“Their advice helped me structure my portfolio, protected me during the downturn and positioned me very well for growth into the future.”

Jeremy Lloyd – Snr HR Director, Medtronic Int'l and Carol Lloyd (Switzerland) (2010)

Benny and the Jet-propelled printing presses

Posted by jdavis on November 4, 2010

It would appear client-only updates are coming out thick and fast just now.  We don’t produce them to a calendar timetable – only when we feel there is something that needs to be said.   There have been times when there have been three months between updates.

Last night has been described as the most important Keynesian event in decades.
The Federal Reserve made its regular announcement about interest rates (unchanged at, effectively, zero) and the economy and, oh yes, that they will buy financial assets at the rate of $75Bns per month until they’ve bought $600Bns.  The ‘stimulus’ was clearly announced in advance (even to the extent that the Fed asked the banks how much they wanted!  You couldn’t make it up.  John Grisham would be laughed at if he wrote it.).   The markets knew it was coming however they didn’t know how much.

At the end, the result was broadly in line with expectations.  Thus, the $ weakened again overnight and the stock market strengthened.   I have previously explained the inverse relationship between the $ and the market.

So, where are we now?  The stock market (S&P 500) rapidly approaches the April high of c 1220.   The dollar is at lows last seen in late 2009.
The economy of the West, at least, continues to stagnate.

I know you saw UK GDP was stronger than expected.   I know that US GDP was not terrible when recently announced.
I know that the $ continues to be sold.

All of these point to a rising stock market.   Yet…
The US and UK and EU housing markets are dire.  Consumers are hurting.  They can’t get access to (even) more credit.
GDP numbers probably have everything to do with restocking for Christmas which retailers are hoping will be bumper.  Will it be?
In, pretty well, all countries in the West (even the US) well paid government jobs are being cut back.

As for the East, well I have said before that I believe that Chinese growth will diminish.   They literally have cities with practically no inhabitants.   They will slow down their purchases of commodities and this would be hugely detrimental to the stock market.   I don’t know when.   I thought it could be the second half of this year.  Next year is just around the corner.

As for the package last night, it can also be viewed as negative to the stock market in the short to intermediate terms.  On the negative side, the market expected a higher $100Bns per month over a shorter period.   Also, as it is to be ‘reviewed’ we know that, in January, there will be three more fiscally prudent Committee Members compared to the current sole voice.


My view is that the $ may well continue to sell for a wee while yet (days) and then bottom out.  The corollary is that the stock market will go a wee bit higher then turn down.  [I’ll be wearing my kilt tonight so I might have got a little over Scottish then…]  Also, as we approach Christmas (believe it or not!) we may well see a ‘Santa Claus’ rally as we often do.

I know that clients are interested to know what we recommend for the S&P inverse fund, in particular.  I want to see what the markets do into next week. It may be that we are seeing a classic ‘Buy the rumour and sell the news’ situation.  The markets knew of the stimulus in advance and sent the markets higher in advance.  Well, now that we know the detail, perhaps the market will lock in the profits made.  This often happens in the world of the markets.  Please note, we may recommend a reduction or elimination of that holding next week.

If we do, then our portfolios will be largely neutral with a slight long bias.  After an 80% rise since March 2009, this is unlikely to be a good time to be buying more stocks.

We cannot produce strong positive returns on all investments though we try to.  Also, we will not shirk from making recommended changes which need to be made, given outlooks.

We do not intend to make short term positions however, sometimes, we have to do so.

Once again, may I remind you that our focus is on preserving capital while we remain in low inflation / broadly deflationary circumstances (rising unemployment, falling house prices, higher taxes).  When we move to inexorably rising inflation then our objective will turn to growing portfolios faster than inflation.

If any of the above is at all unclear, as ever, please do contact me for clarification.

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