situations where there are catalysts driving rising
earnings estimates and likelihood of re-valuation. Sector exposures include industrials,
telecom, healthcare and consumer. Barometer sector risk models have moved us away
from metals, golds and energy that provided us such strong returns in Q4 2010 and
early 2011. When these factors are paired with weakness in the Nasdaq risk model,
it will be clear why we are operating with a reduced net long exposure across all equity
mandates.
the index level by active rotation into more heavily weighted, large cap, defensive,
yield oriented, positions. We are now in the third year of a cyclical bull market and
there are rising concerns that the end to QE2, sovereign debt problems in Europe,
tightened reserve requirements in China and focus on deficit reduction in the US
could curtail the recovery. These concerns serve to put more emphasis on the value
of a steady stream of income. It is clear that investors continue to favor yield with
some inflation protection as we see continued strength in common shares with
growing dividends, reits and high yield bonds.
In the world of equities, commodities fell victim to coordinated hikes in margin
requirements which has driven liquidation across the complex. If the goal was to
cool speculative interest, it is clear that in at least the short run, policy makers are
having success.
As is our strategy, we don't fight the tape. Defense in risk assets appears to be the
path best followed until there is evidence to the contrary. Risk models for Canada,
Brazil, China, India and Australia have turned lower. Equity portfolios holdings are
focused in targeted large cap situations where there are catalysts driving rising
earnings estimates and likelihood of re-valuation. Sector exposures include industrials,
telecom, healthcare and consumer. Barometer sector risk models have moved us away
from metals, golds and energy that provided us such strong returns in Q4 2010 and
early 2011. When these factors are paired with weakness in the Nasdaq risk model,
it will be clear why we are operating with a reduced net long exposure across all equity
mandates.
Monday, March 28, 2011
Relief rally may be fading.
March break is over and it is back to work!
After a seven day relief rally that brought indices within striking distances of their highs, many saw downside reversals today. We continue to prune lagging positions.
The rally has been on weak volume and many internal indicators have not been able to reverse the damage of the past few weeks. While some leaders have been able to make new highs, there has been rotation and a significant percentage of previously leading companies have lagged, pointing to a tired market.
Breadth models for North American markets continue to point to near term consolidation / correction.
Yield oriented positions remain strong on continued narrowing spreads.
After a seven day relief rally that brought indices within striking distances of their highs, many saw downside reversals today. We continue to prune lagging positions.
The rally has been on weak volume and many internal indicators have not been able to reverse the damage of the past few weeks. While some leaders have been able to make new highs, there has been rotation and a significant percentage of previously leading companies have lagged, pointing to a tired market.
Breadth models for North American markets continue to point to near term consolidation / correction.
Yield oriented positions remain strong on continued narrowing spreads.
Tuesday, March 15, 2011
This is Where it Gets Tactical
At some point, near term macro events overwhelm an otherwise longer-term constructive environment.
Through the fall, while developing and international markets underperformed, developed and specifically North American markets advanced in a broad based rally.
Even through the recent news flow in the Gulf, leading stocks simply consolidated a short term overbought condition. However, the events in Japan over the past few days have washed through an otherwise technically sound equity markets and have now pushed us into correction in many of the leading stocks. Our job is to assess the current market environment and act based on our disciplines when conditions change.
In the end, flow of funds drives markets and stock prices. Short and long term uncertainty has paused equity buyers in their tracks. As a result despite only moderate selling, it has had an out sized impact on prices.
Coming into the recent events, based on our Long Term Risk Models, the various Barometer Equity mandates have been focused almost entirely in North American companies, and more specifically Canada based on the strong currency setup.
Given the near term negative changes in Barometer's LT Risk Models for North America, we reduced higher beta positions and have hedged a significant portion of our continuing common equity exposure. This will be a work in progress. While we recognize that many of the factors are short term in nature, we are not paid to speculate, and managing risk is a big part of our mandate.
We always get impacted in the initial stages of a decline; there comes a point where defensive measures protect against a prolonged decline. The defense is on the field.
In the High Income Mandates, where yield and cash flow are the name of the game, our positions have held up well and continue to meet our tests.
Our monitoring of credit default swaps and other credit market indicators shows very little damage and a VERY different picture than the 2008-2009 setups. Given that both the top down work and bottom up analysis remains positive, we are making very few changes in the High Income holdings.
In all of our mandates, exposures continue to focus on energy (specifically oil and thermal coal), technology (services and communications), and capital equipment. We are also focused on infrastructure and inflation protected yield positions across mandates.
Please click through the following link to view a 10 minute BNN interview from this morning (March15th) discussion of our current views and portfolio strategies
http://bit.ly/fcCmtx
Through the fall, while developing and international markets underperformed, developed and specifically North American markets advanced in a broad based rally.
Even through the recent news flow in the Gulf, leading stocks simply consolidated a short term overbought condition. However, the events in Japan over the past few days have washed through an otherwise technically sound equity markets and have now pushed us into correction in many of the leading stocks. Our job is to assess the current market environment and act based on our disciplines when conditions change.
In the end, flow of funds drives markets and stock prices. Short and long term uncertainty has paused equity buyers in their tracks. As a result despite only moderate selling, it has had an out sized impact on prices.
Coming into the recent events, based on our Long Term Risk Models, the various Barometer Equity mandates have been focused almost entirely in North American companies, and more specifically Canada based on the strong currency setup.
Given the near term negative changes in Barometer's LT Risk Models for North America, we reduced higher beta positions and have hedged a significant portion of our continuing common equity exposure. This will be a work in progress. While we recognize that many of the factors are short term in nature, we are not paid to speculate, and managing risk is a big part of our mandate.
We always get impacted in the initial stages of a decline; there comes a point where defensive measures protect against a prolonged decline. The defense is on the field.
In the High Income Mandates, where yield and cash flow are the name of the game, our positions have held up well and continue to meet our tests.
Our monitoring of credit default swaps and other credit market indicators shows very little damage and a VERY different picture than the 2008-2009 setups. Given that both the top down work and bottom up analysis remains positive, we are making very few changes in the High Income holdings.
In all of our mandates, exposures continue to focus on energy (specifically oil and thermal coal), technology (services and communications), and capital equipment. We are also focused on infrastructure and inflation protected yield positions across mandates.
Please click through the following link to view a 10 minute BNN interview from this morning (March15th) discussion of our current views and portfolio strategies
http://bit.ly/fcCmtx
Tuesday, March 1, 2011
Market Call with BNNs Andrew Bell
A discussion about current markets, leading stocks and sectors and answers to callers questions
http://bit.ly/dEEh1b
http://bit.ly/dEEh1b
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