From Chief Investment Officer Tom Veale,
“With “Inflation” on the mind of every financial reporter, investors showed concern for how they’ll afford proper alimentation in the future. Stock investing proponents say the markets are a great way to keep up with inflation. Gold proponents say there’s only one true currency that can’t be debased. Electronic currencies are suggesting “Me, Too!” and that they’re the new Gold. Real Estate, Fine Art, Collector Cars and coin collections are all making their play for the inflation fearful savings dollars. Certainly hoarding cash during times of high inflation has proven to be of little value.
The SignalPoint Market Risk Indicator started its life in 1982 during what was a high inflationary period. That year started with below average MRI readings that continued through October, 1982. 1983 and ’84 continued to give off bearish signals through June of 1984. The 13 Week Treasury coupon rate had been around 11.5%/year at the start of 1982 and rose to over 14% briefly. Those high interest rates offered a brief window where long dated Certificates of Deposit also offered healthy double digit annual returns (well above the CPI’s suggested inflation rate). In the 2.5 years from the starting of our MRI database the S&P 500 gained just over 30% total, so it still rose during this longish questionable period. Based upon the data available it would appear that general stock investing does seem to offer reasonable inflation hedge.
This week we see our MRI drop one point to 45 and the MRI Oscillator drop to minus 3 (indicates modest decline in market risk pressure). This is still well into the MRI’s bearish territory but is a slight improvement. Three of the MRI’s components dropped in their risk ranges this week. One remained unchanged. The tally is two bearish and two neutral.
The flattening of the S&P 500 correlates well with the MRI’s slight recent downward risk slope. We’ve seen only slight declines in the major indexes recently even if the headlines suggest bigger losses. The headlines have been showing some high fliers falling back toward Earth while much of the rest of the market had done okay. Still, the MRI’s Relative Valuation and New Issues Indexes remain quite bearish with no current relief showing.
We have yet to see any significant buying opportunities as the markets remain stubbornly strong. We continue to capture small profit opportunities as they appear.”