"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…
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.