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.

August 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

Despite expensive valuations, stock markets remain well bid and my technical trend indicator remains on a 'BUY'. In the short-term, equities are overbought and due for a pause or correction. If the bullish technical setup persists as we navigate past the seasonally difficult August to October period, I will add equity exposure to the Active Asset Allocator. For now, I remain patiently in defensive mode. I also am planning to tilt the regional equity exposure away from the US towards Europe, where stock market valuations are more compelling. Stay tuned. 

This month, I added 5% to UK index linked gilts and 5% to US inflation linked bonds in the Active Asset Allocator, lowering the cash position from 20% to 10%. The bond market is pricing in almost no inflation in our future and I believe that is a mistake. The Active Asset Allocator continues to hold a 20% allocation to fixed interest rate bonds but the clock is ticking on this trade and I have one eye on the exit door. On precious metals, the World Gold Council published its Q2 2016 update on Gold Demand Trends and noted a +141% year/year increase in investment demand. it's a bull market folks. I also closed out Trade 7 for Gold Trader on Friday at breakeven. I remain defensively positioned for now with 20% equities / 40% bonds / 30% precious metals / 10% cash.

Stock Market Update

My technical studies triggered a buy signal for the stock market on 15th April 2016 and it  remains in place today. Since this trigger, global stock markets have rallied +4% in aggregate. US equities have gained +4%, European stocks are unchanged while emerging market equities have added +8%. (EU bonds and gold have also rallied over the same period with bonds +4% and gold +9%). I have been reluctant to follow the buy signal for equities to date, largely due to valuation concerns. Today, the S&P 500 trades at 25 times reported earnings. The S&P 500 has traded at a valuation above 24 times reported earnings only 9% of the time since 1928. If we exclude the tech bubble and 2008 financial crisis, when corporate earnings all but disappeared, that number drops to just 2%! We are also entering the historically difficult August to October period where stock markets have suffered significant declines in the past.

 
 

However, despite expensive valuations, the market's technical picture has recently improved. The number of stocks making new lows has evaporated while the number of stocks breaking out to new highs continues to increase (lower left chart). This is a prerequisite for another leg higher to develop in what is a maturing equity bull market. Central banks around the world continue to add fuel to the fire with the Bank of Japan, ECB, Swiss National Bank and People's Bank of China being particularly active in 2016 YTD (lower right chart). 

The next chart is quite revealing and one to which I am paying close attention. It shows the performance of consumer cyclical versus consumer staple stocks. Consumer cyclical stocks rely heavily on the business cycle and include industries such as retail, automotive, housing and entertainment. Consumer staples tend to perform better during recessionary periods and include non-cyclical industries such as food, telecom, utilities and healthcare. So when the trend is rising, Cyclicals are outperforming Staples, and stock markets tend to do quite well. When the trend reverses and Staples outperform Cyclicals, markets tend to struggle. The chart took a sharp decline in late 2015 signalling that all was not well for stock markets and true to form, they have struggled so far in 2016. However, Consumer Cyclicals have started to show some relative strength in recent months and may be about to break out above the down-trending 50WMA. This would be quite a bullish development and allow me to become more constructive on the outlook for equities.

 
 

In another positive development, a significant 78% of stocks on the NYSE are now trading above their long-term 200DMA, signifying broad participation in this recent stock market rally.

 
 

In the short-term, equities are overbought and due for a pause or correction. If stock markets can hold firm over the next couple of months and my technical studies remain favourable, I will increase the equity allocation in the Active Asset Allocator. I also am planning to tilt the regional equity exposure away from the US towards Europe, where stock market valuations are more compelling. Stay tuned. 

 
 

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

This month, I added a 5% allocation to UK index linked gilts and a 5% allocation to US inflation linked bonds, lowering the cash position in the Active Asset Allocator from 20% to 10% to fund the purchases. The bond market is pricing in almost no inflation in our future and I believe that is a mistake. Printing money always leads to inflation, eventually. We have experienced 7 years of asset price inflation (rising equity and property prices) and are starting to see increasing signs of wage inflation this year. In the United States, while inflation linked bonds continue to underperform Treasuries, technical signs of a change in trend are at hand. Relative strength (RSI) and momentum (MACD) indicators are improving in favour of inflation-linked bonds and price should follow suit later this year.

 
 

Inflation linked bonds are also rallying in the United Kingdom and the recent 15% drop in GBP should accelerate this trend. Falling unemployment, wage inflation and continued loose monetary policy by the Bank of England should provide an additional tailwind.

 
 

Central banks have already driven government bond yields to zero or below and are now examining alternative ways to distribute a continuing flow of newly printed money. Accelerated fiscal spending and/or direct payouts to the public (helicopter money) are potentially on the cards. Trends in wage inflation have also started to rise in the US recently. I expect the bond market to start pricing in a more inflationary outlook and inflation linked bonds should be a beneficiary. 

The 35+year bull market in fixed interest rate (rather than inflation-linked) bonds is in its final innings. We could be entering the final blow-off phase, which, when it ends, will unleash pain and chaos across multiple asset markets, but we are not there yet. Rising bond yields, when they do come, will lead to significantly lower prices for long duration fixed interest bonds and equities alike. (Stocks are simply a claim on a future stream of cash flows, discounted at the prevailing market rate. When that interest rate goes up, the present value of a stream of cash flows declines. it is simple mathematics). The Active Asset Allocator continues to hold a 20% allocation in fixed interest rate bonds but the clock is ticking on this trade and I have one eye on the exit door.

To learn more about the full range of investment services available at Secure Investments, please contact Brian by email at brian.delaney@secureinvest.ie or at 086 821 5911.

Gold Market Update

The World Gold Council has published its quarterly report on gold demand trends for Q2 2016 with some interesting highlights. The report details a 15% increase in overall gold demand year/year driven by a +141% increase in investment demand. The main buyers continue to come from India and China, though US investor demand is also on the rise. Gold supply increased +10% with total mine supply +5% year/year.

The increasing appetite for gold is evident in the next chart where you can see that gold is rising at a faster rate than either of the prior two times when gold broke out above its long-term 20-month MA. Investors want in and are increasingly happy to pay higher prices to get their bullion.

 
 

Gold outperformed stocks from 2000 to 2011 before entering a bear market that ended last year. Gold has started to outperform the S&P 500 once again this year, a trend that I expect will remain in force for at least the next 2-3 years and perhaps quite a bit longer.

 
 

The gold miners are leveraged plays on the price of gold. The index of gold and silver miners has already rallied +192% since the low made on 19th January 2016. The miners are a notoriously volatile sector of the market but for those with patience and an iron stomach, fortunes will be made in this sector before the bull market 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.

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.