Notwithstanding what the projections by various Fed officials will be as regards interest rates when the first public release of such tallies is released this month, the Fed’s primary dealers expect the US central bank to raise interest rates by the second quarter of 2014. Odds for that adjustment to take place are currently running at 45% according to the survey of such dealers. However, even as these expectations appear to factor in nothing on the rate front until 2014, there is widespread acceptance of the fact that the Fed might very well alter the language surrounding rates – a factor often more important to the markets since they are anticipatory by nature. As we have previously stated, times, they are a ‘changin’ even if not yet in an obvious fashion.
There is one school of thought however that would like to alert you to the changing market cycles. That school belongs to nuclear physicist and author Nigam Arora, who is also the chief investment officer of The Arora Report and the ZYX Global Multi Asset Allocation Alert. Mr. Arora notes that when the end of a cycle is upon us, nobody rings a bell. Astute investors must identify such battleship turns if they are to stay one step ahead of the crowd and generate wealth. So far, so…cliché. However, consider what it is exactly that Mr. Arora is trying to tell you at the moment before you disregard the advice (even though his model portfolio performance speaks for itself since 2007).
He contends that the cycle of the weak US dollar, rising gold, rising bonds, and high inflation in emerging markets came to a close last year (circa September) and that we are now facing an era of high volatility, tame inflation in emerging markets, a relatively strong US dollar, and a reversal in the price strength in precious metals. He expects gains to come from technology stocks, and service companies while emerging markets are seen as slowing in growth. Yes, that’s one analyst’s opinion, but it has room for incorporation among the many others we come across on a daily basis.
Even the most vocal advocates of one formerly successful (or expected to be successful) position do shift their stance when market realities (or disgruntled clients) face them. We noted yesterday the about-face at PIMCO in the wake of more than $5 billion in redemptions. The mantra that Bill Gross had adopted and broadcast circa one year ago has now been altered. Mr. Gross no longer espouses the “new normal” platform and is, instead, advising clients to hedge with…US Treasuries, munis, and senior bank debt.
“The recommendations mark a departure from Gross’s call last year, when he advised buying higher-yielding emerging market debt as part of the “new normal” and cautioned investors to stay away from the U.S., noting that growth would be higher in developing economies, while excessive borrowing here, the U.K. and Japan would lead to inflation. To that end, Gross eliminated his holdings of Treasuries in February and had a net bet against the securities in the $244 billion Total Return Fund, missing the biggest rally in Treasuries since 2008. Gross issued a “Mea Culpa” to investors in October and boosted the debt to 23 percent of the portfolio by the end of November.”
Howler of the day: “Cows Trump Gold.” No bull. This is quite the truth. Ordinary feeder cattle turned out to be among the best performing commodities of 2011 according to ScotiaBank Group’s Patricia Mohr. Bloomberg News notes that “as gold futures fell 3.4 percent in the fourth quarter, its first drop since 2008, feeder cattle reached a record last month as the U.S. herd shrank and beef exports surged.” Such a performance shocker may have…legs (hooves?) as it turns out:
“You’ve got the whole issue of the expanding middle class around the world and increasing protein in diets, so that’s going to translate into more grain consumption, and ultimately that has put support under beef,” said Sal Gilbertie, the president of Teucrium Trading LLC, which sponsors exchange-traded funds for commodities ranging from natural gas to corn. “Food trumps jewelry. The last thing people will ever do is let themselves be hungry.” The price gains for both cattle contracts outpaced the 10 percent advance last year for gold, which posted an 11th straight annual gain.” Well, yes, you cannot eat gold –it has been said many times. However, you also cannot be without a modicum of a gold lining in your financial barn, Betsy and Daisy notwithstanding.
Jon Nadler is a Senior Metals Analyst at Kitco Metals