07/16/2008 Equities: Not Enough Fear for a Bottom

07/16/2008 Equities: Not Enough Fear for a Bottom

Written By: Matthew Xiarhos
Categorized in: NEWSLETTERS

Global Equity Markets

On May 8th, our newsletter headline was "WARNING: Equities at Intermediate-term TOP; next BEAR MARKET Decline Imminent!" Since then, global equity markets have plunged over 10%, as predicted. At that time, we also indicated that it was likely that the total decline from the spring highs would be 20%.

Today, evidence abounds of further downside. Remarkably, sentiment studies are NOT showing high levels of panic among either professional newsletter writers nor the investing public. This complacency amidst certain bank failures and rapidly escalating energy and food costs points to an attitude of "hope" rather than an objective assessment of reality. Keep in mind that the equities markets are NOT inexpensive. If we were trading at low double-digit P/E ratios there might be some argument for a bottom based on fundamentals but there exists plenty of air in this overinflated asset bubble.

The decline from recent highs provides a valuable insight into the market's current health. The number of New Lows have exploded during this recent decline. They are, in fact, higher than at any other time since the March rally began. This suggests that the internal strength of the market is quite poor and points to lower prices in the coming weeks and months.

Global Equity Regions

Our portfolios remain in a defensive position.

ASIA (ex-Japan) -

EMERGING MARKETS -

EURO -

JAPAN -

LATIN AMERICA (LatAm) -

USA -
(see Equity Style section for specifics)

Equity Style & Sector Trends

Our Domestic Equity Model suggests a defensive position at this time and our allocation to domestic equities remains 100% in money markets.

Investment Grade Bonds

Renewed US Dollar weakness put our International Bond position back on a BUY last week. We recommend investment grade bonds only at this time.

High Yield Bonds

Our models are on a SELL for the High Yield Debt Markets. The credit unwinding that is due to come as weak financial institutions unload risky assets from their balance sheets is likely to put considerable pressure on this area of the markets globally.

Inflation Hedge / Real Assets

Substantial weakness among financial institutions is likely to lead to continue liquidity infusions by the Federal Reserve. This is ultimately inflationary and bodes well for continued strength in gold bullion, and especially, gold equities.

GOLD Bullion - (GLD) - On a BUY signal.

Goldman Sachs Commodity Index (GSG) (largely energy ) and DB Commodity Index Tracking Fund (DBC) remain on a BUY.

Real Estate - Our models rank REIT's as a SELL.

If you have any questions about our research or Absolute Return Portfolios do not hesitate to call. We can be reached toll-free at 877-632-7491.

Absolute Return Portfolio Management LLC provides absolute return oriented portfolio management and institutional research on global macro trends including equity style rotation, global regional equity trends, short-selling and market neutral strategies as well as fixed income strategies. Contact us for information on account minimums and institutional research offerings.

These reports express our opinions and suggestions, provided only as a supplement to your own further research and decisions. We take care to assure accuracy of contents but accuracy is not guaranteed. Past performance does not imply future results. The publisher shall have no liability of whatever nature in respect of any claim, damages, loss or expense arising out of or in connection with the reliance by you on the contents of our website, any promotion, published material, alert or update. ALL RIGHTS RESERVED.