“Without a sense of urgency, desire loses its value.” – Jim Rohn
Markets lost ground last week and bonds spiked up on continued fears over Europe. Despite the global central bank intervention taken two weeks ago which resulted in equities having their best week since March 2009, European markets have effectively given back that entire gain while U.S. markets remain relatively resilient. Interestingly, the U.S. bond market moved up in a panic-like way last week, sending yields lower as the Euro continued its descent and investors flocked to the safety of U.S. bonds.
Markets seemingly had every reason in the world to rally last week, given monetary intervention, positive seasonality, good economic news in the U.S., etc. However, the speed of the advance in bonds is troubling, signaling a sense of urgency to Europe that it must either come up with a true solution to its debt problem, or money will simply leave. Europe is effectively in the midst of a modern day bank run on the country level, and a lasting solution remains questionable. I firmly believed that markets would rally into the end of the year, and while they may still, I also can not deny that the speed at which the “bear trade” came back in just a few short days is signaling something significant may be on the horizon.
What happens in these last few days is unclear, as some kind of crescendo seams near. Central bank intervention taken two weeks ago may simply have delayed this. Before intervention took place, I had been writing about a “December to Remember Breakdown” in equities as internals deteriorated. When intervention took place, I wrote about the return to the Fall Melt-Up as those deteriorating internals of the market strengthened substantially. The fact that sector and asset class price ratios are now back at levels seen before SuperBen and the League of Extraordinary Bankers stepped in is a troubling sign.
Our ATAC models flipped back into defensive mode last Friday, with much of the signal change occurring between Thursday and Friday as markets actually closed positive on those days. We remain in a challenged environment, but there is good news. Markets are cornering European leaders and forcing an “endgame.” Substantial amounts of new debt are set to be issued in the first five months of 2012; a solution must be found before those bonds come to market. Bond markets have taken on an urgent tone, with investors pricing in that at least one country will leave the Euro some time next year.
It is important to be ever-mindful that big money is made coming out of a crisis, and that it is only a matter of time when a fat pitch will express itself in stocks to allow those managers with a proven process the opportunity to not only make back earlier losses, but come out far ahead as a result. It is also important to be honest with oneself and recognize that there are no “safe” investments- risk must be taken to earn reward. Nothing is ever guaranteed, and making money investing is never an absolute outcome. Ask those invested in Gold over the past four weeks for proof of that.
Summary of Writings Published Last Week:
The Home Construction Bull Market You Never Saw Coming - http://www.minyanville.com/businessmarkets/articles/market-home-construction-stock-market-price/12/12/2011/id/38339
Three Ways to Fix Europe Without Europe’s Help - http://www.minyanville.com/businessmarkets/articles/european-debt-crisis-market-volatility-uptick/12/15/2011/id/38408
Paper Beats Rock? Gold, Stocks, and the Fall Melt-Up Return - https://seekingalpha.com/article/313388-paper-beats-rock-gold-stocks-and-the-fall-melt-up-return
Weak Euro Equals Strong Stocks - https://seekingalpha.com/article/313866-weak-euro-equals-strong-stocks
Russia: Crisis or Opportunity? - https://seekingalpha.com/article/314167-russia-crisis-or-opportunity
A Weak Euro Would Be Bullish News - http://www.marketwatch.com/story/a-weaker-euro-would-be-bullish-news-2011-12-13
ATAC Backtested Model Results:
ATAC - Conservative Model Backtested Results:
ATAC - Moderate Model Backtested Results:
ATAC - Aggressive Model Backtested Results:
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.