Interesting week for the financial markets. BFIA's indicators has been signaling that there is no double dip recession. (Please view back at previous posts.) Even during the turbulent months of May and June BFIA indicators have argued to stay with the market. Even though BFIA indicators do not signal a double dip recession, we still see risk in the US equity markets and currently prefer the high yield bond market for the near term. Regarding international markets, our long indicators do not like China. The long indicators like India, Korea, South Africa, and high yield bonds.
BFIA's agent-based indicator still indicates the US equity market is 18% undervalued. Since September of 2009 the US equity market has hovered around 20% undervaluation. Looking back in history at our indicator, the US equity market hovered around 20% undervaluation from 9/28/2003 to 8/22/2004. The US stock market became fairly valued on 1/8/2006. If we are to compare the 2003-2006 time period to the 2009-2012 period, it will take another year and half for the stock market to become fairly valued. For the time being we like high yield bonds and specific emerging markets listed above.
Sunday, July 25, 2010
Sunday, July 18, 2010
BFIA 7.18.10 Update
Markets have been volatile. It appears we may see this kind of volatility for some time. What are the BFIA indicators signaling? Our long-term indicators are quite bearish on the United States and China. We have small exposures to these markets. We are completely out of the US equities market and have purchased a US high yield debt ETF. The BFIA behavioral indicators are more bullish on the bond market currently than the stock market. Our top long-term markets again are India, South Korea, South Africa, and Israel.
Our short-term indicators have eased a bit. However, our US short-term indicator is still signaling to hedge the US market for now. This means there may be some more volatility in the next two weeks. Therefore, we recommend exiting your US position or hedging your US position as well as other developing country positions such as Europe and Japan. Our exposure for the bond market has increased based on the movement of our indicators for developed market equities.
Our third indicator signals that the US market is 20% undervalued and it has been hovering at 20% undervalued for the last year or so. Therefore, in the near term we do not see major downside but moderate downside in which the market will recover to its 20% undervaluation.
Our short-term indicators have eased a bit. However, our US short-term indicator is still signaling to hedge the US market for now. This means there may be some more volatility in the next two weeks. Therefore, we recommend exiting your US position or hedging your US position as well as other developing country positions such as Europe and Japan. Our exposure for the bond market has increased based on the movement of our indicators for developed market equities.
Our third indicator signals that the US market is 20% undervalued and it has been hovering at 20% undervalued for the last year or so. Therefore, in the near term we do not see major downside but moderate downside in which the market will recover to its 20% undervaluation.
Sunday, July 11, 2010
July 11 Update
In our last blog we mentioned that the upcoming weeks we will know if we are in a double dip recession or not. Our US behavioral indicators was getting close to its threshold which indicates a major downturn. However, in our sample we have never seen our indicators indicate a major downturn so late in the downturn. Therefore, we believed this was a market correction. This past week we believe has proven that no double dip recession is on its way. We are not extraordinary bullish about the US. However, we do not see a double dip recession. Our agent-based indicator for the US indicates the US stock market is 20% under valued. It does not indicate when the US will gain that 20%. It could six months or several years. But the indication is that US is on a up trend albeit a slow one.
We are still bullish on India, South Korea, South Africa, and Israel.
We are still bullish on India, South Korea, South Africa, and Israel.
Sunday, July 4, 2010
July 4th Update
Except for India, Taiwan, and Korea all of our short-term behavioral indicators have crossed their thresholds indicating more short-term downside volatility to potentially come.
Our US and China long-term indicators are getting close to their thresholds. A long-term indicator crossing its threshold indicates an an inflection point that another significant downturn is on its way. We have seen other times where markets come close to passing its threshold but do not and then continue to increase. Therefore, we have limited our exposures to the developed stock markets and have increased our exposure to high yield fixed income. Our behavioral indicators for fixed income is significantly more bullish than the for the developed country stock markets. We are currently over weighting emerging markets such as India and South Korea and investing in high yield fixed income to gain exposure to the developed markets. Once we see improvement in our behavioral indicators we will shift out of fixed income back into the stock market.
Our US and China long-term indicators are getting close to their thresholds. A long-term indicator crossing its threshold indicates an an inflection point that another significant downturn is on its way. We have seen other times where markets come close to passing its threshold but do not and then continue to increase. Therefore, we have limited our exposures to the developed stock markets and have increased our exposure to high yield fixed income. Our behavioral indicators for fixed income is significantly more bullish than the for the developed country stock markets. We are currently over weighting emerging markets such as India and South Korea and investing in high yield fixed income to gain exposure to the developed markets. Once we see improvement in our behavioral indicators we will shift out of fixed income back into the stock market.
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