Thursday, June 13, 2013

"Strategy Meeting": Questions on Markets, Portfolios and Risk

As part of an ongoing series, "Strategy Meeting" posts will share topics from current portfolio, market and risk considerations.  Often, they'll come in the form of questions...and charts ("pictures that tell a thousand words")! 

Here are a few items from today's "Strategy Meeting" .....

STRATEGY MEETING:  Thursday, June 13, 2013

1)  Why did the love-fest with Abenomics and its seemingly certain positive impact on the Nikkei evaporate on Bernanke's recent mere mention of future tapering?  Or did it?! Is the current rout in the Nikkei a sobering correction or a complete reversal?

2)  When is the right time to enter Nikkei, which one might do w/the DXJ or EWJ etf's, considering it had rallied 55% since Dec '12, and even with the recent bungee-jump, is still up over 30% in the time period??

3)  What do you make of the fact that the Nikkei was down over 6% last night, yet the US markets soared over 180 points on Jobless Claims and Retail Sales data?  Admittedly, the data was better than expected, but to counter the negative momentum from overseas action, and to undo recent weakness in the US, begs the question as to what else is going on?  Have you checked bond fund liquidations of late?  EM funds?  Hmmm....

4)  How about the energy sector?  The US is knocking the cover off the ball in oil production and in natural gas, and the price of oil has come down from last year's highs....yet XLE, the etf of energy related companies, is diverging from the price of WTI (West Texas Intermediate).  

Why the divergence?

With the new-found (or rather, newly accessed) energy sources in the US mitigating the once much larger risk of supply disruptions from the Middle East, Nigeria and Latin America, are relatively low energy prices here to stay?  Will the energy companies in the XLE etf be able to generate even greater profits with more of their supply increasingly being 'home grown'?  And what does this mean for the demand's Retail Sales data showed  some weakness in sales at gas stations despite higher prices recently at the pump? Has the cumulative impact of the US employment and housing troubles made energy use by consumers price elastic, or at least more so than in the past?

5)  Emerging Markets....more like 'Submerging Markets'!!!  The knock-on effect of Bernanke's early warning signals on QE tapering have hit EM markets very hard.  Many EM country currencies have fallen, raising the angst over imported inflation and the prospects for tighter monetary policies.   While Brazil's woes go far beyond Bernanke tapering talk, the falling currency was a key element in the Central Banks recent decision to raise rates, just at a time when global growth needs all the stimulative support it can get!   The moves across most EM equity markets have been precipitous.  When will be the time to enter?  What will be the catalysts to reversing the current plunge?

"Strategy Meeting" posts in coming days will explore more specific sectors, stocks and ETFs. 
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More later....

(Please note: This article is solely meant to be thought provoking and is not in any way meant to be personal investment advice. Each investor is obligated to opine and decide for themselves as to the appropriateness of anything said in this article to their unique financial profile, risk tolerances and portfolio goals).
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Additional Disclaimer: currently long many stocks/ETFs including XLE.  Positions may change at any time without notice.


  1. We can now add Indonesia to the list of EM rate-hikers!
    News from CNBC:
    "The decision to raise the interest rate was because we see inflationary pressure rising recently and with that, it is proper for us to pre-emptively address inflation by raising our policy rate by 25 basis points," Perry Warjiyo, Deputy Governor Bank Indonesia told CNBC Asia's "The Call" on Friday....According to the central bank, inflation could spike to close to 8 percent this year from the current 5.47 percent. Plus a depreciating currency, the rupiah, which fell to a four-year low this week to less than 10,000 against the dollar, adds to inflationary pressures.

  2. The list continues to grow....Not exactly a rate hike, but India's decision to leave rates unched @ 7.25% in the face of a expectations for another rate cut was explained to be a move to counter the weakening Rupee and to ward off inflation that may come about from the weak currency.