Locked in.

The U.S. Federal Reserve, and a majority of global state treasuries, have made the decision that keeping money “inexpensive” is at least one of the tools they can use both to rescue and sustain economic growth.  This policy has been a boon to those with money, and a severe hindrance to those without.  A vexing conundrum exists when monetary policy is designed to promote the flow of money into dynamic expansion, but the spigot gets blocked because psychology and momentum are running in the opposite direction.  In the meantime, savings rates have nearly disappeared, along with whatever savings the “losers” in this game had to begin with.

While production and utilization stay on hiatus, the markets consolidate laterally, or downwards, reflecting a declining earnings rate for business worldwide.  With exception to intraday attempts to “break above” important technical areas of resistance, a sideways accumulation is suggesting that any momentum in the last few weeks is nearly dissipated.  As a result at the top of the range, here, the evidence is inconclusive to call for a trend reversal upwards.

My prediction is that a golden, but inefficient, confluence is occurring in which monetary policy, fiscal policy, markets, and the economy conspire to erode any confidence that last bull might have inspired.  “Wait and see” is hardly the stuff of economic expansion.

Credible protest.

Given that the predicate for future economic policy is lower rates, not higher, our current investment dynamic must be to shorten fixed income maturity scales, find yield where it exists, trade capital gains more aggressively, and fix downside risk to a nominal baseline.  To do this, I have already shifted portfolio maturities, secured long term gains in fixed income product, reallocated equity portfolios towards utility shares and traditional consumer non-cyclical earnings performers, and been more diligent about stop-loss mandates.

This will not return enthusiasm to the marketplace, but it will help to mitigate the impact of a daily drumbeat of factors which might erode confidence in the process itself.  Thus far this strategy is working, keeping us well ahead of any balanced benchmarks against which our performance is measured.

But we need, also, to pay attention to the potential for capital gains, even in a counter cyclical, unproductive market.

Premise delayed.

Which might come first: a stronger, more prolific economic expansion or a solid rebound in global equity performance?  History has shown that the markets tend to precede an upside economic recovery, but linger longer at the top as economic activity begins its unseen decline.  Therefore, those factors which dictate demographic, economic, and psychological recovery must be a part of our portfolio selection process.  To wit, my work is indicating nascent synergies in biotech, high tech, alternative (replenishable) energy, agriculture and water purification, waste management and ecology, and global telecommunications.  These sectors are borderless, seamless, and non-capitalization specific.

Nevertheless, short term oscillators are indicating a continuation of the current bear market.  In most models, a 10-15% decline is probable both in indices and in individual stocks that one might own.  As well, a seismic rotation in leadership is occurring, robbing the traditional name-brands of their defensive luster.

As earnings acceleration rates evaporate, unemployment expands, and industrial investment declines, it is imperative not to play the same game with the same chips with the same strategy and expect traditional 1980’s –style performance.

The tightrope narrows, and lengthens, at the same time.

 

                                                                                     

The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and it accuracy cannot be guaranteed. It is intended for private informational purposes only. Any opinions expressed are subject to change without notice. Du Pasquier Asset Management and its affiliated companies and/or individuals may from time to time own or have positions in the securities or contrary to the recommendation discussed herein.

 

 

 

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www.dupasco.com