Global Investment Themes in Eight Charts

Here we present just 8 charts that show the financial markets as they stand right now. We will keep things simple so that even an economist a 1^st year finance student can understand our reasoning.

Since the recent general collapse, these tradable trends appear to have established themselves:

• Advancing: Equity markets - small caps through to the S&P100
• Advancing: Corporate bonds, particularly high yield
• Advancing: Commodities, particularly industrial
• Advancing: High yield currencies
• Declining: US Dollar
• Declining: US Treasuries
  

Once we see that a trend is in progress, the question we ask ourselves on a weekly basis is "are these about to breakdown & reverse?".

To answer this we look for signs of weakness in the "risky" securities. We include such things as small-cap equities, junk grade corporate bonds, industrial metals and high yield currencies in this definition.

So let us now look across the major markets.

Equities

Who would have predicted new multi-week hights for Dow World Small Caps and the Dow World. The risky assets in this class, Dow World Small Caps, is show no signs of a breakdown or reversal.

Fixed Income

The recent behavior of TLT, which we use as a proxy for the US Treasury market, has us somewhat stumped at the moment. We were expecting it to continue its downward slide, instead it essentially moved sideways for the past two months. We feel somewhat validated by its refusal to break to the upside and the steady advance of Junk grade bonds.

Commodities

Whilst not exactly dynamic, CRB is ebbing in a classic bullish pattern; a series of higher highs and higher lows. The foundation of commodities (industrial metals) is show no sign of a reversal.

Currencies

Is anyone bulling on the USD? We see it continuing its slide with High Yield currencies being the beneficiaries.

We can now answer our question; "are the tradeable trends we have indentified about to breakdown & reverse?".

Markets are funny things. Financial market asset prices are largely determined by the perceptions of future values as determined by the "market" or the crowd. We get confused by reading & watching a significant amount of media commentary. Very little seems to match what we are seeing.

Our quick glance shows no sigificant breakdown in these areas so we conclude that the above trends will continue. Should some form of weakness been apparent we would have delved more deeply, however the market has spoken and we are wise enough to listen and act accordingly.

We don't pretend to look into the future, we only try to identify tradeable trends ride these as far as we can. Based on what we see, we will continue to hold our positions and buy on any dips.

Disclosure: Long DBC, TBT, FXA, EEM, SLV, JNK, DIA and IWM.

Comments

[whidbey:]

The trend in place is the trend to believe. Where can it end but with some further inflation? The question is what policies are ahead of US when it become evident that many of the stimulus parts are not working or were never designed to work? I think inflation is just a matter of time, in the meanwhile enjoy the deflation while it lasts.

Aug 25 04:43 PM