Further Evidence of Caution for the Markets

Fund Briefing: BlackRock Global Allocation Fund [June 2017, Hong Kong]

 

Our team recently attended a fund briefing by the managers of BlackRock Global Allocation Fund, a fund we switched out of on 2017-05-09 for Model Beta [Goto Switching].  This fund houses top blue chip companies such as: Apple, Amazon, Bank of America, Marathon Petroleum, Comcast, Pfizer, Uber Technologies, Facebook to name a few. In our switching we mentioned that the US is losing steam, and what we gathered from the briefing are the following themes…long story short:

  • The US is getting very expensive, the valuation and ranking of US stocks and bonds are at historic highs since 1975.
  • The fund is increasing its exposure to Treasuries.
  • The fund is increasing its exposure to Gold the last few months which is surprising as its benchmark does not have gold.
  • The fund is sees European and Japanese equities as inexpensive relative to an outperforming US Sector.
  • Caution for the US markets.

Last month our precautionary exit of this fund into other sectors coincides with how the fund manager feels. Safety first.

 

Legendary Hedge Fund Manager Paul Singer: Warnings

2017-06-08: Paul Singer also warns that financial market leverage is higher than in 2008, as well of distorted monetary policy:

Singer told the media yesterday that “distorted” monetary policy, regulatory policy in the financial crisis after nearly 10 years, to bring risks to investors. He pointed out:
I am very concerned about the current state of our presence, and today’s global financial system is more leveraged than before 2008, and I do not think the financial system is more robust than before.
Link to article in [Chinese]

 

Financials Are Vital to the Bull Run

Observations
  • Charts of stocks looking bearish.
  • The next Fed rate hike will determine what smart money thinks, that being if we see a strong reaction in the bond market then the economy is in trouble.
  • Currently there are Head and Shoulders technical formations for several indicators such as XLF Financial Sector (Fig. 1) and KRW S&P Regional Banking (Fig. 2). These are bearish formations awaiting to be completed if necklines are broken.

Fig. 1 – 2017-06-09 XLF Head & Shoulders Formation (Source: Tradingview.com)

 

Fig. 2 – 2017-06-09 KRW Head & Shoulders Formation (Source: Tradingview.com)

 

Conclusion

With these observations, it is still unsure when the bull market may run out of steam as HFT, algo-trading continue to buy on pullbacks pushing the indices to new levels. Yet increasingly we observe certain sectors such as Financials starting to look bearish with technical formations as well as fund managers scaling back and being cautious. The correction may occur sooner or later, but a good indicator will be from the next Fed meeting June 13-14, 2017.

 

Best,
Michael

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