weekly strategic plan 02042013

7/28/2019 Weekly Strategic Plan 02042013

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Liquidity Cycle

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The week past saw 5 year highs in US equity markets generating calls of a new bull market from some and cautionary warnings from the other side.

But the more signicant action is happening in the xed income market. The long bond bull market is littered with the bodies of short sellers who have

seen this market move to yields that no one but Gary Shilling predicted. But there is now a whiff of concern that the holders of debt securities may

want to get a hedging plan in place just in case the Fed indicates a possibility that someday there could be a chance that exorbitant monetary ease

could, possibly, eventually, maybe not be optimum. When that happens it will look rather like the start of the Boston Marathon. In reality that is of

course not how move to higher rates will happen. The Fed wont lead, it will be pulled along kicking and screaming by self-interested holders of xed

income paper try to get ahead of the stampede and end up starting it. I could be wrong, of course, but Im not.

First equities and indices and there is some repetitiveness in these charts but this is an attempt to see things from multiple angles. The rst chart

showing the SPX Index with an overlay of the Liquidity Cycle Indicator has developed a sudden divergence that is worth noting, though I believe this

is largely attributable to tech shares and Apple in particular. The uptrend in the LCI is still in force though this is not yet a fail. The chart following

which instead has the Global Growth Expectation is more supportive.

Global Growth Expectation has broken out of a minor down trend in concert with the rally in SPX (and with the World Index in next chart) reecting

improved optimism.

The bull/bear reading from AAII does seem to indicate a little more elevated bullishness than the previous chart. So chalk one up for the minor

correction or congestion crowd.

The biggest reason to be bullish in the medium term is central bank easy money- dont ght the Fed as the saying goes. But as Kyle Bass poi

recently Zimbabwes stock market was the best performer this decade - but your entire portfolio now buys you 3 eggs.


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Source: Barry Bannister, Stifel Nicolaus, Marc Faber

Marc Faber included the chart above in his most recent letter and I nd it a fascinating chart. The current situation suggests good things for stock

prices relative to commodities though crashing commodity prices could rally the chart just as well as rising stock prices. I have to spend some more

time thinking about this chart.


3/10


SECTORS

Defensive sectors and technology have been soft to weak on a relative basis during the rally lately. Financials, Discretionary and Industrials have led.

But note in nancials it is only the big caps which have rallied hard.

FIXED INCOME

Bespoke had these comments and the following chart in their weekly report this week. I reprint it here because I agree with their analysis.


4/10


Previous chart is from a CITI report and came with the following commentary:

Each low was 5 year apart

Each low on the channel base

Each low approximately 100 basis points below the previous cycle low (average of 104 basis points)

Each low was also a V bottom which means a blow out move before a quick reversal which we have not seen here in this cycle (yet)

Medium term resistance is around the 2.40% area and a weekly close above that would lead us to seriously question the idea that a lower low

seen.

Bottom line:

The recent move of higher yields has not been as aggressive as those seen around this time of year for the past three years

At this stage we have tested resistance at 2.00% and are noticing momentum waning

While a stretch higher towards 2.09%or 2.15% is still possible in the short term, it would not change the overall trend of lower yields. We wou

to see a weekly close above the 2.40% area before questioning the idea of a move to lower lows

What we are seeing is a short term squeeze which we believe will be followed by a nal leg down towards the 1.00% area this year before a mturn that could see yields as high as 3.5%-4.00% over a 12-18 month horizon. Source: CITI

Bund chart is similar.

The second chart above reinforces the link between Fed buying; pushing rates lower has been powering strength in the equity market as well. When

the xed income didnt respond the equity market backed off. The divergence the last couple of weeks is worth noting.

The Ten year treasury is challenging the last little bit of resistance from the past 2 years. If rates move above this level take a few sniffs because the

rst whiff of fear may be arriving. This long move to lower rates may have one more good surge down in it but it is late in the game now. Look at the

remarkable rhythm of the move down in 10 year rates.


5/10THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF INFINIUM CAPITAL MANAGEMENT, LCC AND ITS EMPLOYEES TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communicati on is not the intended recemployee or agent responsible for delivering to the intended recipient), you are hereby notied that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately inform Innium Capital Management, LLC and then disregard and delete this communication. Do nretain any copy of this communication.

United States

GermanyFollowing are some yield curve charts of various countries. Note that Green was Friday Feb1,

Red is one month ago, and the yellow is a Year ago. Recent steepening appears in many of these as the market starts to guess about the timing of

Fed policy change.

UK

France

Spain


6/10THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF INFINIUM CAPITAL MANAGEMENT, LCC AND ITS EMPLOYEES TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communicati on is not the intended recemployee or agent responsible for delivering to the intended recipient), you are hereby notied that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately inform Innium Capital Management, LLC and then disregard and delete this communication. Do nretain any copy of this communication.

Italy Volatility Environment Seeing volatile xed income contracts for the rst time in a good while.

Japan

Australia


7/10


Commodities are getting short shrift tonight but here are a few charts with the curves.

Green is from Friday, Blue is one week ago, and Red is one month ago.


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Closing up now but I will put in a couple more charts because I left them out earlier. These are just markets I am looking to short when the

background falls into place. I remain short the Yen though it feels a tad over done short term. I would buy good solid dividend stocks on pullbacks in

the individual stocks. A little seasonal weakness in equities is common in Feb, though we did not see it last year. March and April are strong into tax

day on a seasonal basis. I also like relative trades like the one I have had recently in ALF/SPY.

Have a great trading week.

Bruce Lawrence Feb 4, 2013

weekly strategic plan 02042013

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