Hitting the Nail on the Head

December 6, 2010

This gem is from an article by Peter Cohan over at Daily Finance. The complete piece is about how all of the pundits have been completely wrong about the market rally this year, a topic that is also the subject of a Bloomberg piece today. (Ignoring pundits is a practice that has been heavily reinforced here at Systematic Relative Strength!) Cohan has one of the most concise demolitions of the typical market story in the media:

The media has gotten into the habit of delivering reports on daily developments in the global economy, and suggesting that those events somehow cause changes in stock prices, and nobody challenges that flawed logic.

Exactly.

Bearish stories are particularly good at keeping investors out of rising markets. Reading either one of the linked stories should make it clear that it is quite possible to have lousy news and a good market.

Source: www.clipartguide.com

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Posted by Mike Moody

Bill Gross: Bonds Are on the Chopping Block

December 6, 2010

Bill Gross of PIMCO often has entertaining monthly commentary. Apropos to Thanksgiving, his missive for November was entitled, “Run Turkey, Run.” He sees some problems down the road as he discusses quantitative easing:

Bondholders, while immediate beneficiaries, will likely eventually be delivered on a platter to more fortunate celebrants, be they financial asset classes more adaptable to inflation such as stocks or commodities…

He concludes the article with a call for adaptability:

But either way it will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.

I find it quite interesting that the largest bond investor on the planet can see the end of the great bond bull market in the distance. Other commentary I’ve read from Mr. Gross suggests that he doesn’t necessarily imagine the end is near, but once the market senses things going the wrong direction, the end can come pretty fast. I have no idea whether he will be correct or not, but it is true that in financial markets there is a constant need to adapt.

Adjusting to new environments is what relative strength does best.

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Posted by Mike Moody

What’s Hot…And Not

December 6, 2010

How different investments have done over the past 12 months, 6 months, and month.

1PowerShares DB Gold, 2iShares MSCI Emerging Markets ETF, 3iShares DJ U.S. Real Estate Index, 4iShares S&P Europe 350 Index, 5Green Haven Continuous Commodity Index, 6iBoxx High Yield Corporate Bond Fund, 7JP Morgan Emerging Markets Bond Fund, 8PowerShares DB US Dollar Index, 9iBoxx Investment Grade Corporate Bond Fund, 10PowerShares DB Oil

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Posted by Andy Hyer

Weekly RS Recap

December 6, 2010

The table below shows the performance of a universe of mid and large cap U.S. equities, broken down by relative strength decile and quartile and then compared to the universe return. Those at the top of the ranks are those stocks which have the best intermediate-term relative strength. Relative strength strategies buy securities that have strong intermediate-term relative strength and hold them as long as they remain strong.

Last week’s performance (11/26/10 – 12/3/10) is as follows:

Equities powered higher last week with the universe gaining 3.36%. The top quartile kept pace with the universe, but it was the bottom quartile that outperformed last week.

 

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Posted by Andy Hyer