By Steve Blumenthal
August 29, 2013
If you are traditional 60/40, change what you are doing. Build in risk protection, rethink how you are investing in bonds and add meaningful exposure to Tactical Strategies, unconstrained mutual funds and other highly liquid non-correlating investment risks. A recession is near; as is the very real risk of a significant market decline. As El-Erian states, “time is running short”.
I share the following relevant research:
- Time is Running Short – El-Erian
- War Risks, Federal Debt Problems and Systemic-Solvency Issues – John Williams Shadow Stats
- Real Final Sales (year over year) – Signaling recession
- Prepare for Market Panic – Jim Rogers’ Reuters three minute interview
‘Time running short’
“Time is running short for the strategy of simply riding the wave of central banks committed to disconnecting market pricing from fundamentals,” El-Erian wrote in an essay published on Index Universe.
“Disparities among certain economic indicators could pose a risk if not reconciled soon,” Pimco CEO Mohamed El-Erian says. “A much-less-certain investment outlook is ahead, and one that requires change not only in what investors do, but also in how they think about their overall investment positioning,” he added. Here is the link to the full story. http://www.cnbc.com/id/100993839
War Risks, Federal Debt Problems, Systemic-Solvency Issues and an Economic Downturn Are Not a Happy Mix.
From John Williams’ www.shadowstats.com:
“The financial markets have seen a little roiling from expectations of U.S. military action against Syria. Depending on the nature of the action, and responses to same from the rest of the world, ensuing market turmoil could be significant.
The risks here do not favor anything in terms of mitigating the fiscal crisis facing the U.S. government; effects would be to exacerbate the situation. Separately, on the fiscal front, the Treasury Secretary Jacob J. Lew’s latest advice is that “extraordinary measures” currently being taken by the U.S. Treasury to avoid hitting the debt ceiling “are projected to be exhausted in the middle of October [Bloomberg, August 26, 2013, Lew Tells Congress Treasury to Hit Debt Limit in Mid-October].”
The budget-deficit crisis likely will come to the fore in the next month potentially, as a result, with the risk of heavy selling pressure developing against the U.S. dollar. Chances of a meaningful resolution to the fiscal crisis remain nil. The global markets should respond negatively against the U.S. currency in the event of no resolution or continued delay in addressing the issues.
Further complicating the dollar’s circumstance, by mid-October, the Federal Reserve’s monetization of net Treasury debt issuance for the year should be approaching 140% (it was 113% as of August 22). With political cover from a slowing, not an improving economy, and with indications of increasing stress within the domestic banking, odds continue to favor the Fed not cutting back on QE3 at this time.
The fiscal and systemic-stress crises are exacerbated by a deteriorating U.S. economy, even when the GDP gets an upside boost in revision. Where headline reporting of second quarter GDP growth revised up to 2.5%, from initial reporting of 1.7%, the revision was due to a major, short-term distortion in the reporting of the trade deficit.
Beyond the otherwise statistically-insignificant, heavily-massaged and manipulated GDP data, evidence otherwise has continued to mount of a renewed downturn in broad U.S. economic activity. Related to this, the consumer’s ability to fuel an expansion in personal consumption (70% plus of GDP) remains structurally constrained by liquidity issues that include lack of income growth, lack of credit availability and by confidence levels that continue to hold deep in recession territory.”
Real Final Sales (year over year) – signaling recession
Jim Rogers’ Reuters three minute Interview:
http://www.reuters.com/video/2013/08/28/prepare-for-market-panic-jim-rogers?videoId=260178527
On the lighter side, a long holiday weekend is in front of us. I hope you had as outstanding a week as I and wish you a relaxing and peaceful weekend. The above information can be construed as concerning if not outright depressing. I believe it is only depressing if you are not properly positioned.
My advice, don’t get depressed, move away from traditional 60/40. See the opportunity to profit today and position for tomorrow. Keep a keen focus on risk and make sure you build protection into your portfolios. Fortunately, the tools exist for you to better manage and protect your portfolios. Use them to preserve and grow your wealth.
I’ve been trying to pretend I’m on vacation this week. Funny, it does somehow seem to be working. It could be the two golf days. Yesterday I was with my attorney and close friend, Tom Giachetti, PJ and Tom’s guest, Gary Holland. Gary is the publisher of Barron’s. With all that is going on in the world, the conversation was rich and deep to say the least. What a nice, unassuming and humble man. We all had a great time.
The car is loaded with four sets of clubs and the boys (my son, Matthew and his buddies) keep tapping me on the shoulder. A great time awaits. Wishing you the same.
Have a fantastic weekend!
Steve
Stephen B. Blumenthal
Founder & CEO
CMG Capital Management Group, Inc.
Philadelphia – King of Prussia, PA
steve@cmgwealth.com
610-989-9090 Phone
610-989-9092 Fax
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