Fibonacci Financial

Posts Tagged ‘Asset Allocation’

The inimitable Steve Briese of COT fame not only correctly identified the potential for a massive commodity collapse over a year ago but he is also the only analyst (in my humble opinion)  to have explained what really happened.  He laid it all out in his Barron’s article early last spring.

In his latest Bullish Review he indicates that while a buy signal has not been generated there has been a minor COT buy signal in the NYFE Dollar Index.   The Commercials (Insiders) have been accumulating (buying) dollars on this decline!   LET ME BE CLEAR – I use the Bullish Review as a key tool (Steve is brilliant) for determining asset allocation but neither Steve Briese nor the Bullish Review is responsible for my recommendations. As the dollar approaches the December 2008 low, a low risk buying opportunity will be available.  A stop loss could be placed just below the December 2008 low.

Yes I know that “everyone”  who is “anyone” thinks the dollar is on its last legs, may it RIP. 

And you dear reader thought I was a pessimist.  So, what does a contrarian do?  Look for an opportunity to buy the Buck on the cheap. 

Steve Briese identified the end of a 6 year dollar bear market in September 2008 (great call Steve) and the US Dollar will most likely climb its wall of worry for a couple of years now.  The enormous debt accumulated in dollars constitutes a massive historic short against the dollar.  That massive short position constitutes highly combustible fuel for a buying explosion.  The only fly in the ointment would be if Helicopter Ben’s dollar drop (QE – quantitative easing) and the  O’Bomba Bailouts and Stimulus ignites inflation and another fiat money boom (low risk at this time).  Our portfolios are still on deflation watch.  I am keeping an open mind though.

One of the more conservative ways (as apposed to Forex or Futures)  that I am recommending to my active clients is to buy iPath shares of UUP.

Dear reader DON’T TRY THIS AT HOME, get professional guidance in determining whether this fits into your portfolio and in properly placing an order with appropriate stop loss protection.  Proper money management is a must.

What Are All Those XXXX’s and OOOO’s on the Charts?

( No Dear Reader They Don’t Represent Hugs n Kisses! )

Several readers have indicated that they are not familiar with the point and figure charts that I use for illustration purposes in the blog.  John Murphy (world class technical analyst) provides an excellent overview of Point and Figure charting on his web site StockCharts.com.  If anyone is interested in why I use these “old fashioned” P and F charts drop a comment requesting additional information.

Do not get the idea that you can trade or make investment decisions from my blog entries.  These are an introduction to my services and do not constitute investment advice.

Repeat 20 Times – 90% of Portfolio Performance Comes From:

Asset Allocation!

“Dramatic support for the importance of asset allocation is provided by a study of 91 large pension plans covering the period 1974 through 1983. 1  The study sought to attribute the variation in total returns among the plans to three factors: asset allocation policy, market timing, and security selection.  The study dramatically supports the notion that asset selection policy is the primary determinant of investment performance , with market timing and security selection both playing a minor role.  The study was subsequently updated with additional data and once again arrived at the same conclusion.2  The pie chart shows the results: asset allocation policy explained 91.5 % of the variation in total return among the pension plans.  The selection and market timing factors, by contrast, explained only 4.6% and 1.8% of the variation, respectively.” 

Excerpted from: Asset Allocation, Balancing Financial Risk, Second Edition, Forward by Sir John Templeton and written by Roger C. Gibson, pages 12 and 13.

If you haven’t read the recent blog entry titled Avoid the “Life-Cycle Investing” Trap! please do so now.

Footnotes:

1. Gary P. Brinson, L Randolph Hood, and Gilbert L. Beebower, “Determinants of Portfolio Performance,” Financial Analysts Journal, July-August 1986, pp. 39-44.

2.  Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower,
“Determinants of Portfolio Performance II: An Update,” Financial Analysts Journal, May-June 1991, pp. 40-48.

Where Are We In The Markets and What Should We Do?

Current FF Market Model Allocation?

Category 1 – Cash

Gold and Silver are most likely in a long term up trend that started in 2001.  They peaked in 2008 and are currently working their way down and up and down to the first buying opportunity in several years.  Remember nothing goes staight up or down.  Gold should be buy below $700 and silver should be a buy below $7 (very rough guidance).  The pot at the end of this rainbow is a few months away.

PS: This is supported by Long Term precious metal cycles, Long Term trend lines going back to 2001.  The only caveat is the concern as to how they will be affected by the next killer deflationary wave.  This will be monitored as they come back down to their long term trend lines.  Also there is a chance that I will be wrong about deflation coming next.  If inflation is next the price action in the precious metals will show their hand and we will make the appropriate investment response and buy into strength ala Jesse Livermore.

Cash is KING again.  Long live the King.  The U.S. Dollar was in a bear market for several years up till September of 2008.  It is now in a multi-year bull market.  Yes Washington DC and the Fed are doing everything in their power to devalue it BUT the following factors trump their printing press profligacy in the short term anyway.  First and foremost the massive debt accumulation over the last few years is serving as a massive short squeeze against the dollar.  This now turns into a panic for dollars.  Also, in a fractional reserve fiat money system as debt collapses, a reverse leverage works and money supply in the broad sense implodes far faster than the boyz at the fed and treasury can print it.  Add to that the dollar got way over devalued against other fiat (rag money) currencies such as the euro.

PS: This is supported by Commitment of Trader COT activity, Cycle Studies, Elliot Wave action and Point and Figure chart action.

Yes then there is the Euro.  It was in a bull market for several years and got so overvalued that even famous runway models became financial geniuses.  Now it is just Euro trash for a couple of years – if it survives.  Currency unions are notoriously short lived.  Yes I can hear all of you One World conspiracy theorists howling at the moon!  FYI I have read Tragedy and Hope by Caroll Quigley (heavily annotated)and much more.  Please read The Great Wave by David Hacket Fischer for starters and then lets chat.  If the Great Wave does not get the One Worlders the Singularity will!

Category 2 – Lending (Debt Instruments)

To be continued tomorrow.   Yes dear reader for next few days I will cover a category a day.

Since we are midstream in so many markets, it seemed like a good time to start filling out the FF Market Map.

Stay tuned for more.   And remember most of the time it is best to be patient and let the market provide its bounties in its own time.  Get in a rush and you loose….

As always, if you have questions about Category 1 Cash – please drop me a comment and I will address it manana!