May 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

The recent rally in stock markets has taken us back to where support lines were broken during the fourth quarter of 2018. Some equity indices have made new highs, while other have struggled. Relative strength and momentum indicators are not confirming the recent bullish moves. Fewer stocks are participating in the current rally while some former market leaders have stumbled badly. 3M and many chip makers including Intel are some notable examples. The recent breakdown in US/China trade negotiations isn’t helping. Meanwhile in fixed income, the bond bull market rumbles on. I am warming up to a new fixed income position in US Treasuries for the Active Asset Allocator. Turning to the precious metals, I discuss the timing of the next move higher for gold following a nine-month Investor Cycle. It’s almost time.

Equity Market Update

Despite rallying +20% off the December 2018 lows, stock markets continue to look vulnerable to me. Fear has certainly dissipated following the rout in the final quarter of 2018 and most believe that the equity bull market is back on track. They could well be proven correct. However, something just doesn’t feel quite right. Take a look at the NYSE Primary Exchange Index. The relative strength index (RSI) at the top of the chart looks weak, making lower highs despite the sharp rally in 2019 YTD. The same pattern occurred at the end of the 2000 and 2007 bull markets; weaker momentum is also evident in the MACD Momentum indicator at the bottom of the chart. So, despite the almost vertical move higher in equities in recent months, the charts so far are telling a different story.

 
 

The percentage of S&P 100 stocks trading above their long-term 200-day moving average has also been moderating since peaking at 92% in early 2018. Today just 65% of S&P 100 stocks are above their 200-DMA, suggesting that the bull market is fading. Below 50% and bear market forces are back in play.

 
 

Some of the former market leaders have stumbled badly this year. 3M, Intel and Google all missed Q1 2019 earnings estimates and their stocks have corrected sharply. This tends not to happen during bull markets. More than 60,000 3M products are used in homes, businesses, schools and hospitals around the world. As such, 3M is an excellent barometer of the general economic health of US and international markets. 3M global revenues declined -5% year/year in Q1 2019 and adjusted net income fell -14% year/year. Since their recent earnings report, 3M shares have been hit for -20% and have now declined -30% since peaking in early 2018.

 
 

The economically sensitive chip stocks also look vulnerable. The chip companies face huge swings in demand for their products in line with peaks and troughs in the broader economic cycle. From the depths of the bear market lows of 2009, the SOX Index, which comprises 30 semiconductor chip manufacturers, rallied +840%. It peaked in March 2018 and then corrected -27% by December. The risk-on rally that followed has seen the chip-makers rally +48% in four months. The SOX Index recently made new all-time highs, accompanied however by weakening relative strength (RSI) and momentum (MACD). This often happens near the end of major moves. Intel missed Q1 2019 earnings and its shares have been hit for -22%.

Despite being a technology company, Google makes the majority of its money from advertising and the ad market is highly sensitive to the economic cycle. When economic growth slows, companies spend less on advertising. Google recently released earnings for the first quarter of 2019 and disappointed the market. Google shares were hit for -10%.

 
 

The broader tech sector has been more resilient of late, yet a similar pattern of lower highs and lower lows is evident in the RSI and MACD technical indicators I follow. We are overdue a correction at the very least.

 
 

Outside the US, stock market gains have been less pronounced. European shares have lagged the US markets badly despite the sharp decline in the EUR versus USD over the last decade. On that basis, European shares must look attractive to US investors today, at least on a relative basis, which perhaps may encourage additional USD’s to flow to Europe in the future.

 
 

Ongoing trade tensions between the US and China are a cause for concern and stock market volatility is once again on the rise. Following a +35% rally in Chinese shares in the first four months of 2019, we have seen a sharp -11% reversal in recent days as negotiations between Trump and Xi Jinping appear to have reached an impasse. Emerging markets more broadly are struggling to hold the multi-year breakout of 2018. A reversal below 42 for EEM would suggest a failed breakout and potentially lower prices ahead.

In summary, despite the incredibly sharp rally we have witnessed in stocks in the first few months of 2019, I remain cautious. Selling this week has turned my gauge of technical strength of the market lower. My Technical Trend Indicator has begun to mean-revert, but remains in positive territory for now. There are negative divergences all over the place with RSI and MACD indicators making lower highs and lower lows. The equity markets can get into trouble quite quickly if this selling persists for another couple of weeks, so my defensive position remains.

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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The bull market in EU government bonds lives on despite continuing calls for its demise. I like that the recent rally in EU govt. bonds has been accompanied by higher highs in both relative strength (RSI) and momentum (MACD) indicators, confirming the move. This is what we should expect to see in a bull market (unlike what is happening in the stock market). The iShares Euro Government Bond Fund - a 20% position in the Active Asset Allocator investment strategy - is just 1.8% away from making new all time highs.

 
 

As long as this trend continues, and while risk continues to run high across equity markets, I am comfortable holding government bonds in the Active Asset Allocator. In fact, I am considering increasing the bond allocation in in the Active Asset Allocator strategy via a position in long-duration US Treasuries. US interest rates and US long bond yields are destined to head lower over time as the US mountain of debt continues to grow. A recession would accelerate that process. I am still considering the impact of adding USD currency exposure to the strategy. My key concern is that the US is running an unprecedented -4% budget deficit during a time of healthy economic growth (real GDP growth was 3.2% during the first quarter of 2019). The deficit could potentially explode higher during the next recession, which would have negative consequences for the USD. That said, a long US Treasury position would provide a nice hedge for the precious metals allocation.

 
 

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

It is almost nine months since the last meaningful low in the precious metals market. The current Investor Cycle (IC) has stretched longer than average, so a meaningful low is overdue. It may have already occurred on 2nd May at $1,267. If not, gold will bottom in the next week or two. Corrections during bear markets are typically heavy selling events, but they do not always have to be. Corrections during bull markets can be milder affairs and we could be experiencing a milder Investor Cycle Low (ICL) this time around. Once we can confirm an ICL is behind us - and a close above $1,300 should confirm this - the next leg higher in gold can begin. I think the bull market is reawakening and wouldn’t be surprised to see a strong move higher over the Summer months.

 
 

Focusing on the bigger picture, the next chart shows the progression of the bull market in precious metals since 2000. Gold rallied +660% from $250 in 2000 to $1,923 in 2011. Next followed the big correction when gold declined -46% over the next four years, bottoming at $1,045 in December 2015. Gold has been trading sideways to higher for the last 3 1/2 years and a nice rounding pattern has emerged of slightly higher lows on each correction. I think gold is preparing to break higher and get the second leg of this bull market underway. Initial confirmation would be a close above $1,300. Once gold breaks above $1,400, it is game on. The backdrop for a bull market in gold (and alternative currencies) could not be more favourable.

 
 

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.

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.

February 2017 Investor Letter

Strategy Performance

performance table.jpg

Investment Philosophy and Approach

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

 
AAA Asset Mix.jpg
 

Gold Trader and Gold PowerTrader focus on capturing the strongest and weakest parts of gold's daily cycles, buying daily cycle lows, selling daily cycle highs and holding for 10-15 trading days, depending on the cycle count. This approach allows me to effectively manage risk. The strategy aims to capture +5% to 6% profit per trade while risking 2% each time and has a win rate in excess of 70%.

Executive Summary

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

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

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

Stock Market Update

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

 
 

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

 
 

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

 
 

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

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

Bond Market Update

 
 

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

 
 

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

 
 

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

 
 

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

 
 

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

Gold Market Update

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

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

 
 

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

 
 

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

 
 

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

September 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

Central banks continue to dominate the headlines. The Federal Reserve and Bank of Japan both announced no change in interest rates today but threatened more QE if and when required. The Bank of Japan also announced a new monetary policy framework called "Quantitative and Qualitative Monetary Easing with Yield Curve Control", basically translated as "when in doubt, print more money". On equities, while there are plenty of reasons to be bearish, my Technical Trend Indicator (TTI) remains on a 'BUY'. The trend has started to fade, however, so buyers will need to step up shortly or we will be back to defensive mode for the first time since October 2014.

Turning to the bond markets, this month I note an interesting and potentially concerning development where a divergence is appearing in the technical indicators. The end of the multi-decade bull market in bonds may not be too far away now. I am paying close attention. The outlook for inflation linked bonds is certainly more favourable. Finally on gold this month I highlight the top physically backed gold ETF's on the market and note recent flows into the various funds on a regional basis. I remain defensively positioned for now with 20% equities / 40% bonds / 30% precious metals / 10% cash.

Stock Market Update

Stock markets are in a holding pattern ahead of the Federal Reserve's FOMC press conference this evening (Wednesday 21st September) at 19.30 Irish time. Markets are pricing in a 20% probability of a 0.25% interest rate hike. Janet Yellen does not like surprises so I expect lots of talk about what-if's and maybes but little action from the Fed President. The Bank of Japan also met last night (Tuesday 20th September) and agreed a new framework for strengthening monetary easing called "Quantitative and Qualitative Monetary Easing with Yield Curve Control", basically translated as "when in doubt, print more money". The Japanese central bank is now accumulating 3% of the Japanese equity market on an annual basis with money created out of thin air. The Swiss central bank is pursuing a similar strategy and now holds $120 billion in publicly traded stocks, including $1.4 billion in Apple shares, $1.2 billion in Google and $1.0 billion in Microsoft. When confidence in central bank policy is finally lost, there will be hell to pay but that is a conversation for another day.

In the meantime, despite the growing central bank footprint on global equity markets and the perception that the Fed, ECB, BoE and BoJ are still in control, volatility is on the rise. I expect this trend to continue as we move towards the US Presidential election on 8th November and into 2017. The market reaction to the news in the weeks ahead will determine what changes, if any, are made to the Active Asset Allocator

 
 

The buy signal generated by my Technical Trend Indicator (TTI) in April 2016 is still in place today, albeit the trend has started to fade. Buyers of stocks will need to step up soon or the TTI will flip back to a 'Sell' for the first time since October 2014. A week or two of additional selling will tip the scales back to defensive mode. So, a potentially important inflection point for the stock market is now at hand.

 
 

Perhaps markets have started to discount a deteriorating growth outlook for the US economy. The recent ISM Purchasing Managers Index dropped below 50 in August, signalling a contracting manufacturing sector in the US. The ISM Services Sector, which represents two thirds of the US economy, also experienced a sharp decline in August to reach its lowest level since 2010.

........Or perhaps stock market investors are balking at paying a record multiple of earnings for shares of US companies. The S&P 500 today trades at 27 times the average of the last 10 years' reported earnings, adjusted for inflation, a peak only surpassed in 1929 and 2000. The average 'Shiller P/E' over the last 135 years is closer to 17 times reported earnings, and that is just the average. Often times, the P/E multiple has dropped to 10 times earnings, or below.

.......This is at a time when corporate earnings in the United States are actually in decline. S&P 500 GAAP earnings peaked in 2015 and have been falling over the last five quarters. Last time US corporate earnings were at today's levels was in 2007 when the S&P 500 was trading at 1,500, approximately 30% below today's price.

 
 

So, the majority of evidence suggests that equities are overpriced today and due a correction at a minimum.  However, continued interference by central banks has clouded the picture, which is why I place such a strong emphasis on my understanding of the primary trend of the market. My Technical Trend Indicator has proven to be an excellent navigational tool for would-be investors. Theoretically, there is no limit to the amount of money central banks can print and invest in the stock market. In theory, this could lead to substantially higher prices for stocks at some point in the future, as valuation concerns are trumped by a wall of liquidity flowing into markets from central banks. I do not believe for one second that this outcome is likely, but I can't rule it out for certain. So the TTI leads the way.

I came across a recent study from the folks at Evergreen GaveKal that touched on the issue of central bank intervention and the potential unintended consequences that may arise. The good people at Evergreen GaveKal highlighted the potential impact of negative interest rates on stock market valuations as follows. 

A negative yield on the U.S. 10-year treasury note will be a much bigger problem for managers to worry about than a Shiller P/E of 27 on the S&P 500 Index..... The effect of persistently negative rates on equities’ valuations is almost incomprehensible: with a negative discount rate, any cash flow producing equity is theoretically worth infinity. The chart below shows the net present value of 2,000-year stream of $5 dividends at different discount rates. At a negative discount rate of -3%, this $5 dividend stock would be worth 47,684 trillion trillions. Welcome to the new crazy!
— Evergreen Gavekal
 
 

Now there is something to ponder! For now though, the Active Asset Allocator remains defensively positioned with 20% global equities / 25% fixed interest rate bonds / 15% inflation linked bonds / 30% precious metals / 10% cash.

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

Bond Market Update

 
 

An interesting dynamic is unfolding across government bond markets in 2016. While government bond prices continue to make new highs, a divergence is appearing in the technical indicators. The Relative Strength Index and Momentum Index specifically are making lower highs and not confirming the bullish trend. Is this a temporary pause before another surge higher in bond prices and lower in yields or is the bond market signalling that the multi-decade trend of lower rates is finally coming to an end? 

 
 

US 10-year and 30-year government bond yields are exhibiting similar characteristics to Eurozone government bonds. Bond yields are still making lower lows but selling pressure has eased and relative strength is improving. If bond yields continue to rise over the rest of 2016 and into 2017, the longer-term trend will turn from down to up, which will be meaningful. Is the market be signalling that the central banks are starting to lose control?

The Active Asset Allocator currently holds a 20% allocation in fixed interest government bonds along with 15% in inflation linked bonds and 5% in EU aggregate bonds. The 20% allocation is the most sensitive to interest rates changes and one I am most focused on near-term. I expect government bonds to rally on the next stock market decline. If they do not, I will sell the 20% allocation to fixed interest government bonds and book profits on that trade.

Unlike fixed interest government bonds, inflation linked bonds (ILB's) can rally in a rising interest rate environment, so long as inflation expectations increase at a faster rate than central bankers increase interest rates and government bond yields rise. Central banks want inflation and they will get it. The Active Asset Allocator is poised to benefit and the allocation to ILB's will increase in the months ahead.

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

According to The World Gold Council latest report, the total amount of gold held in the world's top 73 gold ETF's reached 2,297 tonnes at 31 August 2016, up 27 tonnes from the previous month. European gold fund ETF's added 33 tonnes, offsetting the 8 tonne decline in North America. Slow and persistent accumulation is characteristic of a bull market.

 
 

The top 15 physically-backed gold gold ETF's by assets in tonnes are summarised in the following table. The Sprott Physical Gold Trust and Central Fund of Canada, 9 and 10 on the list, are the ETF's used in the Active Asset Allocator to provide our precious metals exposure.

 
 

The precious metals bull market rumbles on. Gold priced in euros has outperformed gold priced in US dollars since 2015 due to relative currency moves over the period. Gold will rise in all currencies over time. I expect gold to break out to new all time highs in the next 1-2 years. Bull market QED.

 
 

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

April 2016 Investor Letter

Strategy Performance

Investment Philosophy and Approach

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

 
 

Gold Trader and Gold PowerTrader focus on capturing the strongest and weakest parts of gold's daily cycles, buying daily cycle lows, selling daily cycle highs and holding for 10-15 trading days, depending on the cycle count. This approach allows me to effectively manage risk. The strategy aims to capture +5% to 6% profit per trade while risking just 1.5% each time and has a win rate in excess of 70%.

Executive Summary

Following the worst start to the year for equities in recorded history, we have just experienced one of the sharpest recoveries off the lows since records began. This rally has been so strong in fact that my technical studies have just triggered a buy signal for the stock market for the first time since September 2013. This month, I review the recent improvement in the stock market's technical setup and outline my plan of attack for the weeks ahead. For now, the Active Asset Allocator remains defensively positioned, 20% equities / 30% bonds / 30% PM's / 20% cash.

This month I also explain why I remain bullish on bonds and expect an additional 15-20% upside for the 10 year duration bond ETF I hold in the Active Asset Allocator and provide a brief update on the ongoing bullish developments in the precious metals sector as this bull market shifts into gear.

Stock Market Update

My technical studies have just triggered a buy signal for the stock market for the first time since September 2013. Equity valuations today are approaching an extreme only witnessed near prior stock market peaks and US corporate earnings are now in a declining trend. Despite these cautionary flags, continuous central bank intervention has created the perception that stock market investing is a low risk endeavor and a buy-the-dip mentality on every correction has taken hold. This will not end well. In the interim, price trumps opinion. My Technical Trend Indicator (TTI) is smarter than I am and keeps me on the right side of the prevailing stock market trend. In this monthly update, I consider my plan of attack for the weeks ahead.

 
 
Based on valuation measures having the strongest correlation with actual subsequent market returns across history, equity valuations have approached present levels in only a handful of instances: 1901 (followed by a -46% market retreat over the following 3-year period), 1906 (followed by a -45% retreat over the following year), 1929 (followed by a -89% collapse over the following 3 years), 1937 (followed by a -48% loss over the following year), 2000 (followed by a -49% market loss over the following 2 years), and 2007 (followed by a -57% market loss over the following 2 years). A few lesser extremes occurred in the 1960’s and 1970’s, followed by market losses in the -35% to -48% range.
— John Hussman, Hussman Funds, 18th April 2016.

In this long-term chart of the S&P 500, I have highlighted the prior instances in 2000 and 2007 when the stock market topped and rolled over, followed shortly thereafter by a bearish cross of the 50WMA below the 100WMA. This coincided with the onset of a bear market in equities and a declining trend in US corporate earnings. In 2016 YTD, we have already experienced a sharp -14% drop in stocks followed by an equally sharp +16% rally. However, there has been no bearish cross yet of the 50WMA below the 100WMA and the S&P 500 currently trades above both trend lines. Meanwhile, US corporate earnings have begun to slide, highlighted in the lower section of the chart below. This should be expected and is consistent with the maturing phase of an ageing equity bull market, which is now over seven years old.

 
 

Margin debt, a measure of the degree of speculation evident in the stock market, also appears to have peaked and rolled over. Prior peaks in margin debt have coincided with past peaks in the stock market. So today, we have a combination of stocks that are trading at expensive valuations, a weakening trend in US corporate earnings and a declining trend in margin debt. That's the bad news.

 
 

Despite this backdrop, equities have powered ahead in recent weeks. In February 2016, only 15% of stocks on the NYSE were trading above their 200DMA. Today, this figure has jumped to a much healthier 69%. If stock markets can consolidate their recent gains over the next couple of weeks while a majority of stocks continue to trade above the 200DMA, the bulls will remain in control.

 
 

In another positive development, the NYSE Advance/Decline Line (lower left chart), which captures the trend of rising stocks versus declining stocks over time, has recently broken out to new all time highs. This suggests that price should follow suit shortly. Volume flowing into advancing versus declining stocks is lagging however and has yet to break out (lower right chart) to new highs. So, we still have some mixed signals here (click on charts to enlarge).

As markets have rallied, stocks making new lows have also all but disappeared, which is another requirement before a bull market can resume.

So from a technical perspective, the outlook for equities has improved, but there are still many reasons for caution. Remember, 2016 started with the worst negative stock market performance in history, so it's only natural that the first rally following this correction should be powerful. The markets are overbought in the short-term and a correction of some degree should now be expected. The extent of the correction will determine when and by how much I will increase the equity allocation in the Active Asset Allocator. Stay tuned, we should find out soon enough.

 
 

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

Bond Market Update

 
 

The ECB is attempting to stimulate economic growth and generate inflation in the order of 2% annually by printing money, buying bonds, funding some EU country deficits and potentially using some form of "helicopter money" for EU citizens. The road ahead is concerning but we have not yet reached an inflection point where ECB policies trigger an acceleration in the rate of inflation and a path towards higher government bond yields. Draghi has committed to doing "whatever it takes" which means he is willing to drive 10-year EU government bond yields into negative territory. 

 
 

The Active Asset Allocator currently holds a 20% allocation in EU government bonds (IEGZ). The regional split of this bond fund is 32% France, 27% Italy, 19% Germany, 17% Spain, 5% Netherlands. The fund has a yield of 1.4% and a duration of 10 years. If ECB policies are successful, the yield on IEGZ should reach zero or negative implying 15-20% upside return potential from here. I plan to increase the allocation to inflation linked bonds (IBCI) and reduce the allocation to fixed interest rate bonds (IEGZ) later in 2016. Of course, the overall allocation to bonds will reduce if/when I increase the allocation to equities in the weeks ahead. Stay tuned.

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

Gold Market Update

Gold closed above the 20-month moving average (20MMA) in February 2016, confirming a new bull market had begun. As long as gold continues to trade above the 20MMA, bull market rules will apply - we buy and hold and do not get shaken out of our position. The 20MMA closed on Friday at $1,170 and should start trending higher shortly.

 
 

Silver's bull market kicked off a month later, as this more volatile precious metal closed above its 20MMA in March 2016. Silver's 20MMA closed on Friday at $15.60, so above this price, bull market rules should also apply. 

 
 

The one fly in the ointment for both precious metals (silver in particular) is the extent of the speculative long position that has been accumulated by hedge funds and those betting on higher prices for the precious metals. The latest Commitment of Traders report shows an all time record net long position by speculators in the silver market.

 
 

Commercial traders (the mining companies and bullion banks) take the opposite side to the speculators and are always net short the metals to varying degrees, depending on price, to hedge their production. The Commercials are often referred to as the "smart money" as they are able to manage the gold and silver price in the short-term, knocking down the price and covering their short trades when the speculators get overly stretched on the long side. We are potentially at this point now, particularly in the silver market. The Commercials do not always win and have been forced to cover at much higher prices in the past. As always, I will be guided by the price action as it unfolds. Above the 20MMA, it's a bull market.

I expect the precious metals bull  market to benefit from an overall declining trend in the US dollar over the next 3-5 years. The USD has been perceived as a safe haven currency since the 2008 financial crisis and has benefited handsomely from significant inflows into various US growth assets, driving price and valuation to extreme levels. As valuations normalize, I expect the USD to decline on a trade weighted basis.

 
 

Confirming the bull market in precious metals, the gold and silver miners are rocketing higher. The gold and silver mining index is already +111% from their recent lows. The miners are notoriously volatile. However, for those willing to close their eyes and hold on, I expect BIG rewards here. The miners are too volatile for the Active Asset Allocator but are confirming my bullish view on the sector.

 
 

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