Dear Reader,
The Market Risk Over the Next 2 Years is to the Upside
How do I know? Look at the evidence…Has anybody noticed the VIX – the “impending doom” indicator? Check out the 5 year chart below. The three peaks represent the GFC – comprising Lehman Brothers crash, EU debt crisis 1 and lastly EU debt crisis 2 with added Japanese tsunami and Libyan war just to make life even more difficult.
While much of the data I am going to show you is American, where the American market goes, so does the Australian market, so it is equally applicable.
| Over the years, the VIX has been a reliable indicator of fear
in the markets and it currently sits at around 14 – this is a pre-GFC
low! - This is a number you’d associate with the “happy period” - the
one between 2003 and 2006. This reading tells us we are well past any
chance of systemic meltdown. However, there are other indicators… The S&P 500 Index stocks are very cheap and close to levels that were last seen in the 1990’s just before the “great bull rally” began…. |
| The “crowd” is still doing crazy things by withdrawing money from the markets by redeeming from managed funds (US figures in the chart, but Australian numbers are similar). This is a common occurrence every time there is a “problem” due to “retail investors” still reading the “risk-heightened” headlines and sensationalist journos pumping out “newspaper selling” doom and gloom stories. Retail investors (the “crowd”) always sell low and buy high and it’s happening again… |
| Another very good indicator is the 2-year Swap Spread. In finance, this the difference between, say, the US Treasury Bond yield and the LIBOR rate, being the rate at which banks will lend to each other. The higher the Swap Spread is; the more risk is perceived by banks and investors. When it is very high, systemic meltdown is of concern and when low, as it is now, there are few real systemic risks concerning the financial system. Obviously, according to these statistics, there are still slightly elevated concerns about Europe, but they have been dropping throughout 2012, whereas there are few if any concerns about the US. In fact, the US banking system according to most statistics has not been in better shape for decades. The grey area indicates recession. |
| Lastly, US unemployment is trending down and where unemployment goes, markets follow (inversely of course)…. |
It could be this is the end of 5 years of chaos. I have to say, I have never in the last 5 years seen all these charts saying all the same thing, all at the same time, and so convincingly! Of course, there will be bumps along the way, but I think the nasty “apocalyptic meltdowns” are over. Long-term, I’m very bullish, particularly on the US economy.
To add further evidence to my theory, last Sunday, over lunch I had a good chat with a guy who owns and runs a US based “analytics” company who assists some of the biggest and most innovative companies (think S&P 500 companies) in the US to improve productivity and efficiency and he was very positive about prospects for the US economy and particularly the companies he’s been doing work for. He couldn’t tell me too much in relation to specifics due to confidentiality issues, but he did say having worked with some (13 in all, mainly technology) of our TC and Trident Global Growth Fund companies, that he wouldn’t sell any of them, in fact, he said buy more.
He was most enthused about one of our biggest holdings in the Fund, describing the company with a wry smile as “amazing – you have no idea what these guys are capable of – they have some incredible stuff coming!” and it wasn’t Apple.
I suspect, as many well-respected fund managers and professional investors do, that we are likely to re-enter another multi-year bull market not unlike what we saw in the period from 2002 to 2007. I believe we have one of the last opportunities to buy under-valued stocks before the end of this year, before it all takes off. Do you want to be a part of it?
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Until Next Time…
Kind Regards
Lance Spicer
Editor, Trident Confidential
© 2012 by Trident Investment Management Pty Ltd is an authorised representative (AR# 339798) of Australian Mutual Holdings Limited (ABN 90 115 182 137), AFSL No: 295393. Trading involves the risk of loss. Please consult an independent financial advisor to see if this investment is right for you. General trade recommendations are basic general advice only.
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