January 2019 Investor Letter

Strategy Performance

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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 +9% 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, has a win rate in excess of 70% and is structured so that profits are TAX FREE for investors.

Executive Summary

2018 ended with a thud and the worst December stock market performance since 1931. Global equities corrected by -15% in three short months. Technology stocks were taken to the woodshed. Here is a snapshot of the peak-to-trough declines of some of the former leaders of this bull market: Facebook -40%, Nvidia -54%, Apple -37%, Amazon -36%, Netflix -45%, Google -24%, the list goes on. General Electric, a symbol of all that was well with the United States has collapsed by -78% and looks like it is in deep financial trouble.

Meanwhile, the Active Asset Allocator has weathered the early stages of this bear market quite well, delivering a positive return of +1.0% in October, +0.3% in November and +2.2% in December. I expect this trend to continue and accelerate as the bear market progresses. It has been a challenging year and the Active Asset Allocator is off its target annual return by some distance, but when 90%+ of all markets and asset classes are showing negative returns YTD, it just isn’t possible to tack on a +7-10% annual return. However, I am pleased that the Active Asset Allocator has outperformed all other multi-asset funds on the market and at a much lower cost to the investor. Multi-asset funds of all shapes and sizes are struggling to navigate these increasingly volatile markets.

Capital preservation during bear markets and capital growth during bull markets is the name of the game. I think 2019 is going to be a very good year for us and I would like to take this opportunity to thank all of you for your continued support and wish you all a very prosperous 2019.

Equity Market Update

Until September, the United States had proven a safe haven for investors, with the majority of US indices and sectors sporting double-digit gains for the year. Europe and the emerging markets bore the brunt of the selling for a variety of political and currency-related reasons. However, in the final three months of the year, US equity markets hit the skids and accelerated lower. Liquidity is being withdrawn from the system in the form of quantitative tightening (QT) by the Federal Reserve and the ECB and steadily rising interest rates by the Federal Reserve. A double tightening into a slowing economy is a recipe for disaster. As long as this trend continues, stock markets will continue to fall. It is a dangerous game the central bankers are playing, but they have no other option, other than to do nothing and hope for the best.

 
 

US small cap stocks have fared even worse, falling -27% from the highs of 2018. Capital tends to flow to the largest and most liquid names, where it is treated best during bear markets. Small cap stocks will be under a great deal of selling pressure over the next 2-3 years.

 
 

A healthy profitable banking system is at the core of a well functioning economy. We saw what happened to the US economy in 2008 when the banks collapsed. I don’t expect a similar occurrence next time down, but the chart of the US banking sector does not inspire confidence. The KBW Bank Index plunged -32% in 2018.

 
 

The Nasdaq Composite has already corrected by -24% since the end of August and this was before Apple announced to the market that it was guiding earnings estimates lower, a direct result of trade tensions between the US and China and general weakness across many of its key markets. It is the same story with the transport stocks, which have declined -26% since the 2018 Summer highs. FedEx shares have fallen -44% from their 2018 highs following a recent earnings disappointment.

Turning to Europe, things don’t look much better. Economic growth is slowing meanwhile the ECB short term rates are still at -0.40%! ECB Chair Mario Draghi has stopped the printing presses just as the EU heads into its next slowdown. His term is up later this year and I would say he is thinking to himself he can’t get out soon enough. The EU looks to be in serious trouble. The EuroStoxx 600 Index broke lower out of a three year consolidation range and has fallen sharply in recent months. The plunge looks like it still has room to run.

 
 

I do see one potential opportunity coming into view and that is in the UK. The FTSE 100 Index currently sports a dividend yield of almost 5%, while the dividend yield on the iShares UK Dividend UCITS ETF is now approaching 7%. GBP has also fallen over -20% versus the euro since 2015 from £0.70/€1.00 to £0.90/€1.00. GBP has already priced in a good deal of risk of a hard Brexit, which may or may not happen, but could fall further against the euro as we approach the March deadline. This could present a nice entry point for the Active Asset Allocator and I am monitoring this situation closely.

Emerging Markets were hit for losses of -27% in 2018 as the break out from multi-year resistance in the 40-42 zone for EEM was unable to hold. EEM is now trading back below that breakout area again and could get caught up in further selling if European and US stock markets continue their bearish descent. A strong USD has always been a headwind for emerging markets. At some point, the Federal Reserve will stop its rate hiking cycle and the USD will top out and begin a precipitous decline. That could drive a sharp move higher in EEM but there is too much risk in that potential setup for now.

 
 

So, I continue to patiently wait on the sidelines. The Active Asset Allocator’s only equity position remains in the gold mining sector, which I think has a good chance of doubling this year. 2019 could be a very difficult year for the stock market (ex-precious metals) and sidestepping major declines remains my primary focus. I do see potential opportunities in UK equities in March/April and in emerging market equities later in the year. If we do get another sharp decline in the broader stock market, I will not hesitate to move back to a fully invested position (60-70% equity exposure) As always, I will be guided by my Technical Trend Indicator for potential entry/exit signals., which continues to trade in a bearish mode.


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

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There is in excess of $6.2 trillion in non-financial corporate debt outstanding in the United States today. This figure has more than doubled since the financial crisis a decade ago. Over 70% of bank loans issued by Wall Street over the last five years were ‘covenant-lite’ or had no covenant attached at all. Many of these credit instruments have been packaged into ETF’s of different varieties. Retail investors have little clue what is packaged in the ETF’s they hold. When the panic starts, many of these funds will collapse.

 
 

Blackrock for example, markets a Debt Strategies Fund to investors reaching for yield, that holds all kinds of low grade debt securities. This fund has assets in excess of $600M and pays a juicy 0.80% annual management fee to the investment manager (1.85% gross expense ratio). The Fund is levered 130% and 97% of the Fund is rated BB or lower…. in short, a large pile of junk. As soon as recession fears start to take hold, this Fund is going to suffer a sharp decline. The only exposure the Active Asset Allocator had to corporate bonds was in the Blackrock EU Aggregate Bond Fund, which only held investment grade corporates, and I sold this 5% allocation in November. I do not want to hold any credit exposure as this cycle turns lower.

In my last investment update, I noted that the yield curve in the US was close to inverting. Back in September, US 10-year yields were trading at 2.88%, while 2-year yields had reached 2.64%. The difference was just 24 basis points. Roll forward to the end of 2018 and the gap has narrowed further, to just 11 basis points. You will note that, while the gap continues to close, the relative strength of the decline is abating, evidenced by the RSI indicator at the top of the chart. The yield cure is getting ready to steepen again and that is when recession hits (and the Fed is forced to cut short term rates again). This is another signal that equity markets likely have more room to fall before we can get constructive on buying them again.

 
 

Back in September 2018 I also noted that:

“Once the yield curve inverts, and then normalizes, it signals recessionary times ahead and pain for equity investors. The conundrum today is that US stock markets are hitting all-time highs in many cases. Which market is correctly predicting the future, stocks or bonds? We are about to find out.”

The bond market is always considered ‘smarter’ than the stock market and has been signalling trouble for equities for a while. I was confident that stock markets were due at least a sharp correction or potentially something more severe. The new conundrum facing investors today is that there are still trillions of dollars worth of bonds trading at negative yields. This anomaly is much more difficult to decipher.

Meanwhile, the Active Asset Allocator continues to hold a 20% allocation to EU Government Bonds as a defensive trade, while stock markets continue their valuation adjustment. Despite the ongoing concerns of record low bond yields in the EU and negative short-term rates, this trade continues to work well. In 2018, while global equities lost -4% for the year, EU government bonds rallied +2%. These are not big numbers but the diversification characteristics of fixed income continue to benefit the Active Asset Allocator. I keep a close eye on the performance of the iShares Euro Government Bond 10-15 Year ETF. A break out above 177 would be quite a bullish development for EU bonds. Conversely, a break below 164 would have me reassessing my allocation to IEGZ. I don’t want to overstay my welcome in this sector, but this allocation continues to work well for the strategy.

 
 

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

After a subdued 2018, where gold ended the year +2% in euro terms, 2019 is shaping up to be much better as the gold bull market re-awakens. I believe that it is gold’s time to shine once again. Even for the non-believers, the next chart should cause you to at least consider an investment in the precious metal for the next couple of years. As regular readers will know, gold moves in cycles. Gold also often tends to trade inversely to equities - not always, but often - as it is considered a safe haven asset. It is clear from the chart below, which shows the relative performance of US equities to gold, that US equities outperformed the precious metal pretty consistently from 1990 to 2000. Then it was gold’s turn. Despite the rally in equities from 2003-2007, gold consistently beat the stock market for a decade from 2000 until 2011, when gold surged to a bull market top at $1,923/ounce. Us equities have regained the upper hand from 2011 until 2018 but it now looks to me that the trend is once again reversing in favour of the only true safe haven asset left for investors to own today.

 
 

These cycles play out over years, not weeks or months. I expect this trend to reverse lower now in favour of gold over equities and think it will last at least 3-5 years. There will be peaks and troughs along the way but I expect the general direction will be higher for precious metals and lower for equities.

What will drive gold higher over time? The key determinant will be the USD and I expect that we are very close to the end of the Fed tightening cycle in the US. Once Jerome Powell signals to the market that he has finished raising rates, I think the USD will be in trouble, providing a tailwind for precious metals. I also believe there are fewer real diversification hedges that remain outside of gold and this will drive additional demand for gold over time. The next leg of the gold bull market has begun and it should be a sight to behold.

 
 

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.

At Secure Investments, I advise individual clients on their pension and non-pension fund investment portfolios. To learn more about my Active Asset Allocator and Gold Trader  investment strategies, please get in touch at brian@secureinvestments.ie or 086 821 5911. If you are reading this via LinkedIn, why not visit Secure Investments and subscribe to get exclusive content for free. No spam, ever. Just great stuff.

Disclaimer

The information contained herein should not be taken as an offer of investment advice or encourage the purchase or sale of of any particular security or investment. It is provided for information purposes only. Secure Investments and its content providers makes no representation or warranty of any kind with respect to the services described, analysis or information obtained arising from use of the pages on this website. Information provided is obtained from sources deemed to be reliable and is provided solely on a best efforts basis. Secure Investments and its content providers do not guarantee the completeness or accuracy of such information and do not accept any liability for any loss or damage arising out of negligence or otherwise as a result of use or reliance on this information, whether authorised or not. The use of the website is at the user's sole risk. Not all recommendations are necessarily suitable for all investors and investment policy must be tailored to suit the circumstances of the individual. We recommend that readers consult their professional adviser before acting on any advice or recommendation on this website. The value of any investment may fall as well as rise and you may not recover the full amount originally invested. Past performance or simulated performance is no guarantee of future investment returns. The value of your investment may be subject to exchange rate fluctuations which may have a positive or adverse effect on the price or income or the securities.

May 2017 Investor Letter

Strategy Performance

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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 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

Over the last couple of months, Facebook, Apple, Amazon, Netflix and Google together have added $260 billion in market capitalisation. Meanwhile, the other 495 companies in the S&P 500 have lost a similar amount. Market leadership is narrowing to just a handful of names, a trend that often occurs at the tail end of a bull market. Smart investors are taking note. Paul Singer recently raised $5 billion to take advantage of opportunities when investor confidence becomes impaired and volatility spikes. Warren Buffett is sitting on 22% cash in his investment company Berkshire Hathaway. We are getting close.

Bonds have had a quiet couple of months but as long as 3% on the 10-year US Treasury and 1% on the 10-year German Bund hold, I continue to believe that the final low in yields of this multi-decade bull market lies somewhere in our future. The price action in gold could provide the clue to the timing of the turn (lower in stocks, higher in bonds and gold). Gold Trader is looking to catch the top of gold's fourth daily cycle before the final descent into a medium-term low in June. Once next month's low is in place, I expect a powerful move higher over the Summer, possibly to $1,500, as the stock market finally rolls over.

Stock Market Update

Paul Singer's hedge fund Elliott Management raised $5 billion in 24 hours last week to take advantage of a potential major investment opportunity set that could emerge "when investor confidence is impaired, recent correlations and assumptions don't work and prices are changing rapidly". Singer, one of the most successful hedge fund managers of all time, is expecting a sharp rise in volatility and some unpleasant consequences for investors in the not too distant future. He is not the only one. Warren Buffett is currently holding 22% cash - nearly $100 billion - in his investment company Berkshire Hathaway. Two titans of the investment industry are on edge and concerned about the outlook for global markets.

Back in May 2013, Paul Singer penned an excellent article describing the moral hazard that has been created by the Federal Reserve. (The full article is available in the Research section of my website at the following link: In the Wilderness). In the article, Singer lambastes the Federal Reserve for the dangerous policies they have pursued and the unintended consequences that have yet to be felt from their reckless and irresponsible actions.

If you look at the history of Fed policy from Greenspan to Bernanke, you see two broad and destructive paths quite clearly. One path is the cult of central banking, in which the central bank gradually acquired the mantle of all-knowing guru and maestro, capable of fine-tuning the global economy and financial system, despite their infinite complexity. On this path traveled arrogance, carelessness and a rigid and narrow orthodoxy substituting for an open-minded quest to understand exactly what the modern financial system actually is and how it really works. The second path is one of lower and lower discipline, less and less conservative stewardship of the precious confidence that is all that stands between fiat currency and monetary ruin. Monetary debasement in its chronic form erodes people’s savings. In its acute and later stages, it can destroy the social cohesion of a society as wealth is stolen and/or created not by ideas, effort and leadership, but rather by the wild swings of asset prices engendered by the loss of any anchor to enduring value. In that phase, wealth and credit assets (debt) are confiscated or devalued by various means, including inflation and taxation, or by changes to laws relating to the rights of asset holders. Speculators win, savers are destroyed, and the ties that bind either fray or rip. We see no signs that our leaders possess the understanding, courage or discipline to avoid this.
— Paul Singer, Elliott Management, May 2013.

One of the consequences of continuous central bank intervention in capital markets has been the emergence of the short volatility trade as investor confidence levels ratchet up once again. A tremendous amount of capital has been placed on bets that volatility will remain suppressed for the foreseeable future. This, at a time when the Vix Index (below) is trading at multi-decade lows. Over the past 13 trading days, the S&P 500 has traded within a range of 1.01%, the least volatile 13 days in history! Volatility spikes and rapid changes in price are what Paul Singer is preparing for.

 
The Vix Index is a measure of the volatility of S&P 500 index options and is considered a prescient gauge of investor confidence (when the Vix is low) and fear (when the Vix spikes higher).

The Vix Index is a measure of the volatility of S&P 500 index options and is considered a prescient gauge of investor confidence (when the Vix is low) and fear (when the Vix spikes higher).

 

Another direct consequence of continuous central bank intervention has been the reach for yield as investors are forced out of low risk cash and into higher risk investments in the search for income and a reasonable investment return. Total assets in Rydex Money Market Funds have now also fallen to multi-decade lows.....

 
 

.... at a time when stock market valuations and margin debt as a percentage of nominal GDP have rarely been higher.

There is also a potential negative divergence now appearing in the S&P 500 where price is breaking out to new all-time highs but relative strength and momentum indicators are failing to confirm the move. This signals that the rally could be nearing its final stages.

 
 

In his 1st May Weekly Market Comment, John Hussman showed a simple chart of the S&P 500, marking all days since 1960 where the opening level of the Index was 0.5% above the prior day's closing price and the Index was within 2% of an all-time high. On some occasions, these conditions occurred shortly before the final bull market high, while on others (August 1987 and October 2007), they occurred just a few days before or after the final market top. Food for thought.

 
 

Stock markets have enjoyed a very strong multi-year rally since 2009, and since bottoming versus gold in 2011. The S&P has handily outperformed precious metals over the last six years, following gold's strong relative performance versus US equities from 2000 until 2011.  I believe the trend is now turning once again in favour of gold. I think gold will put in a meaningful low over the next 4-6 weeks (see Gold Market Update for more information), which I expect will coincide with a top in the stock market. After that, things should start to get interesting.

 
 

European stocks (lower left chart) trade at a valuation discount relative to US stocks and the market is pricing in quite a depressed level of earnings growth for EU companies. So, there is a margin of safety priced in to EU stock markets. Chinese stocks (lower right chart) continue to face significant headwinds and the chart of the Shanghai Stock Exchange Composite Index suggests that the downward trend will persist for some time yet. I will be tilting the regional equity bias in the Active Asset Allocator towards Europe following the next meaningful correction, but for now, I continue to recommend caution and maintain a defensive position in the Active Asset Allocator of 20% equities / 40% bonds / 30% precious metals / 10% cash. 

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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 trend remains down for government bond yields across the world. Inflationary pressures are probably greatest in the United States and eventually that will be reflected in the US Treasury market. However, as long as the US 10-year yield remains below 3.0%, I think the final low in yields of this multi-decade bull market lies somewhere in our future. 

 
 

Debt, demographics and delusional central banks are combining to perpetuate this bull market in bonds. Despite the recent rise in yields, Eurozone government bond yields also remain in a multi-year downward trend. As long as 10-year German bund yields remain below 1.0%, the bond bull market remains intact.

 
 

It has been a quiet couple of months for inflation-linked bonds but the longer-term trend remains up for this under-owned asset class. Inflation-linked bonds offer attractive diversification benefits for multi-asset portfolios and perform well at times when equities and fixed interest rate bonds are struggling. I will likely increase the allocation to ILB's in the Active Asset Allocator over the course of the next 12 months.

 
 

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

I closed Trade 12 of the Gold Trader strategy last week for a 2% gain (+4.4%YTD). I am looking to place another short position for Gold Trader to catch the top of gold's fourth daily cycle before the final descent into a medium-term low in June. Once next month's low is in place, I am expecting a powerful move higher over the Summer, coinciding with a top and decline in the stock market.

 
 

I am pretty excited about the prospects for Gold Trader. The strategy looks to capture 5-6% per trade while risking just 2-3% each time and has a win rate in excess of 70% based on over 10 years of data. Profits are tax-free to the client and fees are performance based. No gain, no fee. Please get in touch if you are interested in learning more.

I expect gold to bottom next month near $1,170. The possibility remains for a fast and sharp drop below the December 2016 low of $1,124 to shake out the bulls, which would provide the fuel for the next rally. Either way, once gold gets going, I expect a strong move higher towards $1,500. Gold Trader will be searching for a long position next month to get on board the move. 

 
 

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.