As it did last year the crisis continues to define the economy and markets.

Weak economic data last week (notably Friday’s US employment figures) questions the strength of the global recovery and left risk assets down as investors turned to the havens of gold, government bonds and the Swiss Francs.

For the pessimists, this is further confirmation that the global economy is slowing as it did this time last summer prompting QE2.

For the optimists, QE3 is unnecessary, we are now experiencing a soft spot for global growth (not a repeat of last year) due to a few temporary factors such as the Middle East tensions pushing up the oil price and taking USD118 billion from the US economy in Q1 2011, manufacturing supply chains being weakened by the Japanese tsumani etc….

In any case our core investment strategy remains although of course it is tailored to individual’s needs. We favour assets with a low beta/correlation to risk assets and an emphasis on real returns via the very best Absolute Return managers. Why Absolute Returns?

1. Their first principle is that those who have money should concentrate on not losing it.
2. They measure their performance against the returns available from cash in the bank, not relative to stock market indices.
3. They do not invest in assets they dislike whereas Relative Return fund manager’s investment decisions are influenced by fear of being left behind the competition and losing their first quartile performance status.

Please let me know if you require any further information.

David

This is taken from our friends at Credit Suisse’s latest research note.

Several factors support a further rally in equity markets:

• Valuations based on 2012/2013 PE’s are cheap by historic standards
• Money market rates will only be raised slowly
• QE2 will only be unwound slowly
• Inflation should ease, thereby not threatening equities
• Corporate cash is at or near a record high, implying increased dividends, increased share buybacks and a trend rise in M&A activity
• Corporate earnings growth will only slow slightly, with global EPS growth projected at close to 14%. The slowest EPS growth will be in Japan at 7%, with the highest in China at over 20% and the US, UK and global emerging markets recording over 15%
• Emerging market Central Banks will stop their tightening cycles over the next two to three months.

However, equity market upside is likely to be limited over the next three months given the moderation in growth and the lack of a further acceleration in corporate earnings. The central case scenario is that markets consolidate around current levels. However, the risks are skewed to the downside in the event of one or more of the above extreme events happening, viz a disorderly Greek default, a US credit downgrade, Spain entering the bail-out fund and an oil price spike on further Middle East disruption.

So without a QE3, sentiment seems to be against long equity positions in the shorter term.

Please let me know if you want to discuss further in relation to your own portfolio.

David

*Important note – this material is provided for informational purposes only as a general market commentary and does not constitute any form of regulated financial advice.

“Everyone and their dog was looking at buying commodities. That can’t go on forever” said a New York Commodities trader at the end of last week.

As a group commodities suffered one of their largest ever one day falls last Thursday, tumbling 4.9%. Oil experienced its biggest two day drop on record in absolute terms. Silver fell 30% over the week.

No single geopolitical event can rationalise the extent and speed of the correction. It is more plausible to suggest that commodities traders collectively, accepting the overextended nature of the market, decided it was time to reduce risk and cut their long positions.

Given the plunge, is this a commodity buying opportunity?

Please get in touch if you would like to discuss the above in relation to your own portfolio.

David

It emerged last week that Bill Gross’s USD237bn PIMCO Total Return fund had cut its holdings of US government-related debt to zero for the first time since early 2008, highlighting investor expectations of rising interest rates.
The move follows warnings by Mr Gross that bond yields were set to rise as the US Federal Reserve comes towards the end of its quantitative easing programme.

In his monthly letter to investors he states:
‘Investors should view 30 June 2011 not as political historians view 11 November 1918 (Armistice Day – a day of reconciliation and healing) but more like 6 June 1944 (D-Day – a day fraught with hope for victory, but fuelled with immediate uncertainty and fear as to what would happen in the short term). Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market handoff and stability in currency and financial markets. 15% gratuities may lie ahead, but more than likely there is a negative two-bit or even eight-bit tip lying on the investment table. Like I did 45 years ago, PIMCO’s not sticking around to see the waitress’s reaction.’

http://singapore.pimco.com/LeftNav/Featured+Market+Commentary/IO/2011/Two-Bits-Four-Bits-Six-Bits-a+Dollar.htm

Please let me know if you require any further information.

David

Our general investment strategy currently is to favour assets with a low correlation to markets and an emphasis on real returns, allowing us to prudently preserve and grow the value of our client’s portfolios. Although actual assets decisions will be subject to individuals needs, risk profile, time horizon etc. our strategy is achieved by investing in a blend of gold, high quality bond funds, managed futures, high yielding and defensive equity funds and the very best Absolute Return managers.

So Why Absolute Returns?

1. Absolute Return funds first principle is that those who have money should concentrate on not losing it.

2. They measure their performance against the returns available from cash in the bank, not relative to stock market indices.

3. For the index-driven fund manager, investment decisions are often influenced by fear of being left behind rather than enthusiasm for an opportunity. By contrast, Absolute Return managers avoid investments they dislike or do not understand.

4. They consider risk in absolute terms as the avoidance of capital loss and they believe that relative investing has become a very risky business. The most widely-used UK benchmark, the FTSE All Share Index, is top-heavy in a few giant sectors and companies. These are ‘must haves’ for the relative investor but only by virtue of their size within the index. The dotcom boom-to-bust experience was a salutary example of what can happen when index-chasers force up the prices of big and fashionable companies in a self-fulfilling spiral. To Absolute Return managers, this is like pressing harder on the accelerator the closer you get to the cliff. They will stand aside from such activity, even when it means they do not capture all the upside in an over-heated market.

Today there are numerous Absolute Return specialists, including hedge funds. At Fry we aim to select the very best Absolute Return managers for our clients.

Please let me know if you require any further information.

David

On the basis that one should be “fearful when others are greedy, and to be greedy only when others are fearful” (Warren Buffett), I posed the question to the staff in the office here whether, according to that ethos, we ought to be considering some exposure now to Middle East & North Africa (MENA) funds. As you might imagine, I got a variety of feedback but, when you read articles as per the example below, it does make you wonder. Is anything in life as clear cut as this article makes out?

http://www.portfolio-adviser.com/article/pa-analysis-avoid-mena-funds-for-the-plague-they-are

I hasten to stress that alternative, high risk investments such as MENA should never form more than 5% of ones portfolio and the investment risks are very explicit at the moment. However, if you would like to explore the options, contact the office : info@thefrygroupsg.com.