Michael A. Gayed's  Instablog

"Anytime you suffer a setback or disappointment, put you head down and plow ahead." - Les Brown

Stocks ended the week slightly down after some volatile up and down movement following "stimulus disappointment" from the Fed's extension of Operation Twist. The Greek elections came and went, Spanish bond yields fell, and U.S. Treasury bond yields rose. On CNBC Thursday I used the analogy that markets are going through "stimulus withdrawal" following the Fed's extension of Operation Twist which magnitude-wise was less than the market wanted (http://www.cnbc.com/id/15840232/?video=3000097615&play=1). Yet, equities did not collapse, indicative of more resiliency in the face of the negative narrative which I have brought up a number of times in my writings. The next few weeks will likely provide more clarity as investors digest the Fed's policy decision, while other central banks like the Bank of England weight more aggressive monetary easing to counter slowing growth.

Our ATAC (Accelerated Time And Capital) models kept us in equities, with some rotation given what could be a moment of leadership in small-cap stocks globally. Defensive sectors of the market continue to show relative weakness, while higher beta names appear to be catching investor attention. It is worth noting that despite Thursday's downgrade by Moody's of several bank stocks, Financials continue to show strong leadership relative to the S&P 500. I have continuously stressed the idea that reflation should be confirmed by strength in bank stocks, which appears to still be intact.

I will be on CNBC Monday (June 24th) some time between 2-3 PM EST discussing my latest seasonal call, which I am naming the "Summer Surprise" (http://www.marketwatch.com/story/the-end-to-the-end-of-the-world-trade-2012-06-20). I will also be thematically discussing the idea that income is now expensive, resulting in "Dividendsanity" which has made the Utilities, Healthcare, and Consumer Staples sectors more richly priced than growth areas of the investable landscape. I believe this is a very important distortion to bring attention to, which has broader implications on market movement going forward and a potential reversal of risk sentiment.

The Lead-Lag Reports I put together exclusively for Minyanville continue to show a turn in the bear trade, which I believe is just getting started. Markets in many ways act like a pendulum. At one extreme, investors when scared prefer dividend heavy/income investments to counter slowing growth and a recession in terms of overall portfolio allocation. At the other extreme, investors when optimistic prefer growth/cyclical areas of the market. Various intermarket trends show that the pendulum appears to be swinging more toward growth expectations, which would coincide with a Summer Surprise of higher highs in equities which I maintain is a high probability. And while I may be completely wrong, I have yet to see compelling counter-evidence to the message of price.

We remain optimistic on the future, and have some very (very) exciting things coming up on the business front. Tune in to CNBC during my segment for a special announcement which we hope will excite followers of our work and ATAC methodology. 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
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: Surge in Stocks Coming - http://www.minyanville.com/business-news/markets/articles/market-internals-market-analysis-technical-analysis/6/19/2012/id/41831

Summer Surprise? Continued Reflation as Stocks Melt-Up - http://www.minyanville.com/business-news/markets/articles/bonds-treadury-financials-financial-sector-xlf/6/20/2012/id/41869

Chasing the Reflationary Melt-Up - http://www.marketwatch.com/story/chasing-the-reflationary-melt-up-2012-06-18

The End to the End-of-the-World Trade - http://www.marketwatch.com/story/the-end-to-the-end-of-the-world-trade-2012-06-20

Dividendsanity and the Negative Narrative - http://www.marketwatch.com/story/dividensanity-and-the-negative-narrative-2012-06-21

The Reflationary Market is Here - http://realmoneypro.thestreet.com/articles/06/19/2012/reflationary-market-here

Aussie Dollar Rallies On - http://realmoneypro.thestreet.com/articles/06/20/2012/aussie-dollar-rallies

A Decidedly Bullish Signal - http://realmoneypro.thestreet.com/articles/06/24/2012/decidedly-bullish-signal

Energy's Turning Point Catalyst? Reflation - http://seekingalpha.com/article/664851-energy-s-turning-point-catalyst-reflation

Europe, Far East to Rally Harder than U.S.? - http://seekingalpha.com/article/664961-europe-far-east-to-rally-harder-than-u-s

The Summer Surprise of 2012, Or the Great Realization - http://seekingalpha.com/article/679351-the-summer-surprise-of-2012-or-the-great-realization

Emerging Markets Returning to Outperformance - http://emergingmoney.com/bric/emerging-markets-return-vwo-acwi/

Emerging Markets Just Waiting for Reflation to Hit - http://emergingmoney.com/emerging-markets-markets/reflation-vwo-fxi-ewy-eza-rsx/

Sovereign Debt Foreshadowing Bigger Rally? - http://www.investorplace.com/2012/06/sovereign-debt-foreshadowing-bigger-rally/

Can Miners Outperform Gold Despite Twist? - http://www.forexpros.com/analysis/can-miners-outperform-gold-despite-twist%20-127439

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.

*Note: Performance has been updated for our ATAC Composites through the end of May, and can be seen on the homepage of our website at www.pensionpartners.com.

Markets followed through on their strong performance from the week before last in front of Greek elections, as optimism continued to return to risk assets on the realization that investors have overreacted to the "end of the world" trade. Reports came out that global central banks stood ready to intervene again should things worsen, reminding everyone that central bank paranoia over a 2008 repeat remains high. In my BNN interview I talked about this idea at length, making the case I have made over the past two weeks that reflation appears to be returning to investor psyche (http://watch.bnn.ca/featured/#clip698809). Ed Dempsey also discussed this and more in his latest market update, available at www.youtube.com/pensionpartners.

As I stated was likely to happen, our ATAC (Accelerated Time And Capital) models which positioned our clients largely into stocks during the first quarter, and went defensively into bonds starting in April, have now sent a strong "risk-on into stocks" signal. We positioned our client accounts into equity positions as reflation expectations returned through various intermarket trends and relationships. With fewer and fewer excuses for stocks to drop in the near-term, it appears that we could be entering another "melt-up" similar to the Fall Melt-Up of last year.

Meanwhile, the Spring Switch out of bonds and into stocks appears to have been flipped. If deflation expectations are on the way out in the near-term, then a "Great Re-Allocation" may be at hand as I have been arguing would likely be the case post mini-correction of May. This means further gains in stocks can continue as the negative narrative gets questioned in the face of 1) stocks which continue to have better income potential than bonds at today's yields, and 2) the one-sided trade of fear. It also means that a real chase by traders who have lagged their benchmarks could begin.

We remain optimistic and are excited for the months ahead, particularly given the strong results our clients in our ATAC Composites are experiencing. With bearish sentiment still significant, an unwind of the bear trade could result in a significant move ahead for equities, consistent with everything Ed Dempsey and I have been saying since the beginning of the year. We remain believers that further gains could shock most who think it impossible for stocks to make new all-time highs. Until 2012 is over, we remain of the belief that this is a higher probability than most think.

Thank you again for your interest in Pension Partners, LLC, and feel free to reach out to us any time with any questions you may have about our investment management services.

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: Bear Trade Fades - http://www.minyanville.com/business-news/markets/articles/Lead-Lag-Report-XLB-VWO-IEF/6/12/2012/id/41684

Is It Time to Fear Oil? Not Until These Three Conditions Are Met - http://www.minyanville.com/trading-and-investing/commodities-and-options/articles/oil-oil-prices-oil-stocks-oil/6/14/2012/id/41734

Reflation, Spain, and the Spring Switch - http://www.marketwatch.com/story/reflation-spain-and-the-spring-switch-2012-06-11

Reflation Returns as Melt-Up Takes Hold - http://www.marketwatch.com/story/reflation-returns-as-melt-up-takes-hold-2012-06-13

Central Bank Paranoia Fuels Melt-Up - http://www.marketwatch.com/story/central-bank-paranoia-fuels-melt-up-2012-06-15

Time to Short the Dollar? - http://realmoneypro.thestreet.com/articles/06/13/2012/time-short-dollar

The Mother of All Euro Short Squeezes? - http://realmoneypro.thestreet.com/articles/06/13/2012/mother-all-euro-short-squeezes

Rupee to Rip Higher - http://realmoneypro.thestreet.com/articles/06/14/2012/rupee-rip-higher

China Financial Sector Surges through Resistance - http://emergingmoney.com/china/china-financial-sector-fxi-chix/

Emerging Markets May be on Verge of a Comeback - http://emergingmoney.com/bric/emerging-markets-vwo-fxi-chix-eza-szr-ewz-ewt-rsx-ewy-inp-eww-ewm-idx/

European Financials Sector Heading Toward a V Recovery? - http://www.forexpros.com/analysis/european-financial-sector-heading-toward-a-v-recovery%20-125978

Utilities: From Hero to Villain - http://www.investorplace.com/2012/06/utilities-from-hero-to-villain/

Junk Debt Sings the Siren Song Redux - http://seekingalpha.com/article/649591-junk-debt-sings-the-siren-song-redux

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.

"The greatest oak was once a little nut that held it's ground." - Anonymous

Last week was a powerful one for most major market averages, which rallied strongly on renewed optimism over Europe. Spain's stock market rallied strongly off of its lows, while monetary action from Australia and China helped spur overseas bullish sentiment. Interestingly, despite hope for further stimulus from the Fed which has proven thus far to be false, stocks continued to move higher following Bernanke's testimony. The mini-correction I began arguing was likely in early April appears to be over, as reflation re-asserts itself.

I co-hosted Bloomberg's Street Smart with Matt Miller and Trish Regan on Monday, and the timing could not have been better. Several weeks ago, I sounded the alarm on credit spreads which suddenly widened in a way suggesting a credit event was underway. I specifically argued at the time that markets internally were acting as if a Crash was underway (http://www.ritholtz.com/blog/2012/05/gayedare-markets-in-a-crash/), which would either get resolved very negatively for equities, or very positively for credit risk. The various intermarket relationships I track began reaching levels not seen since post-Lehman. Very specifically, I argued on Bloomberg thematically on Monday that markets have BEHAVED as if a Lehman-like event ALREADY occurred (for one example of this, check out one of my Bloomberg segments at http://www.bloomberg.com/video/94069685-making-the-bullish-case-for-stocks.html). Because behaviorally the negative narrative got to the point where buy and hold investors in the bond markets got confused between return of principal and return of purchasing power, I believe markets are suddenly realizing that the "end of the world" trade may not actually be the profitable one.

I began re-arguing my case for the Spring Switch and the reflation theme, with what could be another "melt-up" in the months to come similar to the "Fall Melt-Up" of last year. In many ways, the reasoning this time around is precisely like what happened post October 3rd low of last year. Market internals have gotten to a point of incredible pessimism, and yet the S&P 500 Total Return Index is up over 6% year to date. I've used the analogy of the stock market acting like Muhammad Ali with the bond market being George Foreman, which keeps swinging and swinging at markets to the point where the bear argument gets tired in the face of stocks that refuse to break down powerfully (rope-a-dope). Or, for those that prefer movie references, the stock market is very much like Rocky Balboa refusing to give up against the more powerful Clubber Lang in Rocky III.

The next few weeks are crucial for confirmation. Our own ATAC (Accelerated Time And Capital) models are transitioning into a more aggressive stance, with next week likely when we do a full allocation back into stocks after having performed well in bonds during the May correction. If reflation is real, then the next few months can be very exciting for us given how badly certain emerging markets have behaved during this period. The global cyclical growth story could come back with a vengeance as optimism over Europe returns, and investors re-price a comeback in inflation expectations.

We expect our results to be updated on our homepage some time next week, and I encourage you to read my writings on MarketWatch, Minyanville, EmergingMoney, etc. for the progression of the analysis over the last 10 days. Looking up my last name will bring up numerous video segments from my Monday segments on Bloomberg.com, and check our youtube channel at youtube.com/pensionpartners for further commentary by Ed Dempsey. We are actually very excited for what's to come. I have been more than consistent and transparent in my writings as far as how I believe 2012 can play out. I maintain the idea that a significant move for equities can occur.

Did you know that there have been 27 times since 1928 that the Dow Jones Industrial Average has risen by more than 30% over a rolling 7 month period? The countdown begins to see if my thinking about a significant move in stocks for 2012 plays out. Investing is always about understanding the conditions one is operating in, and if reflation is real, then I think most might be surprised at how risk assets behave.

On another note, I will be writing another piece for Marc Faber of the Gloom Boom and Doom Report to be published next month alongside his Monthly Commentary. I will be presenting why it is entirely possible that a generational low has been hit in terms of Treasury yields, using price ratio analysis and behavioral finance. I also will be announcing something very exciting…

Thank you again for your interest in Pension Partners, LLC, and feel free to reach out to us any time with any questions you may have about our investment management services.

Rocky…Rocky…Rocky…

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: Is the Bear Fever Breaking? - http://www.minyanville.com/business-news/markets/articles/sector-performance-sector-analysis-health-care/6/5/2012/id/41513

Wal-Mart to Bears: You're Wrong - http://www.minyanville.com/business-news/editors-pick/articles/wal-mart-wal-mart-analysis-WMT/6/6/2012/id/41534

Why Another Stock Melt-Up is Likely - http://www.marketwatch.com/story/why-another-stock-melt-up-is-likely-2012-06-04

Lehman, Where Are You? - http://www.marketwatch.com/story/lehman-where-are-you-2012-06-05

Emerging Markets Signal Correction's End - http://www.marketwatch.com/story/emerging-markets-signal-corrections-end-2012-06-06

Collapse of Global Copper Miners: Capitulation or Sign of Worse to Come? - http://www.forexpros.com/analysis/collapse-of-global-copper-miners:-capitulation-or-sign-of-worse-to-come%20-125456

European Financial Sector Heading Toward a V Recovery? - http://www.forexpros.com/analysis/european-financial-sector-heading-toward-a-v-recovery%20-125978

Bear Fever is Breaking - http://www.marketwatch.com/story/bear-fever-is-breaking-2012-06-08

A Contrarian View of the Euro, Part II - http://realmoneypro.thestreet.com/articles/06/04/2012/contrarian-view-euro-part-ii

A Question of Reflation - http://realmoneypro.thestreet.com/articles/06/06/2012/question-reflation

The End of the Road for the Yen? - http://realmoneypro.thestreet.com/articles/06/07/2012/end-road-yen

Brazil Interest Rate Cuts are Good News for Large-Cap Stocks - http://emergingmoney.com/brazil/brazil-interest-rate-large-caps-bzf-brf-ewz-uup/

Are the BRICs Coming Back to Lead Emerging Markets - http://emergingmoney.com/bric/emerging-markets-brics-vwo-rsx-fxi-inp-ewz-eza/

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.