Looking Ahead With Christine Hughes

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Quantitative Easing
Christine Hughes, of Otterwood Capital Management says the driver of equity markets has been quantitative easing by the US Federal Reserve.  This approach is hugely beneficial to the banksters, and as a result, the financial markets, but does nothing for job creation.  Even with a new Fed. Chairperson, she expects more of the same next year, despite rumours of the Fed. withdrawing stimulus.

Japan
Not so for Japan.  She feels it is only a matter of time until Japan defaults on its huge government debt.  Because government bonds in Japan are owned mostly by the Japanese, she sees the affect of a default being even worse than would normally be the case.  In the case of a world-wide liquidity event (banksters unwilling to lend to other banksters) she says there will be no government bail-out next time.

Next Year
It isn't all bad news, however.  At least for next year, she sees as much as a thirty percent return on US equity markets next year.  Just don't confuse that with the beginning of a long term bull market (no matter what those selling financial products are going to say).  My father always told me, "The bigger they are; the harder they fall!"

What do you think, much higher, or much lower from here?

Odds Are?

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The closer we get to the U.S. election date this fall, the less likely it is we will see any intervention in the markets by the Federal Reserve.  Recent economic data has been just good enough to forestall any immediate intervention.  In order to not appear as they are meddling in the elections, there is a period of time just prior to that when they have their hands tied.  Few seem to agree, but to me, there is little that the Fed has left to do.  Perhaps many more would agree with the fact that much of what the Fed can do is already baked into the markets.  Regardless of what the Fed might do, the fact is, we are only a couple of weeks away from what, historically, has been the worst month of the year in the stock markets.

April 2012 Returns

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We are pretty much past the favourable seasonality period for the markets until later, towards the end of the summer.  It seemed interesting to me, the number of talking heads in the media that were saying this year was no time to "sell in May, and go away".  Once again, this spring was going to be different.  It always gives me a pain in the butt when the very people who should represent our interests, put their own ahead of ours, instead.  The truth is, we shouldn't necessarily sell everything going into May, but taking some profits might be what a prudent person would do.

First, we generally had a good long run up in the markets since the beginning of the year.  Second, while people  felt protected by the Federal Reserve Bank's actions in the U.S., the latest effort to stimulate the markets is due to end.  Third, economic data has softened, including in China.  Fourth, Europe is, or soon will be, in a recession.  Still, the experts would have us believe that all is well, and the correction in the markets that normally begins this time of year won't likely happen.

If I sound bearish, it is because I am.  I said at the beginning of the year I would share my trades on this blog.  The reason I haven't done so is because I have hardly made any.  The markets went practically straight up at the beginning of the year, with little opportunity to get in during a pull-back, and the U.S. markets are just now beginning to look like they are breaking the uptrend, and could likely go lower for a while.  More on that during a couple of future blog posts.

16 month return for TSX @ April 30, 2012 = -8.07 percent
Return for Basic Timing Model using XIU = 5.61 percent
Return for Advanced Timing Model (my returns) = -4.36
Money for charity = $0.00

Have you taken any profits, going into the summer season?

February 2012 Portfolio Update

For the iShares TSX60 ETF (XIU), I am showing the gains made by using the 200-day moving average as the buy/sell decision point.  It has been a little over a year, and already the benefits can be seen over a buy and hold approach.  Of course, those gains would be slightly less with commissions factored in.

No new trades in my portfolio (Model in the chart above) since Feb. 08.  I am being too cautious, but want to avoid any sudden drop the European situation might cause.  Also, the qualitative easing by the U.S. Federal Reserve will start to wear off at some point.

Seasonally, we are entering the time of year when the TSX is running on all cylinders as the Material, Financial, and Energy sectors tend to do well.

Two month return for TSX @ February 29, 2012 = 5.76 percent
Two month return for Basic Timing Model using XIU = 5.92 percent
Two month return for Advanced Timing Model (my returns) = -1.13 percent
Money for charity = $0.00


How about you?  Are you cautious in this market, or are you looking forward to good times ahead?