It has been an exceptional start to the year. Markets are behaving as though there is no Eurozone worries, Greece is just a nice place to visit, US is not needing the Feb assistance to maintain growth, China’s economic growth is not seeing a slowdown, the banking system is not failing SMEs, and so on.
The rally has been driven by :-
- liquidity in many forms including support by the European Central Bank (ECB) and the LTRO facility to European banks resolving, at least, short-term risk of bank defaults.
- Financial support and write-down of Greek debt
Sustainability following the Greek Debt Swap currently being finalised depends on the Eurozone economy. Analysts are expecting the growth in these economies to decline in 2012. The fear being that the LTRO does not increase bank lending and reaching the real economy. This I believe is essential to stimulate growth.
Markets are clearly not convinced on the outcome, with both pessimists and optimists offering compelling arguments. If the markets were more optimistic, we would be seeing bond values falling, as interest rates were rising.
Those chosing only to either be in or out of equities run a high risk. If you have been risk-on this year, you have done well. If not, you are behind the competition and need to hope your next bet will be right. And if you had been risk-on last year, you would have made a loss and would have done better not to bother and would need to hope your next bet was right.
Fortunately, alternative investment approaches used by multi-asset discipled professionals (such as me) offer diversification. In the past, this offered protection against big market moves as I invest for clients in equity, fixed interest, property, cash and commodity markets.
My models are independent and have a diversifying effect. Strict risk controls are used and assessed to help optimise risk and return, so that when there are big trends, the models can profit. This is effective where there are both strong negative as well as positive trends, as declines create buying opportunities.
I do not bet investor money with a crystal ball. I construct a portfolio of different strategies and try to balance the risk reward scenario based on attitude to investment risk, risk reward ratio, cycle of the markets and potential total return modelling. The use of diversification is designed to give me more stable returns over the medium to longer-term.
I plan to shortly produce results for my seven underlying investment models.
Any questions ask me – welshmoneywiz@virginmedia.com
welshmoneywiz 
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