Archive | June, 2012

Why The Markets Are Rallying?

20 Jun

Wall street sign

Recent trading sessions highlight what a drag worries especially in Europe have had on stock markets. It seems that every time “apocalypse euro” news hits a pause, stocks soar. Investors are being treated to better general data than feared, but the real enthusiasm is expected to be coming from a two-day Federal Reserve meeting that began yesterday.

 

Chart forVOLATILITY S&P 500 (^VIX)

 

The market is seeking new stimulus from Bernanke & the Federal Reserve, so while the VIX (NYSE: ^VIX  ) is dropped highlighting a reduction in what may call the fear index, expect volatility to return once the meeting concludes later today. Meanwhile financials like Bank of America are soaring on the potential extension of Operation Twist.

The major indexes are all turning in strong gains.

Fitch Downgrades Inda’s Outlook

19 Jun

 

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A bank cashier counts Indian Rupee notes at a bank in Mumbai.

 

Ratings agency Fitch has cut outlook for Indian’s economy to negative as the country’s growth faces “heightened risks”. The concern is India’s growth potential “will gradually deteriorate if further structural reforms are not hastened” and the Indian government had made little progress on reducing its deficit.

The downgrade comes just days after Standard & Poor’s warned that India could lose its investment grade status.

“India also faces structural challenges surrounding its investment climate in the form of corruption and inadequate economic reforms,” Fitch said in a statement on Monday.

India’s economy grew at an annual rate of 5.3% in the first quarter, which is the slowest pace in nine years. There are fears that growth may slow further in the near term amid increased global volatility.

To make matters worse, on Monday, the Reserve Bank of India (RBI) left its key interest rate unchanged despite pressure on it to lower borrowing costs. The reason given was high inflation.

 

After The Greek Election – Stock Market Trend Analysis and Forecast

18 Jun

learn-about-stock-market

The world watches as Greek politicians build themselves up into a frenzy.

The Eurozone problem is not really about Greece but rather about the contagion consequences for the rest of the Eurozone that Greece risks triggering.

A Greece exit would change the dynamics of the single currency creating the reality that the Eurozone currency could or maybe would fall apart.

We have seen signs in the credit markets response to the Euro 100 billion Spanish bank bailout by pushing up the Spain’s borrowing costs to Eurozone record highs of over 7% from 6.5% pre-bailout. The belief being, the Euro 100 Billion will have no positive economic consequences for Spain, but is purely to keep Spanish banks liquid whilst insolvent.

 

Good News for the Markets?
The election outcome is expected for the majority of observed trends to start reversing as the Financial Armageddon of uncertainty and fears around Greece, at least short-term, start to dissipate. In such a climate of increasing uncertainty, markets increasingly discount even greater future uncertainties – leading to what we have seen in the stock, bond, property and commodity markets i.e. markets such as stocks, commodities and Euro should rally and markets such as US and UK, bonds, dollar and sterling fall.

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Fundamental Inflationary Background
The fundamental background is that of the world markets about to be exposed to another wave of highly inflationary central bank money printing liquidity.

Stock Market 2012 First Half Strategy
As regularly indicated since Mid December 2011, in view of expectations for a tough year for a maturing stocks bull market during 2012, my strategy for the first half of 2012 had been to take a very defensive portfolio strategy – cutting exposure to the stock markets, increasing gilt exposure and absolute returns strategies (Dec 2012) and then returning to normal exposures (May 2012).

Stocks Stealth Overall Bull Market Investing Strategy
The over-riding growth market strategy since the birth of the bull market in March 2009 has been pretty simple – the greater the deviation from the preceding Highs leads to greater buying opportunities, as the bull market should ultimately resolve to new highs.

Market Sentiment – Market sentiment is usually in synch with the mainstream media, which at this point in time should suggest that it was at its most bearish in the face of an imminent eurogeddon event called the Greek Election.

However the short-term rally that has taken place over the past 2 weeks is contrary to the mainstream media noise, on face value this either implies that the market is discounting uncertainty or that the market is buying to sell on the news.

In terms forecasting trend, it would have been much better for the market to be falling going into the Greece election as that would better sow the seeds for a stronger market reversal.

Following the Election – I expect the short-term sentiment to be bullish leading to an upswing in the markets. The question is, Is It Sustainable?

Stock Market Forecast
This analysis is resolving towards a picture that is not as bullish as I thought it would be given that we have already had a correction, and are in a rally. However it is not as dire as it could also have been.

The key point is that the long waited for Greek Tragedy has finally arrived which will result in much dissipation of uncertainty. The big picture remains exactly as thought :-

In terms of a forecast, an imminent positive trend. How far will the break up go? I believe there are a couple of range trading opportunities in the near-term. However, I am not seeing any real reason to start accumulating much stock in terms of long term investments because there is no clear evidence that the stock market looks set to break out of this trading range so it’s not appealing in terms of longterm risk vs reward. I will wait to see whether the stock market shows relative strength or weakness against this forecast trend.

The Greek Election

18 Jun

 

 

Greek Election Dilemma

Greek political parties supporting a bailout for the country have won a slim parliamentary majority in Sunday’s elections. Any coalition’s majority is set to be narrow and may lack the stability needed to push through painful reforms.

Whatever the outcome, Europe’s problems are far from over as the debt crisis threatens to further engulf the larger economies of Spain and Italy.

The markets are expected to gain from this calming (huge relief) of the markets – understandable given the massive fallout that could have happened had the (pro-bailout) New Democracy Party lost.

The Greek conservative New Democracy party and Socialist PASOK, who broadly back an EU/IMF bailout package keeping Greece from bankruptcy, looked set to jointly secure a slim majority. SYRIZA, the leading leftist party that pledged to tear up the terms of the bailout package, conceded defeat.

If there is any sign of market stress on Monday morning, investors will look for action from the world’s central banks who, according to officials, stand ready to intervene if trading becomes turbulent.

Official results released by the interior ministry, with 97% of ballots counted, showed New Democracy taking 29.7%, SYRIZA 26.9% and the PASOK Socialists were set to take 12.3% of the vote.

The Greek election system awards a 50-seat bonus to the party which comes first, that would give New Democracy and PASOK 162 seats in the 300-seat parliament.

Supporters of New Democracy.

 

What Next ?

G20 leaders kick off a two-day summit in Mexico on Monday and the rest of the week is not likely to be any quieter.

The Federal Reserve is due to release a policy statement on Wednesday at the end of its two-day meeting, and the steady flow of sovereign debt warnings and downgrades is likely to continue.

 

 

Now That’s What It’s About!!! – Article Removed

14 Jun

THIS ARTICLE HAS BEEN REMOVED

I have had a discussion with my wife who took the article totally a different way than I had meant and I worry others would do likewise.

I am not someone who brags or talks about the great I am.

My mantra is to understate as the only thing that matters are the people – my family, my friends and my clients.

So to anyone who read the original article – all I was trying to say was how proud I felt that through my endeavours my clients have been able to live the life they deserve.

Please forgive me if it came across as arrogant or bragging – that was the last thing it was meant to be.

We’re Readay For A Rebound?

13 Jun

It’s fair to say equities look cheap and logically are the only sensible choice. This is in contrast to government bonds which are offering yields trending lower, with very overstretched capital values and further monetary stimulus remains a real possibility.

If we agree with PSigma’s chief investment officer Tom Becket then we could be on the cusp of making significant gains as a market rally is imminent. 

The risk is the Eurozone is possibly on the brink of collapse and so a market collapse is seriously possible. We have seen many investors selling investments and turning to cash and other perceived safe havens. This sell-off has left some equities at bargain prices, assuming the Eurozone does not implode. 
 
Even some of the most bearish commentators have highlighted recently that some cyclically adjusted price-to-earnings (P/E) ratio is back down to rock-bottom valuations. This is consistent with the bottom of previous long-term valuation bear markets. 
 

S&P 500 & VIX – Weekly


 
We are and will be in volatile times but if this theory is correct then patience will be rewarded over time.
 
I also do not believe that policy-makers will sit by and allow the global economy to fail. It has been well documented by many of the concerns of the “contagion effect” of a serious failure in the Eurozone. The likelihood is this would have an effect on the US, Asian, Emerging and Global Markets –  leading to an international catastrophe.
 
We have previously seen the assertiveness of nations to take action to prevent these scenarios becoming reality.
 
The only issue is the markets over recent years have many times surprised investors with actual unexpected outcomes.
 
In addition, the Greek election on June 17 and meeting of the US Federal Reserve on June 20 could be pivotal to the market direction.
 
With sentiment currently dreadful, with the popular press and 24-hour news services at least partially responsible for creating the wave of uncertainty, this could be a great opportunity. It is not uncommon at turning points in an investment cycle and investors should take a degree of comfort from the air of negativity, as often this provides a buying opportunity. In addition, it seems that ownership of equities by both professional and retail investors has fallen to extremely low levels and so it may be fair to suggest there are few sellers left to drive prices much lower.
 
My belief is the best time to buy is when appetite for risk is at its lowest!

Market Outlook On Monday June 11 – Correction

12 Jun

Dear All

Apologies – I had referred to the FTSE 100 closing on Monday June 10 at 6,432.37 but should have been 5,432.37.

This has now been corrected.

All the best

Darren Nathan