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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:
  • Week In Review - July 22, 2012: Self-Preservation By ECB?

    "Waiting is painful. Forgetting is painful. But not knowing which to do is the worst kind of suffering." - Paulo Coelho

    Markets rose modestly last week as equities experienced big swings both up and down. Stocks in the U.S. are still holding up nicely from their June low rally, while many European averages are revisiting those levels. Spain continues to be a source of tremendous angst, with its 10 year debt now solidly above 7%. Bond market fear sent U.S. Treasury yields back to all time record lows on a worldwide safety trade over what happens next to the Eurozone, which seems to continually get worse.

    Stepping back for a moment, one would think given the pervasiveness of the negative narrative that stocks would be down in the double digits by now, yet here we are with the S&P 500 hovering around the 10% level on the year, essentially holding on to gains made during the first quarter. On a real return basis (after inflation) by all metrics this has so far been a very good year for equities, yet it is the bond market which continues to get all the love. With many companies yielding more than the 10 year Treasury, stocks have now become a better income play than fixed income. It is only a matter of time until market participants begin to act on this - a delayed "great re-allocation"/Spring Switch which did not happen in the Spring, but is ever more likely the closer bonds get to yielding nothing.

    Clearly it is continued fears over Europe and a Lehman repeat which is holding back that Switch from getting flipped. There is no question that Spain is a massive wildcard in the reflation theme. On one hand, continued increases in Spanish bond yields could scare markets into full blown belief of a deflationary shock to come. On the other hand, the more Spanish bond yields rise, the more likely the European Central Bank is to directly purchase those bonds in a form of Fed quantitative easing to bring bond yields down. This latter option becomes likely logically since a collapse in Spain likely means a collapse of the entire Eurozone. Thus, in an effort for pure self-preservation, the European Central Bank would have to act. This alone might explain why equities in the U.S. have not collapsed, as our markets decouple more and more from Europe.

    While it looked like our ATAC (Accelerated Time And Capital) models were nearing a full blown move back into equities, instead a minor amount of stock allocation was added to our Moderate and Conservative Composites. ATAC remains biased towards being defensively positioned in bonds given market internals which, as I have noted in my most recent series of writings, deteriorated following July 5th. Still, we remain within a hair trigger of repositioning fully back into stocks. I remain unconvinced of a deeper correction or mini-correction sequel as the bear paradox remains alive and well. Stocks may simply be in a holding pattern, waiting for the next "fix" to Europe's seemingly never ending crisis.

    On the business front, we remain very excited for the upcoming launch of our mutual fund to be offered in additional to our separately managed accounts. You may have noticed our logo has changed (top left of this email). We are revamping our website as well and are looking forward to rolling out our various initiatives in the next two months.

    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:

    Oil to Bears: You're Wrong - http://www.minyanville.com/trading-and-investing/commodities-and-options/articles/Oil-strength-oil-bears-IEZ-ivv/7/19/2012/id/42567

    Wal-Mart Indicator Goes Vertical - http://www.marketwatch.com/story/wal-mart-indicator-goes-critical-2012-07-16

    Bond-to-Stock Switch Still Can Flip - http://www.marketwatch.com/story/bond-to-stock-switch-still-can-flip-2012-07-18

    Dividendsanity Reaches a Decision Point - http://www.marketwatch.com/story/dividendsanity-reaches-a-decision-point-2012-07-20

    Yen Could Be Trapped in the Bear Paradox - http://realmoneypro.thestreet.com/articles/07/18/2012/yen-could-be-trapped-bear-paradox

    Gold Waits for the Rupee - http://realmoneypro.thestreet.com/updates-and-conversations?published%5Bvalue%5D%5Bdate%5D=2012-07-19&author=All#gold-waits-for-t-20120719

    Homebuilders Leadership Nearing End? http://seekingalpha.com/article/728921-homebuilders-leadership-nearing-end

    Germany, the U.S., and the Summer Surprise of 2012 - http://seekingalpha.com/article/736731-germany-the-u-s-and-the-summer-surprise-of-2012

    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.

    Jul 22 5:53 PM | Link | 2 Comments
  • Week In Review - July 15, 2012: Can 10 Year Hit 1%?

    "A great deal of intelligence can be invested in ignorance when the need for illusion is deep." - Saul Bellow

    Markets were mixed last week, on the verge of closing quite negatively before the spike up in equity prices on Friday following JP Morgan earnings. Bond yields collapsed further despite some improvement in Spanish and Italian bonds, once again sending market internals back into post-Lehman mode without an actual Lehman event having taken place. It appears that market internals began deteriorating following the July 4th holiday as momentum and strength returned to the bear trade. Negativity internally remains high despite the S&P 500 being up nearly 10% year to date. Somehow, despite 2012 actually so far being a very strong year for the stock market, it is the bond market that gets all the love.

    Many are now calling for the 10 year Treasury yield to hit 1%, which is a rather curious thing as the same people who are ultra bullish on Treasuries now were largely ultra bearish in early 2011 before the Summer Crash took place. The irrationality of the bond market is nothing short of spectacular. I addressed this at length in an article Marc Faber of the Gloom Boom and Doom Report published of mine just two weeks ago. A buy and hold strategy of 10 Year Treasuries means an investor in "safe" paper gets his or her principal back, but not the same purchasing power back.

    In behavioral finance, money illusion refers to the idea that investors tend to think in nominal terms, and not in real terms. With inflation running above most bond yields, while it may seem as if an investment fixed income generates returns, it does not compensate for the rising cost of goods around us. Money is favoring a guaranteed loss in bonds in terms of purchasing power from a buy and hold perspective, instead of being willing to take a chance with stocks which have better balance sheets than most governments, and also yield more than Treasuries.

    Having said that, can the 10 year Treasury yield hit 1%? Absolutely, because the crowd has a funny way of being massively irrational at extremes. Our ATAC (Accelerated Time And Capital) models flipped back into defensive mode on Friday, selling equities into the advance and positioning into certain fixed income investments. I suspect this may with hindsight be a "false signal" which occasionally occurs in quantitative strategies. Fortunately we have strong gains and a buffer against what could be some volatility to come in stocks and bonds, and the strategy remains within a hair-trigger of switching back into an aggressive equity allocation. With the U.K., U.S., ECB, South Korea, China, and Brazil all easing monetary policy in the last few weeks, it will become harder and harder for money to resist taking more aggressive and sustainable risk.

    We remain ever-vigilant and respectful of price, and maintain our overall bullish thesis for the remainder of the year. Ed Dempsey and I will be appearing on Bloomberg Rewind this Tuesday at 8 PM EST discussing this further, as well as officially announce for the first-time on-air that we are launching our mutual fund as an additional offering alongside our separate accounts we currently manage. It is an exciting time for us as we revamp our website and prepare for what's to come.

    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: Conditions Get Challenging - www.minyanville.com/business-news/market...

    Transports to Bears: You're Still Wrong - www.minyanville.com/sectors/transportati...

    China: Hard Landing or Hard Rally? - www.marketwatch.com/story/china-hard-lan...

    In Defense of the Bears and Deflation - www.marketwatch.com/story/in-defense-of-...

    Mini-Correction Sequel and the Bear Paradox - www.marketwatch.com/story/mini-correctio...

    The Pound/Euro Trade Defies Gravity - realmoneypro.thestreet.com/articles/07/1...

    For EM Currencies, It Could Be Time to Buy - realmoneypro.thestreet.com/articles/07/1...

    Euro Could Yet Surprise the Skeptics - realmoneypro.thestreet.com/articles/07/1...

    China Spooks Emerging Market Investors, But Reversal is Still in the Cards - emergingmoney.com/emerging-markets-marke.../

    Are Emerging Markets Heading for Significant Strength? - seekingalpha.com/article/720501-are-emer...

    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.

    Jul 15 4:07 PM | Link | 1 Comment
  • Week In Review - July 1, 2012: Certainty Illusion

    "I have realized that the past and future are real illusions, that they exist in the present, which is what there is and all there is." - Alan Watts

    Markets closed the week strongly after much news came out on the macro front sending investors piling into risk assets on the very last day of the 2nd quarter. News of Spain directly asking for bank aid, the Supreme Court's ruling on healthcare, and a "breakthrough" in Europe was certainly much to digest, but the key thing to take away last week was an increase in certainty illusion. It is becoming more and more clear that fears over a Eurozone breakup are actually bringing Europe closer together, as EU leaders agree to direct recapitalization of banks and a Eurozone-wide growth program. Germany appears to have blinked, allowing for some softening of its stance in how to deal with the crisis. This in turn continues to remind market participants that escalation of commitment means more and more protection against a 2008 repeat, which I have stressed since the very beginning is precisely what psychologically has been holding equities back from being up significantly more in the face of low yielding bonds.

    The illusion of certainty over the future is all markets need to rally strongly, and we may be entering a period where psyche shifts towards aggressive risk taking in what could be called the coming "if you can't beat 'em, join 'em market." The negative narrative has caused significant under allocation to equities, and despite every possible bear argument thrown against stocks, the S&P 500 is hovering near 10% year to date returns. Meanwhile, scared money may only now be realizing that the world is still spinning, and that we are not in a post-Lehman environment which justifies the fear trade being as certain about the future as it currently is. This is a main theme of mine in the latest writing which Marc Faber of the Gloom Boom and Doom Report just published this weekend alongside his Monthly Commentary. While the market fears uncertainty, it also must be uncertain about the fear trade as well.

    Our ATAC (Accelerated Time And Capital) models remain "risk-on in equities" and repositioned into more international exposure last week. It was looking more and more like market internals were sensing another period of volatility post Operation Twist extension, but Thursday and Friday dramatically reversed that. Across the board our strategies are strongly up for the year, with even our most conservative composite up as much as the S&P 500 with less volatility. We maintain the idea that stocks can continue to rally from these levels in the face of dividends and growth potential which literally can not be found in the bond market, in a bank account, or in any other area of the investable landscape. Many continue to believe it is impossible for markets to rally 30-40%, even though such occurrences are fairly common place in stock market history.

    Ed Dempsey's latest BNN interview nicely covers some of the ideas we have expressed throughout the year within the context of today's market (watch.bnn.ca/#clip710279). Should this move be real and the EU summit news act as a true catalyst, that means money can easily begin to chase stocks to new highs, as the Summer Surprise of persistent reflation and end to the end of the world trade occurs. For us and for our clients, this means there are a lot of opportunities our ATAC strategies can exploit, and fortunately from a position of strength given our returns thus far in 2012.

    One final note I am excited to share with you all. We are going to be launching our own mutual fund in the months ahead based on our ATAC models and approach to inflation rotation. Stay tuned…

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

    Advantages of Pension Partners, LLC Managing Your Portfolio:

    1) ATAC - strategy designed to buy and rotate, not buy and hold

    2) Performance comparable to hedge funds without being one and with lower fees

    3) Liquidity and transparency through the use of ETFs

    4) Ease and security of using Fidelity

    Summary of Writings Published Last Week:

    The Lead-Lag Report: Healthcare Diverges - http://www.minyanville.com/business-news/markets/articles/xlk-xlv-xlp-xli-ipe-sector/6/27/2012/id/42036

    A Big Rally in Nuclear to Come? - www.minyanville.com/sectors/energy/artic...

    Dividendsanity and the Summer Surprise - http://www.marketwatch.com/story/dividendsanity-and-the-summer-surprise-2012-06-25

    Perseverance and the Big Picture - http://www.marketwatch.com/story/the-next-52-weeks-and-perseverance-2012-06-27

    Anticipating the Anticipation of Others - http://www.marketwatch.com/story/anticipating-the-anticipation-of-others-2012-06-29

    Busting the Pound/Euro Trade - http://realmoneypro.thestreet.com/articles/06/27/2012/busting-poundeuro-trade

    Real/Euro Still Likely to Fall - http://realmoneypro.thestreet.com/articles/06/28/2012/realeuro-still-likely-fall

    Indian Economy: A Temporary Breakdown or Something Else? - http://emergingmoney.com/currencies/indian-economy-ipn-vwo/

    Emerging Market Status: the BRICs Appear to be Bottoming - http://emergingmoney.com/bric/emerging-markets-vwo-fxi-ewz-ewy-ewt-eza-rsx-inp-eww-ewm-idx-2/

    Preferreds as the Income Transition Play - seekingalpha.com/article/681961-preferre...

    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.

    Jul 01 2:16 PM | Link | 12 Comments
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