January 2019 Investor Letter

Strategy Performance

AAA performance.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 +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.

September 2018 Investor Letter

Strategy Performance

 
AAA Performance.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 +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

This month I discuss stock market valuations particularly in the US and highlight some technical signs that suggest the equity bull market is running out of steam. Amazon for example has now outrun one of the market leaders of the dotcom mania, as the vertical ascent of its share price continues. While US equities remain in a bull trend, European and emerging market equities are lagging badly. Something has to give. In fixed income, as the US yield curve is close to inverting, I note that both fixed interest and inflation-linked bonds are set to rally once more. Meanwhile in precious metals, speculator and smart-money commercial trader positioning have reached extremes not seen since the bull market began in 2001. Gold and silver are preparing to launch.

Stock Market Update

US stocks are expensive. The Wilshire 5,000 captures the market capitalisation of all equity securities trading in the United States. Historically comprised of approximately 5,000 names, currently there are just under 3,500 equities listed in the Index. The Wilshire 5,000 Index has a market capitalisation today of approximately $29 trillion. The Index sports a trailing price/ earnings ratio of 26 times and a price/book ratio of 2.7 times, historically at the extreme end of the valuation range. The size of the US economy by comparison is approximately $20 trillion. So, the Wilshire 5,000 is now 1.4 times the size of the US economy, the most elevated since records began in the 1970's. As the Federal Reserve increases interest rates and withdraws billions of dollars from the financial system each month, it will be fascinating to watch the knock on impact on both equity securities and the US economy.

 
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As I watch Amazon, Apple, Microsoft and Google continue to rip higher week after week, I am reminded of a quote from Scott McNeely, CEO of Sun Microsystems back during the dot com mania of the late 1990’s. Sun Micro was one of the tech darlings back then and eventually reached a peak valuation of 10 times revenues, an incredible multiple, even for a high margin tech software company. A couple of years after the tech bust, McNeely made the following comment:

At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64?
— Scott McNeely, CEO Sun Microsystems

Sun Micro rallied from approximately $5 in 1997 to $64 in 2000, a thirteen fold increase, before falling all the way back to $5 again a couple of years later.

 
SUNM.jpg
 

Amazon, by comparison is a low margin online retailer. AMZN had revenues of $178 billion in 2017 so not trading at the same lofty multiple of revenues as Sun Micro. The same cannot be said for its share price performance however. AMZN has rallied from $100 in 2010 to over $2,000 in 2018, a twenty-fold increase. What could possibly go wrong?

 
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While stocks are expensive, momentum remains positive and there has been scant evidence of any material selling pressure to date. The majority (68%) of US equities continue to trade above their long-term moving averages. So long as this trend persists, stocks should not experience a significant decline. However, if this trend reverses and market breadth starts to deteriorate (a drop on the next chart below 50) a more substantial correction would likely occur. I don't think we are too far away from that happening. Continued caution is warranted.

 
$OEXA200R.jpg
 

Turning to Europe, stocks have been consolidating below multi-decade resistance for the last 24 months. I have written that a break out above 415 on the Eurostoxx 600 Index would be a bullish development and I would take a position in EU shares in the Active Asset Allocator if a break higher was confirmed. European shares have so far failed to muster the strength to break out and now appear to be losing strength and at risk of breaking down. I have marked on the next chart key periods when the Relative Strength Index (RSI) has traded below 50. Each time coincided with a sharp break lower in the Eurostoxx 600 Index. The RSI is at 40 today and EU shares are at risk of correcting.

 
$Stoxx600.jpg
 

Germany has been the strongest performing economy in the Eurozone and the German stock market has also led since the bear market lows of 2009. The Dax Index should lead the charge higher if the STOXX Europe 600 is to break out to new all-time highs. The current head-and-shoulders topping pattern in German equities is concerning however and suggests that the next break could be lower. 

 
$dax.jpg
 

Following a strong breakout to new all time highs in 2017, emerging market equities have reversed sharply lower in 2018 and are now threatening to undo much of the good work they achieved last year. Emerging market equities typically trade inversely to the US dollar and the recent rally in USD has driven the recent correction in EEM. EEM now trades below $42 and under the resistance zone marked on the chart. EEM will require a resumption in the USD decline before an uptrend can resume. If EEM cannot get back above $42, this will be considered a failed breakout and a bearish development for the medium-term prospects for emerging markets. 

 
eem.jpg
 

China makes up 31% of the EEM ETF and therefore has a big influence on the overall direction and performance of the Emerging Markets ETF. The Shanghai Stock Exchange Composite Index is currently trading a touch under 2,700, down -25% from the January 2018 highs and -48% from the highs of 2015. The Index has not yet reached long-term support, which suggests EEM may have more downside ahead. Support for $SSEC would come in closer to 2,400, approximately -11% below current levels. I think we will get there and we will see then if China and the broader Emerging Markets Index can find a foothold and begin a longer-term rally. A break below long-term support would result in a more painful move lower for China and EM stocks and also potentially signal that the US dollar has more room to run higher. 

 
$SSEC.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

 
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US 10-year yields are currently trading at 2.88%, while shorter-term 2-year yields have surged higher, more than doubling over the last 12 months to 2.64%. The difference between 2 and 10 year yields has reached 24 basis points. The US yield curve is close to inverting. Typically, investors demand a higher rate of interest when locking up funds longer term, unless of course they are concerned about the future. Then demand for long-term debt drives bond prices higher and yields lower. When long-term bond yields drop below short-term bond yields, the yield curve inverts. It is a sign that all is not well in the financial system and we are almost at that point today. 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.

 
$YC2YR.jpg
 

Inflation-linked bonds (ILB's) in the US, EU and UK continue their steady climb higher. Unlike fixed interest rate government bonds where price moves inversely to changes in nominal interest rates, inflation-linked bond (ILB) prices are sensitive to changes in real interest rates, rather than nominal interest rates. This means that inflation linked bonds will rise in price and provide a hedge for investors against unexpected increases in inflation. Interest rates and government bond yields can rise, but as long as inflation rises at a faster rate, inflation linked bonds will increase in value. ILB's are under-owned and offer an excellent form of diversification and protection to investors in a rising interest rate and rising inflationary environment. ILB's are playing an increasingly important role in the Active Asset Allocator.

 
inflation 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

The gold cycle has proven quite challenging to read this year due to an investor cycle (IC) that has extended 8 months versus the more typical 5-6 month range. The IC finally bottomed in mid-August and I think a new IC is now underway. The recent market action looks and feels similar to the ICL of December 2015. Back then, gold spent four weeks building a based before launching higher. That is the pattern I am looking to repeat this time around. During the recent decline in precious metals, Gold Trader has been stopped out a couple of times but is currently positioned long in anticipation of a new IC emerging. Time will tell.

 
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Sentiment readings in the precious metals sector and current positioning by speculators and commercial traders certainly suggests a new IC is due. The Commodity Futures Trading Commission (CFTC) publishes a weekly report that summarises the current positioning of speculators and commercial traders across a broad range of commodities that trade on the Exchange.  The latest Commitment of Traders (COT) report shows that large speculators are currently holding a huge short position in gold of 213,259 contracts, 200% more than they held a few months ago and one of the largest short positions on record. Commercial traders - the miners and bullion banks - who are usually always net short to hedge their production, are 6,525 contracts net long today. Are you kidding me!! To give readers an idea of how extreme this position is, the last time the Commercials were net long gold was all the way back in 2001 when gold was trading at $250, before the bull market started. This is an extremely bullish setup for gold. 

 
Gold COT.jpg
 

The setup is even more bullish in the silver market. Commercial traders are net long 14,613 silver contracts for what I believe is the first time ever, while the large speculators are net short 28,974 silver contracts, another extreme reading. While the COT charts are not a timing tool, the scene is set for the next leg higher in gold and silver to unfold.

 
Silver COT.jpg
 

In my last investor update, I included a quote from Charles Gave of GaveKal Research. I found his article incredibly thought-provoking and believe his conclusion is worth repeating here again. Gave concluded:

Now, most people tell me that the renminbi cannot become a global currency as it has a closed capital account. The answer to that objection is simple: China has just to offer a conversion in gold to anybody who has too many renminbi. And indeed it is headed in that direction. In recent years the Chinese have bought all the gold they can lay their hands on, as have the Russians. So, the real economic struggle between the US and China may not be fought out over trade or technology, but end up as a monetary war. In this regard, watch gold as any significant rise in its price versus the US bond market will be a defeat for Washington; any fall in this ratio should be seen as a victory. In recent years we have been in a stalemate. I doubt that this situation will last.
— Charles Gave, GaveKal Research

The performance of gold priced in USD versus US long duration zero coupon bonds has suddenly became a lot more interesting. As Charles noted, in recent years, we have been in a stalemate, but he doubts that situation will last much longer. I hold a similar view. Gold appears to be forming a rounded bottom versus US Treasuries. I expect this chart will resolve in higher prices for gold versus US bonds and victory for China over the US longer-term.

 
gold vs bonds.jpg
 

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.

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

Executive Summary

On 2nd March 2018, I lowered the allocation to equities in the Active Asset Allocator from 20% to 0%, moving to a fully defensive position. Stock markets appear to be setting up for a failing rally, a lower high following the surge to new all time highs in January 2018.

Just like in July 2007 when the implosion of two Bear Stearns hedge funds signaled the start of the Great Financial Crisis of 2008, today we are seeing similar implosions in volatility ETF's and crypto currencies. The canaries in the coalmine are starting to sing. Volatility is on the rise and I expect this trend to continue as we progress through 2018. If I am wrong and we are simply undergoing another correction in an ongoing bull market, European equities should break out to new all time highs. If that happens, the Active Asset Allocator will take a position in European shares. So far in 2018, cash has been the better position, outperforming equities, bonds and gold.

Stock Market Update

In January 2018, Jeremy Grantham, Chief Investment Strategist of GMO discussed the potential for a near-term melt-up in the stock market. Two weeks later, billionaire hedge fund manager Ray Dalio was interviewed at the World Economic Forum in Davos, Switzerland and said when asked about markets: "if you're holding cash, you're going to feel pretty stupid". Then the following week, this happened..... and the S&P 500 dropped 12% in 10 trading sessions. Even the best get it wrong sometimes.

 
xiv.jpg
 

XIV was one of a collection of exchange traded funds (and notes) that permitted investors to bet on the future direction of volatility in the stock market. In the case of XIV, you made (a lot of) money as long as volatility continued to decline. It worked beautifully over the last two years and leveraged short volatility traders in XIV made out like bandits, until last month. XIV made an all time high on 11th January 2018 at 146.44. It dropped -12% to 129.35 on 1st February and then, three days later, it hit 5.50, down -96%. It turns out, stock markets can be volatile. Billions were lost on these short volatility ETF's and this is just the tip of the iceberg.

Central bank money printing has distorted markets to an extreme degree. By driving interest rates to zero, central bankers have forced conservative investors to reach for yield in all sorts of exotic and risky financial instruments. Chris Cole of Artemis Capital wrote an excellent in depth report covering the extent of the short volatility trade. 

The Global Short Volatility trade now represents an estimated $2+ trillion in financial engineering strategies and share buybacks that simultaneously exert influence over, and are influenced by, stock market volatility. Volatility is now an input for risk taking and the source of excess returns in the absence of value. Like a snake blind to the fact it is devouring its own body, the same factors that appear stabilizing can reverse into chaos. The danger is that the multi-trillion-dollar short volatility trade, in all its forms, will contribute to a violent feedback loop of higher volatility resulting in a hyper-crash.
— Chris Cole, Artemis Capital

Whether it plays out as Cole suspects remains to be seen, but so far he is on track. Volatility as measured by the Vix Index, bottomed at 8.92% on 4th January 2018 and has been moving higher in recent months. 

 
$vix.jpg
 
An annual volatility of 9% implies a daily volatilty of about 0.6%, which is like saying that a 2% market decline should occur in fewer than 1 in 2000 trading sessions, when in fact they’ve historically occurred more often than 1 in 50. The spectacle of investors eagerly shorting a volatility index (VIX) of 9, in expectation that it would go lower, wasn’t just a sideshow in some esoteric security. It was the sign of a market that had come to believe that stock prices could do nothing but advance in an upward parabolic trend, with virtually no risk of loss.
— John Hussman, Hussman Funds

Another consequence of too much money chasing too few investment opportunities has been the epic rise and rise of crypto currencies. While blockchain is revolutionary and will likely be disruptive to many markets and industries over the next 5-10 years, the crypto currencies may be getting a little ahead of themselves, until recently at least. There are currently 1,548 different 'crypto coins' listed on the Coin Stats app. Following the initial coin offering (ICO) frenzy of 2017, perhaps a dose of reality is setting in here too. The market capitalisation of these crypto currencies peaked at over $900 billion in December 2017 but has fallen to just $360 billion today.

 
bitcoin.jpg
 

They say equity bull markets don't die of old age. Instead, they require an event or a catalyst to prick the bubble. In July 2007, two Bear Stearns hedge funds imploded, which signaled the start of the Great Financial Crisis of 2008. In 2018, have the recent implosion of short volatility trades and the collapse in price of many crypto currencies signaled the start of the unwind of the 'Everything Bubble'? If so, what comes next will be a sight to behold. 

On 2nd March 2018, I lowered the allocation to equities in the Active Asset Allocator from 20% to 0%, moving to a fully defensive position. Stock markets appear to be setting up for a failing rally, a lower high following the surge to new all time highs in January 2018.

 
$spx.jpg
 

We could simply be experiencing just another run of the mill correction in an ongoing bull market, but I am concerned something more sinister is at hand. If you examine the S&P 500 priced in euros, while price continues to rise, relative strength is deteriorating, suggesting the rally is losing steam.

 
$SPX in euros.jpg
 

I noted in previous updates that I would buy a position in European equities on a break out to new all time highs on the Eurostoxx Index (as long as that breakout held). So far, there has been no break out and EU equities are falling in tandem with the rest of the stock market. So, cash remains the better position for now.

 
$stoxx600.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
 

During the last interest rate rising cycle in the US, the Federal Reserve hiked rates +4.25% over 29 months from 1.00% in April 2004 to 5.25% in August 2006. The stock market traded sideways for another 12 months but topped out in 2007 and then collapsed. Stock markets are more expensive today than they were in 2007.

 
Fed Funds.jpg
 

From 2004-2006, the Fed kept increasing short-term interest rates until the yield curve eventually inverted. This is shown in the chart below, which measures the difference between 2 and 10 year US Treasury yields. When 2-year yields rise and 10-year yields drop, the yield curve flattens and eventually inverts. An inverted yield curve is often a precursor to recession, and it certainly did not disappoint in 2008. As recession hit and stock markets plunged, the Fed wasted no time dropping short-term rates to zero and firing up the printing presses, which led to a sharp steepening of the yield curve again as the crisis unfolded.

 
$YC2YR.jpg
 

This time around, the Federal Reserve has raised rates just +1.50% over 29 months from 0.00% in November 2015 to 1.50% today and the yield curve is 60 basis points from inverting. The Fed has adopted a very cautious approach to interest rate normalisation due to the mountain of US debt currently outstanding: $20 trillion in 2017 versus just $9 trillion in 2008.

 
US Total Public Debt.jpg
 

We may get one or two more +0.25% rate increases in 2018, which could invert the yield curve, but I think we are already approaching the end of this interest rate rising cycle in the US, unless of course inflation starts to accelerate. Then all bets are off.

In Europe, unemployment rates are generally higher than in the US and economic growth rates are generally lower, there is more excess capacity in the system and ECB Chair Mario Draghi is still buying hundreds of billions of euros worth of bonds of all varieties. So, there is still a firm bid under the EU government bond market, even before any form of stock market sell off begins.

 
ILBs.jpg
 

Inflation linked bonds are also behaving reasonably well, though adverse currency movements in GBP and USD have impacted returns to a certain degree. So for now, I remain comfortable with the bond allocation in the Active Asset Allocator. 

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

Gold Market Update

Gold is starting to get more attention in the financial press. With equities severely overpriced and bond market yields at multi-decade lows, precious metals offer one of the few pockets of value in the market today. Gold has traded sideways for nearly five years now and is starting to form a much more constructive pattern of higher highs and higher lows on the charts, since bottoming in 2015 at $1,045. A break above $1,400 can't come soon enough.

 
$gold.jpg
 

If you are following my Gold Trader strategy you will note that gold kicked off a new investor cycle in December 2017 and the first daily cycle delivered a solid +10% rally from trough to peak, ending DC1 +6.2%. Generally second daily cycles also deliver strong returns, +7.7% from trough to peak, on average. This time around however, DC2 was a dud: +3% trough to peak and -2% peak to trough so far.

 
Gold Cycle Count.jpg
 

Gold only rallied for 4 days and spent the rest of the cycle chopping sideways, which is not particularly bullish action. We may just have to wait for the next investor cycle before getting a break out above $1,400. It's coming but we just need a little more patience. My longer-term projections for gold remain unchanged.

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.

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.

May 2017 Investor Letter

Strategy Performance

performance table.jpg

Investment Philosophy and Approach

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

 
AAA Asset Mix.jpg
 

Gold Trader 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. 

Eurostoxx 600.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

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.