"It starts with a single sound. If there's something in that sound, then it's worth continuing." - Steve Lacy
Markets rose again this week after the second successful round of the European Central Bank's Long Term Refinancing Operation, sending Italian and Spanish bond yields lower. Cheap money, extra liquidity, and more time for Europe to solve its longer-term structural debt problems continue to provide market participants with optimism about the near-term. Consumer confidence increased to levels not seen in a year, as a growing sense of hope builds in terms of investor psyche in spite of rising Oil prices. The reflation theme I continue to stress in my writings, which is the idea that 2012 could end up being similar to 2003 and 2009 for risk assets, still looks to be very much in play. Ed Dempsey and I spoke about this in a recent episode of Bloomberg Rewind, which can be seen at http://mobile.bloomberg.com/share/video/9sdXFtMzplrbHfYoNlwq_ynfWn6QVeIy, and is on a separate note actually quite fun and hilarious to watch.
I've been addressing quite a bit last week that inflation expectations continue to rise in spite (or because) of oil. On Monday I did a quick segment on the Floor of the New York Stock Exchange alongside Bloomberg anchor Matt Miller discussing the relative performance of Treasury Inflation Protected Securities (OTC:TIPS) relative to nominal bonds, and what underlying intermarket bond trends are signaling (http://www.bloomberg.com/video/87219610/). So long as rising Oil prices are steady and not spikey, it likely would increase cost-push inflation expectations. This in turn likely means money would be forced out of low yielding bonds and into risk-assets like the stock market.
In addition, it is very important to note that while we are told continuously that rising Oil prices will cause an economic slowdown and break the stock market rally of 2012, there are a number of inconsistencies with this idea and the behavior of price. On Friday, I did a segment of Chart Attack with Adam Johnson in which I highlighted the performance of Retailers relative to the S&P 500, with that price ratio reaching new all-time highs. I encourage readers to view the segment at http://www.bloomberg.com/video/87603568/. Adam Johnson did a phenomenal job setting up the segment and allowing me to explain the idea that the rhetoric on rising Oil prices is inconsistent with strength in Retailers more broadly.
As to our ATAC (Accelerated Time And Capital) models, we remain in "risk-on" mode with exposure primarily to overseas equities. While stocks have already staged a significant rally so far in 2012, the conditions and inputs that go into our investment models we use for managing client accounts are still favoring equities over bonds. U.S. markets internally may be in a period of slight weakness given what appears to be a near-term end to leadership in small-cap stocks, but the outlook remains positive for overseas equities which still have more room to run to undo some of the damage done last year.
Our Global Investment Performance Standards (GIPS) annual verification is now complete, and we should be able to update the performance results of our ATAC Composite profiles on our website by the middle of March. I encourage those who are thinking about putting money to work to reach out to us. We believe we can provide a true alternative approach to buy and hold investing through our buy and rotate ATAC models.
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: Market Pause or Correction Coming? - http://www.minyanville.com/sectors/energy/articles/market-trends-technical-analysis-stock-market/2/28/2012/id/39633
Why Gold's Collapse Does Not Signal an End to Reflation -http://www.minyanville.com/business-news/the-economy/articles/s2526p-500-gold-trust-etf-gold/2/29/2012/id/39671
We're All Wrong About Oil -
Oil is the New Greece -
Europe's LTRO-infused Rally May Have Legs - http://www.marketwatch.com/story/europes-ltro-infused-rally-may-have-legs-2012-02-29
Japan and the Importance of the Yen -
Junior Gold Miners Pushing for Leadership -
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.