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Michael A. Gayed, CFA
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Michael A. Gayed, CFA, winner of the 2014 Dow Award and 3rd Place Wagner, is chief investment strategist and co-portfolio manager at Pension Partners, LLC., an investment advisor which manages mutual funds and separate accounts according to its ATAC (Accelerated Time and Capital) strategies.... More
My company:
Pension Partners, LLC
My blog:
Pension Partners Blog
My book:
Intermarket Analysis and Investing: Integrating Economic, Fundamental, and Technical Trends
View Michael A. Gayed, CFA's Instablogs on:
  • ATAC Week In Review – October 7, 2012: Refresh The Fear

    "Uncertainty will always be part of the taking charge process." - Harold S. Geneen

    Markets rose in the first full week of the 4th quarter as risk sentiment improved on the global front (or so it would appear). The continued theme of global monetary easing continued as Australia cut its interest rates further to spur domestic demand. U.S. economic data continues to show robust improvement, as vehicle sales accelerate to levels not seen since early 2008, and as the unemployment rate dropped to 7.8%. On the Europe front, Spain's bond yields fell and a surge in Greek stocks is signaling that money is getting comfortable with the Eurozone.

    And yet, as I have been noting in my most recent series of writings and on Twitter (@pensionpartners), intermarket trends are warning of uncertainty here. As followers of our firm know, we have been highly bullish on stocks all year, even throughout the April-May "mini-correction" when we positioned into bonds to avoid the decline that happened then in equities. Forced reflation remains the most likely course of action, and in our latest seasonal call (the Fall Catalyst of 2012) we argue that markets will make new all-time highs in the next three months.

    However, as I stated on CNBC (http://video.cnbc.com/gallery/?video=3000120361&play=1), we have to caution our followers in the very near-term. Market internals do not look that enticing here, as defensive sectors show strength. The odds of a minor correction which could send the Dow back to 13,000 are rising in the here and now, all within the context of new all time highs to come. Our ATAC models used for managing our mutual fund and separate accounts is sensing this, and has kept us considerably more defensive than we were two weeks ago.

    Could intermarket trends reverse and improve, causing stocks to push higher in an unabated way? Absolutely. Our ATAC strategies are weekly oriented, and could easily position aggressively back into stocks should things improve meaningfully enough to warrant that next week. But because we live in a world of probabilities and never certainties, we respect that the odds in the here and now for a decline are rising. It would appear that next week will be an important one to see just how real a pullback could be. However, anecdotally I can tell you that the type of pushback from bulls on Twitter in terms of my short-term bearishness is reminiscent of the type of pushback I got on June 4th by bears when I argued in my writings for another stock melt-up to occur. There appears to be a strange feeling by the crowd that a correction simply cannot happen because of "unlimited" money printing. I find this to be a dangerous idea to believe in. As Ed Dempsey told me last week, now might be the time for market to "refresh the fear."

    Finally, it is worth noting that year to date the S&P 500 on a total return basis is up over 18%, making 2012 one of the best years in the past decade next to 2003 and 2009. One of my more ambitious calls back in January was that 2012 could play out like 2003/2009 in terms of being a year of reflation, and which in turn could result in stocks rising somewhere in the range of 30-40% for the year. Many believed the call to be absurd, and yet we are only 10% away from that happening. Yes - it is entirely possible in the next three months markets stage one more big push, resulting in that idea coming true.

    Time will tell of course. Our ATAC models are flexible enough to go into or out of stock and bond ETFs as conditions warrant. In the near-term, we are tactically defensively positioned away from stocks, but fully expect that an end of year surge can shock people back into chasing equities.

    Looks like it will be an interesting Fall.

    Sincerely,
    Michael A. Gayed, CFA
    Chief Investment Strategist
    Pension Partners, LLC
    www.pensionpartners.com
    Twitter: @pensionpartners
    YouTube: youtube.com/pensionpartners

    Summary of Writings Published Last Week:

    The Lead-Lag Report: October Correction Warning - http://www.minyanville.com/business-news/markets/articles/October-Correction-Warning-Market-internals-bear/10/2/2012/id/44597

    Copper Pause Signaling October Correct? - http://www.minyanville.com/trading-and-investing/commodities/articles/jjc-ivv-copper-IWM-iPath-Dow/10/3/2012/id/44656

    From Hesitation to Correction? - http://www.marketwatch.com/story/from-hesitation-to-correction-2012-10-01

    Wal-Mart Indicator to Bulls: Be Careful - http://www.marketwatch.com/story/wal-mart-indicator-to-bulls-be-careful-2012-10-04

    No -It's NOT the Romney Rally - http://www.marketwatch.com/story/no-its-not-the-romney-rally-2012-10-05

    Spain Weakness Returns - http://www.forexpros.com/analysis/spain-weakness-returns-138414

    Are EM Currencies Sending Risk-Off Warnings - http://realmoneypro.thestreet.com/articles/10/03/2012/are-em-currencies-sending-risk-warning

    The Extreme Movers Message - http://www.thestreet.com/story/11725919/1/the-extreme-movers-message.html

    Homebuilders Tired Post QE3 - http://seekingalpha.com/article/896951-homebuilders-tired-post-qe3

    Need vs.Want Trade Warning of a Correction - http://seekingalpha.com/article/905241-need-vs-want-trade-warning-of-correction

    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.

    Oct 07 9:48 AM | Link | Comment!
  • Week In Review – September 30, 2012: October Correction?

    "Audacity augments courage; hesitation, fear." - Publilius Syrus

    Last week, I unveiled my next major seasonal call for markets. Following my series of writings on the Summer Crash of 2011, Fall Melt-Up, Winter Resolution of 2012, Spring Switch, and Summer Surprise, I began making the case for the "Fall Catalyst of 2012, or the Great Cognitive Dissonance." My premise for the next three months is that an acceleration into equities will occur as worldwide headlines read "Dow Hits New All-Time Highs" coinciding with a weakening U.S. dollar, and led by emerging markets. For more on this idea, check out one of my CNBC segments discussing the idea at http://video.cnbc.com/gallery/?video=3000118616&play=1.

    Note that I specifically am addressing the idea that stocks make these new highs at some point during the Fall. Within my various writings last week and on Twitter, however, I have been sounding the alarm that market internals were deteriorating in a very sudden way. The bear trade of high dividend/low beta sectors began showing leadership once again as bonds continued their rally, essentially undoing the breakdown that followed in the aftermath of the Fed's QE3. Spain's IBEX stock market index fell over 6% on the week, and yields began rising on its debt once again. For whatever reason, the initial euphoria over QE-unlimited suddenly starting showing signs of reversal as markets "hesitate" in the very near-term.

    It is unclear if this means another "mini-correction" similar to what happened in May happens again in October. Our ATAC (Accelerated Time And Capital) strategies used for managing our mutual fund and separate accounts positioned us fully out of equities on Friday, rotating into bonds as defensiveness gets favored. Given the possibility that this could be a false signal based on end of 3rd quarter rebalancing noise, next week should provide more clarity on just how severe any further intermarket deterioration will be.

    Independent of this short-term period, however, forced reflation seems more likely than not to continue to push equities higher into the end of the year. With earnings soon to be announced, the reaction by price will be important to see just which way sentiment is likely to go. Keep in mind that by all metrics the S&P 500 Total Return has already had a huge year, gaining more than 15% in the face of tremendous skepticism. With the Presidential election coming up, it may make sense for equities to take a bit of a breather here and consolidate. For purposes of ATAC, it may with hindsight be a good quick trade to position out of stocks until more clarity in price movement appears.

    We remain broadly optimistic into the end of the year on the reflation trade. However, to be ultra clear here we are not believers in buy and hold investing. Our entire approach is based on a buy and rotate disciplined methodology based on identifying the conditions under which stocks or bonds perform well. There has been much concern over what could happen in 2013, and on our end we have no idea what the probabilities favor just yet. The short-term is considerably more predictable than the long-term, and our approach is designed to exploit that as best as possible in a world of continuous booms and busts, interventions by fiscal and monetary authorities, and in an environment dictated by the "madness of the crowds" which push prices up and down.

    As always, thank you for tracking our analysis and work. Feel free to sign up to our YouTube channel at www.youtube.com/pensionpartners. Ed Dempsey and former CNBC/CNN anchor Carrie Lee are upping the quality of our video presentations on a weekly basis, and we would greatly appreciate comments/feedback so that we can continue to improve. Feel free to tweet questions Ed can address to me on my Twitter handle @pensionpartners.

    Sincerely,
    Michael A. Gayed, CFA
    Chief Investment Strategist
    Pension Partners, LLC
    www.pensionpartners.com
    Twitter: @pensionpartners
    YouTube: www.youtube.com/pensionpartners

    Summary of Writings Published Last Week:

    The Lead-Lag Report: Market Hesitation - http://www.minyanville.com/business-news/markets/articles/xlf-sly-tip-xlk-xlu-ief/9/25/2012/id/44360

    Market Hesitation, Dividends, and the Fall Catalyst - http://www.minyanville.com/business-news/markets/articles/michael-gayed-fall-catalyst-equities-correction/9/26/2012/id/44444

    Corrective Hesitation and the Fall Catalyst - http://www.marketwatch.com/story/corrective-hesitation-and-the-fall-catalyst-2012-09-26

    Fall Catalyst to Keep Boosting Miners - http://www.marketwatch.com/story/fall-catalyst-to-keep-boosting-gold-miners-2012-09-28

    Preferred Better than Treasuries Post QE3 - http://www.forexpros.com/analysis/preferreds-better-than-treasuries-post-qe3-137488

    Decision Time for the Yen/Euro Trade - http://realmoneypro.thestreet.com/articles/09/25/2012/decision-time-yeneuro-trade

    The Fall Catalyst of 2012, or the Great Cognitive Dissonance - http://seekingalpha.com/article/891961-the-fall-catalyst-of-2012-or-the-great-cognitive-dissonance

    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.

    Sep 30 7:33 PM | Link | 3 Comments
  • Week In Review – August 26, 2012: QE…4?

    "How many legs does a dog have if you call the tail a leg? Four. Calling a tail a leg doesn't make it a leg." - Abraham Lincoln

    Stocks declined marginally last week ending a strong string of gains as investors digested the latest minutes from the Federal Reserve indicating that new stimulus may be pushed through. Some volatility has crept in, however, given uncertainty over near-term policy action in the face of economic data which is improving. On Wednesday, I was asked on CNBC (http://video.cnbc.com/gallery/?video=3000110151&play=1) if the Fed really had room to act on another round of Quantitative Easing in the face of an economy which is not contracting. My response was simple - the Fed has a long history of overreacting to weak growth, which in turns creates booms but inevitable busts afterwards. Given paranoia over not reaching escape velocity in the economy with the fiscal cliff looming, it would make sense for the Fed to want to act sooner rather than later to help counteract future headwinds.

    Having said that, make no mistake that even though the media continually refers to "QE3," the reality is that Quantitative Easing already happened. Ed Dempsey and I have long argued that the fear trade and negative narrative caused QE3 to be you and me, pushing rates to all-time historic lows. Here we are with the S&P 500 near record highs, and a recovery underway in housing, both of which are more stimulative to the economy than central bank action. More so than that, however, consider that there could be a 4th quarter surprise in economic activity as a lagged response to historic low interest rates on the long-end of the curve. People tend to forget that low rates act with a lag on the economy. What this means is that 30 Year Treasuries hitting historic lows has not yet filtered through into the economy just yet.

    I suspect the Fed is less important now than most think. The world is ultimately waiting on the European Central Bank to explicitly announce its own form of quantitative easing through targeting and capping government yields. Those that have been following my media appearances are aware that I brought up this idea a few months ago as the most likely course of outcome for Europe. By putting a ceiling on Spanish and Italian bond yields, the ECB can keep the pressure on governments to continue austerity, but not to the point where contagion and a 2008 repeat happens. Prevent the event (or at least the perception of it through a bond ceiling), and rally on.

    Indeed European equities have markedly improved, which is bullish for global markets given the benefits of rising collateral values on easing economic strain. Should the People's Bank of China also begin to act, then Chinese stocks which are at March 2009 levels could also begin to rally meaningfully and increase animal spirits. As Ed Dempsey stated in our latest "Inflation Rotation Watch" video (http://www.youtube.com/watch?v=ZJhiSLu6dR8&feature=plcp), ATAC has been flirting with emerging markets which we expect will be the next leader within the global equity landscape in the very near future. We remains fully allocated to equities as inflation expectations continue to increase.

    One final note on markets I think is worth addressing. The Summer Surprise and "end to the end of the world trade" which I wrote about on June 20th (http://www.marketwatch.com/story/the-end-to-the-end-of-the-world-trade-2012-06-20) has indeed taken place, and intermarket trends suggest this move is not over yet. I have seen many pundits argue that the entire rally is driven by central bank hope and action. I find this to be rather curious since factually the U.S. stock market has been strong all year with the exception of the May "mini-correction" in the absence of aggressive Fed or ECB policy action. That aside, even if you were to argue the market is rallying on hope, doesn't it always? The future is always unknown, which means by definition any kind of uptrend is ultimately driven by hope - the hope that our vision of it plays out the way we think. If the environment is indeed characterized by central bank policy action, does that mean one should not take advantage of it? We remain highly positive on stocks, and believe that the potential for a chase into risk-assets is high by money which has badly lagged the S&P 500 this year.

    On the business front, we are nearing the final stages of our upcoming mutual fund to be launched in September and which will be offered alongside our separate accounts. We are also going to be bringing on some new faces to the firm, one of whom may actually be familiar to long-term viewers of CNBC and CNN. Finally, please feel free to email comments as it relates to our website (newly re-designed) and this e-newsletter, which as I mentioned is now being handled by a new company.

    As always, thank you for your interest in Pension Partners, and feel free to reach out to us any time.

    Sincerely,
    Michael A. Gayed, CFA
    Chief Investment Strategist
    Pension Partners, LLC
    pensionpartners.com
    Twitter: @pensionpartners
    YouTube: youtube.com/pensionpartners

    Summary of Writings Published Last Week:

    The Lead-Lag Report: The Bull Rebellion Strengthens - http://www.minyanville.com/business-news/markets/articles/gayed-michael-gayed-energy-xle-oil/8/21/2012/id/43357

    Gold to Bears: Pay Attention - http://www.minyanville.com/sectors/precious-metals/articles/gold-stocks-ben-bernanke-interest-rates/8/23/2012/id/43453

    Are the Melt-Up and Summer Surprise Over? - http://www.marketwatch.com/story/are-the-melt-up-and-summer-surprise-over-2012-08-22

    Silver Looking Brighter than Gold - http://www.forexpros.com/analysis/silver-looking-brighter-than-gold-133569

    Whispers of a Gold Resurgence - http://realmoneypro.thestreet.com/articles/08/26/2012/whispers-gold-resurgence?cm_ven_int=homepage-featured

    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.

    Aug 26 3:59 PM | Link | Comment!
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