I am reducing the allocation to equities in the Active Asset Allocator model from 50% to 20% at close of business Thursday 20th June and investing 20% of the proceeds in 5+ Year Eurozone government bonds and 10% in cash. Following this change, the model portfolio will hold an allocation of 20% equities / 50% bonds / 20% gold / 10% cash. Please visit the 'Strategies' section of the website for a performance track record of the Active Asset Allocator model.
Following an epic run in the stock market over the past 24 months, equities are now showing signs of technical damage and deterioration. The S&P 500 broke below the 50 day moving average on Thursday 19th June, which generally doesn't happen in healthy bull market advances. Previous breaks of the 50DMA have occurred just prior to the big stock market declines in May 2010, July 2011, May 2012 and October 2012. Stock markets are pricing in an awful lot of good news today and long term support for equities is 20-30% below current levels.
I have been commenting for a while now in my monthly Investor Letters that stock markets are quite overvalued while investor sentiment is back to an optimistic extreme, last seen in 2007; a dangerous combination. Stock markets are trading at levels that are simply not justified by the relatively weak economic fundamentals across the developed market economies. I will be discussing my current views in more detail in my June Investor Letter which will be out shortly. Please contact me at firstname.lastname@example.org for more information.