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Week In Review – June 24, 2012: Stimulus Withdrawal

|Includes:DIA, IVV, TLT, Vanguard FTSE Emerging Markets ETF (VWO), XLF

"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.

Stocks: VWO, XLF, IVV, DIA, TLT