09/15/2008: May 8th Prediction of 20% Bear Market Plunge Realized, Portfolios Unscathed, Bottom at Hand
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I am happy to report that our model portfolios had no equity exposure coming into today's nearly 5% decline and were safely positioned in short-term government and investment grade bonds. Global Equity Markets
In addition to our May 8th prediction of a forthcoming market plunge, last month we predicted that the market would re-test the mid-July lows which has also occurred. During the intervening month there have been some marked improvements in the internal health of the market which bodes well for the intermediate-term outlook of 3-6 months and beyond. The coming days and week//s are likely to continue to see high volatility typical of a market bottom. I will be looking for two factors to determine if a substantial rally can develop: 1) the number of 52 Week New Lows remains low and less than the spike we hit in mid-July; thereby showing institutional accumulation and 2) extreme public and newsletter pessimism as measured by weekly sentiment polls. International Equity Regions
Our portfolios remain in a defensive position. The recent strength in the US Dollar is now undermining returns of overseas investments for US-based investors. We remain 100% in short-term government bonds.
ASIA (ex-Japan) - EMERGING MARKETS - EURO - JAPAN - LATIN AMERICA (LatAm) - USA - Equity Style & Sector Trends
Our Domestic Equity Model continue in a defensive position at this time and our allocation to domestic equities remains 100% in short-term government bonds.
Investment Grade Bonds
As noted in the International Equities section, US Dollar strength is undermining overseas positions. Our Investment Grade Bond model switched to Domestic Bonds since our last newsletter one month ago.
High Yield Bonds
Our models remain on a SELL for the High Yield Debt Markets and are invested 100% in short-term government bonds.
However, this area is tightly correlated to the equity markets. A recovery in the equity markets in the coming months would bode well for this area. Inflation Hedge / Real Assets
Our Real Assets/Inflation Hedge model remains 100% invested in short-term government bonds. A market rally would likely see the Real Estate sector move onto a BUY. There is little chance that the Commodity or Gold segments would be purchased in the near-term.
GOLD Bullion - (GLD) - On a SELL. Goldman Sachs Commodity Index (GSG) (largely energy ) and DB Commodity Index Tracking Fund (DBC) on a SELL . Real Estate - Our models rank REIT's as a SELL. If you have any questions about our research or Absolute Return Portfolios do not hesitate to call. We can be reached toll-free at 877-632-7491. Absolute Return Portfolio Management LLC provides absolute return oriented portfolio management and institutional research on global macro trends including equity style rotation, global regional equity trends, short-selling and market neutral strategies as well as fixed income strategies. Contact us for information on account minimums and institutional research offerings. These reports express our opinions and suggestions, provided only as a supplement to your own further research and decisions. We take care to assure accuracy of contents but accuracy is not guaranteed. Past performance does not imply future results. The publisher shall have no liability of whatever nature in respect of any claim, damages, loss or expense arising out of or in connection with the reliance by you on the contents of our website, any promotion, published material, alert or update. ALL RIGHTS RESERVED. |