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Mutual fund manager, CFA, registered investment advisor, macro
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"Here we are, trapped in the amber of the moment. There is no why." - Kurt Vonnegut

Markets fell last week despite consumer confidence reaching its highest level since 2007 and what appeared to otherwise be an okay GDP report. The corrective risks Ed Dempsey and I have been highlighting since the start of the month have resulted in the first down October since 2008 (should there be no recovery in the next few days), with many commentators in the financial media arguing that this is simply "profit-taking" after such a big run-up in stocks. After all, stocks "always" correct after a big advance, right? All is well, economic data is improving, and the "Bernanke Put" is very much in place, right?

Well - at least that is the argument of the Nouveau Bulls who largely missed the rally off of the June 4th melt-up lows. The problem is few are looking at the inconsistencies underway within the market and asking "why." If all is well, then why has the Technology sector completely cratered relative to the S&P 500 in recent weeks? Why are low beta/high dividend sectors outperforming again? Why is the 30 Year Treasury unable to definitively break above the panic 3% level if QE3 is reflationary? In short, why is the deflation pulse beating?

This is a curious moment for risk assets. Reflation has been a major theme of ours all year following the Summer Crash of 2011, and up until QE3 it was the right way of thinking. The problem in the here and now is that market expectations are not acting the way one would think they should given prior iterations of monetary stimulus. As I have said in my numerous writings and media appearances recently, it is as if the market is saying unlimited is not enough. Is it because revenue has been such a disappointment? Or because of the fiscal cliff? Maybe, maybe not, but the fact that the yield curve has failed to steepen meaningfully means there is tremendous skepticism within the markets in the near-term. We seem to be living in a type of Bizarro world as Ed Dempsey mentioned in his latest ATAC Market Take video.

Our ATAC models used for managing our mutual fund and separate accounts remain defensive on equities, favoring bonds until enough improvement takes place to warrant another full "risk-on into stocks" juncture. While we maintain that new all time highs are likely, we have to be respectful of price and expectations. As I always say, what we think does not matter at the end of the day. What matters is what the person we're selling to thinks, because that is the person who sets price.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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.