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.

December 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

Stock markets are back in rally mode following the US and Italian election results. I believe this is the final "blow off" phase to a market top which could peak at any stage between now and March 2017. Stock market valuations have once again reached an extreme only experienced in 1929, 1972, 1987, 2000 and 2007. Donald Trump's election success has been compared to that of Ronald Reagan who won the race to the White House in November 1980. Following Reagan's win, the S&P 500 rallied +14% in just a few weeks but topped out in November 1980 and then tumbled -22% over the next year. That was when stocks were trading at single digit P/E multiples. Today, they are four times more expensive.

Government bond yields are rising, particularly in the US where Trump's policies will be viewed as potentially quite inflationary. US Treasuries have declined -8% since the US election result. Eurozone government bonds have held up better, falling just -4% during the recent Trump-inspired inflation scare (but -7% since August). Euro government bonds have now reached an oversold extreme and I expect a rally in EU government bond markets to get underway shortly, likely coinciding with a top in equity markets. While the Federal Reserve has backed away from its position as lender of last resort, the ECB continues to buy everything not nailed down and has recently extended its QE programme to December 2017. 

Gold has also declined recently in tandem with other safe haven assets. Despite the recent correction however, gold priced in euros has still rallied +12% year-to-date. Based on my reading of the gold cycles, we are getting very close to the end of the current investor cycle for gold and I expect a turn higher shortly, possibly coinciding with an interest rate hike by the Federal Reserve on December 14th.  I remain defensively positioned for now with 20% equities / 40% bonds / 30% precious metals / 10% cash.

Stock Market Update

Trump's election victory has led to an +4% rally in the USD, an +8% rally in US stocks and an -8% drop in 30-year US Treasuries. 30-year Treasury yields jumped 50 basis points from 2.6% to 3.1% over the last four weeks. More broadly, global stock markets have added +5% in Euros, Eurozone government bonds have declined -4% and gold in euros has fallen -5%. What was initially considered bad news for investors ahead of the US election transformed into good news, literally overnight. The Active Asset Allocator lost -2.2% in November but has returned +8.4% year-to-date. In this Investor Update, I review the short-term impact of the Trump effect on equities, bonds, currencies and precious metals and examine what may be in store for investors in 2017. 

Will a Trump presidency make America great again? He has promised tax cuts, infrastructure spending and regulatory reform, all of which could boost US GDP over the next two years, but at a significant cost of ballooning government debts and budget deficits. His protectionist policies on trade and immigration will negate the aforementioned positives to a certain degree. Of course this is all speculation for now as Trump and his team have yet to execute on their plan. Let's take a closer look at some of Trump's proposed policies and their likely potential impact.

The headline rate of corporation tax in the US is 35%. However, the average tax rate of the largest 50 companies in the S&P 500 is just 24%. So, stock markets may be overestimating the positive impact of Trump's tax reform plan. On infrastructure spending, Trump is planning to spend $100 billion/year on much-needed repairs to America's transportation network. Spending billions of dollars on America's rail infrastructure, roads, bridges and tunnels makes sense and should provide a timely boost to US GDP growth. However, the Trump team must execute. The Obama administration attempted a similar strategy in 2009 in the midst of the Great Financial Crisis. "The American Recovery and Reinvestment Act of 2009" was put in place at a cost of $800 billion to save and create jobs and invest in infrastructure, education, health, and renewable energy. The impact on job creation and GDP growth was considered relatively modest in the following years. Asset prices benefitted handsomely of course but this was largely a result of four rounds of quantitative easing rather than Obama's fiscal policy decisions.

Many are comparing Trump's recent victory to that of Ronald Reagan who won the race to the White House in November 1980. Reagan beat incumbent President Jimmy Carter on a platform of policies quite similar to those now being proposed by Donald Trump. Following Reagan's election victory,  the S&P 500 took off (see chart below) rallying +14% in just a few weeks (compared to just +8% so far since Trump's win). However, that was it for the stock market rally back then. Stocks topped in November 1980 and then dropped -22% over the next 12 months. That was when stock market valuations were trading at single digit P/E multiples. Today, stocks are four times more expensive. 

 
 

Back in 1980, the US national debt amounted to $908 billion and US GDP was $2.86 trillion (32% debt/GDP). Today, the US national debt is $19.6 trillion while US GDP is only $18.7 trillion (105% debt/GDP). It is going to be much more difficult for the Trump administration to grow the US economy by more than 2%/year during his time in Office. So far, the stock market has given Trump the benefit of the doubt, but I can't help but feel that 2017 is shaping up to be quite a different proposition, for reasons I will explain next.

The Dow Jones Industrials Average is a price-weighted index of 30 of America's largest publicly quoted companies including many household names like Disney, JP Morgan, Caterpillar, MacDonalds, Proctor & Gamble, Exxon Mobil and Goldman Sachs. Following the Great Financial Crisis of 2008, the Dow kicked off a new bull market, fueled to a large degree by central bank money printing on a scale never before witnessed. The rise over the next 9 years has been a sight to behold - a triple from those March 2009 lows. Times have changed however. QE has ended in the US, bond yields have rallied 100 basis points and the USD has added +10% versus the Euro since May 2016. US corporations are facing multiple headwinds at a time when corporate earnings are declining.

From a technical perspective, we are now at an interesting juncture. Take a look at the chart below. Multi-year support broke for the first time in 2015 but stocks recovered strongly for the remainder of the year. 2016 started with another sharp 15-20% correction before the bulls regained control once again. The DJIA has now rallied all the way back to the major multi-year support trend line and has broken out to new all time highs this week. Is this the start of a new multi-month rally or a bull trap? Chartists and traders around the world are watching this setup very closely. We should find out shortly.

 
 

A similar pattern is unfolding on a shorter time-frame in the S&P 500 - a break of support in October 2016 followed by a sharp rally that has just broken out to new all-time highs. In a world dominated by computer-driven algorithmic trading, these chart patterns matter. 

 
 

When the S&P 500 is trading at a P/E multiple of 25 times earnings and those earnings peaked in 2015 and have been declining ever since, the chart patterns matter even more. The last time US corporate earnings were at current levels was almost 10 years ago, back in 2007 when the S&P 500 was trading at 1,500, -32% lower than today's level.

 
 

Margin debt, which measures the extent to which investors borrow to invest in the stock market, also looks like it may have peaked. Notice that margin debt as a percentage of GDP peaked at similar levels in 2000 and 2007 coincident with the previous two stock market bubbles.

 
 

The recent break higher in the stock market has looked convincing and has reversed the sell signal in my technical studies, which triggered in October. Portfolio managers under performance pressure are chasing this move in fear of underperforming benchmarks as we approach the end of the year. I believe the recent breakout will not be sustained and, similar to last year, we will get a sharp reversal at some point between now and March 2017. So I continue to recommend a defensive position in the Active Asset Allocator with an asset mix of 20% global equities / 40% EU bonds / 30% precious metals / 10% cash.

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

 
 

US Treasuries have been hit hardest during the recent correction in government bonds. The 10-year Treasury yield rallied 110 basis points from 1.4% in August to 2.5% today, sending Treasury prices falling over -10%. 30-year Treasury yields increased 1% from 2.1% to 3.1%, resulting in a capital decline of -15%. (the Active Asset Allocator strategy has no exposure to US Treasuries).

Eurozone government bonds held up better, falling just -4% during the recent Trump-inspired inflation scare (but -7% since August). Euro government bonds have now reached an oversold extreme and I expect a rally in EU government bond markets to get underway shortly, likely coinciding with a top in equity markets. While the Federal Reserve has backed away from its position as lender of last resort, the ECB continues to buy everything not nailed down and has recently extended its QE programme to December 2017.

Government debt in the Eurozone continues to grow at a faster rate than GDP. The ECB must hold interest rates below the rate of inflation so that these debts can be serviced and inflated away over time. While EU fixed interest rate bonds are approaching the end of their multi-decade bull market, the outlook for Inflation linked bonds (and gold) is brighter. Although fears of deflation continue to reverberate around the world, the echo is starting to fade. We are moving towards an environment of rising inflation. The Active Asset Allocator will continue to transition from fixed interest rate bonds to inflation-linked in 2017.

 
 

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

Despite the recent correction, gold priced in euros has still rallied +12% year-to-date. Based on my reading of the gold cycles, we are now getting very close to the end of the current investor cycle for gold and I expect a turn higher shortly, possibly coinciding with an interest rate hike by the Federal Reserve on December 14th. 

 
 

The Federal Reserve last raised interest rates a year ago on December 16th 2015. Gold closed at $1,071 that day. In a shakeout move, gold dropped $20 the following day before then shooting higher by +30% over the next 6 months. I expect something similar this time round. Also, inflation wasn't a concern for the Fed last year but with Trump in the White House in January 2017, the narrative is changing.

 
 

Another difference between then and now is that USD gold looks to be making a higher low for the first time since 2011. A higher low is bull market action and will confirm a change of character for the gold market. If gold can form a low in the $1,100's, the next target will be a higher high in 2017 above $1,378. I think we will get it. A higher low followed by a higher high will get more involved in the precious metals market, a necessary development to drive gold prices higher.

 
 

Gold priced in euros has been holding up reasonably well since June 2016. Euro gold has not made a lower low despite the +7% rally in the USD over the same period. 

 
 

The time has come for gold to show its hand. If the bull market is back, gold should rally sharply over the next 6 months. If gold disappoints, something else is at hand and I will cut back exposure in the Active Asset Allocator

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 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

My Technical Trend Indicator has triggered a Sell Signal for the first time since October 2014. This, at a time when equity valuations are stretched, US corporate earnings are declining and fund managers are fully committed, holding their lowest allocation to cash in over 20 years. The bull market is ageing and stock market leadership is narrowing. Investors also must contend with the fact that 86% of recessions in the United States have occurred either in the year of or the year following an election.

Government bond yields have backed up in recent weeks but I expect the trend lower to resume shortly, particularly if coupled with a bout of selling in equities. Meanwhile gold is consolidating ahead of another big move which I expect will start next month. Gold has returned +19% year-to-date for Euro investors. I expect strong double-digit annual returns for the precious metals over the next 3-5 years. Gold Trader closed out Trade 9 with a small profit this week and will look to enter another long position in 5-15 trading days at the end of the current daily cycle, which should also coincide with the intermediate cycle low (ICL). I remain defensively positioned for now with 20% equities / 40% bonds / 30% precious metals / 10% cash.

Stock Market Update

The current bull market in stocks, now the third longest in history, has run 7 years and 5 months, from March 2009 to August 2016 (2,193 on S&P 500). In second place is the bull market of the roaring twenties (1921-1929) which lasted 8 years and 2 months. It was followed by a spectacular -88% collapse in the Dow Jones Industrials Average and the Great Depression. The 9 year rally from 1991 to 2000, which culminated in the technology bubble and subsequent bust, with the S&P 500 falling -53% and NASDAQ plunging -83%, remains in top spot and will likely never be surpassed in either duration or valuation terms.

 

So, unless the current bull market is set to break records, it is probably in its final inning or may have already topped out. Stock market performance in US election years has tended to be positive (2000 and 2008 being notable exceptions). Post-election years however, have not been kind to investors. 9 of the last 14 recessions in the United States for example, have started in the year following an election, with 3 others beginning during an election year. Taken together, 86% of all recessions in the United States over the last century have started either in the year of or the year following an election. Adding fuel to the fire, my Technical Trend Indicator has just triggered a Sell Signal for the first time since October 2014.

 
 

This, at a time when equity valuations are stretched, US corporate earnings are declining and fund managers are fully committed, holding their lowest allocation to cash in over 20 years.

 
 

There is a growing complacency that Hillary Clinton will win the race to the White House on November 8th (Paddy Power has already paid out on a Clinton victory). Odds are against Trump, but if he causes an upset, expect a post-Brexit type reaction in equity, bond and currency markets. Irrespective of who wins the Presidential Race, 2017 should be quite a challenging year for investors. The Active Asset Allocator will look to navigate volatile markets and take advantage of opportunities as they arise. However, today I remain in defensive mode with an asset mix of 20% global equities / 40% EU bonds / 30% precious metals / 10% cash.

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 US budget deficit increased by $150 billion from $440 billion to $590 billion in the year ending September 30th 2016. Over the same period, the total gross federal debt of the United States increased by $1.4 trillion. The trend is similar in Europe, the UK, Japan and China. Despite record government debt-to-GDP ratios across the developed world, calls for fiscal stimulus are growing to replace the increasingly ineffectual monetary policy madness that has become the norm in recent years. Fiscal stimulus means more debt, higher taxes and slower GDP growth. This should drive interest rates and government bond yields lower, not higher in the months ahead. So, while bond yields have moved higher in recent weeks, particularly in the US and UK, following a near vertical plunge in 2016, I expect the trend lower in bond yields to resume shortly. I don't think the bond bull is dead yet.

In the Eurozone, the ECB is running out of government bonds to buy and will likely relax its minimum purchase requirements next month. There is still plenty of demand for EU bonds, which should keep a lid on EU government bond yields for the foreseeable future. The Active Asset Allocator currently holds a 20% allocation in fixed interest government bonds along with 15% in inflation linked bonds and 5% in EU aggregate bonds. The 20% allocation is the most sensitive to interest rates changes and one I am most focused on near-term. I expect government bonds to rally on the next stock market decline.

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 looks like it still has some work to do before making its next big move higher. Gold Trader avoided the $70 drop in gold earlier this month and entered a long position at $1,260 with the expectation of capturing the start of a new medium-term investor cycle. The rally never really got going, so Trade 9 was closed this week at $1,267, booking a small profit. Gold Trader will look to enter another long position in 5-15 trading days at the end of the current daily cycle, which should also coincide with the intermediate cycle low (ICL). Gold should finish the year with a strong move higher and deliver another solid performance in 2017 as the bull market reignites.

 
 

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