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Week in Review - August 28, 2011

 “Without continual growth and progress, such words as improvement, achievement, and success have no meaning.” - Benjamin Franklin

As we near the end of August, its worth reflecting on where we've been, and think about where we're going. Since June 8th we've been writing actively on a number of sites, making the case for a “Summer Crash” under which equity markets would very quickly decline, and bonds would outperform. The Summer Crash scenario played out over the past few weeks, when over $6 trillion in worldwide equity market cap was wiped out. Germany suffered some of its steepest losses in years, and bond yields shocked the world by going even lower in a stunning way. Our backtested quantitative buy and rotate models, which are unemotional and not event driven, were sending a strong signal that the conditions for equity weakness arrived at the end of July.

I have noted before that the conditions for further stock market weakness are in place, and that the bond market whether we like it or not is telling us a bear market/Recession is here. Note that the bond market could be wrong, but the bond market is the smartest student in class, so its worth listening to its message. For those interested, legendary Marc Faber of the Gloom, Boom, and Doom Report will be publishing alongside his Commentary September 1st an article I wrote specifically for him. He published earlier in February analysis of mine in which I made the case that a deflation pulse was returning. The patient is alive and well.

We've had a number of prospective clients reach out to us to see what Jackson Hole and Bernanke would do to our models and what we thought. While it makes for nice dinner conversation, we do not operate based on events. What matters is not what we think about Bernanke, but the reaction of the markets as a result. It only affects our strategies if it results in a marked change in conditions that our models pick up. However, for us personally it does not affect our investment decision making. Having said all that, because we are continuously trying to write about interesting subjects, we don't believe the Fed matters now. After all, interest rates are already at historic lows so its not clear what more can be done. Furthermore, under a scenario whereby Germany, and not Greece, leaves the Euro (something our more recent writings have been addressing), there would not be enough printing presses the Fed could run to prevent a decline in risk assets.

On the business front, I mentioned last week that our GIPS verification was complete. We are now in the process of putting together our 1-page marketing material, and expect to have those publicly available on our site, pensionpartners.com, sometime in the middle of September. We are excited for this moment in our firm's history because we will be able to show how our strategies are actually performing. Progress little by little compounds no differently than portfolio returns.

 

Best,

Michael A. Gayed, CFA

Chief Investment Strategist

Pension Partners, LLC

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.