We have put together just 8 charts that we think capture the essence of what is occurring within world financial markets right now. We like to keep things very simple so that even a 1st year finance student could gain an appreciation of the trends within world financial markets in one quick glance. To sum it up, for whatever reason the “trends” that began late last year/early this year remain firmly in place, that is:
- strong broad based advances in equities,
- weak US treasuries but strong corporate bonds especially risky high yield bonds,
- strong commodities especially industrial commodities,
- a weak USD and strong high yield currencies.
If trends were about to breakdown, what would we typically look for? Any breakdown or change in sentiment in each asset class would first show up in risky securities, namely small cap equities, junk grade corporate bonds, industrial metals, and high yield currencies. Yet for the time being at least these risky securities show little credible evidence of an impending change in trend or at least moves to “risk aversion”.
We judge financial markets by their actions rather than the words of the crowd. We are fully aware of the “reasons” being put forward by the media for the behavior of the different asset classes but we are highly suspicious that these are in fact the real reasons driving markets. We don’t know what the future holds but we do know that markets move in observable trends. Based on the evidence at hand it seems as though the trends we are currently observing have yet to run their course.
Equities
New multi-week highs for both the Dow World and Dow World Small Caps. The strength of small caps confirms a powerful broad based advance.
Fixed Income
The behavior of the US treasury market (using TLT as a proxy) has been rather “bemusing” to us as of late. We were expecting it to be closer to 88 than 96. However, there has been nothing to suggest that it wants to break to the upside. Certainly the behavior of Junk grade bonds is not consistent with a move higher in US treasuries.
Commodities
The CRB is etching its way higher in a “classic” bullish pattern with a series of higher highs and higher lows. Industrial metals (the foundation of commodities we believe) is showing no sign of a change in bullish trend.
Currencies
It seems that the Greenback (as per the USD Index) is only days away from breaking to a multi-week low and high yield currencies are only a few pts away from making a new high against low yield (ex the USD).
As a final note we would just like to say this………we do not take the behavior of any one asset class too seriously. However, when the behavior of each asset class confirms each other we take it very seriously indeed because it suggests that whatever is driving markets still has got very strong legs!
Our wealth creation portfolio is up 17% since the beginning of the year with approximately 40% of the volatility of the S&P 500. This portfolio is not leveraged.
Subscribers to our paid service are privy to our portfolio, sector weightings, and trade history.
