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06302011 – Interim June 30, 2011

Posted by easterntiger in economic history, economy, financial, gold, markets, oil, silver, stocks.
Tags: , , , , , ,

Current Positions  ( Changes)

I(Intl) – exit; S(Small Cap) – exit; C(S&P) – exit ; F(bonds) up to 20%;  G(money market) – remainder

Weekly Momentum Indicator (WMI***) – last 4 weeks, thru 6/30

-24.57,  -23.57, -14.92, -7.97

(3wks ago/2wks ago/1 wk ago/this week)

At the point where the markets simply HAD to hold, at least for now, they did.

The sudden rise in interest rates over the past 3 days when combined with the sudden blast of the stock indexes from their bottoms are both suspicious.

There is a term called ‘window dressing’, where the end of the month, and particularly the end of the quarter, presents an opportunity for fund managers to clean up their books, go on a one or two-week buying binge to drive stock prices higher, which results in their quarterly returns not looking as bad as they would look otherwise.  This is like you cutting the grass in the front yard, while leaving the weeds and high grass in your back yard.

So, reducing our exposure to bonds by protecting some of the remaining gains from the April to June F fund rise is wise.  Even though there might be a resumption of falling rates soon, there are still other events which are occurring this week to make matters a little confusing with regard to what happens next.

* Greece – the appearance of a positive vote on austerity measures keeps the Eurozone intact, and the Euro currency from appearing to be on the verge of collapse as it appeared to be just one week ago,

* Bonds – the rise in interest rates this week could be a result of some bond selling.  This bond selling could be a sign of removing money from the bond market to place into the stock market for the above-mentioned, ‘window dressing’,

* Window Dressing – as soon as the quarter is closed today, there would be no more need for window dressing, so if stocks weaken next week, in the total absence of the quantitative easing (QE2) from the Fed Reserve which has been in place since last September, the stock market must find some immediate means of support, or, it will meander and return to a sideways or downtrend within another few weeks.

* Further down the road, there could be impacts from the fact that JP Morgan-Chase now has a higher concentration of high-risk derivatives than the investment banks that failed in 2008, which included Bear-Stearns and Lehman Brothers, but, also included several European and Asian entities, and money and hedge funds world-wide, as well.

* Some European banks are said to have largely failed their recent ‘stress tests’, meaning that they are overexposed on risks as compared to the actual capital that they have on hand.  Two Irish banks even passed their stress tests recently, and subsequently failed anyway.  The Greek situation, or a failure of such, could be a trigger of European bank failures that could have a ripple effect on US banks and our other affected markets.  This would make the stock indexes a very risky place to be, over the short or long term, and, once again, make the US bond market a safety haven, making the F fund a good place to be and far outweighing any advantage in stocks for a short period of time.

* Historical observations indicate that a possibility exists for the completion of a process, called ‘distribution’, of disposal of higher priced assets, and coincident with a major top in prices of stocks, gold, silver, oil, coffee, sugar, cotton, etc., which might have occurred in April or May. (April and May highs represent highs for the year in almost all investment categories).  These commodity highs are in parallel with dollar index lows, which have matched and not exceeded 2008 levels.  Our current pricing patterns from 2008-2011 have mirrored a previous historical pattern.  This previous pattern was followed by large declines in prices of many key commodities.  This weakness in commodities would reduce inflationary pressures, but, at the same time, create weaknesses in many portfolios world-wide and could result in selling of other assets, including stocks, to offset those losses.



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