We have no changes to the model portfolio this week.
Equities rallied last week recovering a significant amount of ground lost since the sharp declines experienced in January. Germany, Italy, Australia, China and Hong Kong all gained +3.0% over the last five trading days. Global equity markets are now showing only modest losses year-to-date, while EU government bonds are up approximately 3%-4% over the same period. Our model portfolio continues to perform well this year with an overweight position in bonds an underweight position in equities and a 20% allocation to gold, which has rallied +8% YTD in euro terms.
Equity Performance for the Week Ending 14th February 2014:
The strongest performing sector of the market last week was the gold mining sector, which continues to show very strong gains, signalling an end to the 2.5 year bear market in precious metals. Many of the gold mining stocks have already rallied 30%-50% in the last six weeks; a few have even doubled in price, and this is when gold has only rallied $150 off the December 2013 lows. Gold is still in a bull market and, in time, will take out the 2011 highs. Gold prices are destined to travel significantly higher and the mining stocks are leveraged speculations on the price of gold. This is an area of specialty for us at Secure Investments and we would be delighted to discuss the opportunities we see with you if you are interested.
Gold Mining Equity Performance for the Week Ending 14th February 2014:
Economic: On the economic front, news was mixed. Newly appointed Fed Chair Janet Yellen reassured investors that Fed policy would remain accommodative for the foreseeable future, a key catalyst for the sharp move higher and music to equity investors' ears. While consumer sentiment held steady last week, factory output data in the US disappointed.
Technical: From a technical perspective, the uptrend remains very much in force and is accelerating higher (accelerations higher are typically ending patterns in stock markets). All short-term dips continue to be bought. We experienced little follow through selling pressure after the weak start to the year and so the technical picture has improved. My trend indicator closed Friday a solid +42 points above the long-term trend.
Strategy: Investor sentiment remains lopsidedly bullish and equity valuations are in the top 3% of all historic bullish readings. This is not a time to embrace risk. We maintain our cautious stance with an allocation in the model portfolio of 20% stocks, 50% bonds, 20% gold and 10% cash.