May 2016 Investor Letter

Strategy Performance

Investment Philosophy and Approach

The Active Asset Allocator investment strategy is designed to deliver a consistent level of positive returns over time with a strong focus on capital preservation. I follow a multi-asset investment approach, actively allocating between global equities, bonds, precious metals, currencies and cash. I always invest with the primary trend of the market and do not follow a benchmark. Instead, I manage the market risk for clients. This strategy has returned +11% per annum net of fees since inception with a lower level of risk than the average multi-asset fund. My active asset allocation approach is best illustrated in the following chart.

Gold Trader and Gold PowerTrader focus on capturing the strongest and weakest parts of gold's daily cycles, buying daily cycle lows, selling daily cycle highs and holding for 10-15 trading days, depending on the cycle count. This approach allows me to effectively manage risk. The strategy aims to capture +5% to 6% profit per trade while risking just 1.5% each time and has a win rate in excess of 70%.

Executive Summary

The Active Asset Allocator has returned +6.3% YTD versus +0.0% for the average multi-asset fund. My Technical Trend Indicator has triggered a buy signal, yet stocks have not made much progress since. I remain defensively positioned for now with 20% equities / 30% bonds / 30% precious metals / 20% cash. Over 40% of equities on the NYSE have already declined -20% or more, classic early bear market behaviour, though the large-cap indices appear unconcerned for now. This standoff should resolve itself shortly.

Meanwhile, bonds continue to rally while yields head towards zero or lower. This month I explain why I think we are finally approaching an inflection point in fixed income and the potential end to the 35+ year bull market in bonds. Calls for helicopter money are getting louder and investor confidence in central bank policy is about to be tested. I also discuss the World Gold Council's latest report on trends in the sector including a +122% increase in investment demand for gold year/year.

Stock Market Update

In 2016 year-to-date, global equities have returned -0.3%, EU government bonds +5.2%, EU corporate bonds +2.7%, gold +11.3% and silver +14.4% in euro terms. Over that period, the Active Asset Allocator has delivered a positive return of +6.3%, with just 20% invested in equities and 20% still held in cash, versus 0.0% for the average multi-asset fund. Last month, I noted that my technical studies triggered a buy signal for the stock market for the first time since September 2013 and that buy signal remains in place today. Price hasn't made much progress since the buy signal triggered and I continue to maintain a defensive position for now in the Active Asset Allocator. 

Today, over 40% of stocks trading on the NYSE are already down 20% or more (56% of small caps, 30% of mid-caps and 16% of large-caps) - classic early bear market behaviour. This fact has been disguised by the continued strong performance of a handful of names in the market-cap weighted S&P 500 and Dow Jones Industrials, which are driving those indices back towards their old 52-week highs. Volume has also been lacklustre on the recent rally in stocks. While the S&P 500 is not too far off breaking out to new highs, volume does not look like it will confirm the move higher. 

Last month, I highlighted the prior instances in 2000 and 2007 when the S&P 500 peaked and turned lower, followed shortly thereafter by a bearish cross of the 50WMA below the 100WMA. This coincided with the onset of a bear market in equities and a declining trend in US corporate earnings. At the time of writing my April Investor Letter, the 50WMA had not crossed below the 100WMA. That has changed with the bearish cross now in effect, though price is still holding above both long-term moving averages. A sustained break below 2,024 on the S&P 500 in the weeks ahead will increase the odds that a bear market in stocks has arrived. Conversely, if the stock market can consolidate recent gains despite the bearish cross, it should clear the way for higher prices later this year and I will adjust the Active Asset Allocator accordingly. For now, I remain patient.

Volatility is on the rise and there is no shortage of events this year that could drive equity volatility significantly higher including the Brexit vote next month, a potential hard landing in China, political and economic chaos in Brazil and Venezuela and of course the possibility of Donald Trump in the White House. The Vix Index below captures the trend in volatility of the stock market and this trend is on the rise. The multi-year basing pattern is similar to that experienced in the lead up to the last bear market in stocks and reinforces my belief that the stock market is in the process of topping.

It will be interesting to gauge the reaction of the Federal Reserve, ECB, Bank of England and Bank of Japan if a bear market in stocks gets going later this year. I believe they will panic and react by doing things that will appear increasingly crazy to many people, like helicopter money or some version of fiscal or monetary stimulation. I believe this will precipitate a crisis of confidence in paper currency, which is why the Active Asset Allocator continues to hold a 30% allocation to precious metals.

For more information on my stock market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or at 086 821 5911.

Bond Market Update

From 1952 to 2000, it took $1.70 of non-financial borrowing to generate a dollar of GDP growth. By 2015, that number had more than doubled to $3.46. At the margin, an additional dollar of borrowing is losing its impact. Total debt to GDP across much of the developed world has now reached mind-boggling levels: 370% in the United States, 615% in Japan, 350% in China and 457% in the Eurozone. Meanwhile, GDP growth is decelerating. 

Central banks, in their capacity as lenders of last resort (and buyers of last resort of government bonds), have supported the explosion higher in debt in recent years and central bank policy will be responsible for the eventual debt bust. It is just a question of timing. I believe we are approaching an inflection point, potentially in the next 12 months, where markets will call central bankers' collective bluff... and then central bankers will panic.

What could be the catalyst? Perhaps wide scale debt forgiveness by the Japanese Central Bank, the largest owner of Japanese government debt or the Federal Reserve swapping Treasuries for 100 or 200 year bonds paying a 0.05% or 0.10% coupon or perhaps the introduction of helicopter money by one or more central banks. 

In fact, calls for 'helicopter money' are already on the rise today. Former Fed Chair, Ben Bernanke and more recently Bill Gross, fixed income manager at Janus Capital, have both touted helicopter money as a legitimate monetary policy tool still available to central banks in times of crisis. A search for "helicopter money" on Google Trends also confirms a growing interest from the public in this most unorthodox form of central bank intervention.

Experiments with helicopter money do not end well. The risks are high and consequences severe if badly managed. James Grant of Grant's Interest Rate Observer sums it up best:

“Does the deployment of helicopter money not entail some meaningful risk of the loss of confidence in a currency that is, after all, undefined, uncollateralized and infinitely replicable at exactly zero cost? Might trust be shattered by the visible act of infusing the government with invisible monetary pixels and by the subsequent exchange of those images for real goods and services? ......To us, it is the great question. Pondering it, as we say, we are bearish on the money of overextended governments. We are bullish on the alternatives enumerated in the Periodic table. It would be nice to know when the rest of the world will come around to the gold-friendly view that central bankers have lost their marbles. We have no such timetable. The road to confetti is long and winding.”

— James Grant, Grant's Interest Rate Observer

For more information on my bond market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or 086 821 5911.

Gold Market Update

So long as gold and silver hold above their respective long-term 20 month moving averages, it is safe to assume the bull market in precious metals has returned. The key numbers today are $1,173 for gold and $15.60 for silver. YTD, gold is +11% and silver is +14% for euro investors.

I expect a declining US dollar will provide a nice tailwind for the next leg higher in the precious metals bull market. The US Dollar Index looks to have formed a multi-year top. The last time this occurred was in 2002 and coincided with the start of the gold bull market. I expect an equally powerful move higher in gold and lower in USD once the trends are set in motion.

The World Gold Council has published its first quarter 2016 report on demand trends in the industry and highlights some interesting developments in the sector this quarter. Overall, gold demand grew +21% in Q1 2016 to 1,290 tonnes, the strongest first quarter advance on record. While jewelry demand declined -19% due in large part to the recent surge in gold prices, investment demand more than doubled surging +122% year/year.

Inflows into precious metals ETF's accounted for 364 tonnes, the highest since Q1 2009. Also, of note, central banks continue to accumulate gold and added 109 tonnes during the most recent quarter. They are less vocal about their gold accumulation policy but are consistently one of the largest acquirers of gold each quarter.

The United States remains the top holder of gold bullion based on the World Gold Council's latest reported data with in excess of 8,000 tonnes, followed by Germany, the IMF, Italy and France. China reported 1,798 tonnes of gold reserves at 31st March 2016. 

For more information on my gold market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or 086 821 5911.

April 2016 Investor Letter

Strategy Performance

Investment Philosophy and Approach

The Active Asset Allocator investment strategy is designed to deliver a consistent level of positive returns over time with a strong focus on capital preservation. I follow a multi-asset investment approach, actively allocating between global equities, bonds, precious metals, currencies and cash. I always invest with the primary trend of the market and do not follow a benchmark. Instead, I manage the market risk for clients. This strategy has returned +11% per annum net of fees since inception with a lower level of risk than the average multi-asset fund. My active asset allocation approach is best illustrated in the following chart.

Gold Trader and Gold PowerTrader focus on capturing the strongest and weakest parts of gold's daily cycles, buying daily cycle lows, selling daily cycle highs and holding for 10-15 trading days, depending on the cycle count. This approach allows me to effectively manage risk. The strategy aims to capture +5% to 6% profit per trade while risking just 1.5% each time and has a win rate in excess of 70%.

Executive Summary

Following the worst start to the year for equities in recorded history, we have just experienced one of the sharpest recoveries off the lows since records began. This rally has been so strong in fact that my technical studies have just triggered a buy signal for the stock market for the first time since September 2013. This month, I review the recent improvement in the stock market's technical setup and outline my plan of attack for the weeks ahead. For now, the Active Asset Allocator remains defensively positioned, 20% equities / 30% bonds / 30% PM's / 20% cash.

This month I also explain why I remain bullish on bonds and expect an additional 15-20% upside for the 10 year duration bond ETF I hold in the Active Asset Allocator and provide a brief update on the ongoing bullish developments in the precious metals sector as this bull market shifts into gear.

Stock Market Update

My technical studies have just triggered a buy signal for the stock market for the first time since September 2013. Equity valuations today are approaching an extreme only witnessed near prior stock market peaks and US corporate earnings are now in a declining trend. Despite these cautionary flags, continuous central bank intervention has created the perception that stock market investing is a low risk endeavor and a buy-the-dip mentality on every correction has taken hold. This will not end well. In the interim, price trumps opinion. My Technical Trend Indicator (TTI) is smarter than I am and keeps me on the right side of the prevailing stock market trend. In this monthly update, I consider my plan of attack for the weeks ahead.

“Based on valuation measures having the strongest correlation with actual subsequent market returns across history, equity valuations have approached present levels in only a handful of instances: 1901 (followed by a -46% market retreat over the following 3-year period), 1906 (followed by a -45% retreat over the following year), 1929 (followed by a -89% collapse over the following 3 years), 1937 (followed by a -48% loss over the following year), 2000 (followed by a -49% market loss over the following 2 years), and 2007 (followed by a -57% market loss over the following 2 years). A few lesser extremes occurred in the 1960’s and 1970’s, followed by market losses in the -35% to -48% range.”

— John Hussman, Hussman Funds, 18th April 2016.

In this long-term chart of the S&P 500, I have highlighted the prior instances in 2000 and 2007 when the stock market topped and rolled over, followed shortly thereafter by a bearish cross of the 50WMA below the 100WMA. This coincided with the onset of a bear market in equities and a declining trend in US corporate earnings. In 2016 YTD, we have already experienced a sharp -14% drop in stocks followed by an equally sharp +16% rally. However, there has been no bearish cross yet of the 50WMA below the 100WMA and the S&P 500 currently trades above both trend lines. Meanwhile, US corporate earnings have begun to slide, highlighted in the lower section of the chart below. This should be expected and is consistent with the maturing phase of an ageing equity bull market, which is now over seven years old.

Margin debt, a measure of the degree of speculation evident in the stock market, also appears to have peaked and rolled over. Prior peaks in margin debt have coincided with past peaks in the stock market. So today, we have a combination of stocks that are trading at expensive valuations, a weakening trend in US corporate earnings and a declining trend in margin debt. That's the bad news.

Despite this backdrop, equities have powered ahead in recent weeks. In February 2016, only 15% of stocks on the NYSE were trading above their 200DMA. Today, this figure has jumped to a much healthier 69%. If stock markets can consolidate their recent gains over the next couple of weeks while a majority of stocks continue to trade above the 200DMA, the bulls will remain in control.

In another positive development, the NYSE Advance/Decline Line (lower left chart), which captures the trend of rising stocks versus declining stocks over time, has recently broken out to new all time highs. This suggests that price should follow suit shortly. Volume flowing into advancing versus declining stocks is lagging however and has yet to break out (lower right chart) to new highs. So, we still have some mixed signals here (click on charts to enlarge).

As markets have rallied, stocks making new lows have also all but disappeared, which is another requirement before a bull market can resume.

So from a technical perspective, the outlook for equities has improved, but there are still many reasons for caution. Remember, 2016 started with the worst negative stock market performance in history, so it's only natural that the first rally following this correction should be powerful. The markets are overbought in the short-term and a correction of some degree should now be expected. The extent of the correction will determine when and by how much I will increase the equity allocation in the Active Asset Allocator. Stay tuned, we should find out soon enough.

For more information on my stock market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or at 086 821 5911.

Bond Market Update

The ECB is attempting to stimulate economic growth and generate inflation in the order of 2% annually by printing money, buying bonds, funding some EU country deficits and potentially using some form of "helicopter money" for EU citizens. The road ahead is concerning but we have not yet reached an inflection point where ECB policies trigger an acceleration in the rate of inflation and a path towards higher government bond yields. Draghi has committed to doing "whatever it takes" which means he is willing to drive 10-year EU government bond yields into negative territory. 

The Active Asset Allocator currently holds a 20% allocation in EU government bonds (IEGZ). The regional split of this bond fund is 32% France, 27% Italy, 19% Germany, 17% Spain, 5% Netherlands. The fund has a yield of 1.4% and a duration of 10 years. If ECB policies are successful, the yield on IEGZ should reach zero or negative implying 15-20% upside return potential from here. I plan to increase the allocation to inflation linked bonds (IBCI) and reduce the allocation to fixed interest rate bonds (IEGZ) later in 2016. Of course, the overall allocation to bonds will reduce if/when I increase the allocation to equities in the weeks ahead. Stay tuned.

For more information on my bond market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or 086 821 5911.

Gold Market Update

Gold closed above the 20-month moving average (20MMA) in February 2016, confirming a new bull market had begun. As long as gold continues to trade above the 20MMA, bull market rules will apply - we buy and hold and do not get shaken out of our position. The 20MMA closed on Friday at $1,170 and should start trending higher shortly.

Silver's bull market kicked off a month later, as this more volatile precious metal closed above its 20MMA in March 2016. Silver's 20MMA closed on Friday at $15.60, so above this price, bull market rules should also apply. 

The one fly in the ointment for both precious metals (silver in particular) is the extent of the speculative long position that has been accumulated by hedge funds and those betting on higher prices for the precious metals. The latest Commitment of Traders report shows an all time record net long position by speculators in the silver market.

Commercial traders (the mining companies and bullion banks) take the opposite side to the speculators and are always net short the metals to varying degrees, depending on price, to hedge their production. The Commercials are often referred to as the "smart money" as they are able to manage the gold and silver price in the short-term, knocking down the price and covering their short trades when the speculators get overly stretched on the long side. We are potentially at this point now, particularly in the silver market. The Commercials do not always win and have been forced to cover at much higher prices in the past. As always, I will be guided by the price action as it unfolds. Above the 20MMA, it's a bull market.

I expect the precious metals bull  market to benefit from an overall declining trend in the US dollar over the next 3-5 years. The USD has been perceived as a safe haven currency since the 2008 financial crisis and has benefited handsomely from significant inflows into various US growth assets, driving price and valuation to extreme levels. As valuations normalize, I expect the USD to decline on a trade weighted basis.

Confirming the bull market in precious metals, the gold and silver miners are rocketing higher. The gold and silver mining index is already +111% from their recent lows. The miners are notoriously volatile. However, for those willing to close their eyes and hold on, I expect BIG rewards here. The miners are too volatile for the Active Asset Allocator but are confirming my bullish view on the sector.

For more information on my gold market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or 086 821 5911.

March 2016 Investor Letter

Active Asset Allocator Performance

Investment Philosophy and Approach

The Active Asset Allocator investment strategy is designed to deliver a consistent level of positive returns over time with a strong focus on capital preservation. I follow a multi-asset investment approach, actively allocating between global equities, bonds, precious metals, currencies and cash. I always invest with the primary trend of the market and do not follow a benchmark. Instead, I manage the market risk for my clients. My strategy has returned +11% per annum net of fees since inception with a lower level of risk than the average multi-asset fund. My active asset allocation approach is best illustrated in the following chart.

Executive Summary

Equity bull market or bear? The moment of truth has arrived. Following a -21% decline from the May 2015 top to the January 2016 low, stocks have staged a rally back to the now down-sloping 50-week moving average (50WMA). What was once support is now resistance. This month, I examine price action, volume and volatility trends to examine whether stocks have the required strength to break out to new highs or whether new lows are around the corner. 

Bonds are off to another good start in 2016, despite 30% of all global government bonds now sporting a negative yield. I examine the bullish case and highlight my key concerns for fixed income investors. I also provide an update on the unfolding bull market in precious metals. The Active Asset Allocator remains defensively positioned with euros, bonds and precious metals accounting for 80% of the asset mix.

Finally, a note on 29 Trades, a new investment strategy at Secure Investments. I have been following the short-term (daily) and medium-term (investor) cycles of the gold market for over 10 years and have identified specific patterns, a rhythm, to the market that repeats with regularity as the daily and investor cycles ebb and flow. 29 Trades has emerged from many hours of analysis and has the potential to deliver exceptional returns over time for investors in a risk controlled way. Please get in touch for more information.

Stock Market Update

The moment of truth has arrived for the stock market. Either the top is in and this bear-market rally is about to roll over, or the past 10 months have been nothing more than a sharp correction in an ongoing bull market. We should find out soon enough. The Active Asset Allocator remains defensively positioned for now with an asset mix of 20% equities, 30% bonds, 30% gold, 20% cash.

We began 2016 with a waterfall decline in the stock market, the worst start to the year in recorded history. At the January 2016 low, stocks had declined -21% from their May 2015 peak. The market then experienced a powerful and impressive rally over the last 4 weeks, back to the now down-sloping 50-week moving average (50WMA). The FTSE All World Index, the global stock market barometer, closed the week just 6 points below the 50WMA.

In the United States, the Nasdaq Composite, Russell 2000 Small Cap Index and Value Line Geometric Index continue to trade below their long-term MA's. However, in a bullish development this month, the S&P 500, Dow Jones Industrials, Transports and Utilities Indices have all recaptured the 50WMA.

On another positive note, new highs on the NYSE are now outpacing new lows for the first time in almost a year (lower left chart) while 51% of NYSE stocks are now trading above the 200DMA compared with just 16% at the beginning of 2016 (lower right chart). Both are requirements for a sustained stock market rally to take hold. It is too early to tell whether the recent buying power has been driven by aggressive short-covering or large institutional players taking new positions. The stock market should reveal its hand shortly.

Volume flowing into advancing stocks relative to declining stocks has picked up in March but not yet to a significant degree. The recent turn is notable. If this trend in rising volume persists and follows price to new highs in the months ahead, the bulls will have regained control and I will move to a fully invested position in the Active Asset Allocator. Stay tuned.

Volatility is also rising and tracing out a pattern of higher highs and higher lows. The VIX Index surged to 32 in January 2016, a new high for the move, before declining back to 14 this month, a higher low. The pattern of higher highs and higher lows is signalling a increase in investor concern and demand for portfolio insurance. If volatility picks up in the next few weeks, it should coincide with lower stock prices. Conversely, a break to new lows for the VIX will signal the all clear for stock markets as we head into the summer months.

For more information on my stock market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or 086 821 5911.

Bond Market Update

Over 60% of global government bonds today yield less than 1% and almost 30% of global government bonds now have negative yields. While difficult to comprehend, it makes some sense given that global economic growth expectations are deteriorating, inflation is benign, and central banks have cut short-term rates to zero or below.

In January 2016, the Japanese central bank announced an interest rate cut to -0.1%. In March, the ECB followed suit with a rate cut to -0.4%. A couple of weeks later, the Federal Reserve lowered market expectations for further interest rate increases this year due to a weaker global growth outlook and volatile market conditions. 

As long as central banks continue to drive short-term rates lower and use newly printed money to buy government bonds, the bull market in bonds should continue. A period of stock market volatility should also provide an additional source of demand. I see two key risks for fixed income investors: (i) a policy change by key central banks to step back from quantitative easing, and (ii) an unanticipated rise in inflation. I rate the probability of a central bank policy reversal as near zero. An inflation scare is a potentially higher probability event given the trillions of dollars of newly printed money that has been pumped into the system and the law of unintended consequences. I am watching closely for signs. In fact, inflation-linked bonds have started to rally in the US, UK and EU, coincident with the recent bottom in commodity markets. If this trend persists, I will increase the allocation to inflation-linked bonds in the Active Asset Allocator from 5% to 10% and reduce the allocation to fixed interest rate bonds from 20% to 15%. 

For more information on my bond market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or 086 821 5911.

Gold Market Update

Last month, I noted that gold crossed bullishly above its long-term 20 month moving average for the first time since topping out at $1,923 in 2011. Gold has continued to trade above the 20MMA and is about to be joined by silver this month. Silver holds both precious metal and industrial properties. Silver is considerably more volatile than gold, but also offers more upside and a good degree of inflation protection in a world gone mad with central bankers threatening money printing ad infinitum. 

Last month, I also noted the recent strong performance of the gold mining stocks. Over the last four weeks, the miners have rallied another +20%. Fortunes will be made in this sector over the course of the bull market in precious metals.

The bull market in precious metals has historically coincided with periods of USD weakness. This time may be different as central banks across the world are all working towards the same goal as they attempt to destroy the value of their own currency relative to other to gain a competitive edge. Trillions of dollars, euros, pounds and yen have been created out of thin air. I expect USD weakness to drive the gold bull market in the years ahead, but potentially not to the same degree as prior episodes as the Fed has more competition this time. Gold will be the last currency standing when this game finally ends.

For more information on my gold market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or 086 821 5911.

February 2016 Investor Letter

Active Asset Allocator Performance

Investment Philosophy and Approach

The Active Asset Allocator investment strategy is designed to deliver a consistent level of positive returns over time with a strong focus on capital preservation. I follow a multi-asset investment approach, actively allocating between global equities, bonds, precious metals, currencies and cash. I always invest with the primary trend of the market and do not follow a benchmark. Instead, I manage the market risk for my clients. My strategy has returned +11% per annum net of fees since inception with a lower level of risk than the average multi-asset fund. My active asset allocation approach is best illustrated in the following chart.

Executive Summary

The Active Asset Allocator remains defensively positioned with euros, bonds and precious metals accounting for 80% of the asset mix. The strategy has returned +2% YTD in a very challenging environment where global equities have fallen -14% and the average multi-asset fund has declined -9%. With stocks now in a confirmed bear market, volatility is creeping higher while margin debt has peaked and is rolling over. There is room for equities to rally in the short-term but I expect bear market forces to take hold later this year. 

Bonds continue to defy the top callers and with JP Morgan recently forecasting that ECB rates on bank deposits could be cut from minus 0.3% to minus 4.5%, there is certainly more room for bond yields to fall and prices to rise. Finally, I touch on some exciting developments in the gold market, which may, finally, be waking up from a four year slumber. If that proves to be the case, there are exciting times ahead for precious metals investors.

Stock Market Update

The Active Asset Allocator remains defensively positioned with euros, bonds and precious metals accounting for 80% of the asset mix. The strategy has returned +2.2% YTD in a very challenging environment where global equities have fallen -14% and the average multi-asset fund has declined -9% in the first six weeks of the year. 

From a technical standpoint, global stock markets are in a confirmed bear market with many trading 20%+ below their recent highs. The majority of volume traded on the New York Stock Exchange each day is flowing into declining shares. Evident in the following chart, when the majority of volume is flowing into declining relative to advancing stocks, the S&P follows the trend lower, and sometimes in a meaningful way. The trend can turn at any stage and I continue to watch for signs of a reversal. However, for now, I remain defensively positioned.

When stock markets decline, volatility tends to spike higher and the Vix Index captures this trend. At prior meaningful lows in the stock market, the Vix Index has spiked to a level of 45 or above, as investors rush for the exits together, creating the oversold conditions necessary to lay the foundations for the next market advance. The next chart shows that, while volatility has increased in the first six weeks of the year, we have yet to experience any real sense of panic selling in the stock market. The Vix Index closed out last week at 25. Despite the double digit stock market declines YTD, investors remain in confident mood.

That may be about to change however. Margin debt represents borrowed money, or leverage, used by investors to speculate in the stock market. One glance at the next chart shows the risk seeking nature of investors in recent years as margin debt as a percent of nominal GDP has surged back to the prior bubble peaks of 2000 and 2007. Margin debt has a tendency to peak with the stock market and that now looks to be the case. Importantly, this chart does not yet reflect the high volume selling that has taken place in recent weeks. The next update later this month will show a sharper decline in margin debt. If this trend continues, we will certainly get a spike in the VIX towards 45 as investors scramble to close out highly geared positions in a declining market. In the meantime, I continue to wait patiently for a low risk place to turn more constructive on equities.

Despite the 2% rally in global stock markets on Friday and some follow through buying on Monday this week, the path of least resistance remains down for the FTSE All World Index, the global stock market benchmark.

There is a glimmer of hope for the bulls and I am watching closely to see if a meaningful reversal can take hold. At each prior major low in the stock market, the S&P 500 experienced heavy selling, rallied and then went on to make a lower low shortly thereafter, but the Relative Strength Index (RSI) failed to confirm this lower low in the price index. The higher low in the RSI signaled that selling pressure was easing despite the stock market decline, thereby laying the foundation for a market reversal.  We have a similar condition unfolding today in the S&P 500 (red dotted support lines on RHS of the next chart). However, this set up is only evident in the S&P 500 Index. The other major US and European indices have no such divergence in place, leading me to believe that the S&P 500 will follow the many other indices breaking down shortly. Also, the S&P's long-term 50 week moving average (WMA) is about to cross bearishly below the 100 WMA for the first time since 2008 (point (IV) on the chart below), as this bear market takes hold, with serious potential consequences for stock market investors.

As noted above, there is no divergence in place between price and relative strength for the Russell 2000 Small Cap Index or the Euro Stoxx 600 Index of European shares or many other charts that I have reviewed but not included here. 

For more information on my stock market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or 086 821 5911.

Bond Market Update

Mario Draghi of the ECB said recently there would be “no limit” to how low Euroland yields could be pushed. Janet Yellen at the Fed has already stepped back from her plan to increase interest rates after a mere 25 basis point tightening (the likelihood of a March 2016 rate increase has fallen from over 60% to around 10%). Meanwhile Haruhiko Kuroda of the Bank of Japan is trying hard to lead his country down a path of negative interest rates and destroy the JPY in the process. JP Morgan also recently reported that the ECB could cut the rate it charges on bank deposits to minus 4.5% compared to minus 0.3% today. These policies do not work yet Draghi, Yellen and Kuroda continue to print, pushing on a string and hoping that their combined efforts will stimulate demand. 

This backdrop continues to be favourable for bonds. We are certainly in uncharted territory, yet if the ECB cuts the rate it charges on bank deposits from -0.3% to -4.5%, EU government bonds yields can certainly continue to fall.... and that is exactly what is happening. The bull market in bonds rumbles on. The Active Asset Allocator continues to maintain a 30% allocation to EU fixed interest, corporate and inflation linked bonds.

For more information on my bond market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or 086 821 5911.

Gold Market Update

The gold bull is waking up. Gold is on track to close above its long-term 20 month moving average this month for the first time since topping out at $1,923 in 2011.  A close above $1,175 should do it. The gold mining stocks have reacted strongly to the recent surge in the price of gold, confirming this move could be the real deal. I need to see more bullish confirmation in price unfold before being confident that the bear market is in fact behind us but so far, this move looks good.

Many of the gold mining stocks have rallied 40-60% in recent weeks, but they have been so unmercifully and so aggressively sold over the past four years that the YTD rally is hardly noticeable on a long-term chart. If the gold bear market is over and the bull market is about to resume, the miners will shoot the lights out over the next few years.

I have noted before that gold tends to move in 7-8 year cycles and right on cue, gold is waking up and a new eight year cycle is about to begin.

Following the sharp declines of 2012 and 2013, gold has spent the past two years consolidating in a more bullish fashion. Now we are seeing bullion break out higher in all currencies as the next leg of this bull market kicks off. For those patient enough to handle the swings and stay invested, it will be a sight to behold.

If you know of any colleagues or friends who may have an interest in my investment approach, please do share my contact details. All new business leads are very much welcomed! Thanks for stopping by and sincere thanks again to all of you who have already signed up as a Secure Investments client or who are still thinking about it!

For more information on my gold market analysis, please get in touch. You can reach me at brian@secureinvestments.ie or 086 821 5911.

January 2016 Investor Letter

Active Asset Allocator Performance

Investment Philosophy And Approach

The Active Asset Allocator investment strategy is designed to deliver a consistent level of positive returns over time with a strong focus on capital preservation. We follow a multi-asset investment approach, actively allocating between global equities, bonds, precious metals, currencies and cash. We always invest with the primary trend of the market and do not follow a benchmark. Instead, we manage the market risk for our clients. Our strategy has returned +11% per annum net of fees since inception with a lower level of risk than the average multi-asset fund. Our active asset allocation approach is best illustrated in the following chart.

Executive Summary

Global stock markets are under increasing pressure. The S&P 500 has fallen -8% in the first three weeks of 2016, while technology stocks are -10% and small cap stocks -11% YTD. The internal structure of the market has also deteriorated with the number of stocks on the NYSE making new lows increasing significantly in recent weeks. In contrast, the Euro, bonds and gold have acted better and are showing positive returns YTD. Together, these account for 80% of the Active Asset Allocator, which has started 2016 +6% ahead of benchmark.

Government bonds continue to attract safe haven capital flows as stock market volatility persists. I expect gold to also step up as a safe haven asset in 2016 and outline a few more bullish developments this month for the metal, including a +27% increase in investment demand in the third quarter of 2015 and a +62% year/year increase in US consumer demand as recently reported by the World Gold Council.

Stock Market Update

2016 is off to a difficult start for investors. The S&P 500 has delivered its worst January month-to-date performance since its inception in 1923. The S&P 500, NYSE Composite and Dow Jones Industrial Average have all declined -8% in the first 10 trading days of 2016. Global equities in euro terms are -9% YTD. US Transportation (-11%), Technology (-10%), and Small Cap stocks (-11%) have fared even worse, increasing the likelihood that a full-scale bear market may now be in force. In contrast, the Euro, bonds and gold have each acted better and are showing positive returns YTD. Together, these positions account for 80% of the Active Asset Allocator. The S&P 500 closed Friday at 1,880, just 13 points above the October 2015 lows. The Index reached an intra-day lower low of 1,857 but stocks rallied into the close to end another difficult week. A lot of technical damage has occurred and it is now all for the bulls to prove.

Back in 2008, when the S&P 500 broke decisively below its 50 week moving average (50WMA), stocks sold off sharply but then rallied one final time to test the underside of the 50WMA before the real damage was done. This time around, we have already had one test of the 50WMA from below. We may get another shortly to reset sentiment, which has turned quite bearish in recent weeks (it looks like that this Tuesday morning), or we could just accelerate lower from here. For a rally to occur, the S&P 500 must hold 1,867. If the stock market spends too much time below 1,867, we could be in for trouble. The 50WMA is currently +9% above where the S&P closed on Friday. (US markets are closed on Monday 18th January in observance of Martin Luther King Day).

Outside of US large cap stocks, a lot of technical damage has already occurred. The Value Line Index (lower left chart), an equally weighted index of 1,700 US companies, formed a bull market top in April 2015 and has already declined -22%. The Russell 2000 Index (lower right chart) of US small cap stocks topped out two months later in June 2015 and has also fallen -22% in the intervening period.

The Dow Jones Transportation Average (DJTA), the oldest running stock index in the US (created in 1884 by Charles Dow), comprises 20 stocks in the transportation sector and is an excellent barometer of the health of the US economy. The DJTA has now fallen -28% since topping out in November 2014. The declining transport stocks and collapsing price of crude oil are discounting much weaker trading conditions in the US in the months/years ahead.

In my October 2015 Investor Letter, I noted that the number of stocks making new highs minus those making new lows had turned positive for the first time in many months and a consistent positive trend would allow me to become more constructive on the stock market. However, I needed to see more data before making that call. Over the following three months, the internal structure of the market deteriorated and the number of stocks on the NYSE making new lows increased significantly. I need to see new highs outpacing new lows before I can turn bullish on equities. In the meantime, I continue to recommend a defensive position in the Active Asset Allocator.

For more information on my stock market analysis, please get in touch. You can reach me at brian.delaney@secureinvest.ie or 086 821 5911.

Bond Market Update

Government bonds continue to attract safe haven capital flows as stock market volatility persists. German 10-year bund yields have fallen -10 bps in 2016 YTD and have almost halved since peaking in June 2015 at 0.98%. Japanese 10-year bond yields have fully retraced their 2015 move, while UK and US 10-year government bond yields have also started trending lower again. If stock market weakness persists over the next couple of months, pressure will come on central banks to restart quantitative easing (printing money, buying bonds) and government bond markets may now be discounting this increasing probability.

German 10-year bund yield

Japanese 10-year bond yield

UK 10-year bond yield

US Treasury 10-year bond yield

High yield bonds continue to fall and are now -14% off their 2014 highs. Last year's divergence relative to equities provided a timely warning for investors that the market's risk profile was changing. Default rates across high yield bonds should spike before this move lower is done and we are not there yet. I expect more pain to come for high yield fixed income investors.

For more information on my bond market analysis, please get in touch. You can reach me at brian.delaney@secureinvest.ie or 086 821 5911.

Gold Market Update

Gold in euros returned -0.8% in 2015. A mix of bearish sentiment and apathy continues to surround the sector. The stage is set for the gold bull market to return and there are many positive catalysts, but at the moment, Nobody Cares (This light-hearted presentation by Grant Williams, saved in the Research section of our website, does a very good job of outlining the bullish case for gold and is well worth 28 minutes of your time). I am expecting a trend change in 2016.

In his presentation, Williams refers to the Q3 2015 World Gold Council report on demand trends in the sector. The report highlighted a +27% increase year/year in overall investment demand for gold in the third quarter of 2015, a +33% increase year/year in bar and coin demand and a +62% year/year increase in consumer demand for gold in the United States in the same period. These are very significant numbers and if this trend continues, it won't take long for the bull market in precious metals to return.

“US retail investment demand jumped to 32.7 tonnes generating growth of more than 200% year-on-year. This signaled both a level of interest in gold investment not seen since the global financial crisis, and a level of price awareness on a par with that of Indian and Chinese retail investors. Nowhere was this more clearly demonstrated than in the US, where the US Mint reported rocketing sales of gold eagle coins. Demand for gold was the highest for more than five years: in volume terms, sales hit 397,000oz.”

— World Gold Council, Demand Trends Q3 2015

The +33% year/year increase in gold bar and coin demand is shown on a regional basis in the next table. China and the United States stepped up their purchases significantly in Q3 2015.

Physical bullion ETF's lost additional ounces (-4%) in 3Q 2015 but the trend has slowed significantly since the start of last year. Once investors start accumulating ounces in the main gold ETF's once again, the gold bear market will have finally ended. I am monitoring this situation closely.

For more information on our gold market analysis, please contact Brian Delaney at 086 821 5911 or brian.delaney@secureinvest.ie.

December 2015 Investor Letter

Active Asset Allocator Performance

Investment Philosophy and Approach

The Active Asset Allocator investment strategy is designed to deliver a consistent level of positive returns over time with a strong focus on capital preservation. We follow a multi-asset investment approach, actively allocating between global equities, bonds, precious metals, currencies and cash. We always invest with the primary trend of the market and do not follow a benchmark. Instead, we manage the market risk for our clients. Our strategy has returned 12% per annum net of fees since inception with a lower level of risk than the average multi-asset fund. Our active asset allocation approach is best illustrated in the following chart.

Executive Summary

For the first time since 2010, the Active Asset Allocator has run a full calendar year without a single change to the asset mix. While not unprecedented, this is quite unusual and testament to the difficult trading conditions experienced this year. In 2015, regional stock markets were a mixed bag with the US -3%, Europe +4% and emerging markets -10% on average. Despite euro gold delivering a flat performance and EU government bonds +2%, the Active Asset Allocator is on track to deliver another positive year for investors; not quite 12% but positive nonetheless. I expect 2016 to be filled with opportunity for those of a patient persuasion. Until then, Happy New Year to one and all and my sincerest thanks for your continued support.

Stock Market Update

US stocks returned -3% on average in 2015, though the performance varied widely by sector. Large cap technology stocks for example returned +9%, while industrial company shares declined -2%. Stocks in the transportation sector sunk -18%, despite a -31% collapse in crude oil prices. Euro investors can add +10% to these returns due to the fall in the Euro versus the US dollar in 2015.

Despite pockets of strength in US stocks, I remain concerned about the broader outlook based on valuation and the deteriorating technical picture I see. Over the last 20 years, the S&P 500 has broken below its long-term 100 week moving average (100 WMA) on just four occasions. In 2000 and 2008, stock prices collapsed shortly thereafter. In 2011, after a battle, stocks recovered the 100WMA and went on to rally another +70%. In 2015, the S&P 500 has once again broken below the 100WMA and the battle is on. The 100WMA currently stands at 2,006 so a meaningful close below that level could spell trouble. This bull market in stocks is almost 7 years old now and approaching the second longest bull market in history (average: 3.8 years, median 3.6 years). Bull markets typically don't die of old age, but at the same time, they all must eventually end. 2016 is shaping up to be quite an interesting year.

Last month, I reviewed the chart of the Value Line Geometric Index, noting the deteriorating technical picture. Over the past five weeks, there has been no real improvement. This equally weighted index of 1,700 stocks is signalling that the US economy is at the very least, slowing down.

The same pattern is evident in the FTSE All World Index, my global stock market barometer. While some regions have performed well this year, particularly in Europe, due to the weaker currency (Eurostoxx 600 +7%, Germany +9%, France +9%, Italy +13%, Denmark +34%, Ireland +39%), in aggregate, the trend in the Index is down. Many Asian and Latin American stock markets have declined over -10% in 2015.

So, I remain cautious heading into the new year. This stock bull market is ageing and stock valuations are high relative to history. US corporate profits have peaked for this cycle. Margin debt has also peaked and is now in decline. Meanwhile, the Federal Reserve has no real room to cut interest rates to cushion the fall if stock markets roll over. Interesting times indeed.

For more information on our stock market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.

Bond Market Update

There is little to report in fixed income this month. Government bond yields have risen by 10-20 basis points in Germany and by 10 basis points in the United States, but only at the shorter end of the yield curve. This is in response to the Federal Reserve increasing short-term rates by 25 basis points earlier this month. While the Fed controls the short end of the yield curve in the US, the market determines long-term bond yields. Long-term bond yields have hardly budged in the US over the last month, increasing by just 3 basis points. 30-year yields have rallied by 10 bps in the UK and 20 bps in Germany since our last report and have actually fallen 11 bps in Japan over the same period.

The main story continues to be the slow motion deterioration in the high yield/junk bond market. Investors reaching for yield have invested in high yielding fixed income instruments including credit derivatives and below-investment grade bonds. The JNK ETF has already declined -11% from its recent peak compared to just -2% for the S&P 500. Much pain ahead for high yield investors.

For more information on our bond market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.

Gold Market Update

Gold started the year at €978 ($1,183) and is priced today at €976 ($1,062), so despite all the hoopla and bearish calls, euro gold has returned -0.2% in 2015. Gold is of course a core component of the Active Asset Allocator and a zero return hasn't helped much this year but gold will rally in its own good time and when the bull market resumes, the Active Asset Allocator will be ready. The patience of a saint is however required in the meantime. After a four year bear market, I think the wait is almost over.

What could be the spark that reignites the gold bull market? US dollar bulls today are ten-a-penny. Being bullish the USD is very much a consensus trade, particularly since the Federal Reserve has started to raise interest rates, while the ECB continues to talk the euro lower. However, all of this information is already in the price. Long USD and  long US equities are very much the same crowded trade and both may be about to reverse.

Looking back through history, the USD Index declined sharply in the lead up to the 1987 stock market crash. The USD Index fell sharply during the 2001/2 technology bust and again during the 2008 financial crisis.  It would surprise an awful lot of folks if the USD turned lower in 2016 in  tandem with a declining US stock market. This does not have to happen for gold to rise but it may drive new demand into precious metals by US investors if a protracted decline in the USD takes hold.

For more information on our gold market analysis, please contact Brian Delaney at 086 821 5911 or brian.delaney@secureinvest.ie.

November 2015 Investor Letter

Active Asset Allocator Performance

Investment Philosophy and Approach

The Active Asset Allocator investment strategy is designed to deliver a consistent level of positive returns  over time with a strong focus on capital preservation. We follow a multi-asset investment approach, actively allocating between global equities, bonds, precious metals, currencies and cash. We always invest with the primary trend of the market and do not follow a benchmark. Instead, we manage the market risk for our clients. Our strategy has returned 12% per annum net of fees since inception with a lower level of risk than the average multi-asset fund. Our active asset allocation approach is best illustrated in the following chart.

Executive Summary

Today just 38% of the 3,100+ stocks on the New York Stock Exchange are trading above their long-term moving averages, while in excess of 1,900 stocks are currently trending lower (<200DMA). The performance of the S&P 500 has been dominated by a handful of names. The largest 10 companies in the Index have a combined market capitalization of $3.5 trillion or 18% of the Index's total market capitalization ($19 trillion). So, just 2% of the companies account for 18% of the Index's daily price movement. Amazon, Facebook, GE, Microsoft and Apple are masking a broader deterioration in market.

Meanwhile in fixed income, as the Federal Reserve busy prepares investors for an interest rate increase, finally, the ECB is considering "all options" to reverse their deflationary course. Further interest rate cuts are on the cards in the EU, a sign not lost on core Eurozone government bond markets. 2 year German bund yields have reached minus 42 basis points. This month, we also consider the impact a US interest rate hike could have on the gold market, provide an insight into our 'cycles' research in the precious metals sector and touch on a new investment strategy currently in research mode that we are very excited about.

Stock Market Update

We continue to operate on the basis that a bear market in stocks began in June 2015 and is in its early stages. We anticipate the August 2015 lows will be breached in the next couple of months and stocks could trade meaningfully lower in 2016. As always, we will be guided by the market's underlying trend and will change our view should we see an improvement in stock market breadth (number of stocks in rising trends versus those in declining trends) and relative strength as measured by the RSI Index, in tandem with a bullish turn in our technical trend indicators. For now however, we maintain a defensive position in the Active Asset Allocator with just 20% global equity exposure.

While the S&P 500 (SPY) and Dow Jones Industrial Average (DJIA) trade today just 2-3% below their all-time highs, this performance is not a true reflection of the market's overall health in the United States. SPY and DJIA are market capitalization weighted indices and their recent strong relative performance has been dominated by just a handful of names. The largest 10 companies in the Index have a combined market capitalization of $3.5 trillion or 18% of the Index's total market capitalization ($19 trillion). So, just 2% of the companies in the S&P 500 account for over 18% of the Index's daily price movement. The performance of Amazon, Facebook, GE, Microsoft and Apple in particular is masking a broader deterioration in the performance of a majority of US publicly quoted companies.

The deteriorating picture is more visible when focusing on the Value Line Geometric Index, an equally-weighted Index of 1,700 US companies. Here, no single  stock dominates the Index, which has fallen -11% since peaking in mid-summer. Note the deterioration in relative strength since 2014 is very similar to the 2007-2008 set up.

Today just 38% of the 3,100+ stocks on the New York Stock Exchange are trading above their 200 day moving average, while in excess of 1,900 stocks are currently trending lower (<200DMA). This is not a healthy picture and one we are watching closely. We have seen an improvement since the August lows when just 20% of stocks were above the 200DMA but we need to see at least 50% of stocks trading and holding above the 200DMA before we can become more constructive in our outlook.

The next couple of months will be interesting. The Federal Reserve will announce next month whether they will finally start the process of normalising interest rates, increasing the Fed funds rate by 25 basis points from zero currently. Increasing interest rates seven years into an economic recovery when signs that economic activity in the US is beginning to weaken and stock market internals are potentially breaking down is a dangerous strategy. The Fed has talked itself into a corner. They have signalled a rate increase, which has been priced into equity, fixed income and currency markets. They must now follow through with that decision or run the risk of losing credibility. A decision by the Fed not to increase interest rates after all their talk will would likely be perceived as a negative signal for investors.

For more information on our stock market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.

Bond Market Update

While the Fed is busy preparing markets for an interest rate increase, the ECB is doing the opposite. ECB Chair Mario Draghi recently announced he would consider "all options" to reverse the deflationary course on which the Eurozone economies have found themselves. Further interest rate cuts are on the cards, a sign not lost on core Eurozone government bond markets. 2 year German bund yields have reached minus 42 basis points. Could the 5 and 10 year yield follow suit? We think so. The trend towards negative core Eurozone government bond yields is killing defined benefit (DB) pension schemes across Europe whose liabilities are surging higher as yields continue to fall. However, the majority of DB schemes remain under-invested in bonds, supporting the trend still higher in bond prices and lower in bond yields.

While government bonds continue to act well and attract "flight to safety" capital, higher risk bonds are signalling increasing concerns of credit default by high risk borrowers. High yield/junk bonds for example are not confirming the recent highs in stock markets are trading -10% off their recent peak as measured by the Barclays High Yield Bond ETF (JNK). We continue to avoid high yield bonds and emerging market debt in the Active Asset Allocator investment strategy.

Emerging market debt, which tends to correlate well with riskier asset classes, continues to perform quite poorly reflecting the challenging conditions currently facing many of the EM countries. The Market Vectors Emerging Markets Local Currency Bond ETF is now -27% below is 2013 top.

For more information on our bond market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.

Gold Market Update

Gold typically exhibits a strong negative correlation with the US dollar and tends to struggle (at least in USD terms) during periods of USD strength. Since the USD gold price peaked in 2011 at just over $1,900, gold priced in dollars has fallen -45% while the USD Index has rallied +37%. Today we find ourselves at quite an interesting juncture. The USD Index has formed a third lower peak (red arrows below) when looking back at the chart since 1980. Similar to the mid-1980's and early-2000's experiences, the USD Index formed a sharp peak and reversal each time. The Volcker-induced rally from 1980-1985 was followed by an equally sharp decline fro 1985-1987.

This time round, we have experienced another sharp USD rally, which has now punched through the multi-decade downward sloping trend line. The timing again is interesting as the Fed is potentially set to announce its first interest rate hike in years on 16th December. Markets discount the future and the recent USD rally could be discounting the upcoming Federal Reserve actions. If the USD peaks and reverses on the Fed news next month, it may also coincide with the low in precious metals prices and an end to the four year bear market in bullion.

A note on timing... We have been following the gold market intently for years and have developed a keen understanding of the short and medium term cycles that are characteristic of the precious metals market. Gold typically moves in daily cycles (DC's) of 20-28 trading days per cycle. There are generally 4 or 5 DC's in each medium-term "Investor" cycle (IC). In bull markets, DC1, DC2 and DC3 are strong, followed by selling in DC4 as sentiment is re-set and price returns to the longer-term upward sloping moving average. In bear markets, DC1 and possibly DC2 are positive followed by heavy selling in DC3 and DC4 as the major trend is down and the bear market pulls the gold price lower. Today, we find ourselves approaching the tail end of the current Investor cycle, with potentially significant (positive) implications for gold once the current daily (and investor) cycle completes over the next two weeks. It also happens to coincide with Federal Reserve announcement next month.

Our analysis of gold's daily and investor cycle patterns has also sparked a potentially exciting new investment strategy at Secure Investments. We are still in research mode and will be writing more on this topic in the months to come. Please check the Research section of our website in the New Year for more information. This new investment strategy has a working title "29 Trades". Suffice to say, we are very excited by the research results experienced to date and the potential for this strategy to deliver exceptional returns in a risk controlled way.

29 Trades focuses on capturing the strongest period of each daily cycle, buying the daily cycle low each time and holding for 10-15 trading days, depending on the cycle count. As we know the low each time we enter a trade, we can effectively manage our risk each time. 29 Trades aims to capture +5% profit per trade while risking just 1.5% each time.  The strategy has a near 80% win rate, which is exceptional. Most successful hedge funds operate on a win rate closer to 60%. Did I mention we are excited about our analysis to date. Stay tuned.

For more information on our gold market analysis, please contact Brian Delaney at 086 821 5911 or brian.delaney@secureinvest.ie.

October 2015 Investor Letter

Active Asset Allocator Performance

Investment Philosophy and Approach

The Active Asset Allocator investment strategy is designed to deliver a consistent level of positive returns  over time with a strong focus on capital preservation. We follow a multi-asset investment approach, actively allocating between global equities, bonds, precious metals, currencies and cash. We always invest with the primary trend of the market and do not follow a benchmark. Instead, we manage the market risk for our clients. Our strategy has returned 12% per annum net of fees since inception with a lower level of risk than the average multi-asset fund. Our active asset allocation approach is best illustrated in the following chart.

Executive Summary

The Active Asset Allocator is on track to deliver another solid return in 2015 +5.8% YTD in what has been quite a volatile market so far this year. Our proprietary investment tools have helped us navigate the market uncertainty with a degree of confidence. The technical set up of the stock market has improved in recent weeks, though we continue to advise caution in the near-term. Financial engineering has put a gloss on corporate earnings that we believe is unsustainable. 

Despite record low yields, we believe there is still room for government bond yields to fall over the next 12 months. We also provide our updated views on inflation and inflation-linked bonds this month. Rising inflationary pressures have not been lost on the precious metals market and we believe gold is waking up from a four year slumber. Gold has a tendency to move in 7-8 year cycles and we could be about to embark on a new multi-year bull trend for precious metals. 

Stock Market Update

Our Technical Trend Indicator (TTI) has kept us on the right side of the primary trend of the stock market and cautioned when to step aside ahead of major stock market corrections. The TTI has been an invaluable tool in our investment toolbox. A history of TTI buy and sell signals are overlaid on a chart of the S&P 500 Index below.

Today, our trend indicator (lower left) is still in defensive mode, but has worked its way back towards neutral with the recent rally in the stock market. The number of advancing versus declining stocks has turned up recently, driving some of the improvement in the technical set up of the stock market, though the longer-term trend still remains down. 

The number of stocks making new highs minus those making new lows has also turned positive for the first time in many months. A consistent positive trend here will allow us to become more constructive on the stock market, but we need to see more data before making that call.

In addition to the above indicators, we pay attention to the percentage of stocks trading above their 200 day moving average to gauge the overall health of the market. In rising markets, at least 50% of the stocks trading on the NYSE trade above the 200DMA. When this percentage falls below 50%, stocks tend to struggle. Today, we only have 36% of stocks trading above their 200DMA. This chart needs to repair itself quickly or the path of least resistance will turn lower again shortly.

While it is possible that stocks consolidate their recent gains in the weeks ahead and break out to new highs, this is not our current expectation. US companies reporting third quarter 2015 earnings are not delivering much in the way of positive news. Alcoa for example recently kicked of earnings season in the United States with somewhat disappointing news and their shares were clubbed for -10%. Walmart, considered a bellwether for the US economy, also provided a reality check for those with a bullish bias, delivering quite a sobering outlook for 2016 on their quarterly analyst conference call. WMT shares have plunged -36% so far this year. Financial engineering has put a positive gloss on corporate earnings in recent years but that trend can only last for so long. 

Regular readers will know that we are watching the performance and chart pattern of the FTSE All World Equity Index with interest. This global equity benchmark for fund managers around the world continues to track the 2007/8 stock market top in an eerily similar fashion. We have experienced a sharp selloff in the stock market and are now rallying off the August lows. The bulls will argue we have had our 10% correction and come through October relatively unscathed, so it's off to the races for the rest of the year. We take a more sanguine view. Given that the global economy is slowing and corporate earnings have been relatively disappointing, there is quite a disconnect in the market today between expectations and reality. We remain defensively positioned in the Active Asset Allocator for now, 20% equities / 30% bonds / 30% gold / 20% cash.

For more information on our stock market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.

Bond Market Update

You have to pay the German government 0.26% per annum to take your money for two years and can earn just 0.57% per annum on a 10 year German bond. A 1% rise in German bond yields will eat up over a decade's worth of income. Irish 2 year government bonds are also sporting a negative yield, despite an economy that is growing at a rate of 6% in 2015. Today, Germany, France, Finland, Ireland and Sweden all have negative government bond yields out to four years. 

Despite record low yields, we believe there is still room for government bond yields to fall and prices to rise. By the time the ECB has finished its QE government bond buying programme, we could see negative 10-year yields across many of the core EU government bond markets, while government bond yields in the EU periphery move closer to zero. EU government bonds should also benefit from the flight-to-quality trade on the next stock market correction. As always, we will be guided by the price action of the fixed income markets we follow. 

In our active asset allocation strategy, we have begun to rotate away from long duration government bonds - reducing the allocation from 30% to 20% in November 2014 - into a mix of shorter duration EU government and corporate bonds (+5%) and EU inflation-linked bonds (+5%) and will continue this process in 2016. Given the collapse in crude oil prices in 2015, inflation expectations are relatively benign this year but many market forecasters are increasing their inflation estimates for 2016. JP Morgan for example is expecting inflation to rise in Europe from 0% this year to 1.0-1.5% in 2016.

The iShares Euro Inflation Linked Bond ETF has begun to price in a more inflationary environment for 2016, rallying +4% from the July lows. Inflation linked bonds should outperform fixed interest rates bonds in periods of rising inflation and deliver positive returns should inflation rates increase at a faster rate than anticipated by the market. We are well positioned to capture this trend with allocations to ILB's and precious metals in the Active Asset Allocator.

For more information on our bond market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.

Gold Market Update

Slowly but surely the gold market is waking up from a four year slumber. Euro gold rallied +28% from the November 2014 low, then corrected by -17% earlier this year. Euro gold has added another +10% in recent months and we believe this uptrend is just getting started.

Gold has a tendency to move in 7-8 year cycles and we could be about to embark on a new multi-year bull trend for precious metals. Certainly, the combination of a weakening global economic growth outlook, zero-to-negative interest rates, record loose central bank monetary policy, rising political tensions in between West and East and rising demand for a scarce resource that has been considered money for thousands of years, all combine to set the stage for an explosive rally in the precious metals sector.

While gold in US dollars has rallied +9% since the July 2015 lows, the gold mining companies have reacted much more favourably, which should be expected as the miners really are leveraged plays on the price of gold. The most popular ETF of gold mining stocks, GDX is +27% over the same period while certain mining companies have performed even better: Agnico Eagle (AEM), Yamana (AUY), Novagold (NG) and New Gold (NGD) to name a few. Caution is warranted however. We have seen this movie many times before over the last four years. Miners need to continue their current form for quite a few months yet before we can be confident that the bear market in precious metals is behind us.

For more information on our gold market analysis, please contact Brian Delaney at 086 821 5911 or brian.delaney@secureinvest.ie.

September 2015 Investor Letter

Active Asset Allocator Performance

Investment Philosophy and Approach

The Active Asset Allocator investment strategy is designed to deliver a consistent level of positive returns  over time with a strong focus on capital preservation. We follow a multi-asset investment approach, actively allocating between global equities, bonds, precious metals, currencies and cash. We always invest with the primary trend of the market and do not follow a benchmark. Instead, we manage the market risk for our clients. Our strategy has returned 12% per annum net of fees since inception. Our active asset allocation approach is best illustrated in the following chart.

Executive Summary

Stocks tumbled in August, the first real -10% decline since 2011 and the bounce out of the August lows has been mediocre so far. Our studies confirm the continued deterioration in the internal structure of the stock market. The recent rally barely registers on the charts. The Large Cap Breadth Index (LCBI) for example (below left) has been steadily declining since peaking in September 2014. The recent performance of the FTSE All World Index also reinforces our defensive position. Bonds,  gold and cash, which together account for 80% of the  Active Asset Allocator investment portfolio, have provided some shelter from the storm. 

Stock Market Update

All eyes are on the Federal Reserve this afternoon as the US Central Bank decides whether to increase interest rates from 0.0% to 0.25%. The magnitude of the potential rate hike is small but market reaction to the news over the next few weeks could be significant.

We experienced a sharp correction in stocks in August, the first real -10% decline since 2011. The bounce out of the August lows has been mediocre so far. Our studies confirm the continued deterioration in the internal structure of the stock market. The recent rally barely registers on the charts. The Large Cap Breadth Index (LCBI) for example (below left) has been steadily declining since peaking in September 2014. This Index captures the underlying trend of the largest companies that trade on the NYSE and is a very useful tool in that it shows where the major players in the investment management sector are placing their trades. Most large portfolio managers need to own the largest market cap stocks for liquidity purposes, as they have multiple billions to invest on a regular basis. The LCBI is highlighting that the big institutional players have yet to step back into the market in any meaningful way.

The advance/decline line (above right) also shows that the majority of stocks have been trending lower for much of 2015. The A/D Line is a composite of over 3,000 stocks trading on the NYSE, so it is a broad measure of market breadth and an excellent barometer of the overall health of the stock market. Both of the above indicators suggest the trend remains down and lower stock prices lie ahead.

We continue to follow the path of the FTSE All World Equity Index with interest. As noted in last month's update,  this Index is the benchmark for global equity fund managers and includes stocks from North America (54%), Europe (23%) and Asia (23%). Similar to the 2007-2008 stock market top, the FAW Index:

1. made an initial break lower in October 2014 (I);
2. rallied to new market highs in early 2015 but on weaker momentum (II);
3. declined to lower lows below (I) in August 2015 (III); and
4. is currently attempting to rally back to the now declining 50 week moving average.

As long as this pattern continues in a similar fashion to 2007/8, we will continue to recommend a defensive position in the Active Asset Allocator.

The stock market in the United States looks to have formed a medium-term top. Following a 15% decline in August, the NYSE Index of 3,000+ stocks has managed a weak +6% rally. We need to see a sustained break above the upper resistance trend line before turning bullish again on US equities.

There have only been four occasions over the last 20 years when the S&P 500 traded below its long-term 100 week moving average. In 2000 and 2007, it preceded a severe multi-year bear market. In 2011, we experienced a -20% stock market correction before the uptrend resumed. In 2015, the Index is once again testing the 100WMA. We closed below the 100WMA for 9 trading sessions before the current rally took us back above this key support level. Correction or bear market pending?  We will find out shortly.

Turning to Europe, we can see a similar trend unfolding. The Eurostoxx 600 Index, comprising 600 of the largest companies from European developed countries, has fallen -20% since peaking in April 2015 and is currently +6% off those August lows. It is very likely we revisit those lows at some stage over the next 1-3 months. A successful re-test will likely have us turning more positive on equities. However, should we break the August lows, we expect to see an acceleration in selling pressure for stocks. We are at a critical juncture now for the stock market.

Emerging markets have fared worst of all. Peak to trough, the MSCI Emerging Markets Index (below) has fallen -32% from the highs earlier this year in local currency terms. Many emerging market currencies (ex China) have also experienced punishing declines over the last 12 months. China accounts for 23% of the index, followed by South Korea (15%), Taiwan (13%), India (8%), South Africa (8%), Brazil (6%), Mexico (5%) and Russia (4%).

The Chinese stock market has already corrected -45% from the top in June and there is no evidence yet that this correction is over. The Latin American region is another basket case and is already fast approaching the 2009 lows experienced during the last financial crisis.

We continue to recommend a defensive position in the Active Asset Allocator of 20% equities / 30% bonds / 30% precious metals / 20% cash as we navigate an increasingly volatile market environment. 

For more information on our stock market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.

Bond Market Update

We initiated a 5% position to inflation linked bonds in the Active Asset Allocator at the start of the year and will likely add to this position once it starts working for us. While deflationary fears persist in the marketplace, we believe they are already discounted in security prices. It therefore makes sense to us to begin to diversify our bond holdings ahead of the more inflationary future we anticipate. So long as inflation rises faster than nominal interest rates (thus causing real yields to fall), our inflation linked bonds will perform well for our clients.

We also bought a 5% allocation to Euro aggregate bonds, a mix of short duration government and corporate bonds, at the same time as we started our inflation linked bond position. The rationale is similar in that we want to diversify our bond holdings and reduce our interest rate exposure. We do not anticipate a significant rise in interest rates or bond yields in the years ahead but expect volatility to pick up, so we think it makes sense to reduce risk a little.

For more information on our bond market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.

Gold Market Update

Gold priced in euros had a great start to 2015 rallying over +25% shortly after we increased our allocation from 20% to 30% in the Active Asset Allocator. The last few months however have been disappointing and Euro gold has given back a lot of its 2015 gain so far, but is still +5% since we took our overweight position.

We are now entering the most seasonally positive time of year for gold and expect to see higher prices over the next 4-6 weeks. If we do not get what we are looking for, we will be quick to cut back our allocation to our longer-term strategic weight of 20%. We are paying very close attention to the market action in the precious metals sector.

For more information on our gold market analysis, please contact Brian Delaney at 086 821 5911 or brian.delaney@secureinvest.ie.

August 2015 Investor Letter

Active Asset Allocator Performance

Investment Philosophy and Approach

The Active Asset Allocator investment strategy is designed to deliver a consistent level of positive returns  over time with a strong focus on capital preservation. We follow a multi-asset investment approach, actively allocating between global equities, bonds, precious metals, currencies and cash. We always invest with the primary trend of the market and do not follow a benchmark. Instead, we manage the market risk for our clients. Our strategy has returned 12.3% per annum net of fees since inception. Our active asset allocation approach is best illustrated in the following chart.

Executive Summary

One by one, the stock market leaders are falling. Apple is the latest casualty, closing below its 200 day moving average for the first time in over three years. The FTSE World Equity Index followed suit this week too. Bonds still look good despite the many top callers and we could see another run to new highs later this year. Meanwhile, action in the gold market is hotting up. The People's Bank of China added another 25 tonnes of gold to their reserves in July, while also announcing a devaluation of their currency this week. The PBOC is making explicit statements linking monetary policy moves to their continuing accumulation of gold for those interested in connecting the dots. The gold market is turning back up and the miners are leading the way, +20-30% in the last week alone.

Stock Market Update

The FTSE All World Index, the benchmark for active global equity fund managers, includes stocks from North America (54%), Europe (23%) and Asia (23%) and provides an excellent read of the overall health of the stock market. The recent deterioration in the trend has us concerned. The stock market today is showing signs of weakness similar to the 2007-2008 experience just prior to the wheels coming off and stocks in aggregate are more expensive today than they were in 2007.

Despite the FTSE All World Index making a higher high in 2015, relative strength (RSI at the top of the chart) has weakened, which means the market is losing upside momentum. Fewer stocks are participating in the market advance. One by one, the market leaders are falling. Apple, the largest company in the world by market capitalization at $650 billion, is the latest casualty, closing below its 200 day moving average for the first time in over three years. The FTSE All World Index is also now trading below its 50 week moving average. We continue to advise caution on stocks, particularly as we head into the more volatile months of August, September and October.

A closer look at the S&P 500 on a sector-by-sector basis shows rotation this year out of the mid-cycle sectors (Materials, Industrials, Energy and Telecom Services) and into the late-cycle defensive sectors of Healthcare, Consumer Staples and Utilities. This is classic behaviour as fund managers switch to defence and prepare to protect their portfolios from the next multi-year move lower in the stock market.

In July 2015 for example, the Materials, Industrials, Energy and Telecom Services sectors declined by an average -4.8%. Year-to-date, they have fallen by a combined -7.3%. All four sectors are now trading below their long-term moving averages, which in turn are  gradually shifting from uptrend to downtrend. In contrast, the late-cycle Healthcare, Consumer Staples and Utilities stocks gained +4.6% in July and are +2.5% year-to-date. The late-cycle sectors continue to trade above their long-term moving averages, which in turn continue to rise in bullish fashion.

So today we have a relatively overvalued stock market, where late-cycle defensive sectors have begun to outperform mid-cycle stocks. We see evidence of deteriorating upside momentum and bonds have once again started to outperform stocks, as evidenced in the chart below. So, we continue to favour a defensive position in the Active Asset Allocator of 20% equities / 30% bonds / 30% gold / 20% cash.

For more information on our stock market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.

Bond Market Update

Calls for the death of the bond bull market are two-a-penny but may yet be premature. US Treasuries rallied +35% in 2014 following a technical breakout clearly evident on the next chart. US Treasuries then corrected during the first 6 months of 2015 but now appear to be setting up for another run higher. A higher high in the coming weeks will confirm the multi-year bull market is still in progress. A lower high may signal that the bull market is ending, though we are not ready to make that call just yet. 

Investment grade corporate bonds have corrected in tandem with government bonds but also look set to turn higher once again. The PIMCO Investment Grade Corporate Bond Fund for example tacked on +16% during the last rally. We could experience a similar move over the next 6-12 months. We have a small allocation to corporate bonds in the Active Asset Allocator and will look to increase this position, depending on how well the credit market holds up on the next correction in stocks.

While government and corporate bonds continue their bullish advance, we continue to avoid high yield (Junk) bonds, which have a strong positive correlation to the stock market. Junk bonds plunged -41% during the last stock market collapse in 2008, offering no protection for investors. Junk bonds are once again leading the market lower. JNK peaked in August 2014, made a lower high in May 2015 and has fallen by -5% so far in the last three months.

For more information on our bond market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.

Gold Market Update

For the first time since 2009, the People's Bank of China (PBOC) reported last month that they had increased their official gold reserves by 60% from 1,054 tonnes to 1,658 tonnes. This week, they reported an additional purchase of approximately 25 tonnes of gold. The following day, the PBOC devalued their currency by 1.9%. For those paying attention and connecting the dots, the PBOC is making explicit statements linking monetary policy moves to their continuing accumulation of gold. The Chinese yuan/renmimbi (RMB) is slowly moving from a fixed to a floating exchange rate. We are witnessing the early stages of the emergence of a new world reserve currency backed by gold that will eventually compete with the mighty USD. The process may gather pace if the USD Index tops out over the next 12 months.

A declining dollar could be the catalyst to kick start the gold bull market again. It is certainly time. Gold has just completed a 50% retracement of the 2001-2011 bull market. Commercial traders who are always short gold to some degree to hedge their annual production have their smallest short position on in many years. 

In the past week, the gold miners have rallied 20-30% off their lows on heavy volume, potentially showing gold the way. It is too early to tell whether a new bull market has begun, but it very possibly has. We should expect at least 5-6 weeks of rising prices for both gold and the miners. 

For more information on our gold market analysis, please get in touch. You can reach Brian Delaney at brian.delaney@secureinvest.ie or 086 821 5911.