Credit Markets Aren’t Buying It…
Credit Markets Aren’t Buying It…
- Checking the pulse of the global credit markets
- S&P 500 remains above its rising 200 MA and has made a new high in 2012
- DAX 30 is above its falling 200 MA, but has failed to make a new high in 2012
- GEMs ETF is below its falling 200 MA and has failed to make a new high in 2012
- Junk bonds continue to under-perform Corporate bonds as credit spreads widen
- Euro Dollar is below its falling 200 MA and in a downtrend at 52 week new lows
- Dollar Yen is above its rising 200 MA and has failed to make a new low in 2012
- Crude Oil is below its falling 200 MA and has failed to make a new high in 2012
- Copper is below its falling 200 MA and has failed to make a new high in 2012
- Gold is below its falling 200 MA and has failed to make a new high in 2012
- Wheat broke out above its 200 MA and has started a new powerful uptrend
It has only been a week since the last EU summit, which according to many media outlets was a “major break through”. Furthermore, I was so surprised by many traders which I follow, who claimed that the bottom for risk assets was in and the ECB was about to start printing money. Well, while many were easily fouled by Eurocrats, those who follow the credit markets knew that another can-kicking exercise just won’t work. The European bond markets did not buy a word of it…
“This pretty much means more of the same, ever since this crisis started and Greece was first bailed out in middle of June 2010. Solving a debt crisis with more debt through bailouts does not work. Furthermore, every relief rally connected to bailouts seems to last for a shorter time duration and accomplishes less gains in percentage terms.”
In a simple and straight forward summary, until I see credit markets moving positively in sync with the risk assets, the recent rally is more of a selling opportunity then anything else. In all honesty, I am very sceptical right now. Only a major Federal Reserve printing intervention would possibly change my mind in short to media term.
- Fundamental Outlook: I believe that we approaching another bear market as the recovery loses steam. I am not sure if politicians can hold it off until elections in both US and Germany pass, but 2013 and 2014 will most likely be bad years. US GDP has grown 5 quarters at around 2% or lower which is stall speed. Over the last 60 years, whenever the economy grows at subpar levels it has always entered a recession. At the same time earnings and margins are at record highs, so I expect that they will mean revert. During recessions since the 1950s, earnings tend to fall on average by 25%, so a drop to $70 from current levels in earnings could take the S&P 500 down below 1,000 points (P/E = 12 * $70). Cash levels in money market funds are as low as 1998/99 and 2006/07, so I believe investors are extremely exposed to equities. Corporate credit spreads are very narrow relative to economic fundamentals, so I expect they will widen dramatically in due time. Recessions occur every 3 to 4 years of expansion during secular bear markets, so in 2013 or 2014 we are overdue for a slowdown (but it could be much earlier).
- Current Positioning: I’ve positioned myself towards long PMs especially Silver (large position in my fund) and have recently just accumulated more, because I believe central banks will continue to print money and devalue currencies whenever the economy gets worse. Furthermore, investors were recently heavily exposed to US Dollar, so from a contrarian point it also makes sense. On the other side of my book, I have recent opened a very large position relative to NAV by shorting Junk Bonds (HYG), as I believe credit spreads will spike into the future, similar to the VIX. Further to that, I also want to hedge my longs by being short stocks, especially the much loved Consumer Discretionary and Technology sectors.
- Asset Watch-list: On the long side, commodities still remain on my watch list. These include Commodity Indices (GCC / RJI), Brent Crude (BNO), Precious Metals (CEF, SLV, PSLV) and Agriculture (RJA / MOS). I believe commodities are very oversold right now especially Crude Oil’s and Silver’s sentiment. As already mentioned, I’ve recently bought more Silver on the long side, but will not do anything more until I hear stronger action response from the Fed or until European crisis plays out its final leg. On the short side, Tech sector (XLK) & Discretionary sector (XLY) are on my list of stock shorts. I am also looking at Emerging Market bonds (EMB) and have already engaged into shorting high yielding Junk bonds (HYG). Finally, a major short in due time will be US Treasury long bonds (TLT), but I believe we are just not there yet. I am slowly gearing up to open some more shorts for the first time since 2008.
Source:
Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.
"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.
Please Help Support BeforeitsNews by trying our Natural Health Products below!
Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST
Order by Phone at 866-388-7003 or online at https://www.herbanomic.com M - F 9am to 5pm EST
Order by Phone at 866-388-7003 or online at https://www.herbanomics.com M - F 9am to 5pm EST
Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!
HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.
Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.
MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)
Oxy Powder - Natural Colon Cleanser! Cleans out toxic buildup with oxygen!
Nascent Iodine - Promotes detoxification, mental focus and thyroid health.
Smart Meter Cover - Reduces Smart Meter radiation by 96%! (See Video).