This month has seen a significant pullback in worldwide equity markets, as the Euro-crisis continues to unfold and the US economy remains at stall speed. There are no easy solutions to either of these problems, and the big question hanging over all of us is, “Do the politicians have enough guts to make the hard choices and admit the reality we are currently facing?” So far, the answer appears to be “not quite.”
But there is still time, especially in Europe, where the solution will come either as some kind of cross-border “Eurobond” that is guaranteed by the European Central Bank, or some countries will default on their obligations and likely leave the Eurozone, which will wreak havoc on their national economies.
On this side of the pond, we will need some combination of real growth in jobs, real cuts in government spending, and real increases of government revenues or “taxes” as they are otherwise known. Recovering from a nationwide asset bubble (real estate) and de-leveraging (getting rid of debt) as a nation is never easy or short-term. What started to unravel in 2007, right about four years ago, is still unwinding today and will likely continue for several more years. I’m typically an optimist and I hate to bring rain to the parade, but honestly I don’t see a robust economy emerging until at least 2013, and more likely 2014-2015. And that is only if the government gets it in gear and makes some clear choices to reduce our deficit and put in policies to help grow the private economy.
With that being said, it appears the equity markets this month decided that the outlook isn’t quite as rosy as they had previously thought, resulting in the sell-off in the top half of the month. The bottom half of the month recovered some of those losses, but we still ended up the month with 2 more sell signals – US Equities and US Real Estate. That leaves Pro-Folio holding only broad commodities (DJP) and US Treasury bonds (IEF) as of the market open tomorrow.
Pro-Folio model evaluates its holdings on a monthly basis. As of the
last trading day of August (31st), we have the following trade signals:
SPY – SELL – Threshold: 128.03 Price: 122.22
EFA – AVOID
IYR – SELL – Threshold: 58.04 Price: 57.22
DJP – HOLD
IEF – HOLD
For existing investors:
your entire positions in SPY and IYR.
You should remain fully invested in the remaining 2 holdings of the Pro-Folio model as shown above.
For new investors:
If you are new to Pro-Folio this
month, you should divide your portfolio into 5 equal parts, and invest
an equal amount of money in each of the securities shown above marked
“HOLD” or “BUY”. Because you didn’t invest in the components of the
model at the time when the buy signals first turned positive, your
returns on these initial trades may not be reflective of model’s typical
expected returns. DO NOT invest in SPY, EFA, or IYR right now. Stand by with that
portion of your portfolio in cash, awaiting the buy signal.
are very uncertain times in the financial markets. US treasury bonds,
despite all the debate and worry about our debt ceiling and such, are
still considered the safest financial instrument in times of
uncertainty, as demonstrated by the recent increases in US bond prices.
The world’s investors are running to safety.
Fortunately for us,
the Pro-Folio model has proven its worth over 36 years including the
2008 market crash, so we can continue to follow it precisely and expect
that the value of our holdings will be preserved.