Weekly Risk Report 11/20/2009
This week we’ve seen a recurrence of some earlier worries about future inflation resurface. Back some months ago this had started to capture the attention of Wall Street and probably was part of the reason the markets stalled last summer. This latest wave of interest has been reflected in two places in SignalPoint’s portfolios. One was a profitable trimming of our Precious Metals position in Global Signal during the week. Worry about inflation spilled over to the U.S. Dollar exchange rates and to the price of precious metals relative to the U$D. The rising price of our Precious Metal component triggered an “inventory reduction” and a reduction of our risk to this sector.
The other place we have seen heightened awareness of impending inflationary pressure is another sale of a small portion of our position in TIP, an ETF that is based in the threat of U.S. Treasury TIPS inflation indexed treasuries. Investors looking ahead for some inflation protection have started to shift assets toward these vehicles. The added demand has had the effect of raising the price of the underlying treasuries. Again, this rise in the price of the TIP component has triggered a profitable exposure reduction in this component to bring it back into line with the overall portfolio’s design.
In both cases, we see the SignalPoint Process responding to market conditions, not predicting them. SignalPoint’s 20/20 hindsight is of greater accuracy over time than speculation of future events. Other areas of the market will change in their own ways as time passes. Our Process tracks those changes and adjusts as needed.
Currently short term interest rates are near zero. Should economists and bankers anticipate and measure the beginnings of inflation, short term interest rates will begin to rise. This will push our Relative Valuation component from its current bullish stance to a higher-risk profile. It remains the only component we measure that is still bullish by historical measures and only because of the very low short term Treasury rates. The other three components are currently Neutral.
