Market Update 9.29.10

As we look over at BFIA's first year of performance, the behavioral model signaled to overweight India the most relative to all other markets. India has returned up close to 30% since. In addition the model has signaled US high yield corporate bonds were preferred to US equity. Since September 2009 it appeared the model was incorrect. However, the model was built to pinpoint investment cycles and not short-term movements. Over the past year high yield corporate bonds have returned BFIA 17% relative to the S&P 500 which returned 6.5% over the same time period.

We have become more confident with our weighting system given our one year track record. Currently, we are still over weighting India and Malaysia. Other markets we like continue to be South Africa, Turkey, Taiwan, and South Korea.

Another interesting signal we have discovered in our continued research is based on the spread between our long-term and short-term indicators. Based on the spread, BFIA likes China, Taiwan, Turkey, and Brazil for the short-term, short-term meaning at least 1 month.

As far as bonds, we do see unprecedented bullish in our measures, which means we see a turnaround in the bond market at some point. However, at this point we do not see any signals points to exit bonds.