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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
  • Week In Review – September 30, 2012: October Correction? 3 comments
    Sep 30, 2012 7:33 PM

    "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.

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Comments (3)
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  • untrusting investor
    , contributor
    Comments (9923) | Send Message
     
    Interesting. A move to bonds for the ST, but still optimistic on higher equity prices by year end. Why not just hedge the equities in the ST then?
    30 Sep 2012, 08:36 PM Reply Like
  • Michael A. Gayed, CFA
    , contributor
    Comments (1340) | Send Message
     
    Author’s reply » If you will recall back in April when I made the argument for a mini-correction, ATAC positioned into bonds and made money as stocks declined, all while remaining bullish on equities under the idea that the correction would be short-lived. Same idea here.
    30 Sep 2012, 09:16 PM Reply Like
  • change is the only constant
    , contributor
    Comments (1734) | Send Message
     
    Good article, good points, clear direction on what you are doing (and why); and what you expect to happen.
    1 Oct 2012, 09:00 AM Reply Like
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