January’s gains extended into this month as the S&P 500 jumped 1.12% while European and Asian indices were also in bullish mode.
Meanwhile, the Euro rose to $1.32/Euro while the 10-year Treasury rose to a yield of 1.83%. Although market volatility has tempered, there is still plenty of risk lying around.
The head of the IMF recovery effort in Greece, Poul Thomsen, conceded that austerity will only have a negative impact on Greece. Although the debt needs to be cut, stunting economic growth will put Greece back even further. As I’ve previously reiterated, the cards are stacked against Greece and throwing more bailout funds is no guarantee that Greece can get back on a fiscally responsible track.
Yesterday, I mentioned how European banks are looking to access more loans from the ECB. However, an ECB survey indicated that banks actually reduced lending toward the end of 2011 despite the fact that they took on more loans. Rather than using these funds to lend to businesses, banks are trying to replete their capital shortfalls. In a nutshell, this is a discouraging sign for credit markets, and in turn, the real economy.
Despite some negative data concerning business activity yesterday, there was a rise in manufacturing activity in December as reported by the Institute for Supply Management. Even Europe and China had an increase in manufacturing. However, we need to see a long-term positive trend, which still has to be established.
With regards to China though, there are troubling signs. For instance, China’s property market appears to be overheating while a reliance on exports and state driven investment is an unsustainable model if China wants to become a major economic power. Last week’s Economist feature further stresses the need for China to evolve its economic system. If not, we could see more friction between the U.S. and China as well as between Europe and China.
As our Domestic Trend Tracking Index (TTI) has confirmed by its position of +4.66% above its trend line, we clearly remain in bullish territory. While I have added equity and sector ETFs during the past month, they are balanced by an appropriate allocation of various bond ETFs, in order to reduce portfolio risk should markets pull back all of a sudden.
Today, our International TTI finally crossed its respective long term trend line to the upside by +0.81%, after having been stuck in bear territory since 6/16/2011. I want to see some more staying power above the line before declaring a new Buy for this area.
Stay tuned for the latest updates.
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Comments 6
Thanks Ulli for all your timely and precise updates. I think you are very accurate in saying Greece is in big trouble. If their politicians take action like they do here in the U.S. – and I’m sure they do – there’s not a snowball’s chance in hades that they will pull out of their recession without a governmental bankruptcy. Germany has had a fill of bailing them out and is shutting off the faucet of free handouts, so a meltdown should occur soon. My question is what effect it will have on the rest of the world, primarily the market here – considering the other PIIGS will probably follow suit, putting much of Europe in chaos.
Ed
so have you bot anything since this great rally started months ago?
ulli,
don’t you get tired of telling us how so much money is going to the banks, never to be seen again (4th paragraph)? i sure get tired of hearing about it.
Ed,
There will be an effect on the rest of world; that’s for sure. But since we are in uncharted territory, there is not sense in guessing, but to make sure you have my recommended exit strategy in place.
Ulli…
Gordon,
Yes we had some exposure last year, which I increased in January as it appeared that upward momentum remained on track.
Ulli…
Bill,
It’s part of what is happening right now and an important news component. Yes, sometimes I get tired repeating myself… 🙂