Alain Bokobza of the Société Générale Quant team, writes that their “Economic surprise indicator” suggests risky assets are now technically vulnerable:
“After undergoing a massive rally since last September, risky assets are now technically vulnerable: SG Quant sentiment indicator is close to an all-time high, economic revisions have rarely such a high percentage of upgrades, equity volatility is at a four-year low, the Canadian dollar is dear versus the USD and lastly inflows into equities reached $8bn last month, led by “panic-buying.”
This economic surprise indicator is a measure of the deviation of economic data surprises, calculated as the difference between figures released and figures expected by consensus. Global Equities relative to Global Bonds: 3-month performance of MSCI World Index (in US$, in total return) divided by Barclays Global Bond Index (in US$, in total return).
>
>
1 & 3: time to switch out of bonds into equities 2 & 4: time to switch out of equities into bonds
>
Source: Don’t despair: correction of risky assets likely coming soon Alain Bokobza, Roland Kaloyan, Arthur van Slooten, Philippe Ferreira Multi Asset Snapshot, Société Générale Quant Group Asset Allocation Strategy
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
The second indicator is the Citigroup Economic Surprise Index (CESIUSD on Bloomberg). There have been other 7 occasions when the CESIUSD breaked 50 since its inception in 2003 (last signal on Feb, 4, 2011 @ 1310,87). The S&P500 was positive after 37 weeks in 6 of that 7 issues. Also, in 5 of that 7 cases the S&P500 has gained at least 10% at some point during that time span. I think is too early to switch out from equities for going into bonds. The best moment to do that will probably be when a chart divergence between 10Y yield and economic surprises appears.
Connecting the dots, the world over:
http://www.economicpopulist.org/content/libya-kaddafi-and-marketing-dictators
Stocks are trading at CAPE ratios of around 24 while short duration bonds offer return free risk(at least based on real returns not nominal). Its a tough call, but the tail risk of stocks versus the guaranteed return of a treasury suggests the better bet is on bonds.
where is “5: time to switch out of both bonds and equities” ?
You must be logged in to post a comment.
The individual investor should act consistently as an investor and not as a speculator. This means.. that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase. -Benjamin Graham
It's interesting to watch the Fed try to blow up the inflation bubble at the same time other countries around the world are trying to deflate it. Last night Chile raised interest rates by 25 bps to 3.5%, the highest since Mar '09 and China this morning raised reserve requirements again by 50 bps. The Yuan also appreciated to a new high vs the US$. In their decision, the Chilean central bank said "private inflation expectations are showing increases, particularly in the short term." ECB member Smaghi hinted that they would have to raise interest rates if inflation becomes more...
Order Bailout Nation
Read Full Article »