January 2018 Investor Letter

Strategy Performance

performance table.jpg

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 +10% 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.

AAA Asset Mix.jpg

Gold Trader focuses on capturing the strongest and weakest parts of gold's daily cycle, buying daily cycle lows, selling daily cycle highs and holding for 10-20 trading days, depending on the cycle count. This approach allows me to effectively manage risk. The strategy aims to capture +5%-6% profit per trade while risking 2%-3% each time and has a win rate in excess of 70%.

Executive Summary

Happy New Year folks. 2017 closed with the Active Asset Allocator returning a modest +1.2% for the year, Gold Trader +12% (tax free) in a year when gold, priced in euros returned -0.4% and Gold PowerTrader +22% (tax free). We enter 2018 with US equities surging higher, the US dollar accelerating lower, EU government and inflation-linked bonds holding steady and precious metals coming to life. I cover my expectations for each asset class in more detail in this month's Investor Letter. 

US equities may be entering a melt-up phase according to one highly regarded US investment strategist, but with the USD plunging, risks are running high. I outline a possible long entry in European stocks if the correct set up presents and also reiterate my $1,900 price target for gold by 2019. 2018 looks like it will be a very eventful year and I look forward to discussing the markets in detail with you all in the months ahead. For now, the Active Asset Allocator maintains an allocation of 20% global equities / 20% EU government bonds / 15% inflation linked bonds / 5% EU aggregate bonds / 30% precious metals / 10% cash.

Stock Market Update

I find myself in an interesting position for an investor from the value school. I recognize on one hand that this is one of the highest-priced markets in US history. On the other hand, as a historian of the great equity bubbles, I also recognize that we are currently showing signs of entering the blow-off or melt-up phase of this very long bull market.
— Jeremy Grantham, Co-Founder & Chief Investment Strategist, GMO, 3 January, 2018

Are we entering the 'blow-off' phase of this equity bull market, which could last another year or two? Jeremy Grantham thinks it's a distinct possibility. In his latest 'Viewpoints' entitled "Bracing Yourself for a Possible Near-term Melt-Up", he discusses the potential for a final acceleration higher in equities and also quantifies the possible move - a minimum of +60% over 21 months (from the start of the acceleration point) - based on his study of prior bubbles. Grantham concludes that the S&P 500 could melt-up for another 9 to 18 months to a range of 3,400 to 3,700. Grantham also points out that +60% is a minimum based on past bubbles. Some ran +100% before topping out and then collapsing. Exhibit 1 below highlights Grantham's analysis of past bubbles.

 
Bubbles.jpg
 

The S&P 500 is certainly showing signs of acceleration, particularly since Trump's election in November 2016. Corrections have been shallow with each dip being bought aggressively. This rally has been powerful, triggering record readings in the relative strength and momentum technical indicators. Grantham's analysis is interesting, though I think we are already 14 months into this acceleration phase. Since November 2016, the S&P 500 has rallied +32% in USD terms.

 
$SPX LT.jpg
 

The sharp move higher in US equities has been exacerbated by a -15% plunge in the USD over the same period. The dollar is in trouble. I am of the firm view that the USD formed a multi-year top coincident with Trump's appointment to the White House and is in for some rough sledding in the years ahead. New all time lows lie somewhere in the US dollar's future. I expect 71.33 will be broken on the USD Index (see below chart) as the United States gradually loses its position as holder of the world's reserve currency. (I expect gold will explode higher, delivering bitcoin-like performance when the decline in the USD accelerates, but that is a few steps ahead of us yet.)

 
$USD.jpg
 

Priced in Euros, the performance of the S&P is still positive, but note the diverging relative strength and momentum indicators on the chart below. 

 
$SPX in EUR.jpg
 

It is the same story for the global equity benchmark, the FTSE All World Index; higher highs in price but on falling relative strength and momentum. Either the acceleration picks up strength shortly or a correction begins.

 
$FAW in euros.jpg
 

The VIX Index, a measure of stock market volatility and investor confidence, made a new multi-decade low in November 2017 reaching 8.48 but has since reversed higher. Have we reached peak investor complacency? There is certainly no fear about.

 
$Vix.jpg
 

On the positive side, new highs in the stock market continue to outpace new lows, though the relative trend has weakened over the last 12 months.

 
$NYHL.jpg
 

Also, the percent of NYSE stocks trading above their long-term 200-day moving average remains a very healthy 73%. Significant stock market declines do not generally occur until this percentage falls below 50%. My Technical Trend Indicator also remains in bullish mode. 

 
$NYA200R.jpg
 

In my last Investor Letter, I highlighted a potential low-risk opportunity to invest in European stocks. I discussed the valuation discount that European stocks trade at compared to US companies and highlighted the fact that Eurozone stocks account for just 11% of the global equity index (17% if you include the UK), compared to 55% for the US.

 
$Stoxx600.jpg
 

European stocks, as measured by the Eurostoxx 600 Index, have traded in very broad range for the last 20 years. The Eurostoxx 600 Index hit a resistance zone of 400-415 in 2000, 2007 and again in 2015, failing to break out on each occasion. We are still below that resistance line today but getting close again. The Index traded at 390 in October 2017 and is back at 398 this week. There is a negative divergence appearing on the Relative Strength and Momentum indicators, which is interesting given the strength of stock markets in general. I am watching this closely. If we get Grantham's melt-up in stock markets over the next few months, the Eurostoxx 600 will break out above a 17-year resistance zone, which will be a significant and bullish event.

If the Eurostoxx 600 Index can close at a new all time high and turn resistance into support, the Active Asset Allocator will take a position in European shares. The risk will be modest. Above 400-415 and I am a buyer. A meaningful close back below 400 and I would close out the position. I will let the charts be my guide.

Emerging market equities are also performing well and recently broke out to new all time highs, when priced in Euros. Emerging market equities have historically delivered strong performance in times when the USD has been weak and I expect this trend of USD weakness to continue in 2018 and 2019. 

 
EEM in Euros.jpg
 

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

 
bond yields.jpg
 

In Germany and the UK, 2, 5 and 10 year yields have edged higher by 10 basis points since my last Investor Letter in October 2017. 30 year yields have remained unchanged in Germany and have actually fallen by 10 bps in the UK. Japanese yields haven't budged in the last three months either. The most significant change has taken place in the United States where 2 and 5 year yields have rallied 50 basis points following recent interest rate hikes by the Federal Reserve. US 10 year yields are 20 basis points higher than last October, while 30-year yields in the US are unchanged.

This has resulted in a sharp flattening of the yield curve, generally a precursor to recession. The gap between 2 and 10 year yields has declined to just 55 basis points. Another 50 basis points hike in the Fed Funds rate will tip the yield curve into negative territory. This happened in 2000 and 2007 in advance of the last two recessions. With the Fed Funds rate at just 1.5% today, the Federal Reserve has limited room to cut rates in the event of another recession hitting, which is why they are so keen to hike short-term rates now while they still can. 

 
$YC2YR.jpg
 

I continue to maintain a 20% allocation to long duration government bonds in the Active Asset Allocator. Bonds have held up well to date, despite the risk-on rally in global equities. Should stock markets roll over in the months ahead, safe haven government bonds will likely attract new capital inflows. Alternatively, if we experience a breakout in EU equities to new all time highs, I will reduce the allocation to bonds and cash in favour of equities, at least for a trade.

Inflation-linked bonds also remain in broad multi-year rising trends. UK and US inflation-linked bonds have been impacted by adverse currency movements in recent months. The sharp declines in USD and GBP should lead in time to rising inflationary pressures in both countries, which should feed through to rising prices from inflation-linked bonds. 

 
inflation linked bonds.jpg
 

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

Gold Market Update

Gold ended 2017 at $1,303, +13% for the calendar year in USD terms, but flat when converted back to euros. I expect that to change this year. Gold is waking up from a four year bear market. The USD is in trouble and I expect gold will accelerate higher in 2018. During the last major bear market in the USD (2001-2008), the USD Index fell -43% from 126.21 to 71.33. During that period, Gold rallied over +600% from $250 to $1900. I think the USD started another major bear market in 2016 and has years to run. Trump will run the US like he ran his companies - badly! Debts and deficits as far as the eye can see - both USD bearish. 

Last August, I set out my forecast for the gold price over the next few years. I expected a break above the downward sloping 4-year resistance line, followed by an eventual move to $1,900 by 2019. Gold is starting to gain some momentum now and I see no reason to adjust my price target. Once $1,923 is breached, I think we could see some really wild (bitcoin-like) action in precious metals prices.

 
$gold LT.jpg
 

Silver is a more volatile precious metal than gold and generally rallies and declines at a much faster rate than gold. I see an inverse head and shoulders pattern on the silver chart and I expect a strong break out higher shortly. The Central Fund of Canada currently holds a 63% allocation to gold bullion and a 37% allocation to silver bullion and is ideally placed to take advantage of the move in precious metals that I see unfolding.

 
$Silver.jpg
 

Finally, a note on Gold Trader. While gold priced in euros returned -0.4% in 2017, Gold Trader ended the year +12% and Gold PowerTrader returned +22% for investors, TAX FREE! I have spent the last couple of months reviewing my trades for 2016 and 2017 and have made some refinements to the strategy, which I think will improve performance in 2018. I widened the stop loss from 2% to 3% last year, which resulted in an improved win rate per trade, up from 63% to 75%. I have also noticed that on average, I have entered trades 7 days too early, so I will be exercising more patience on each trade this year.

I entered Trade 19 on 18th December at 1,258 and this trade is still live. Gold closed today at 1,340 and I think we could still have 1-2 weeks of rising prices before the first daily cycle peaks and roles over. Stay tuned.

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

October 2017 Investor Letter

Strategy Performance

performance table.jpg

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 +10% 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.

 
AAA Asset Mix.jpg
 

Gold Trader focuses on capturing the strongest and weakest parts of gold's daily cycle, buying daily cycle lows, selling daily cycle highs and holding for 10-20 trading days, depending on the cycle count. This approach allows me to effectively manage risk. The strategy aims to capture +5%-6% profit per trade while risking 2%-3% each time and has a win rate in excess of 70%.

Executive Summary

The stock market continues to climb higher on record low volatility. If this trend continues, European stocks will break out above 17 year resistance levels to new all time highs. If this breakout occurs (and holds), the Active Asset Allocator will take a position in European shares. The risk will be modest. Above 400-415 on the Eurostoxx 600 Index and I am a buyer. A meaningful close back below 400 and I will close or significantly reduce the position. I will let the charts be my guide. Apart from valuation concerns, stocks continue to exhibit bullish characteristics. I have pointed out a few areas of concern in recent Investor Letters, including a decline in the number of stocks making new highs versus new lows and have highlighted another area of potential weakness/divergence in this month's investment update. It is worthy of continued observation in the months ahead. For now, Active Asset Allocator maintains an allocation of 20% global equities / 20% EU government bonds / 15% inflation linked bonds / 5% EU aggregate bonds / 30% precious metals / 10% cash.

Turning to precious metals, Sprott Asset Management has agreed to acquire the common shares of Central Fund of Canada Limited (CFCL) and the rights to administer and manage CFCL’s assets. Upon completion of the transaction, all CFCL Class A shares will be exchanged for units in a new Sprott Physical Gold and Silver Trust. US$300 million in value is expected to be realized for CFCL class A shareholders, relative to 9% pre-announcement net asset value (“NAV”) discount. Good news for existing holders of Central Fund of Canada shares. The 7-9% discount has reduced to 2% and will be eliminated once the deal closes. Also please note, a Gold Trader performance update will follow shortly.

Finally, for the history buffs amongst you, I posted an article in the Research section of the website entitled "The 1929 Parallel", written by John Kenneth Galbraith and published in the January 1987 issue of The Atlantic Magazine. The article is interesting both for its content and the timeliness of its publication in January 1987.

Stock Market Update

The combination of central banker-applied brute force (buying everything in sight) and deity-like central banker pronouncements has dampened market volatility and frisky free-lancing, but at the same time it has encouraged risk taking (in market positioning, not it business formation). We have thought, and still think, that confidence in central banks and policymakers has been unjustified and thus could erode or collapse at any time. Since the major financial institutions which comprise the financial system are still way overleveraged and opaque (in fact with record amounts of debt and derivatives at present), such a break in confidence could happen abruptly and without warning. Investors should come to grips, intellectually and viscerally, with the likelihood that most fiscal and monetary policymakers’ knowlege of the world is somewhere between “close to nothing” and “way less than zero,” and that their pronouncements and policies usually range from “silly but harmless” to “dumb and dangerous.
— Paul Singer, Elliott Capital Management

Paul Singer, who runs one of the world's largest and most successful hedge funds, is certainly no fan of central bankers and the controlling influence they exert over financial markets, that's for sure...... and who could blame him. Since the start of 2016, the ECB has expanded its balance sheet by 57% or €1.55 trillion. They are adding another €250 billion in 2017. Not to be outdone, the Bank of Japan has expanded its balance sheet by 34% to $4.6 trillion. Notably however, the Federal Reserve has signaled its intention to start withdrawing liquidity from the banking system this month in a significant shift in policy away from Quantitative Easing (QE) to Quantitative Tightening (QT). They are starting slowly at a rate of $10 billion/month in October and increasing to $50 billion/month in 2018, market permitting.

Despite Singer's reservations, stock markets around the world are climbing steadily higher. Money flows where it's treated best and so far, stocks continue to attract record inflows, particularly into passive, indexed tracking funds. This bull market has now become the second largest in history with the S&P 500 returning +275% since March 2009 in USD terms. Only the decade-long run of the 1990's has done better, +400%. US stocks now account for 52-55% of the global equity benchmark, depending on the benchmark you follow. 

The recent climb higher has come on record low volatility. The next chart shows the Dow Jones Industrial Average. The volatility of the weekly price moves is captured in the lower half of the chart. If you look closely, you will see that volatility has reached a multi-decade low. A rise in volatility does not necessarily have to coincide with a collapse in stock prices (1996-2000 for example), but it could (2008-2009).

 
 

In 2017 YTD, global equities have returned +3.7% in euro terms. Stock markets have navigated the historically volatile month of September with ease. If they continue to trade in bulletproof fashion in October, we may see a run higher into the end of the year. Apart from valuation concerns, stocks continue to exhibit bullish characteristics. I have pointed out a few areas of concern in recent Investor Letters, including a decline in the number of stocks making new highs versus new lows. I have also highlighted another area of potential weakness/divergence below. Here is a chart of the FTSE World Index, the global equity benchmark, priced in euro terms. The Index made a higher high in 2017 but on weaker relative strength (RSI) and falling momentum (MACD). This suggests the uptrend is weakening, which usually occurs towards the end of significant moves. It is worthy of continued observation in the months ahead.

 
 

A similar divergence occurred in the US Treasury bond market before a sharp decline in prices in 2016....

 
 

While stocks continue higher, a declining number are trading above their long-term 200-day moving average. 81% of stocks were above their long-term trend in late 2016. Today, just 70% are in confirmed uptrends. Below 50% and the stock market would get into difficulty.

 
 

What if I'm wrong? What if stock markets melt up for two more years, or longer? Central banks have already printed trillions and that money is sloshing around the system. What happens if money continues to flow into equities each month with no regard for valuation? I don't expect it will happen but it might. We are operating in unprecedented times. So here is my plan.

European stocks in aggregate trade at a valuation discount to US companies. Many European stocks are household names (Siemens, SAP, Unilever, Total, Allianz, Anheuser Busch Inbev) yet are under-owned relative to their US counterparts. Eurozone stocks for example account for just 11% of the global equity index (17% if you include the UK), compared to 55% for the US.

European stocks, as measured by the Eurostoxx 600 Index, have traded in very broad range for the last 17 years. The Eurostoxx 600 Index hit a resistance zone of 400 in 2000, 2007 and again in 2015, failing to break out on each occasion. We are approaching that resistance zone again today. The Index reached 390 this week. The market may be strong enough to break through this time. A confirmed break above a 17-year resistance zone would be significant, and quite bullish for EU stocks.

If the Eurostoxx 600 Index can close at new all time highs and turn resistance into support, the Active Asset Allocator will take a position in European shares. The risk would be modest. Above 400-415 and I am a buyer. A meaningful close back below 400 and I would close or significantly reduce the position. I will let the charts be my guide.

 
 

The current asset mix of the Active Asset Allocator is 20% global equities / 20% EU government bonds / 15% inflation linked bonds / 5% EU aggregate bonds / 30% precious metals / 10% cash. If we get the breakout in European equities, I will make the following trades:

Equities: Sell 10% Global Equities, Buy 30% EU Equities

Bonds: Sell 10% EU government bonds, Sell 5% EU aggregate bonds

The revised asset mix would be: 10% global equities / 30% EU equities / 10% EU government bonds / 15% inflation linked bonds / 30% precious metals / 5% cash.

One final comment. Passive fund flows are dominating the industry. Almost $500 billion flowed into passive funds in 2016 according to Morningstar, while $200 billion flowed out of active funds last year. That is almost three quarters of a trillion dollars... In one year! One of the unfortunate side effects of this trend has been that the industry is losing talented and thoughtful leaders in active management and none come more talented than Hugh Hendry, of Eclectica Asset Management. Hendry closed his Global Macro Fund last month after suffering a tough period of sub-par performance. His Fund returned -10% YTD through 31 August. Hendry was interviewed recently on the Adventures in Finance podcast. Well worth a listen.

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

 
bond yields.jpg
 

While 2 and 5 year UK and US bond yields have risen a little in recent months, 10 and 30 year bond yields remain firmly in downtrends across the world. We could be getting close to a break out higher in longer-dated government bond yields in some regions, but not yet.

Inflation-linked bonds meanwhile remain in broad multi-year uptrends. UK and US IL bonds were adversely impacted in recent months due to currency movements, but the longer-term trends remain intact. The Active Asset Allocator may tilt the exposure towards inflation hedging via ILB's, precious metals and an increased EU equity allocation and away from deflationary hedges (cash and fixed interest rate bonds) if markets start pricing in a more inflationary bias. I do not see that happening quite yet, but the trend may be turning in that direction.

 
 

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

 

Gold Market Update

As noted in a recent Market Alert, Sprott Asset Management agreed to acquire the common shares of Central Fund of Canada Limited (CFCL) and the rights to administer and manage CFCL’s assets for C$120 million in cash and stock. Upon completion of the transaction, all CFCL Class A shares will be exchanged for units in a new Sprott Physical Gold and Silver Trust. US$300 million in value is expected to be realized for CFCL class A shareholders, relative to 9% pre-announcement net asset value (“NAV”) discount. Good news for existing holders of Central Fund of Canada shares. The 7-9% discount has reduced to 2% today and will be eliminated once the deal closes.

After a sharp -12% decline this year, the US dollar is attempting a long-overdue bounce. I am not expecting much of a rally, rather a consolidation around current levels before the next leg lower. 

 
 

US dollar trends typically last years once they get going. Following the Plaza Accord in 1985, the USD fell sharply and remained in a downtrend for 10 years. The USD Index then rallied from 1995-2001 before the next sharp decline from 2001-2008. Following a choppy move higher from 2008-2016, the USD Index has reversed sharply lower in the first nine months of 2017. I believe this is the start of a multi-year trend lower.

 
 

Gold is waking up to the USD reversal. From 2001-2008, the USD Index fell -43% from 126.21 to 71.33. During that period, Gold rallied over +600% from $250 to $1900. I think we could see something similar this time around. Gold has broken its multi-year downtrend and is now back-testing the prior resistance zone. I expect resistance to become support as gold builds the energy to launch higher over the next 12 months.

 
 

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

February 2017 Investor Letter

Strategy Performance

performance table.jpg

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.

 
AAA Asset Mix.jpg
 

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 2% each time and has a win rate in excess of 70%.

Executive Summary

Wishing all Secure Investments readers a healthy and prosperous 2017! The Active Asset Allocator returned +8.9% in 2016. A full two thirds of this performance came at the start of the year during a period of heightened volatility and declining stock prices. By the end of February 2016, the 30% allocation to bonds had contributed +1% to the strategy's performance while the 30% allocation to precious metals had contributed +5%. The 20% allocation to global equities impacted performance by -1%. So, the AAA was +5% by the end of February versus -4% for the average multi-asset fund.

From March through October 2016, the AAA added another +5% with +2% coming from the allocation to global equities and +3% from precious metals. By the end of October, the AAA was +10% YTD versus +2% YTD for the average multi-asset fund. Following Trump's election victory on 8th November, money flowed out of safe haven assets and into stocks, leading to a run higher in equities in the last two months of the year and a selloff in bonds,  gold and the Euro. All in all, I am satisfied with the performance of the strategy in what was quite a difficult year to navigate. Many hedge funds delivered negative or very modest positive returns in 2016.

For Gold Trader followers, the December 2016 low marked the end of the last Investor Cycle (IC) with a new IC starting on 16th December. The first daily cycle (DC1) of this new IC peaked at $1,219 on 17th January and then dropped into a low (DCL1) on 27th January 2017 at $1,190. DC2 is now underway and I think it could be quite powerful; a $50-$100 move could be on the cards over the next four weeks. Gold Trader entered a long position yesterday (1st February 2017) at $1,204 with a stop on a close below the recent low of $1,190.

Stock Market Update

2016 began with an -16% plunge in global equities. Over the course of the year, stocks recovered so that by the time the US Election rolled around, the FTSE All World Index had crept back into positive territory. Then along came the Donald.... Following Trump's election victory, money flowed out of safe haven assets and into stocks, leading to a run higher in equities in the last two months of 2016. The US dollar also rallied sharply versus the Euro (the euro fell from $1.12 to $1.04), thereby putting quite a gloss on global stock market returns for the year in euro terms.

 
 

Historically, post-election years have not been as kind to investors and I expect 2017 will be no different. The current bull market, 8 years old in March 2017, is already the third longest in history and twice as long as the average of the last 100 years. Still holding on to second place for now is the 1921-1929 stock market bubble, which ran a few days over 8 years; while in first position is the nine year and five month run from October 1990 to March 2000, culminating in the epic internet bubble. We are getting close to the apex of this multi-year run and I believe the next bear market is just around the corner. Stock valuations have returned to prior peaks, investor confidence is back, while short interest - those betting on falling stock prices - has fallen sharply. One of the most successful hedge funds in recent years, Horseman Capital, recently scaled back their significant short position on equities after losing -24% in 2016. The bears are throwing in the towel, potentially, just at the wrong time. When investors take short positions on the stock market, they become natural buyers during stock market declines (as they cover their positions). However, when short sellers cover their trades during a rising market, there are fewer buyers around when stocks eventually turn lower and the declines can become bumpier and much more violent.

 
 

An interesting development that has occurred since the US election is the jump in confidence among CEO's and consumers, which hasn't yet, but may flow through to rising retail sales and economic growth in the months ahead. However, the key problem that trumps all others is that stocks are trading at 25 times reported earnings (which peaked in 2015) versus a long-term average of just 17 times. Stocks have traded at single digit P/E multiples in the 1940's, 1950's, 1970's and 1980's and could do so again when the next bear market arrives. In the meantime, stocks have only been this expensive on two occasions previously since 1860: the last few months of the roaring 1920's just prior to the Great Depression and at the tail end of the internet bubble in the late 1990's!

 
 

As frustrating as it has been to sit with a 20% allocation to cash (and as much as 30% for new Secure Investments clients), I continue to advise caution for now. The stock market has run 11 months without any meaningful pullback, which is very unusual. A 5% correction typically occurs every 7 months during a bull market. In the next few weeks I will outline some of the areas where I see opportunity in 2017 across equities, bonds and 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

 
 

I think the rise in global government bond yields has just about run its course for now. I am looking for a rally in Eurozone government bonds, which coincides with a decline in global stock markets over the next three to six months. German 10 year government bond yields have rallied 0.50% over the last 7 months and have now reached short-term overbought levels but remain in a multi-year downward trend. Technical indicators suggest that the rally is losing strength. 

 
 

More broadly, Eurozone government bonds have rallied over 60% in recent years, so a -21% pullback is healthy. The next chart suggests that the Euro bonds are now oversold and the next move higher is just around the corner. I will be paying close attention whether bonds can break out to new highs later this year (bullish) or not.

 
 

US 20-year Treasuries have also corrected sharply, falling -18% and have now also reached an extreme oversold position. The longer-term uptrend is still in place for US Treasuries.

 
 

Inflation-linked bonds continue to hold up better than fixed interest rate bonds and I expect ILB's to continue to price in a gradual increase in inflation expectations over the next couple of years. 

 
 

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

Gold Market Update

Gold is at quite an interesting juncture. For the first time in five years, gold has broken the trend of lower highs and lower lows. Gold bottomed at $1,045 in December 2015 and then rallied over $300 to a new 52-week high of $1,378 just seven months later. A sharp correction followed but gold managed to dig in and make a higher low in December 2016 at $1,124. 

For Gold Trader followers, the December 2016 low marked the end of the last Investor Cycle (IC) with a new IC starting on 16th December. The first daily cycle (DC1) of this new IC peaked at $1,219 on 17th January and then dropped into a low (DCL1) on 27th January 2017 at $1,190. DC2 is now underway and I think it could be quite powerful; a $50-$100 move could be on the cards over the next four weeks. Gold Trader entered a long position yesterday (1st February 2017) at $1,204 with a stop on a close below the recent low of $1,190.

 
 

Gold priced in euros has held up much better than USD gold, providing a natural hedge for euro-based investors. I expect USD will play catch up now so we could see gold and the US dollar rally together this Spring, which would be great news for our Active Asset Allocator strategy. There is not much to do for now but wait and see how this plays out. Sitting through a bull market is tough to do but I expect our patience will be handsomely rewarded over the next three years. 

 
 

Gold spent the majority of the time above the long-term 20-month moving average (20MMA) during the last major bull market (2001 to 2011). Gold broke below the 20MMA in 2012 and remained in a downtrend for the next four years but then turned higher once again in 2016. Gold closed below the 20MMA briefly on the recent correction but has now regained this bull market trend line. I am looking for an acceleration higher as this bull market gathers steam and broadens in popularity.

 
 

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

June 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 2% each time and has a win rate in excess of 70%

Executive Summary

Chaotic trading overnight following the UK referendum decision to leave the EU is feeding through to US markets this afternoon. The Active Asset Allocator is earning its stripes today with an 80% allocation to bonds, cash and gold. Gold rallied +$100 overnight. For equities, buying the dip works in a bull market. However, we may now have transitioned from bull to bear, so I continue to advise caution here and avoid the temptation to catch a falling knife.

Stock Market Update

The results of the Brexit Referendum are in and the UK has voted to leave the European Union, leading to chaotic trading overnight. Equity and currency markets have experienced dramatic declines as investors scramble to re-position portfolios. A LOT of capital is invested in equity exchange traded funds (ETF's) that trade in Europe and in the United States and I expect additional waves of selling this afternoon once the NYSE opens for business. The Active Asset Allocator is earning its stripes today and benefiting from the heightened market turmoil with an 80% allocation to safe haven assets. Gold rallied +$100 overnight.

The FTSE All World Index, the global equity benchmark, fell -4% this morning. The decline is barely visible on the chart. Suffice to say, there is plenty of room for additional selling. Buying the dip works in a bull market. However, we may now have transitioned from bull to bear, so I continue to advise caution here. The relative strength of the stock market rally in recent weeks is now deteriorating as measured by the relative strength index (RSI) in the top section of the chart below, while price has been unable to break out to new highs. My own technical studies, which turned bullish in April 2016, have also deteriorated in recent weeks. If stocks turn lower from here, my Technical Trend Indicator (TTI) will trigger another 'Sell' signal shortly.

 
 

Volatility is accelerating higher just when the stock market appears to be running out of steam. The Vix Index jumped from 14 to 22 over the last four weeks (this chart does not include this morning's surge in volatility). Investors are getting nervous, tension is rising and speculators are starting to pay up for portfolio insurance. Volatility spikes go hand in hand with stock market corrections and another may be just around the corner.

 
 

Sterling rallied +4% versus the euro in the run up to the Brexit vote but has given it all back and more today. The longer-term trend remains down for GBP versus EUR and I expect we will see £0.90/€1.00 later this year.

 
 

I am more focused on the outlook for the US dollar than sterling over the next three to five years. The USD is the world's reserve currency and large moves in USD have significant implications for the performance of global equity, bond and commodity markets. I continue to believe that the trade-weighted USD Index has put in a medium-term top and will trend lower over time. 

 
 

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

 
 

Despite an increasing percentage trading at negative yields, government bonds continue to attract capital as part of the flight-to-safety trade. And why not? The ECB is buying EU government bonds at a rate of €80 billion per month and is actually set to run out of bonds to buy under the current programme in less than two years (and in one year's time for German bunds). As long as the ECB stands as the buyer of last resort, yields will continue to compress. Potential fractures to the Union will place increasing pressure on ECB President Mario Draghi and we my begin to see bond yields rise in the weaker Eurozone peripheral countries, but for now, the bull market lives on.

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

It's a bull market folks. There is nothing to do but sit tight and avoid getting shaken out of your position. I received 20 different updates from investment managers this morning on Brexit, the potential risks and advice for investors. Not a single one mentions gold as a suitable investment. That will change, probably at much higher precious metals prices. In the meantime, the Active Asset Allocator is well positioned to take advantage of what I expect will be a very powerful bull market over the next 3-5 years.

 
gold.jpg
 

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.

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.

 
AAA Asset Allocation.jpg
 

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

 
bond yields.jpg
 

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.