Will this be the week that commodities finally breakout and US Treasuries breakdown? Well of course time will tell! As we see it the trends in equities, corporate bonds, currencies, and precious metals remain strong. Accordingly we have every reason to believe that these very trends, that had their origins as far back as October last year, will remain in place at least until year end.
For those of you who disagree with us (we welcome objective evidence arguing to the contrary of our positions) and have it that markets are about to turn lower…..wouldn’t risky sectors of each asset class already have done so? By this we refer to junk grade corporate bonds (JNK & HYG), emerging market currencies (CEW), high yield developed currencies (DBV), emerging market bonds (EMB & PCY), and small cap equities (GWX) and particularly emerging small cap equities (EWX)? We can see no weakness worth noting in these asset “subclasses”!
We have been watching the behaviour of the big commodity currencies against the Yen, notably the AUD, CAD, & NOK. All three crosses are on the verge of breaking out. This is certainly a bullish omen for commodities and quite probably a very bearish omen for US Treasuries (perhaps by default).
Watch the CRB like a hawk this week. We think that once it breaks the 270 level momentum traders will be quick to drive it materially higher (albeit the underlyings will drive the CRB materially higher). The breakout in commodities will lead to a material fall in US Treasuries. Yes we are at a “tipping-point”!
Our wealth creation portfolio is up 18.62% since the beginning of the year with approximately 40% of the volatility of the S&P 500. This portfolio is not leveraged.
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