John Hussman has a very interesting note on the impulse-response characteristics of the job creation numbers in the U.S. in his weekly market comment today. Relative to the job creation we would expect as a response to the job losses so far in this cyclethe past three employment reports have not simply been bad — they have been among the worst job creation shortfalls on record.
During August the S&P, bounced up and down around its 10-month moving average, finally ending the month below. So out it goes one more time. No changes in the other asset classes. U.S. Treasuries are continuing strong.
Here are September's allocations:
In June U.S. stocks, as measured by the S&P 500 Total Return index, crossed below their 10-month moving average, so that asset class was sold out yesterday. No changes in the other asset classes. U.S. Treasuries are showing some strength. REITs not so much, but remain above their 10-month average.
Here are July's allocations:
In May foreign stocks, as measured by the MSCI EAFE Total Return index, crossed below their 10-month moving average, so that asset class will be sold out today. Ditto for commodities, as measured by the S&P GSCI Total Return index. The S&P 500 Total Return index remained above its 10-month moving average by a tiny 0.25%, so the model remains invested in U.S. stocks. During the month of May the index was below the moving average for a time. No one will object if you jump the gun and bail out of U.S. stocks as well.
Here are June's allocations:
Via Bloomberg:
Two-year notes sold by [Warren Buffett's] Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg ...
While Treasuries backed by the full faith and credit of the government typically yield less than corporate debt, the relationship has flipped as Moody’s Investors Service predicts the U.S. will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K. America will use about 7 percent of taxes for debt payments in 2010 and almost 11 percent in 2013, moving “substantially” closer to losing its AAA rating, Moody’s said last week.
For different reasons John Hussman doesn't like the market at this level:
The 2007 peak reflected rich valuation multiples against earnings that were themselves inflated by abnormally elevated profit margins. The anchoring of investor expectations to a period of rich valuations and unusually wide profit margins may not be reasonable, but it prevents any ability to “forecast” a significant near term decline, much less a sustained downtrend ... With the overvalued, overbought conditions of October now compounded by rising yield pressures and overbullish sentiment on a variety of measures (investment advisors are again down to just 21.3% bears), we remain defensively positioned here.
The top 5 recent finance paper downloads at SSRN — only papers announced in the last 60 days are eligible:
1. [902 downloads] Manufacturing Tail Risk: A Perspective on the Financial Crisis of 2007-09 by Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson and Ingo Walter (New York University)
2. [797 downloads] Economists' Hubris - The Case of Risk Management by Shahin Shojai (Capco) and George Feiger (Contango Capital Advisors)
3. [796 downloads] A Comparison of Quantitative and Qualitative Hedge Funds by Ludwig B. Chincarini (Pomona College)
4. [503 downloads] Market Timing & Trading Strategies Using Asset Rotation by Panagiotis Schizas and Dimitrios D. Thomakos (University of Peloponnese)
5. [479 downloads] My Life in Finance by Eugene F. Fama (University of Chicago)
Also, congratulations to Mebane Faber whose paper A Quantitative Approach to Tactical Asset Allocation has been downloaded 26161 times in the last 12 months, the most of any paper at SSRN and more than double the runner up.
In February U.S. Treasuries, as measured by the Ryan 10-year Treasury Index, once again crossed above their 10-month moving average, this time by the merest 0.41%. Commodities, as measured by the S&P GSCI Total Return index, did the same, albeit by a larger percentage.
Someday, when we are ambitious and with time on our hands, we will determine a percentage or other factor by which the moving average must be crossed before making a trade. For now, however, the model is fully invested as of Monday morning. Here are March's allocations:
