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Week In Review – June 17, 2012: Return Of The Melt-Up

*Note: Performance has been updated for our ATAC Composites through the end of May, and can be seen on the homepage of our website at

Markets followed through on their strong performance from the week before last in front of Greek elections, as optimism continued to return to risk assets on the realization that investors have overreacted to the "end of the world" trade. Reports came out that global central banks stood ready to intervene again should things worsen, reminding everyone that central bank paranoia over a 2008 repeat remains high. In my BNN interview I talked about this idea at length, making the case I have made over the past two weeks that reflation appears to be returning to investor psyche ( Ed Dempsey also discussed this and more in his latest market update, available at

As I stated was likely to happen, our ATAC (Accelerated Time And Capital) models which positioned our clients largely into stocks during the first quarter, and went defensively into bonds starting in April, have now sent a strong "risk-on into stocks" signal. We positioned our client accounts into equity positions as reflation expectations returned through various intermarket trends and relationships. With fewer and fewer excuses for stocks to drop in the near-term, it appears that we could be entering another "melt-up" similar to the Fall Melt-Up of last year.

Meanwhile, the Spring Switch out of bonds and into stocks appears to have been flipped. If deflation expectations are on the way out in the near-term, then a "Great Re-Allocation" may be at hand as I have been arguing would likely be the case post mini-correction of May. This means further gains in stocks can continue as the negative narrative gets questioned in the face of 1) stocks which continue to have better income potential than bonds at today's yields, and 2) the one-sided trade of fear. It also means that a real chase by traders who have lagged their benchmarks could begin.

We remain optimistic and are excited for the months ahead, particularly given the strong results our clients in our ATAC Composites are experiencing. With bearish sentiment still significant, an unwind of the bear trade could result in a significant move ahead for equities, consistent with everything Ed Dempsey and I have been saying since the beginning of the year. We remain believers that further gains could shock most who think it impossible for stocks to make new all-time highs. Until 2012 is over, we remain of the belief that this is a higher probability than most think.

Thank you again for your interest in Pension Partners, LLC, and feel free to reach out to us any time with any questions you may have about our investment management services.

Michael A. Gayed, CFA
Chief Investment Strategist
Pension Partners, LLC
Twitter: @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: Bear Trade Fades -

Is It Time to Fear Oil? Not Until These Three Conditions Are Met -

Reflation, Spain, and the Spring Switch -

Reflation Returns as Melt-Up Takes Hold -

Central Bank Paranoia Fuels Melt-Up -

Time to Short the Dollar? -

The Mother of All Euro Short Squeezes? -

Rupee to Rip Higher -

China Financial Sector Surges through Resistance -

Emerging Markets May be on Verge of a Comeback -

European Financials Sector Heading Toward a V Recovery? -

Utilities: From Hero to Villain -

Junk Debt Sings the Siren Song Redux -

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.