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Markets Moved Higher On Speculation That ECB And Fed Would Do More QE|Multi Asset Investments 08-12-2012

Top Stories Last Week

  • Markets Were Higher on Speculation that ECB and Fed would Do More QE

Global stock markets ended higher for the week despite the disappointing economic news from Europe and China. S&P 500 index rose 1.1%, MSCI EAFE index was up by 1.7% and MSCI Emerging Market index climbed 2.0%. Investors expected the European Central Bank to start buying Spanish and Italian bonds soon and Federal Reserve to start another round of quantitative easing to boost the economic growth.

  • Chinese Economy was Flagging, Investors Hoped for More Policy Easing

Industrial production in China grew 9.2% from a year earlier, far below the analysts' expectation of 9.8%. The figure was also lower than the 9.5% seen in June. Retail sales, an indication of domestic consumption, grew 13.1% in July. Analysts had forecasted the figure to hold at the 13.7% recorded in June.

The exports growth from China grounded to a near halt in July, with just 1% from the same month a year earlier, far below what the economists had expected and well beneath the 11.3% level in June.

The turmoil in Europe and the tepid pace of economic growth in the US have, increasingly dragged down exports from China. The disappointed economic data will probably prompt more rate cuts and lower reserve ratios from the People's Bank of China.

  • European Industrial Production Shrank Again

Industrial production in the euro zone showed signs of retreat in June, with Spanish production declining for its 10th straight month to 6.3 percent year-on-year and German output weakening more than economists had forecasted. Germany's economic ministry said industrial output fell 0.9% on the month in June in adjusted terms. The European debt crisis hurt both Northern and Southern European economies, raising the probability of quantitative easing from ECB.

  • Reserve Bank of Australia and Bank of Japan Stood Pat

As expected, The Reserve Bank of Australia kept its key interest rate on hold at 3.5%, citing inflation remained "low" and the pace of the global economy became slower.

The Bank of Japan left interest rates and its policy stance unchanged Thursday, reiterating its commitment to powerful monetary easing, but taking no further action to achieve its inflation target of 1%. BOJ maintained its interest rates in the range of zero to 0.1%, with the size of its asset-purchase program unchanged at 70 trillion yen ($89.3 billion).

Top Stories to Watch This Week

  • Euro zone and Japanese GDP

Analysts forecast the Q2 GDP growth in Japan will slow to 0.6% and Euro zone will contract again.

  • Inflation in the US, Euro zone, UK and Canada

Consumer Price Indices in the US, Euro zone, UK and Canada are expected to rise moderately. Most economists believe that the inflation pressures in all the countries are alleviated as the global economies slow down. The central banks will have more room to ease monetary policies.

  • US Retail Sales

Retail sales, a measure of US domestic consumption, are expected to grow by 0.3% in July.

Weekly Performance Summary

The portfolios had small losses last week as a result of the negative performance of bonds and real estates.

Table 1: ETF Performance

Asset Class Return     Last Week Return MTD Return YTD Return
Equities          
  SPY US Large Cap 1.07% 2.27% 13.30%
  IWM US Small Cap 1.67% 2.00% 9.24%
  EFA Developed Market Equity 1.73% 3.74% 7.17%
  VWO Emerging Market Equity 2.06% 3.97% 8.87%
Dividend Assets          
  IYR US REIT -1.99% -1.45% 15.49%
  AMJ US Energy Master Trust 0.48% 0.40% 4.39%
Commodities          
  GLD Gold 1.05% 0.44% 3.41%
  GSG Commodity 1.64% 4.03% 1.67%
Bonds          
  HYG US High Yield -0.27% 0.29% 6.49%
  AGG US Bond -0.11% -0.44% 3.04%
  TIP US Treasury Inflation Indexed Bond -0.57% -0.72% 4.97%
  IEF US Treasury Bond -0.39% -1.04% 3.45%
  TLT US Long Term Treasury Bond -1.35% -2.88% 5.34%
  SHY US Short Term Bond -0.05% -0.08% 0.15%

Table 2: Portfolio Performance

 

 

Portfolio Solutions Asset Allocation
(%Risk Asset
/%Bond)
WTD MTD
(1 day delay)
YTD
(1 day delay)
1-YR
(as of 12/11)
5-YR
(as of 12/11)
10-YR
(as of 12/11)
Aggressive 80/20 -0.8% -0.7% 4.2% 12.4% 16.4% 16.1%
Moderate 60/40 -0.6% -0.6% 3.6% 12.4% 14.8% 14.4%
Conservative 40/60 -0.6% -0.6% 3.5% 12.5% 13.7% 12.8%
Defensive 20/80 -0.5% -0.7% 4.0% 13.2% 12.5% 11.1%
Concentrated Portfolio Two ETFs -0.8% -0.5% 7.1% 12.1% 19.1% 19.3%
S&P 500 Index   1.1% 2.3% 13.3% 2.0% -0.3% 2.9%
Barclays Bond Index   -0.1% -0.4% 3.0% 10.3% 6.9% 5.8%
CPI Inflation         3.2% 2.3% 2.5%

For more information about the multi-asset investment strategies, please visit allseasoninvesting.com.

About ALL SEASON INVESTING: All Season Investing is an investment blog, created in December 2011 to offer investors insights and researches on how to implement a dynamic multi asset allocation strategy with the low-cost index funds or ETFs to achieve consistent returns while limiting downside risks through all stages of a market cycle.

Disclosure: I am long SPY, IWM, EFA, VWO, IYR, AMJ, GLD, GSG, HYG, JNK, AGG, TIP, IEF, TLT, VNQ.