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Moving In Stereo


Sorry I’ve been away from the blog recently – I was at a conference for a week then spent a week in catch up mode and this week has been my board meeting week. Life used to be so much simpler.

I thought you might like to see the very close relationship between the Euro and the S&P 500. The Euro has turned into the “risk on” currency and all asset classes seem to move in conjunction with it – commodities, gold, stocks, emerging markets, everything. The logic behind the beta here is that as the Euro strengthens, money will leave the low yielding dollar treasuries and move into assets with higher return potential.

Currencies usually do not act like this, with a 20% move up in just a couple of months. In fact, the Euro is not the only currency that is rallying strongly in the past 60 days – the dollar is the only big loser as investors anticipate that additional monetary easing by the Federal Reserve will drive down bond rates.


In this bar graph, you can see that the dollar ( the blue bar that is the only one showing a loss ) has been sold strongly as money has moved into practically every other major currency extant.


Here is the technical chart on the dollar. To me, it looks like a short-term bottom has been put in – the technical indicators are strengthening and I think we could see a move back to the 80-81 level which will lead to a corresponding drop in the Euro – and a likely drop in risk assets.

We’ve been raising cash as this rally has extended itself – risk management is a key to success in investing – and we will redeploy that cash as the stock market moves back down from the current heights. Intermediate term, the market will likely continue to move up and down in the trading range we’ve discussed on this blog for several months.

This strategy has served our clients quite well as our trailing 12 month average return for our equity management clients is 16.50% compared to the broader market around 9.5%. Until the fundamentals in our economy are back on a growth path, the trading range is our likely future and implementing a successful investment strategy within the trading range is key to portfolio returns.

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