Gold

Gold appears to have broken out from its recent medium term consolidation period after the FOMC announcement last week.

2012 Consensus Themes

2012 Market Consensus Themes

1. European weakness to continue
2. China Soft Landing is underway
3. US Economy to continue to grow at a moderate pace
4. Fiscal Drag in 2013 to slow growth by 3 to 4%
5. Monetary Policy to remain accommodative

Global Turmoil Part II

Similar to the economic and market experience in 2008, markets have entered a phase where most risk assets are selling off in tandem and the US Dollar has experienced a “flight to quality” bid.

Core Issues:

• Leverage – Global de-leveraging continues across all levels of the chain including individuals, banks, corporations, and governments.  This is one of the main reasons that lower rates have done little to spur economic growth.
• Increased Regulatory Environment
• Demographics

The global markets continue to adjust for the increased probability of a global double-dip recession.  Some of the stimulus options available to leaders include:

• US Monetary Policy
• Lower Interest on Excess Reserves
• Target the Inflation Rate
• Target Unemployment Rate
• Extend Portfolio Maturity “Operation Twist” – In Progress
• Purchase MBS – In Progress
• US Fiscal Policy
• Lower taxes
• Jobs program
• Increase Government spending
• Europe
• Increase/leverage EFSF
• Re-capitalization of European Banks
• Fiscal Union / EuroBonds
• Allow Greece to Default and/or leave the Euro
• Lower rates at the October meeting (ECB)
• Covered bond purchases (ECB)
• Lower pricing on the FX swap lines (Federal Reserve)
• Regulatory Environment
• Soften and/or delay regulatory restriction
• Basel III capital & liquidity constraints
• Dodd-Frank

Market Thoughts

Looking for equities to hold their recent lows for the short term with 1250 as a possible near term objective on the S&P.  Last week’s volatility has left market participants uneasy and a break of last week’s lows will likely be met with additional selling. 

 

 

Market updates

Macro markets appear to be in the midst of a correction and possibly a trend change. Risk assets, led by precious metals, equities, and the dollar have all had large countertrend moves this week.

Moderate economic recovery in the US is still not enough to price in a fed tightening in 2011. Bernanke remains firm in his stance of “low rates for an extended period.

We liquidated gold and silver positions on Monday after the poor price action and technical sell signals were triggered. We also took profits on Malaysian equities later in the week.

Macro Trends

 The global economy continues to show signs of improvement as equities & commodities march higher and fixed income & the US dollar selloff.  The recent tensions in the Middle East have led to increased speculative interest in crude oil and precious metals.  Prices for cotton, sugar and coffee have doubled since their lows in 2010 while the official inflation indicators remain innocuous.

Happy New Year

Happy new year…we had respectable results in 2010 and are looking forward to 2011. The economy will likely continue its slow recovery this year however there are many headwinds that remain including employment, the European situation, municipal issues in the US and housing.

Post QE and Elections

With the elections and QE out of the way the markets are now again focused on Europe and more specifically the fate of Ireland.  European equity markets are lower on the week led by Italy and Spain. 

US rates appear to be in a range with 10Y yields probably 2.80% to 2.40% in the near term. 

Sugar fell the most in more than two years on signals that India, the second-biggest producer after Brazil, may have a larger-than-expected surplus.

Recent Activity:

• Took profit on Sugar (SGG) today at 86.36.  Position was originally initiated on 6/15th and added to 3 times prior to today resulting into a 41% gain. 
• Booked a small profit on Global Utilities (JXI).
• Initiated a new position in Natural Gas (UNG). 

Halloween Post…

This will be an important week for the markets with the FOMC announcement on Wednesday and the Employment data on Friday.  Market consensus is that the Fed will announce Large Scale Asset Purchases (LSAP), otherwise known as Quantitative Easing (QE).  Most participants believe that the amount will be between $500Bn and $750Bn and that purchases limited to US Treasuries.  Furthermore, expectation is that they will purchase around $100Bn per month. 

Natural gas has rebounded and was the top performer this week with futures up 22%.  Other commodities continued to do well and our sugar position has been one of our best performing trades this year.  Fixed income and equities markets were down week over week.

Performance Update

Fund performance has been relatively strong over the past few months largely driven by positions in

• International Equities (Malaysia and Peru)
• Fixed Income (High Yield, Treasuries, Aggregate Bond Index & TIPs) 
• Commodities (Gold & Sugar)