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Mutual fund manager, CFA, registered investment advisor, macro
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"Better than a thousand hollow words, is one word that brings peace." - Buddha

Stocks rose to new highs last week, with the NASDAQ 100 (NASDAQ:QQQ) having its longest winning streak ever on the heels of Bernanke's testimony and continued reminders that the Fed will stimulate into the foreseeable future. Bond yields fell as data on the housing front suggested that higher rates may be serving as a headwind, with housing starts and mortgage applications falling more than estimated. Higher gasoline prices (NYSEARCA:UNG) and rising Oil (NYSEARCA:USO) for now seem to be largely ignored by investors as the U.S. stock market seemingly enters a euphoria stage regardless of fundamentals and disappointing revenue outlooks from large-cap companies.

The sentiment seems to be aggressively shifting as FOMO (Fear of Missing Out) takes hold of investors who believe further gains remain ahead in the bull market of U.S. stocks. As I wrote last week in one of my most read writings of the year, the perspective on the bull market is incorrect given that most asset allocation strategies are significantly underperforming. Mean reversion would suggest that at some point, U.S.-only momentum will become exhausted and other areas will turn to leaders. Emerging markets are getting very close to that with a bit more confirmation.

Our ATAC models used for managing our mutual fund and separate accounts have not changed, continuing to favor bonds over stocks in the near term. The pace of stock market gains seems highly unsustainable, unless we are in the midst of a 1999-like juncture which ultimately turns out into a very big disappointment for those wanting to chase asset values higher. The greater fool theory argues that its okay to buy high as long as you sell higher to the next greatest fool. That works, of course, until you are the last fool. It has become increasingly clear that 2013 has been an outlier in terms of traditional market behavior, while everything else around the globe has acted more in line with historical cause and effect relationships.

One does not make a trade of an investment in order to buy hindsight, but rather the future probability of returns. The U.S. has had a phenomenal run which has surprised most. That does not mean such gains will continue into the near future. Our strategies are designed around consistently observed market relationships, and not outliers. It is entirely possible that the U.S. stock market corrects or stalls in the months ahead while other areas of the investable landscape play catch-up. After all, if you believe the U.S. stock market is right about future growth, its hard to believe nothing else participates.

Source: ATAC Week In Review: July 21, 2013 - Bernanke's Words

Additional disclosure: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.