A Panicky Week has ended! What's next?

Some people applaud the FED for not announcing another QE.  While acknowledging that there are limits to what a central bank can do, they are preparing us for tougher times ahead in the markets. Not a bad idea if you know you need to wean people and governments of excessive debts, excessive consumption, excessive reliance on oil, excessive anything that causes the imbalances. On the other hand, they added nothing new to the prevailing perception of economies in the US and globally, so why then, did investors sell off after the announcement?

I am not going to question again, whether or not investors are so easily brainwashed by the media spin to sell off in fright! As far as I can see, in these last few days of trading I saw no fear, no panic, but sheer calculated trading:

• sold Asian sovereigns => bought US dollars => US dollar appreciates / Asian currencies 'fall'
• sold Asian stocks => bought US dollars => US dollar appreciates / Asian stock markets fall
• sold Gold => bought US dollar => US dollar appreciates => Fund managers are wrong-footed with their carry trades=> more selloffs

How about the benefits? Was it only for US investors? Think of all those holding reserves in USD, treasury bonds and notes, even US stocks, which lifted by some 8% by way of the currency and falling bond yields again. Treasuries record new highs. So, who would complain? Those who left holding the 'baby', =did not get out in time, maybe.

Any which way you look at it, but the initiators of these recent moves sold at the right time. So what, if fund managers (and their clients) miss out? Well, how come they did not see it coming? And -even if they did - would they know how to counter given their trading constraints? That is the prerogative of a good advisor:
In this blog we

Cyclical peak in early June - published Feb 2011

• ...warned of tougher times from April ('taking profit in early April'; 'summer reprieve with high levels  of volatility=recommend to stay on the side lines'; 'markets in a dilemma', 'June warning')
•  ...dared to call the turnaround of US dollar fortunes since May. 
• ... sent out final advice to take profit in equity funds on August 3rd (only to my investors).  
• ... sold our gold future funds on  - September 2nd and 5th, when gold prices hit double top at $1918.  

How much more portfolio support would you need?! You read it but still can't replicate what we do?  Too early or too late in your execution? Simply not enough time? - Then you need to become one of the ActiveManagement investor family. (click here to find out how.)

The latest rise of the USD I commented at length in last week's blog.  At that time, I saw indecision creeping into the chart. In the last few days, we saw the final run up in prices only to hit strong Fibonacci resistance  (orange horizontal line),and the subsequent rejection resulted in some retracement. At this current level the USD is overbought, so we think that in the short term, the USD will soften somewhat (either orange or dark red arrow targets). The first wave has probably started Friday night.

On Friday, my inbox was full with wild comments about where the markets are going to from here, how markets have supposedly broken support levels, how high the dollar will soar, that we should reposition now to take account of the changed environment. - I asked to

  "...chill - and HOLD whatever you still have, because the market is about to turn." 

And turn it did, - not much, nor particularly significant yet, but a turn nonetheless.  Whether that justifies an immediate call to start buying so-called 'bargains galore' is of course a question of personal preferences. It all depends on your risk and your time frame.  This hint is one for the very high risk operators with a rather short engagement view, - days rather than weeks. So, to repeat what I said in my email: don't chase this one unless you work a very sophisticated, highly mobile strategy - like ActiveManagement.

The time for longer term engagement is nearing, - but not here yet!

The ones that buck the trend
I would like to shed some light on the most recent winners in all this, as it will point to the winners of tomorrow, too.

1. US Bond Funds +6% in 8 days - as a result of USD rising and yields going yet lower.  Coming to an end now?
2. Japan funds + 7% in 4 weeks - as a result of YEN getting stronger, and Japans economy surprising on the upside, - one of my favourites this year anyway.
3. Vietnam +16% and Turkey +13% over a 1-month period (not that I was invested in these funds!). Have no idea why, but fund managers are telling me know that they have taken profit, last month...
4. Asian High Yield bond funds rallied some 2% in the last 4 days, after stalling for much of the last five months.  Someone's buying again. Are US dollars now buying up cheap bonds with the hope for a double whammy in the currencies? Anyway, we are 'in' ALREADY. More high yields could see similar interest as Europe edges closer to sorting out their debt debacle. 

Please note, some of the returns come at the expense of currency fluctuation.  As for the losers: with all the hype about gold, it is with some glee to note that gold equity sold off atrociously in the worst downsides in years: -15% in just a week or as much as -30% in 2 months. Second worst was a favourite China fund, whose star manager just does not seem to want to hit the breaks, recording losses of -13% for the week, -22% for the month.

Choose wisely, next time you invest.  Or let us guide you.  We got it right so often, it's becoming a habit few can match.