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.
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