How sustainable is the commodity rebound?


Author Cam Hui

Posted: 29 July 2013

I have seen some buzz and excitement among technical analysts and in the blogosphere about a rebound in the commodity sectors of the stock market. While these sectors were highly oversold and a bounce was not unexpected, my analysis suggest that the sustainability of a rebound is unlikely. The more likely scenario is a sideways consolidation to digest the gains from the tactical rally.

Here is the chart of the metal stocks relative to the market. The group has rallied out of a relative downtrend, which is constructive, but faces some overhead relative resistance. My best guess is a period of sideways consolidation going forward:

Here are the gold stocks against the market. I’m not sure why people are getting so excited here. Sure, the short-term relative downtrend has been broken, but the longer term relative downtrend remains intact.

Here is the relative chart of the energy sector. It bears some semblance to the metals – rally out of a relative downtrend and exhibiting a consolidation pattern.

Longer term, I just get very excited about this sector unless it can show some sustained relative strength to break the pattern of lower relative lows and lower relative highs:

Here is the long term relative chart of Materials. The same comments that I made about energy applies to this sector as well:

The same thing goes for the metals. Well, you get the idea.

Tactically, I also like to watch the high-beta small cap resource stocks relative to their large cap brethren to measure the “animal spirits” of the market to give me clues as to the sustainability of this rebound. Here are the junior golds (GDXJ) relative to the senior olgds (GDX). Unless the juniors can show more strength to break the relative downtrend, it suggests to me that this rally is likely to be brief and fleeting.

Up here in the Great White North, I monitor the relative return of the junior TSX Venture, which is weighted towards the speculative junior resource names, to the more senior and more broadly diversified TSX Index.

Nope. No rebound in animal spirits here either.

The dreams of gold bugs
I also saw some analysis that is supportive of a strong gold rally, but upon further analysis I believe that the analysis could be interpreted in different ways and it is not necessarily supportive of a bullish position in gold. Consider this chart showing the relative performance of the Amex Gold Bugs Index against SPX, which has been rattling around in the blogosphere:

It was pointed out that we are experiencing bullish divergences on the 14-week RSI and in the past three occasions, the HUI/SPX ratio has rallied strongly in favor of HUI. Moreover, the ratio is sitting at a major relative support level and, given the highly oversold conditions and the bullish RSI divergences, conditions are highly suggestive of a strong rally for the golds.

While I would not rule out a tactical rally in gold and gold stocks, I question the sustainability of any bullish thrust. I would point out that the highlighted bullish RSI divergences occurred in a secular bull market for gold and other commodities. It is questionable whether gold remains in a secular bull today. Consider the occasions on the left had side of the chart, where oversold RSI conditions occurred in the HUI/SPX ratio in a bear market. On those occasions, the rebound was only a blip and the downtrend continued soon afterwards.

The key issue to the analysis that underlies the above chart is the question of whether gold is in a bull or bear market. Choose your interpretation and your own conclusion.

As well, there is the Commitment of Traders report showing an off-the-scale reading in the net gold positions of commercials, or hedgers:

The COT report seems highly supportive of a bullish impulse in gold, but consider what happened in 2008 when we saw a similar reading. The COT “buy” signal report date was September 16, 2008. Soon after, the gold price proceeded to tank, though it did recover for several months,

Oh well, back to the drawing board.

Fundamental backdrop is not constructive
It’s not just technical headwinds that the commodity sectors face, the macro fundamental backdrop does not scream sustainable rebound for these late cycle sectors. Walter Kurtz of Sober Look highlighted this chart from Credit Suisse showing the relative performance of cyclical vs. defensive sectors by region. The US and eurozone ratios are fairly flat, while Japan shows a minor uptick and China, which is the major marginal buyer of commodities, is going south.

Can the commodity sectors rebound strongly in the absence of Chinese demand and a so-so performance from the major developed markets?

The signals from China are clear. The new leadership is intent on re-balancing the  economic growth from an export and infrastructure driven model to a consumer drive model. While the government appeared to have blinked last week when Premier Li Keqiang asserted that growth would not be allowed to go below 7%, it seems that any stimulus measures would be highly targeted and localized. In fact, Bloomberg reported that the government ordered 1400 companies to cut capacity in a highly targeted move to shift the focus away from infrastructure spending:

China ordered more than 1,400 companies in 19 industries to cut excess production capacity this year, part of efforts to shift toward slower, more-sustainable economic growth.

Steel, ferroalloys, electrolytic aluminum, copper smelting, cement and paper are among areas affected, the Ministry of Industry and Information Technology said in a statement yesterday, in which it announced the first-batch target of this year to cut overcapacity. Excess capacity must be idled by September and eliminated by year-end, the ministry said, identifying the production lines to be shut within factories.

China’s extra production has helped drive down industrial-goods prices and put companies’ profits at risk, while a survey this week showed manufacturing weakening further in July. Premier Li Keqiang has pledged to curb overcapacity as part of efforts to restructure the economy as growth this year is poised for the weakest pace since 1990.

Does this sound like a government that is panicked about growth falling below 7% and is anxious to stimulate at all costs? Do these measures sound like they are supportive of a short-term spike in commodity demand?

In short, the rebound in gold and other commodity prices appear to be temporary and the bear trend will likely re-assert itself after a short rebound. This does not look like the start of an intermediate term uptrend.

For commodity bulls, the current environment is like the unfortunate case of being locked up by the secret police and having your interrogator go home for the evening. You may think that the torture is over, but the beatings will continue when he returns in the morning.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

It’s the risk premium, stupid!


Author Cam Hui

Posted: 9 July 2013

In the past few weeks, I have seen various analysts and commentators stating that either the Fed has fumbled the delivery of its message, or that even if it tapers, the effects will be minor. Here is one example from Comstock Partners:

Last week we wrote that Bernanke could not be happy with the way long bond rates reacted to his press conference answer that the Fed could begin lessening its rate of bond purchases in the next few months, and that he would attempt to sooth the market in yesterday’s press conference following the FOMC meeting. Well, he tried, but ended up making things worse, at least in the perception of the markets.

The Chairman attempted to allay fears by setting specific dates and economic parameters for reducing and eventually eliminating the latest bond purchase program that, until recently, was assumed by the market to be open-ended. He further took pains to assure the markets that just reducing the amount of purchases was not the same as tightening and that the fed funds rate would not likely be increased before early in 2015. He also assured one and all that the decisions would still be data-dependent, and subject to adjustment.

Investors, however, took what Bernanke apparently thought was increased clarity to mean greater hawkishness, and, as a result, bond yields soared as stocks tanked. In addition the markets gave far greater importance to the potential reduction of bond purchases, whereas the Fed attached greater significance to the continuing expansion of their balance sheet.

A history lesson: We want you to take risk
To the contrary, I believe that the Bernanke Fed knows exactly what it is doing with its communications policy. Remember what the intent of the various quantitative easing programs were designed to do. The intent of QE is to lower interest rates, lower the cost of capital and lower the risk premium. In the wake of the Lehman Crisis of 2008, the Fed stepped in with QE1. It followed with QE2 and QE3, otherwise known as QE-Infinity. The Fed first lowered short rates, told the market that it was holding short rates down for a very long, long time. It then followed up with purchases of Treasuries further out on the yield curve and later started to buy Agencies as well in order.

The message from the Fed was: “We want you take take more risk.” Greater risk taking meant that businesses would expand, buy more equipment, hire workers, etc. It hoped to spark a virtuous cycle of more sales, more consumer spending and to revive the moribund real estate market. Moreover, banks could repair their balance sheets with the cheap capital.

Imagine that you are a bank. The Fed tells you that it is lowering short rates and holding them low for a long time. That is, in essence, a signal to borrow short and lend long. In the summer of 2009, T-Bills were yielding roughly 0.5% and 10-year Treasuries were roughly 3.5%. If the bank were to borrow short and lend long with Treasury securities (no credit risk), it could get a spread of roughly 3%. Lever that trade up a “conservative” 10 times and you get a 30% return. 20 times leverages gets you 60% return. Pretty soon, you’ve made a ton of money to repair your balance sheet.

The banks weren’t the only ones playing this game. The hedge funds piled into this trade. Pretty soon, you saw the whole world reaching for yield. The game was to borrow short and lend either long or to lower credits. Carry trades of various flavors exploded. There were currency carry trades, some went into junk bonds, others started buying emerging market paper. You get the idea.

The net effect was that not only interest rates fell, Risk premiums fell across the board. The equity risk premium compressed and the stock market soared. Credit risk premiums narrowed and the price of lower credit bonds boomed.

Managing the exit
During these successive rounds of quantitative easing, analysts started to wonder how the Fed manages to exit from its QE program and ZIRP. We all knew that the day would have to come sooner or later. So on May 22, 2013, Ben Bernanke stated publicly that the Fed was considering scaling back its QE purchases, but such a decision was data dependent.

In other words, it communicated and warned the markets! Consider this 2004 paper by Bernanke, Reinhardt and Sack called Monetary Policy Altnernatives at the Zero Bound: An Empircal Assessment in which the authors discuss the tools that the Fed has available when interest rates are zero or near zero [emphasis added]:

Our results provide some grounds for optimism about the likely efficacy of nonstandard policies. In particular, we confirm a potentially important role for central bank communications to try to shape public expectations of future policy actions. Like Gürkaynak, Sack, and Swanson (2004), we find that the Federal Reserve’s monetary policy decisions have two distinct effects on asset prices. These factors represent, respectively, (1) the unexpected change in the current setting of the federal funds rate, and (2) the change in market expectations about the trajectory of the funds rate over the next year that is not explained by the current policy action. In the United States, the second factor, in particular, appears strongly linked to Fed policy statements, probably reflecting the importance of communication by the central bank. If central bank “talk” affects policy expectations, then policymakers retain some leverage over long-term yields, even if the current policy rate is at or near zero.

The market misses the point
From my read of market commentaries, I believe that analysts are focusing too much on the timing and mechanics of “tapering” and not on the meta-message from the Fed. If quantitative easing is meant to lower interest rates and lower the risk premium, then a withdrawal of QE reverses that process.

In effect, the Fed threw several giant parties. Now it is telling the guests, “If things go as we expect, Last Call will be some time late this year.”

Imagine that you are the bank in the earlier example which bought risk by borrowing short and lending long, or lending to lower credits in order to repair your balance sheet. When the Fed Chair tells you, “Last Call late this year”, do you stick around for Last Call in order to make the last penny? No! The prudent course of action is to unwind your risk-on positions now. We are seeing the start of a new market regime as risk gets re-priced.

That’s the message many analysts missed. The Fed is signaling that risk premiums are not going to get compressed any further. It will now be up to the markets to find the right level for risk premiums.  Watch for Ben Bernanke to elaborate on those issues on Wednesday*. In the July 4 edition of Breakfast with Dave, David Rosenberg wrote the following about the Fed’s communication policy:

I actually give Bernanke full credit for giving the markets a chance to start to price that in ahead of the event, and to re-introduce the notion to the investment class that markets are a two-way bet, not a straight line up. Volatility notwithstanding, I give Berananke an A+ for shaking off the market complacency that came to dominate the market thought process of the first four months of the year (to the point where the bubbleheads on bubblevision were counting consecutive Tuesdays for Dow rallies). Ben’s communication skills may be better than you think – underestimating him may be as wise as underestimating Detective Columbo, who also seems “awkward” but was far from it.

Bernanke knows exactly what he is doing when he hints about tapering in his public remarks. It’s the risk premium, stupid! And it’s going up.

Earnings to do heavy lifting
With this shift in tone, don’t expect the Fed to push yields down anymore. The Fed won’t be pushing you to take as much risk. Consider what this means for stocks. If the economy does truly take off and earnings grow, then stock prices can rise. However, don’t expect stock prices to rise because P/Es are going to go up because the Fed is pushing the market to take more risk. In fact, P/Es are more likely to fall and it will be up the the E component of that ratio, namely earnings, to do the heavy lifting.

As we approach Earnings Season, the task may be more difficult. Thomson-Reuters reports that negative guidance is high compared to recent history:

As the beginning of the second-quarter earnings season approaches, the negative guidance sentiment is weighing on analyst estimates. So far, S+P 500 companies have issued 97 negative earnings preannouncements and only 15 positive ones, for a negative to positive ratio of 6.5. The guidance has contributed to the downward slide in second quarter growth estimates, with EPS currently estimated to grow 3.0%, down from the 8.4% estimate at the beginning of the year.

Analysts have an even bleaker outlook for the top line. After a first quarter when S+P 500 companies reported an aggregate revenue growth rate of 0.0%, the consensus currently calls for 1.8% growth in the second quarter. With revenue growth holding back earnings for the past several quarters, we did an evaluation of company management teams’ outlooks for their revenues. Over the time period evaluated, Q1 2008–present, revenue preannouncements were more balanced than were EPS preannouncements. On average, there were 1.7 negative revenue preannouncements for each positive one. This compares with an N/P ratio of 2.4 for EPS over the same period.

The stock market is facing headwinds. This is a regime shift. Markets generally don’t react well to regime shifts and inflection points like these. Expect volatility and an intensee focus on headlines. The path of least resistance for stock prices, notwithstanding a robust economic recovery, is down.

* Ben Bernanke is expected to take questions after his speech. If anyone who is reading this happens to be there, please ask the following for me: “Mr. Chairman, it appears that the latest round of quantitative easing where the Fed bought Agencies instead of Treasuries was inteneded to narrow the risk premium between the two asset clases. Would it fair to conclude that when the Fed starts to wind down its QE program, risk premiums are expected to widen their natural market determined levels?”

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned. 

The gold bulls’ final defense


Author Cam Hui

Posted: 27 June 2013

OK, so gold had a very ugly day. For some perspective, here is the long-term chart of gold stretching back to the start of the last gold bull:

This precious metal recently dropped through one important uptrend (dotted line). There is, however, one ultimate last line of defense for the gold bulls, which represents the uptrend stretching back to 2001 (solid line). Uptrend support appears to be at roughly $1150.

There are a number of hopeful signs for gold, at least in the short-term. Tim Knight at The Slope of Hope indicated that silver may be forming a bottom at these levels:

As well, Ed Yardeni showed that there is a high level of correlation between gold prices and TIPS:

Here is a short-term chart of GLD and TIP. TIP rallied today, though GLD sold off. This represents a short-term divergence, though minor, that cannot go on forever.

In short, precious metals appear to be setting up for a relief rally at these levels. However, keep an eye on the longer term trend to judge whether the gold bulls’ last stand is successful or not.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned. 

Watch these lines in the sand!


Author Cam Hui

Posted: 21 June 2013

The fact that the Fed telegraphed its decision to begin tapering QE later this year, assuming that the current trajectory of economic data holds, was not an enormous surprise to me. However, the combination of the Fed decision, bad China data overnight and a liquidity squeeze in China have served to exacerbate the global market selloffs as I write these words.

Is this just a minor correction or the start of something worse? These are some technical lines in the sand that I am watching. First of all, the decline in the SPX has been contained at its 50-day moving average in the recent past. Can support at the 50 dma, which is at about 1618 hold?

As well, bond yields have been spiking in the wake of the FOMC decision. Past surges in 10-year Treasury yields have been contained at about the 2.4% level. Can 2.4% hold?

Bearish trigger in Europe
I have also been relatively constructive on European equities and believe it to be a value play. Despite the negative tone on the markets, eurozone PMIs have surprised on the upside (via Business Insider):

I wrote that past declines in European equities have been contained at its 200 day moving average (see The bear case for equities). Can the 200 dma hold?

Bearish trigger in emerging markets
In China, the combination of poor June flash PMI and a liquidity crunch have served to throw the markets into a tizzy. Zero Hedge reports that overnight repo rates spiked to 25%, which is evocative of the market seizures seen during the Lehman Crisis.

At this point, we don’t know if this credit crunch is deliberate or if the Chinese authorities have lost control of the interbank market (see FT Alphaville discussion). Michael McDonough sounded the alarm about the possible negative effects of this credit crunch on Chinese growth:

Should the Chinese credit crunch get out of control and start to spill over into the global markets, we should see the first signs of it in emerging market bonds. I wrote to watch the relative performance ratio of the emerging market bond ETF (EMB) against US high yield (HYG), which is testing a key relative technical support level (see An EM yellow flag):

I had written in the past to watch the price of the Chinese banks listed in HK as warning signs (see The canaries in the Chinese coalmine). That indicator may have lost some of its power as Reuters reported on Monday that the Chinese authorities have stepped in to increase their stake the state banks in order to “boost confidence”:

China’s government has stepped up efforts to lift confidence in the country’s flagging stock markets by buying more shares in the four biggest commercial banks, stock exchange statements showed on Monday.

Central Huijin Investment Co, which holds Beijing’s investments in state-owned financial firms, spent about 363 million yuan ($59.2 million) buying bank shares on June 13, Reuters calculations based on stock exchange filings showed.

This is the third time Huijin has been known to be buying shares in the secondary market since June 13, when China’s stock market skidded to six-month lows after data showed the world’s second-biggest economy was cooling faster than expected.

Watch the tripwires!
In summary, I wrote on Monday that my Trend Model had moved to “neutral” from “risk-on” (see Is the correction over?). For now, I am in watch and wait mode and monitoring these bearish tripwires before I go into full-flown “risk-off” mode:

  • Can the 50 dma hold for the SPX?
  • Can the 10-year Treasury yield breach the 2.4% level?
  • Can decline in the STOXX 600 be arrested at the 200 dma?
  • Will emerging market bonds melt down?

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned. 

Passing the generational torch


Author Cam Hui

Posted: 21 June 2013

As I watched the Audi commercial of Zachary Quinto (new Spock) vs. Leonard Nimoy (old Spock) (via Barry Ritholz), I am reminded of the issues surrounding the process of passing on the torch from one generation to the next and how it affects the financial services business. A research report from Pershing LLC showed that financial advisors are potentially leaving a lot of money on the table by ignoring their clients’ children:

Some $30 trillion in assets is expected to be shifted to younger generations over the next 30 years, according to Pershing LLC, a subsidiary of Bank of New York Mellon. And advisers typically lose half of the assets they manage when those assets are passed from one generation to the next, a 2011 study by consulting firm PriceWaterhouse Coopers found.

In a survey of 317 advisers conducted in February and March, Pershing found that more than half of their affluent clients had adult children, but advisers had talked about finances with only about a third of those children.

Advisers who don’t want to lose those assets should get up to speed on how to win the next generation. The basics: Attract them with engaging events and modern practice-management methods, then retain them with solid financial planning.

The suggested solution is to spend time wooing the kids:

You can start by coordinating a family meeting so your clients can introduce you to their children. Make estate planning the focus so you can explore the family’s expectations for their wealth – and try to ferret out situations where the parents and the children might have different financial objectives that could complicate your serving both of them at the same time.

Offer to provide complimentary financial planning to your clients’ children. These accounts won’t pay big, but the parents will appreciate it. Then hand off those accounts to younger advisers in your office. Not only will this be good practice for them, they’ll probably be better at relating to the younger clients.

Focus more on the needs of Gen X and Millennials by “Remodeling for a hipper look”:

Consider making over your office to make it more appealing to the next generation, said Wayne Badorf of Wells Fargo Asset Management, a practice-management expert. Put a few magazine-loaded iPads in the lobby, install Wifi and add energy drinks to your complimentary beverages.

You may need to revamp your online image. As long as your compliance officer approves, use your site to link to financial podcasts and interesting websites. And make it a portal for clients to access their statements and make updates to accounts.

Overly conventional thinking
I believe that such approaches are likely to yield disappointing results. When I speak to affluent Baby Boomers, their fears are that their children will not have the tools to properly manage their wealth. Their darkest fear is their kids acquire the Paris Hilton syndrome. A common refrain is, “What happens when my twentysomething son/daughter gets this [six or seven figure] windfall drop in their laps?”

Indeed, the SEC found that financial literacy is a serious issue amongst Americans. A Dodd-Frank-mandated study of financial literacy and concluded that Americans have a low level of financial literacy:

Studies reviewed by the Library of Congress indicate that U.S. retail investors lack basic financial literacy. The studies demonstrate that investors have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud.

2009 FINRA study found that investors way over-estimated their own financial knowledge. They were fairly confident about their own abilities, but when asked some basic financial concepts, their understanding was appalling lacking. Here are the questions, which shouldn’t be that difficult for anyone who has some basic financial understanding:

  1. Imagine that the interest rate on your savings account was 1% a year and inflation was 2% a year. After one year, how much would be able to buy with the money in this account? [More|Less] (64% correct)
  2. If interest rates rise, what will typically happen to bond prices? (21% correct)
  3. Supposing that you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow? [More than $102|Less than $102] (65% correct)
  4. A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the loan will be less. [True|False] (70% correct)
  5. Buying a single company’s stock usually provides a safer return than a stock mutual fund. [True|False] (52% correct)

Financial literacy + Instilling passion = Value creation
There is a silver lining in this dark cloud. The FINRA study showed that higher income groups were more financially literate than the general population. Nevertheless, I believe that the road to recruiting the next generation of clients is involves a dual-track approach of financial education and instilling a passion for creating wealth. The latter is important because it shifts the attitude of the next generation from viewing the inheritance as consumption (the Paris Hilton symdrome) to wealth generation.

Katherine Lintz of Financial Management Partners seems to have hit the right notes in her approach, according to this Bloomberg report:

They call it “money camp.” Twice a week, 6- to 11-year-old scions of wealthy families take classes on being rich. They compete to corner commodities markets in Pit, the raucous Parker Brothers card game, and take part in a workshop called “business in a box,” examining products that aren’t obvious gold mines, such as the packaging on Apple Inc.’s iPhone rather than the phone itself.

The results have been astounding:

Lintz, 58, is on to something. Her 22-year-old firm was No. 2 among the fastest-growing multifamily offices in the second annual Bloomberg Markets ranking of companies that manage affairs for dynastic clans, Bloomberg Markets magazine reports in its September issue. The assets that FMP supervises grew 30 percent to $2.6 billion as of Dec. 31, just behind Signature, a Norfolk, Virginia-based family office that expanded 36 percent in 2011 to $3.6 billion.

I believe that Lintz has found a formula that many financial advisory firms catering to the HNW market has ignored or didn’t know how to approach – the issue of how to recruit the next generation of clients. By combining financial literacy education and an approach that instills a passion for creating wealth, her firm has made its AUM much stickier and fashioned an important tool to recruit older clients who are concerned about these issues of how to pass the family torch.

Investment firms, analysts and advisors spend a lot of time talking and thinking about how companies create value. This is one way of how investment firms can create values for themselves.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned. 

Mystery chart leads to FX mystery


Author Cam Hui

Posted: 11 June 2013

Further to my post Friday night (Would you short this?) From reading the comments, I can see that a lot of my readers got it. The chart is the AUDCAD currency cross. While this currency pair shows the Australian Dollar to be vulnerable to its Canadian cousin, the loonie, it brings up another mystery.

First of all, the pair may not be as technically vulnerable as it initially appeared because it hit a 50% retracement level on Friday despite breaking down from major multi-year support.

I understand how the hedge fund community seems to have piled into the AUDUSD short as the Aussie Dollar has gone into freefall for the last few weeks. The short position has been highly profitable in a very short time.

Here’s the head scratcher. Why isn’t its Canadian cousin similarly weak against the USD? The structure of the Australian and Canadian economies are very similar as they are both resource based and both about the same size.

Admittedly, Canada did see some surprisingly positive economic releases last Thursday (Ivey PMI) and Friday (employment). On the other hand, how long will it be before all the Aussie shorts pile into a loonie short position as an alternative, especially when the CADUSD remains in a long-term downtrend and it hit a Fibonacci retracement level Friday and backed off? For reference, see these bearish posts on the Canadian Dollar from Sober Look (Canada’s latest job report is a mixed blessing) and FT Alphaville (Canada’s grizzly outlook).

Just asking.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned. 

Should you have sold in May?


Author Cam Hui

Posted: 04 Jun 2013

All it took was someone to whisper “Fed tapering” and volatility has returned with a vengeance to the markets. I explored this topic in late April (see Sell in May?) and outlined various criteria for getting bearish. For now, most of them haven’t been met, which means that I am still inclined to give the bull case the benefit of the doubt.

Surveying the Big Three global economies (US, Europe and China), I see signs of healing – which suggest that markets are likely to continue to grind higher, albeit in a volatile fashion. Let’s take the regions one by one.

US: Muddling through
As I mentioned, I outlined a number of bearish tripwires in my previous post Sell in May?

  • Earnings getting revised downwards, or more misses in earnings reports;
  • More misses in the high frequency economic releases;
  • Major averages to decline below their 50 dma; and
  • Failure of cyclical sectors to regain their leadership and defensive sectors to outperform.

With the exception of high frequency economic release data, none of the aforementioned tripwires have been triggered. The chart below shows the decline in the Citigroup Economic Surprise Index, but my own personal impression of high frequency economic data is that the results have been mixed. Even then, bad news may be good news as a weakening economy may provide the impetus for the Federal Reserve to delay any tapering of QE-infinity.

We will have a major test of market psychology this Friday. Supposing that the Non-Farm Payroll misses expectations, will the markets react positively because it is another data point supportive of further QE, or negatively because employment isn’t growing as expected?

In the meantime, the major market averages remain in a well-defined uptrend. So why are traders so skittish?

In fact, market participants have been so skittish that it only took a minor decline in the major averages for the percentage of bulls from the AAII survey to tank from a crowded long reading (chart via Bespoke). This kind of nervousness do not typically mark major market tops.

In late April, I also wrote that the bearish case also depended on the continued leadership of the defensive sectors and for cyclical sectors to continue to underperform. Well, those trends reversed themselves dramatically in the month of May. The relative performance chart below of Utilities (XLU) and REITs (VNQ) against the market shows that defensive and yield related sectors took a huge hit in the month:

Meanwhile, cyclical sectors as measured by the Morgan Stanley Cyclical Index have started to turn up against the market. What’s more telling is the fact that cyclical sectors performed well in Friday’s market selloff.

Europe: The next step in the Grand Plan
Across the Atlantic, I am seeing signs of healing in Europe (see Europe healing?) What’s more important is the fact that eurozone leaders are taking steps beyond pure austerity measures to address their structural problems.

Recall during the eurozone crises, many analysts said that there were only two solutions to eurozone problems, which was a competitiveness gap between the North and South. Either Greece (or insert the peripheral country of your choice here) leaves the euro and devalues to regain competitiveness, or the North (read: Germany) makes an explicit political decision to subsidize the South. It appears that the latter is happening (from The Guardian) and the focus issue is youth unemployment:

The French, German and Italian governments joined forces to launch initiatives to “rescue an entire generation” who fear they will never find jobs. More than 7.5 million young Europeans aged between 15 and 24 are not in employment, education or training, according to EU data. The rate of youth unemployment is more than double that for adults, and more than half of young people in Greece (59%) and Spain (55%) are unemployed.

Der Spiegel echoed the German “party line” about youth unemployment:

But a new way of thinking has recently taken hold in the German capital. In light of record new unemployment figures among young people, even the intransigent Germans now realize that action is needed. “If we don’t act now, we risk losing an entire generation in Southern Europe,” say people close to Schäuble.

The new solution is now direct country-to-country assistance instead of assistance through the usual EU institutions [emphasis added]:

To come to grips with the problem, Merkel and Schäuble are willing to abandon ironclad tenets of their current bailout philosophy. In the future, they intend to provide direct assistance to select crisis-ridden countries instead of waiting for other countries to join in or for the European Commission to take the lead. To do so, they are even willing to send more money from Germany to the troubled regions and incorporate new guarantees into the federal budget. “We want to show that we’re not just the world’s best savers,” says a Schäuble confidant.

The initial focus of the direct assistance is Spain:

Last Tuesday, Schäuble sent a letter to Economics Minister Philipp Rösler in which he proposed that the coalition partners act together. “I believe that we should also offer bilateral German aid,” he wrote, noting that he hoped that this approach would result in “significant faster-acting support with visible and psychologically effective results within a foreseeable time period.”

Schäuble needs Rösler’s cooperation because the finance and economics ministries are jointly responsible for the government-owned KfW development bank. The Frankfurt-based institution is to play a key role in the German growth concept that experts from both ministries have started drafting for Spain. Spanish companies suffer from the fact that the country’s banks are currently lending at only relatively high interest rates. But since it is owned by the German government, the KfW can borrow money at rates almost as low as the government itself. Under the Berlin plan, the KfW would pass on part of this benefit to the ailing Spanish economy.

This is how the plan is supposed to work: First, the KfW would issue a so-called global loan to its Spanish sister bank, the ICO. These funds would then enable the Spanish development bank to offer lower-interest loans to domestic companies. As a result, Spanish companies would be able to benefit from low interest rates available in Germany.

The concerns over youth unemployment isn’t new. ECB head Mario Draghi spoke about the structural problems relating to youth unemployment in early 2012 (see Mario Draghi reveals the Grand Plan). In a WSJ interview, Draghi discussed what he believed it took to solve the youth unemployment problem [emphasis added]:

WSJ: Which do you think are the most important structural reforms?

Draghi: In Europe first is the product and services markets reform. And the second is the labour market reform which takes different shapes in different countries. In some of them one has to make labour markets more flexible and also fairer than they are today. In these countries there is a dual labour market: highly flexible for the young part of the population where labour contracts are three-month, six-month contracts that may be renewed for years. The same labour market is highly inflexible for the protected part of the population where salaries follow seniority rather than productivity. In a sense labour markets at the present time are unfair in such a setting because they put all the weight of flexibility on the young part of the population.

The first step in the Grand Plan was to gradually go after all the entrenched interests of people with lifetime employment and their gold-plated pension plans, etc. In other words, get rid of the European social model:

WSJ: Do you think Europe will become less of the social model that has defined it?

Draghi: The European social model has already gone when we see the youth unemployment rates prevailing in some countries. These reforms are necessary to increase employment, especially youth employment, and therefore expenditure and consumption.

WSJ: Job for life…

Draghi: You know there was a time when (economist) Rudi Dornbusch used to say that the Europeans are so rich they can afford to pay everybody for not working. That’s gone.

Now that they are taking steps to clean out the deadwood, the next thing to do is to plant, i.e. directly address the youth unemployment problem. These are all positive structural steps and, if properly implemented, result in a new sustainable growth model for Europe.

In the meantime, the Euro STOXX 50 staged an upside breakout in early May and, despite the recent pullback, the breakout is holding:

Stabilization in China
The bear case for China is this: The leadership recognizes that the model of relying on infrastructure spending and exports to fuel growth is unsustainable. It is trying to wean the economy off that growth path and shift it to one fueled by the Chinese consumer. Moreover, it has made it clear that given a choice between growth and financial stability, the government will choose the latter. This was a signal that we shouldn’t expect a knee-jerk response of more stimulus programs should economic growth start to slow down.

Indeed, growth has slowed as a result. The non-consensus call I recently wrote about is that China seems to showing signs of stabilization (see Even China join the bulls’ party). Since that post, further signs of stabilization is also coming from direct and indirect indicators of Chinese growth.   First and foremost, China’s PMI came out late Friday and it beat expectations (from Bloomberg):

China’s manufacturing unexpectedly accelerated in May, indicating that a slowdown in economic growth in the first quarter may be stabilizing.

The Purchasing Managers’ Index rose to 50.8 from 50.6 in April, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing yesterday. That was higher than all estimates in a Bloomberg News survey of 30 analysts and compares with the median projection of 50, which marks the dividing line between expansion and contraction.

Moreover, the KOSPI in nearby South Korea, which exports much capital equipment into China, is behaving well. This is somewhat surprising as South Korea competes directly with Japan and the deflating Japanese Yen is undoubtedly putting considerable pressure on the competitiveness of Korean exports:

Other indirect indicators of Chinese demand such as commodity prices are stabilizaing. Dr. Copper rallied out of a downtrend and appears to be undergoing a period of sideways consolidation.

A similar pattern can be seen in the industrial metal complex:

Oil prices, as measured by Brent (the real global price), is also trying to stabilize:

Key risks
In summary, the overall picture seems to be one of stabilization and recovery around the world. In such an environment, stock prices can continue to move higher in a choppy fashion. There are, however, a number of key risks to my outlook:

  • US macro surprise: If we get an ugly NFP this Friday and further signs that US macro picture is slowing, it will negatively affect the earnings outlook and deflate stock prices.
  • Japan: John Mauldin has a succinct summary of the issues facing Japan that I won’t repeat but you should read (see Central Bankers gone wild). The issue of a blowup seems to be one of timing and a catastrophic outcome could be close at hand. With bond yields spiking, how will the economy adjust to rising rates? Already, Toyota has pulled a bond issue because of rising rates. Zero Hedge pointed out how JPM has postulated that “a 100bp interest rate shock in the JGB yield curve, would cause a loss of ¥10tr for Japan’s banks”:

The rise in JGB volatility is raising concerns about a volatility-induced selloff similar to the so called “VaR shock” of the summer of 2003. At the time, the 10y JGB yield tripled from 0.5% in June 2003 to 1.6% in September 2003. The 60-day standard deviation of the daily changes in the 10y JGB yield jumped from 2bp per day to more than 7bp per day over the same period.
As documented widely in the literature, the sharp rise in market volatility in the summer of 2003 induced Japanese banks to sell government bonds as the Value-at-Risk exceeded their limits. This volatility induced selloff became self-reinforcing until yields rose to a level that induced buying by VaR insensitive investors.

  • An emerging market blowup and subsequent financial contagion: The hints of Fed tapering have negatively affected the emerging market bond market and they are starting to roll over against Treasuries. I am monitoring this chart of emerging market bonds against 7-10 Treasuries carefully for signs of market stress and contagion.

The Short Side of Long has indicated that, in general, sentiment towards equities remain at frothy levels which suggests that a short-term pullback may be in order, However,  I am still inclined to stay long equities on an intermediate term basis and give the bulls the benefit of the doubt, but at the same time watching over my shoulder for signs of trouble.

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Europe healing?


Author Cam Hui

Posted: 28 May 2013

Sometimes things are so bad it can’t get any worse. That seems to be case in the eurozone, which is mired in deep recession and possibly a multi-year depression.

Yet I am seeing signs of improvement. Mario Draghi’s ECB has moved to take tail risk off the table. What’s more, the periphery is starting to turn around. Walter Kurtz of Sober Look noted last week that peripheral Europe is starting to improve:

Today we got the latest PMI numbers from the Eurozone (see figure 2). France is clearly struggling and Germany’s growth has been slower than many had hoped – due primarily to global economic weakness. But take a look at the rest of the Eurozone. While still in contraction mode, it shows an improving trend.

Spain printed a trade surplus last month (surprising some commentators), which may be a signal to rethink how valid some of these forecasts really are. Nobody is suggesting we will see Spain or Portugal all of a sudden begin to grow at 5%. But given the extremely pessimistic sentiment of many economists (a contrarian indicator), it is highly possible we are at or near the bottom of the cycle. People should not be surprised if we start seeing some positive growth indicators – especially in the periphery nations – in the next few quarters.

Indeed, bond yields in the periphery have been showing a trend of steady improvement and “normalization”. As an example, look at Italy:

Here is Spain:

Here is the real clincher. Greek 10-year yields have fallen from over 30% to under 10% today:

As a sign of how the bond markets have normalized and how risk appetite has returned to Europe, consider this account of what happened with Slovenia early this month. Slovenia was doing a bond financing, then Moody’s downgraded them two notches to junk:

After several days of roadshowing, the troubled Slovenia decided to open books for 5 and 10y bonds on Tuesday (30 April). Given that in the previous weeks peripheral bond markets rallied like mad, it wasn’t too heroic to assume that the book-building would be quite quick. Indeed, in the early afternoon books exceeded USD10bn (I guess Slovenia wanted to sell something around 2-3bn) and then reached a quarter of what Apple managed to get in its book building. If I were to take a cheap shot I would say that Slovenia’s GDP is almost 10 times smaller than Apple’s market capitalisation* but I won’t.

And then the lightning struck. Moody’s informed the government of an impending downgrade, which has led to a subsequent suspension of the whole issuance process. I honesty can’t recall the last time a rating agency would do such a thing after the roadshow and during book-building but that’s beside the point. That evening, Moody’s (which already was the most bearish agency on Slovenia) downgraded the country by two notches to junk AND maintained the negative outlook. This created a whopping four-notch difference between them and both Fitch and S&P (A-). The justification of the decision was appalling. Particularly the point about “uncertain funding prospects”. I actually do understand why Moody’s did what it did – they must have assumed that the Dijsselbloem Rule (a.k.a. The Template) means that Slovenia will fall down at the first stumbling point. But they weren’t brave enough to put that in writing and instead chose a set of phony arguments.

Did the bond financing get pulled or re-priced? Did bond investors run for the hills and scream that Slovenia is the next Cyprus? Not a chance. In fact, the issue sold out and traded above par despite the downgrade:

Then the big day came – books reopened, bids were even stronger than during the first attempt and Slovenia sold 3.5bn worth of 5 and 10y bonds. On Friday, the new Sloven23s traded up by more than 4 points, which means yield fell by more than 50bp from the 6% the government paid. A fairy tale ending.

Key risk: France
From a longer term perspective, the elephant in the room continues to be France (see my previous post Short France?). French economic performance continues to negatively diverge with Germany. This isn’t Greece or Ireland, whose troubles could be papered over. France is the at the heart of Europe and the Franco-German relationship is the political raison d’etre for the European Union. France cannot be saved. It can only save itself. 

Despite these dark clouds, the markets are relatively calm over France. The CAC 30 is actually outperforming the Euro STOXX 50:

From a global perspective, European stocks are also showing a turnaround against the All-Country World Index (ACWI):

I am watching this carefully. European stocks could turn out to be the new emerging leadership and the source of outperformance.

Full disclosure: Long FEZ

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.  

Giving the bulls the benefit of the doubt


Author Cam Hui

Posted: 25 May 2013

OK, I was partially right. On Monday, I wrote that commodities were setting up for a rebound (see Commodities poised to rally?):
All of these conditions are lining up to suggest that commodities are poised to rebound. The euro, commodity sensitive currencies and gold are all at key technical support levels. As I write these words, precious metal prices are substantially in the red. Watch for signs of stabilization, or better yet, reversal on the day. If that were to happen, expect that the rotation back into cyclical sectors will continue and stock prices to continue to grind higher.

I was partly right. Gold appears to be turning around here, though it is more correlated with the safety trade than the risk trade. The chart of GLD below shows a constructive bottoming process, with overhead resistance at about the 150 level.

On the other hand, the rotation into deep cyclicals hasn’t fully developed yet. Consider copper as an example. The red metal has rallied through a downtrend and seems to be consolidating sideways. 

Other industrial metals remain in a downtrend, though.

And oil prices, as measured by Brent global oil price benchmark, are still in a downtrend and has not participated yet in a commodity upswing.

Though natural gas seems to march to beat of its own drummer as it staged an upside breakout, driven by positive fundamentals.

I remain constructive on the rotation into the deep cyclicals. Despite the market’s freakout over Bernanke’s off the cuff remarks* about the possibility that the pace of QE might be tapered, followed by a poor HSBC manufacturing PMI out of China and Japanese stocks cratering by 7% (though they are recovering as I write these words), the technicals for the cyclical trade looks intact.   Consider this relative performance chart of the Morgan Stanley Cyclical Index (CYC) against the market. These stocks held up well in light of the mini-panic over the last couple of days.

Joe Fahny wrote that he is seeing very jittery traders and signs of panic, which suggests to me that any pullback is likely to be short-lived: 

Today is May 22, 2013. The general market declined by less than 1% (0.82% to be exact) and my phone has been blowing up with panic by people who are IN the market!!! My trading friends are either calling or texting me with serious worry, and even a few stories of mini “blow-ups” today. I’ve never seen anything like this in my 17 year career! God help these people when (not if) we get a serious correction.

As well, Barry Ritholz pointed out this piece of analysis from Jeff deGraaf [emphasis added]:

Jeff deGraaf, technician extraordinaire (formerly of Lehman now at Renaissance Macro Research) makes an interesting observation about the heavily overbought markets.

Last week, the S&P500 had ~93% of all stocks trading over their 200 day moving average. Normally, this degree of overbought should lead to a correction. As you can see in the inset box, it sometimes does. 

However, if you are looking out a year, we see that over the past 3 instances, markets have been higher.

Is the market overbought? Yes. But these conditions constitute what my former Merrill Lynch colleague Walter Murphy termed a “good overbought” condition.

I am inclined to give the bull case the benefit of the doubt for now, though I am maintaining a risk control discipline of tight and trailing stops.

* Paul Volcker once remarked that as Fed Chairman, he was so guarded about his public remarks that if he went to a restaurant, he would say, “I’ll have the steak, but that doesn’t mean that I don’t like the chicken or the lobster.”

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

Upside breakouts everywhere


Author Cam Hui

Posted: 16 May 2013

As the major US averages grind to more new highs, I am seeing signs of confirmed upside breakouts everywhere. Consider, for example, this relative performance chart of SPY against IEF, which is the ETF for 10-year Treasuries. The ratio staged an upside breakout on the weekly chart, with relative resistance a some distance away indicating considerable upside potential for stocks.

Across the Atlantic, the FTSE 100 staged an upside breakout:

The same could be said of large cap eurozone stocks, as represented by the Euro STOXX 50:

And then there’s Greece. Yes, remember that Greece? The Greece whose rating that Fitch recently upgraded.

The European markets are healing, as the WSJ reports even Greek companies are now tapping the bond markets for financing:

Greek commercial refrigeration and glass bottle producer Frigoglass’s debut bond sale is the latest sign investors are growing more optimistic about Greece, the company’s chief executive said in an interview with Dow Jones Newswires Tuesday.

Frigoglass Monday sold a €250 million ($324.3 million) five-year bond–the second debt sale from a Greek company in as many weeks as the country’s corporate bond market emerges from a deep freeze.

The risk-on mood was also reflected in this account of Slovenia’s successful bond financing, after Moody’s downgraded the country to junk after its roadshow:

Then the big day came – books reopened, bids were even stronger than during the first attempt and Slovenia sold 3.5bn worth of 5 and 10y bonds. On Friday, the new Sloven23s traded up by more than 4 points, which means yield fell by more than 50bp from the 6% the government paid. A fairy tale ending.

Key risks
Though momentum is positive for stocks in most developed markets, it isn’t necessarily all clear sailing ahead. My biggest concern is that China and China related plays look punk. Here is the Shanghai Composite in a well defined downtrend:

Industrial commodities are also exhibiting a similar downtrend pattern:

The AUDCAD currency cross, where Australia is more China sensitive and Canada more US sensitive, looks downright ugly.

In the US, Ed Yardeni pointed out that forward Street consensus earnings growth is showing signs of stalling. While this isn’t a bearish signal yet, it does bear watching. Should forward estimates growth turn negative, it would create considerable headwinds for equities.

My takeaway from the current environment of powerful stock momentum is, “It’s ok to get long, but don’t forget to look over your shoulder and maintain a tight risk control discipline.”

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. (“Qwest”). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

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