Thursday, June 23, 2011


Here is another update. See charts ATTACHED

Next week is the long awaited time frame where I believe we will see a SUBTLE change in trend in a few markets. As it looks now these changes in trend will be realized in HINDSIGHT. It looks like the interest rate market (bonds) could be the market to watch for a significant change in trend. It will not happen immediately but in hindsight we may look at this period as the time frame where interest rates bottomed. 

Many may have not realized but bonds have again out performed the broader market based on where the market is today. In Canada the TSX Composite is down over 3% and the U.S. markets is about 1% higher for the year. On the other hand a well diversified portfolio bonds is up over 3% year to date. THis may change going forward. Right now the short term bond market is pricing in another recession within the next 12 months as it did in 2007. The question, is this time different because of the government intervention in the bond market to keep interest rates low or are we headed for another downturn.

This why I am big believer in a DYNAMIC Asset Allocation in this environment versus STATIC ASSET ALLOCATION, which has failed over the last 15 years. The Dynamic approach is the only way anyone will get expected returns for the remainder of this decade. However that may change in the next decade where a buy hold approach will be appropriate (this big picture thinking). The understanding of TIME and HISTORY is so important when developing an investment strategy over the short to long term. 

As many know the issues of 2008 financial crises have not been fixed and a lot of the financial issues have just been moved to the government balance sheets. The government (European Union and USA) need low interest rates because the astronomical amount of debt they are holding now. I won't get into the numbers but when you break them down they are staggering. If interest rates rise there servicing cost of the debt can effect ability to continue to stimulate the economy. Therefore it will be up to the private sector to carry us along instead of the helping hand of the government. 

The good news is that the large multi national companies have hoards of cash and if we continue to selloff they could be good entry points. Because large corporations are in much better shape to withstand another slow down, the stock indexes may hold up better than they would usually do in a recession. Remember the stock market is not the economy and in prior periods the stock market could trade contra to the economic fundamentals for some period of time. In the end it looks like we will be just muddling through this deleveraging environment but the big picture is that it will create opportunity but patients is the key to take advantage of the opportunities at the right TIME. TIME is always the most important element to investing and money always flows to where it feels most confident over the long term.

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