ETF Asset Class Quickview 2/6/2017

In Charts & Data, Market Trend Report by Michelle


Our ETF Rank Quickview is designed for financial advisors who use a tactical or trend following approach to investing. Included are bullet points on market activity, a ranking of trending asset classes, as well as, intermediate and long-term trend signals. 

Market Bullet Points

Last week, U.S. equity markets continued the upward momentum with the S&P 500 closing within 1 point of an all-time high and the Nasdaq Composite Index closing at an all-time high as well. The markets had been consolidating and appear to be moving into a new phase of volatility as polices from Washington continue to roll in.

The major drivers in the financial sector last week were the two Executive Orders signed by President Trump on Dodd-Frank regulations and the DOL fiduciary ruling. Some media outlets have falsely reported that all regulations were wiped away with the his signature. This is simply not true. There is an issue with timing because President Trump’s cabinet and agency appointments have not been completed. As long as the old guard is in place, specifics will be hard to come by.

On the global front, one of our favorite writers, Gary Dorsch, of Global Money Trends Magazine reported that according to Japan’s Nikkei, Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, might offer up billions in pension fund capital as a source of capital for the upcoming Trump infrastructure projects to placate the president and avoid a far more dire outcome, should Trump decides to launch a currency or trade war with Japan. GPIF would purchase debt issued by US companies to finance infrastructure projects in the US. This could translate into potentially huge investing opportunities for investors, as well.

New Japanese cabinet-level talks discussing trade policies and economic cooperation agreements are on the table. Japan’s contingency is headed to the U.S. and is expected to meet with Wilber Ross and incoming Trade Representative, Robert Lighthizer, on the February 10th meeting.

The unstated goal is to avoid Trump from lashing out at Japan as a currency manipulator, and putting in peril Japans’ QQE and “yield curve control” schemes, which have been the bedrock of Abenomics. Make no mistake about it, Trump’s economic advisors aren’t stupid and they know exactly what QE is designed to do. QQE is an indirect weapon of currency devaluation, ostensibly designed to keep bond yields artificially low, while flooding the Tokyo money markets with a tsunami of cheap yen.

On Jananuary 31st, President Trump and Mr. Navarro unleashed a barrage of criticism against Germany, Japan and China, saying the big-3 trading partners were engaged in devaluating their currencies. “Every other country has been living on devaluation. You look at what China is doing, you look at what Japan has done over the years. They play the money markets, they play the devaluation market and we sit here like a bunch of dummies,” Trump complained. Japan’s yen gained more than 1% against the USD following Trump’s comments.

In the case of the Euro, the ECB has enforced a “Negative Interest Rate Policy” (NIRP) and steadily pushed Germany’s 2-year bond rate to as low as -80 bps below zero, which is in turn, has devaluated the Euro against the USD, gaining an unfair trade advantage. Since the ECB has purchased 1.6-trillion of bonds under the guise of its QE-scheme with electronically created Euros, bringing its bond portfolio to over €3.72-trillion or 35% of the total Eurozone GDP, Germany has benefitted from a  whopping $297-billion trade surplus.

Since 2009 Central banks have used QE under the guise of boosting inflation and economic growth for their own interests. President Trump is exposing the game for what it is and is calling for renegotiating bilateral trade agreements by country rather than abiding by a multi-faceted global trade policy like TPP. He is sending in a negotiating team that understands the game and isn’t afraid to be tough-minded in order to level the playing field and negotiate new fair trade agreements.

These events have gone a long way in reversing the rising USD and Yellen is staying pat on interest rates. Our indicators are showing a trend reversal in the USD, ranking the US Dollar Bullish ETF at 81. If this trend continues, commodities could also fall due to an inverse relationship with the dollar. Currently, commodities and precious metals are also ranked in the low 80’s.

Relative strength remains strong in US equities and portfolios are currently over-weighted in US SmallCap, MidCap, LargeCap, technology, basic materials and technology. Any pullback in prices should be seen as a buying opportunity.

Tactical Asset Allocation

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