CANTU TACTICAL WEALTH MANAGEMENT MARKET OBSERVATIONS
Joe’s Notes: JUNE 2013
GDP growth rate was revised down to 2.4% from last month’s report of 2.5%. There has been a sharp rise in interest rates by the Fed. which were negative for the Markets in both equities and fixed income. Friday, June 7, 2013, the Economic Jobs Report indicated a very slight increase in jobs and wages. Hopefully, this may cause the Fed to ease back on its recent rising rate policy. This report was positive for the Markets and my guess is that it will cause the Bull Run to continue.
Last month the S&P 500 and the bond Markets had a sharp sell-off with rising interest rates looming. Friday the Stock Markets rallied to the highest levels since February 22, 2013. Despite the recent pull-back, I stand by my comment that, “We are in a long term Bull Run with short term pull backs.” Another confirmation of this came from Dr. Alan Greenspan on CNBC, Friday morning, who indicated that if the Fed could get this rate rise out of the way, then he sees a long term equity Market advancement, as well.
Brokerage firms UBS and Credit Suisse reported that investors raised 30% cash from the equity markets and have kept it in cash instead of bonds. Why is this important? Well, normally when investor’s sentiment becomes negative we see assets follow a “flight to safety” posture by moving to fixed income (bond) asset classes. This has not been the case and signals that investors are cautious but ready to recommit back to the equity Markets. As we say in the Military, “They are keeping their powder dry.” Gun powder, that is, and are ready for upcoming action. Friday’s 200+ move reflects this action of cash entering the market quickly.
INTEREST RATES AND BONDS
Last month was a sharp increase in interest rates with the 10 year Treasury yield moving up to 2.15% from last month’s 1.80%. This quick rate rise caused all bond asset classes to fall rapidly. This signified a disturbing change in Fed policy from keeping rates low. The sell-off was hard and fast with nothing being safe and no rock to hide under. If and when rates stop rising, then higher yielding corporate bonds should be the favored fixed income asset class. Municipal bonds are still not recommended for both price and yield.
My traders saw a sell-off in fixed income beginning May 9th and an equity sell-off from May 22 until June 6th. On Friday, June 7th, they saw momentum back to equities with a slight buying of high yield coporate bonds. However, they witnessed a major leadership change from the institutional asset managers to Technology and Telecommunications versus the previous Home Building Sector.
For the most recent week there are 5 Sectors beating the S&P 500 which are: Technology, Telecommunication Services, Consumer Discretion, Energy and Financials. What is interesting is that there was an industry specific segment that beat all sectors for the week: Commodities, specifically Energy, Agriculture and Precious Metals. Gold was down on Friday but made a slight rally for the month. Healthcare remains in the top 7 Sector Classes but is trending down.
International stocks have pulled back. However, the Country equity market regions moving up are Poland, Vietnam, Germany and the Netherlands. Moving down are Australia, South Africa, Chile and Turkey.
YTD (Year-To-Date) performance for the S&P 500 has been 16.31%. The 1 year performance for the S&P 500 has been 27.83%, the Bull Run. The YTD Total Bond Index was +0.64% (Barclays Aggregate Total Bond Market Index). All major fixed income indexes were down from May 9th until June 6th and could continue if interest rates rise. Cash was King for a majority of the month to include counter Market investments and commodities such as Gold. If the market moves up, then Gold will be out of favor.
Keep in mind that this month is a major Options expiration date, 3rd Friday in June. Typically, the market is down for the day.
JOE’S PORTFOLIO ACTIONS: JUNE 2013
I am never afraid to sell and to take profits and mitigate losses with the goal to protect your principal. As an active Tactical momentum investment manager, I do not Buy and Hold. – Joe Cantu
I have sold down my fixed income positions because of the rising interest rates. I may buy back some positions in a few weeks for portfolio income reasons. I will be keying on corporate and high yield investments.
I have taken profits or cut my losses on all major stock positions. I will be adding new positions in a couple of weeks. Our best performers for the year have been Best Buy 35% and Verizon 20% and quick profits of about 10% from Proctor & Gamble, Southwest Airlines and Sherwin Williams since January first. We are still holding Walt Disney up 20%, Chevron up 10%, a Consumer Staples ETF up 12%, recent purchases of Walmart, Campbells Soup, Coca Cola, CVS with others such as McDonalds and Johnson & Johnson in the portfolios.
ETFs – EXCHANGE TRADED INDEX FUNDS
I will be entering the following 5 Sectors beating the S&P 500 which are: Technology, Telecommunication Services, Consumer Discretion, Energy and Financials. I will be buying back into the S&P 500 broad index and adding the S&P 400 Midcap within the next two weeks.
PEACE OF MIND
Most of you know me fairly well and for my new clients, I always have my finger on the trigger ready to take a profit, cut my losses and rotate to a new position under my disciplined Cantu sell strategy. I have done so this past month. I am never afraid to take a cash position.
Joe’s Notes: May 13, 2013
GDP growth rate has increased to 2.5%. The Fed’s policy of keeping interest rates low are positive factors for the US equity markets. Slow growth is good and let’s hope to keep it steady.
The S&P 500 keeps setting all time highs and as I have said before, it appears the market is in a long term Bull Run since March of 2009 with short term pull backs. At the moment of these notes, however, the market is in both a long term and short term Bull Run.
CHINA REAL ESTATE
It is clear that property in China is reaching an all time high for prices. We have seen many countries property prices sky rocket only to fall dramatically. I am not saying this is the case for China, but the investor should be aware that prices are lofty and be ready to take profits in this area.
INTEREST RATES AND BONDS
The ten (10) year Treasury is yielding 1.80% and the Fed plans to keep it low going forward. High yield corporate bonds and investment grade corporate bonds are moving slowly up in price. Municipal bonds remain low in yield with many issues coming due with redemptions every month. If the Fed continues with the low interest rate policy then it will be many years before we see higher rates on Municipal tax free bonds.
My traders see greater and greater commitment from institutional asset managers for the equity markets. As well, they see buying in high yield corporate bonds, but without question the current buying is in the equity markets. Volume is not heavy, but it is steady.
The top sectors for the month are Real Estate, Utilities, Healthcare, Consumer Staples (Defensive) and Telecommunications. The bottom sectors are Basic Materials and Energy. Gold appears to be making a short term rebound.
The international stocks that pay higher dividends have momentum. Country equity market regions moving up are Turkey, Malaysia, Japan, Spain and Indonesia.
YTD, Year-To-Date, performance for the Market, S&P 500 performance as of May 3, 2013 was 13.95%. The 1 year performance for the S&P 500 was 20.60%. The YTD Bond Treasury was +0.41% (Barclays Aggregate Bond Treasury Index). The S&P 500 is at a record high of 1,617 with continued momentum. Keep in mind that the market never goes straight up and there are always pull backs, but until we see any change in Fed policy or the global political climate, then the technical analysis remains strong for the equity markets.
JOE’S PORTFOLIO ACTIONS: May 2013
I am holding strong on high yield fixed income positions and adding convertible bonds to certain portfolios. I will be shifting away from sovereign fixed income for the time being. For tax free municipal bond holders, I am not reinvesting in other municipal issues at this time. I am using investment grade corporate bonds as a short term parking place for fixed income portfolios. Our portfolios remain to key on high income generation with my major focus on principal gain in the fixed income markets.
I have taken profits on Office Depot and Best Buy and continue to hold such positions as Sherwin Williams, SHW; Macys, M; Aetna, AET; Southwest Airlines, LUV; Disney, DIS; and Chevron, CVX. Last month my research and analysis showed momentum in Illinois Tool Works, ITW, Dollar Tree, DLTR, Ensco, ESV and Apple, AAPL which have been added to your portfolios. Some portfolios received the broad based S&P 500, SPY, (the Market) for IPS (Investment Policy Statement) reasons with the Market, additions to the strong Biotech Sector, IBB. We have momentum in 5 sectors beating the S&P 500 and just added 2 more positions/sectors with greater momentum than the market.
PEACE OF MIND
Most of you know me fairly well and for my new clients, I always have my finger on the trigger ready to take a profit, cut my losses and rotate to a new position under my disciplined Cantu sell strategy. I am never afraid to take a cash position should the Market decide to change directions.
Joe’s Notes: April 2013
GDP growth rate remains slow at 1.7%. This is a positive factor for the market since it may lead to the Fed. remaining neutral on their interest rate policy. In other words, as long as the economy is not heating up, then they most likely will not raise interest rates which could have a negative impact for the market and halt the rally. Slow growth is good. Keep it steady.
The S&P 500 has set an all time high and keeps moving forward and onward. Fact: This is the best single quarterly performance since 1998 (14 years). The talk amongst asset managers is all about stock selections and not about moving out of the market. My feeling is this will continue upward with slight pullbacks in profit taking from time-to-time.
It is sad that the EU (European Union) bailed out Greece, Italy, Portugal and Spain and essentially turned their back on Cyprus by only providing a small amount of bailout money. The primary reason appears to be that they did not want to bail out the Russian Banks which are also in Cyprus. Regardless, this Cyprus action from their own government sets precedence that no depositors’ money is safe from government action. It violates the depositors’ trust. Could it spark a Market Sell-off in Europe? Yes, and this could spread to the US when perception becomes reality. Despite the fact that Cyprus is small, its banking arm is much larger. I am watching this event closely.
There is a new currency popping up called a “Bitcoin”. This is a digital computer based currency with only $1 billion of market capitalization in use. It is not backed by anyone and has no central bank and relies on what another internet-based investor values it at (peer-to-peer network.) The money supply is automated and given to computer servers or “bitcoin miners” that confirm bitcoin transactions. The value price of the bitcoin changes every 10 minutes. Created in 2009 by Satoshi Nakomoto.
INTEREST RATES AND BONDS
The ten (10) year Treasury is yielding 1.85%. Really? Yes, and this is unbelievable. I think we will look back in time several years from now and say I believe this was the turning point and signal to switch from bonds to stocks. The shift out of bonds started this past January but has slowed. If you own individual bonds, I recommend holding them to maturity. If you own lower yielding bond funds which are not high yield, then you should sell because you will have a principal loss going forward.
My traders tell me the shift from bonds to stocks continues with fixed income outflows and equity inflows and a slight increase in volume. This is why we keep setting new highs. My interpretation is that the institutional equity managers are increasing their stock positions. My traders also tell me they are seeing a slight exit from International investments except those with high dividends. In addition, they state there is some high yield bond buying.
The top sectors with equity momentum are Healthcare, Consumer Staples (Defensive) and Industrials. The bottom sectors are Energy, Financials and Basic Materials. The metals, like Gold and Silver, are getting hammered and continue to drop.
The international stocks are slowing except for high dividend equities. Country-specific equity markets moving up are Indonesia, Philipines, Vietnam, Thailand, Israel, and Canada.
The first quarter S&P 500 performance was 10.61%. The Bond Treasury was -0.19% (Barclays Aggregate Bond Treasury Index). Investments in Energy, Financials and Basic Material equities are breaking a 50 day moving average to the downside. And Healthcare, Consumer Staples and Industrials have beaten the Market for the first quarter and still have steam.
JOE’S PORTFOLIO ACTIONS: APRIL 2013
I am holding high yield bond positions such as ticker symbols JNK and HYG. I may be shifting some international bond positions back into PHB if a Fixed Income bond allocation is required for your portfolio. I am recommending that my high grade tax free municipal bond holders (with individual bonds) keep their bonds to maturity or until they are called away. Those nice tax free yields we got several years ago cannot be replaced.
I am selling stocks such as Brunswick ticker BC and Lowes LOW and holding my Chevron CVX a little longer. I will be increasing positions in Healthcare such as Aetna AET, United Healthcare UNH, Campbell Soup CPB (a Consumer Staple stock), Heinz HNZ, Walmart WMT and Industrials such as Cummins CMI. You will see some equity ETF’s enter such as the Broad based S&P 500 SPY (the Market), Healthcares such as IBB, IHF, IYH or FXH, Consumer Staples XLP and Industrials such as VIS. For an international position, if you do not have it already, then I will add LVL and the Global X Super Dividend Fund SDIV. As a bonus, both of these international ETFs have a yield of 6.5% (3-31-2013).
Joe’s Notes: March 2013
GDP today showed an unexpected increase in manufacturing while employment remained the same. Personal income decreased and housing construction fell contrary to last month’s report of increasing home sales. Consumer sentiment increased despite the looming sequesters issue. Overall, I view this as slightly positive for the equity markets and negative for fixed income securities.
The S&P 500 is nearing an all time high while investment grade and municipal bond values continue to fall. An interesting fact: Between 2008 -2012 more than 1 trillion dollars, moved from stocks to bonds. I believe this money will return into the equity markets and started returning in January 2013.
INTEREST RATES AND BONDS
The interest rate rise has paused momentarily and most portfolio strategists recommend using this as a time to reposition your bonds to stocks.
It is difficult to search for bond managers who are creating principal gains. However, I am finding fixed income managers on the sovereign debt side moving up (foreign government bonds). I am adding these bond managers to our portfolios to combat a long term US dollar devaluation with the over-printing of money.
My traders tell me they still see fixed income outflows and equity inflows, but only in normal volume. In January, they saw heavy volume leaving bonds funds, but light volume entering equity funds such as portfolio adjustments. My interpretation is that the institutional equity portfolio managers raising cash and getting ready for large scale equity commitments. In West Point terms, the armies are positioning for the attack and I want to make sure my clients are on the winning side.
The top sectors with equity momentum are Healthcare (Biotech), Industrials, Financials (brokerage) and both Consumer Discretionary and Staples.
The international stocks are doing well, especially those that pay higher dividends. Country equity markets moving up are Indonesia, Thailand, Vietnam and Japan
The S&P 500 touched a 50 day moving average to the downside and is now moving up for the near term. S&P 500 YTD (Year-To-Date) 6.61%, 1 month 1.36%. The iShares Core Total US Bond Market ETF is YTD -0.03, 1 month 0.59% and Annual Yield is 2.55%
JOE’S PORTFOLIO ACTIONS: MARCH 2013
I am adding foreign sovereign bonds to the portfolio in a long term anticipation of US dollar devaluation and rising interest rates.
I am and will be increasing positions in US equities in the financial brokerage, healthcare-biotech, energy and adding international positions through ETFs that pay high dividends for income. International country fund ETFs will also be added to the portfolios.