weekly strategic plan 04302012
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7/28/2019 Weekly Strategic Plan 04302012
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Liquidity Cycle
THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF INFINIUM CAPITAL MANAGEMENT, LCC AND ITS EMPLOYEES TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communicati on is not the intended recemployee or agent responsible for delivering to the intended recipient), you are hereby notied that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately inform Innium Capital Management, LLC and then disregard and delete this communication. Do nretain any copy of this communication.
I found the past week to be an interesting and deceptive one. Socialist candidate wins the rst round of the French presidential election
and is favored to win the nal election next weekend. Spain was downgraded by two notches into the Bs and with a negative outlook. The
BOJ disappointed the market with only a limp wristed nod toward a weaker Yen. GDP and other economic releases in the US generally
disappointed expectations. But the US equity market absorbed that news and moved on. Seemingly, in the end, the only thing that mattered
was Apple.
The market prole chart of the S&P futures the past 5 days shows a steady progression of normally distributed days with rising valuation. Som
not how the intraday action felt at the time.
The Liquidity Cycle Index rebounded on strength in the early cycle group which includes technology and of course Apple. The chart of the LC
Weekly Leading Index is presented in a different format this week. This chart is based on the ECRI WLI ( black line) with overlays of the LCI (p
the SPX Index (blue line).
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7/28/2019 Weekly Strategic Plan 04302012
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THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF INFINIUM CAPITAL MANAGEMENT, LCC AND ITS EMPLOYEES TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communicati on is not the intended recemployee or agent responsible for delivering to the intended recipient), you are hereby notied that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately inform Innium Capital Management, LLC and then disregard and delete this communication. Do nretain any copy of this communication.
The Liquidity Cycle Indicator is constructed to keep us in tune with the economys location within what are normally 3 to 5 year business cycles but,
the current environment of extreme interventionism by cadres of mostly unelected G7 government bureaucrats is severely distorting information
ows and supply demand signals that drive decision making all through the economy. As the chart above shows the ECRI Weekly Index has been
less responsive to the recent rally due apparently to a greater weighting of those factors we call mid-cycle or stage2 components. (includes energies,
materials, and industrials for example)
The following comments and chart are from a note I sent out Thursday morning related to Shanghai and the Stage 2 and CRB index.
The next chart is the Shanghai comp (white) overlaid with the CRB index (green) and the XLE energy etf (purple). These three have bee
correlated. The AUDUSD can be switched with the XLE and look just the same.
The Shanghai has turned up briey and is challenging the 200 da ma and now the energies and the commodities are following that lead. This
no more than a correction of the at to weak trend but if we get follow though this will bode well for energy stock recovery, industrial metals
and Asia pacic stocks. Falling back to lows would obviously be forecasting a more serious economic slowing. (from Thurs April 26 at 12:00 a
Comparing the two charts above between the early and mid-cycle components of the Liquidity Cycle Indicator show how much the early cycle group is
dominating the price action at present. The stage2 or mid-cycle components are behaving much differently explaining the more reluctant action of the
ECRI Weekly Leading Indicators. The stage2 group correlates with the CRB and China and the ratcheting down of global growth expectations the last
couple of months turned these groups lower. The Shanghai A shares Index turned up a bit last week, and should that continue the stage2 components
will rm up and may power the equity market through resistance.
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7/28/2019 Weekly Strategic Plan 04302012
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SECTORS
Public investor sentiment is still cautious even though the equity markets have held near highs.
One caution here is that the small investor is not likely to participate with the same vigor as in the 90s because the 80 million strong baby boomer
contingent was badly burned by the 2008 washout and simply cannot assume the kind of volatility and risk they perceive in equities.
Sector performance was good across all sectors this week except the consumer staples which suffered from setbacks in Procter and Gamble.
improved as the correction that had dened the past 2 weeks began to reverse.
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7/28/2019 Weekly Strategic Plan 04302012
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THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF INFINIUM CAPITAL MANAGEMENT, LCC AND ITS EMPLOYEES TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communicati on is not the intended recemployee or agent responsible for delivering to the intended recipient), you are hereby notied that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately inform Innium Capital Management, LLC and then disregard and delete this communication. Do nretain any copy of this communication.
A chart of US 10yr yields is representative of the xed income market rally back into the months old price range near the highs. (yield lows)This table of recent performance by ETF type shows the plurality of US index performance last week. (Table from Bespoke Investment Grp)
One sees a far more confused picture among the global etfs at the upper right of the table.
Fixed income markets were also rm in the US on a combination of ight to safety f rom European sovereign risks, some risk off reactions to
less optimistic economic releases, and the reluctance to go all in on equity investment allocation.
These are charts of 5 yr sovereign CDS for different regions.
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7/28/2019 Weekly Strategic Plan 04302012
5/11THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF INFINIUM CAPITAL MANAGEMENT, LCC AND ITS EMPLOYEES TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communicati on is not the intended recemployee or agent responsible for delivering to the intended recipient), you are hereby notied that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately inform Innium Capital Management, LLC and then disregard and delete this communication. Do nretain any copy of this communication.
The left chart on the previous page has Spain, Italy, Portugal, Ireland, the Netherlands, and France. The right chart is South America with Argentina,
Brazil, Chile, Columbia, Mexico and Peru. The chart below left is Asia Pacic. Included are Malaysia, Indonesia, Japan, Thailand, Hong Kong,
Vietnam, Philippines, and South Korea. On the right are Middle East and N Africa with Egypt, Abu Dhabi, Qatar, Saudi Arabia, Bahrain, Dubai and
Israel.
Most graphs show a drift higher for the last 2 months. A few much more than others.
ENERGY
Both WTI and Brent nished the week higher and spreads mostly were up over the 5 day period also. Heating Oil gained against crude and g
while gasoil gained on crude. RBOB did lose ground to crude. The WTI curve steepened in both the front end which is in mild contago but als
the already backwardated back of the curve.
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7/28/2019 Weekly Strategic Plan 04302012
6/11THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF INFINIUM CAPITAL MANAGEMENT, LCC AND ITS EMPLOYEES TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communicati on is not the intended recemployee or agent responsible for delivering to the intended recipient), you are hereby notied that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately inform Innium Capital Management, LLC and then disregard and delete this communication. Do nretain any copy of this communication.
Brent crude is backwardated all the way back but that steepened some in the front year contracts as supply uncertainty still weighs on markets.
Agricultural Commodities
A rocking week in the grain pits as front month beans and meal spiked higher this week.
The chart on the left below is RBOB which moved very little but did increase its backwardation a bit especially through the next winter period. The
right chart is Heating oil which is mostly in mild contango which lessened somewhat on the weeks price rally. All of these markets indicate some
demand at the front end relative to last week. That is bullish plurality.
The chart on the next page is the Natural Gas curve. I did not include the outright price chart of Nat Gas because it has been a relentless and
unforgiving downtrend. Rather like a marble rolling down and childs playground slide. The curve charts have been just a boring up till this week. The
curve had been in a long contango which did not seem to ever change shape but would reect the lower price of the outright. But lo and behold this
week an oddity, the shape changed. The spread portion of this chart at the bottom shows the curve attening slightly. Perhaps this is a meaningless
uctuation but I suggest we pay attention. The bulls have picked the bottom again and again in this market only to see prices fall further. The curve
attening may be a signal of some capitulation by the bulls. I have seen two recent signs of potential fatigue in this market: rst the over condent
bears are speaking of the real possibility of negative prices occurring, and two talk that Linn Energy hedged is production all the way out the curve.
No doubt my thoughts are premature but my spider sense is tingling. I have learned to pay heed to those tingles.
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7/28/2019 Weekly Strategic Plan 04302012
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THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF INFINIUM CAPITAL MANAGEMENT, LCC AND ITS EMPLOYEES TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communicati on is not the intended recemployee or agent responsible for delivering to the intended recipient), you are hereby notied that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately inform Innium Capital Management, LLC and then disregard and delete this communication. Do nretain any copy of this communication.
The 5day % change column in these tables show the strength of soy, soymeal, corn and wheat. Soy oil weakened as the oil supplies are deemed
adequate. Coffee, sugar, and the meats resisted the up move. The curve charts of the grains show the strength was very much in the old crop
contracts largely supported by news of Chinese purchases.
The oddball Minneapolis contract seems nally to show an easing of supply concerns.
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7/28/2019 Weekly Strategic Plan 04302012
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Environment: There is not a single market designated as volatile in this table. I suspect some soybean traders would object to that
characterization. Another performance like last week should change the grain rating.
Metals: Plurality in the metals is still good. Most were slightly improved on the week. The Copper curve chart below clearly reveals a bullish
steepening on the price rally. This is almost entirely in sympathy to the China equity rally and hope for policy ease to avoid hard landing.
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7/28/2019 Weekly Strategic Plan 04302012
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THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF INFINIUM CAPITAL MANAGEMENT, LCC AND ITS EMPLOYEES TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communicati on is not the intended recemployee or agent responsible for delivering to the intended recipient), you are hereby notied that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately inform Innium Capital Management, LLC and then disregard and delete this communication. Do nretain any copy of this communication.
Commentary & Supporting Material
Bulls and Bears
Charts that are Encouraging
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7/28/2019 Weekly Strategic Plan 04302012
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Coming a Yen Shock
There is likely to be a sudden and massive devaluation of the Japanese currency 30 to 40 per cent predicts the well-known Asia-based economist
Andy Xie. Although he doesnt suggest when that will happen, he clearly believes its occurrence cant be long delayed.
The worlds third largest economy is in serious trouble, he says, with GDP contracting. The unprotability of major exporters and emerging trade
decits suggest that the unsustainable path of a strong yen and deation is coming to an end.
Japan has lost competitiveness in a swathe of industries that it used to dominate such as automobiles and electronics. The public debt bubble
continues to inate and is expected to reach 215 per cent of GDP this year. But when markets awaken to how bad things are, they will ee, and the
yen will collapse.
Such a plunge in the yen will be a big shock to Japans neighbours such as South Korea and China and distant competitors like Germany. But it will
lay the foundation for recovery in Japanese industries.
--On Target Apr 28 Martin Spring
Stocks and Shocks: what to do?
April 29, 2012
How do we avoid walking into a left hook in the markets? That was the discussion this week during a client review. Cant you see them com
avoid them? he asked.
Well maybe some folks can, but the issue of investing with possible shocks as an outcome is a very difcult one. Do you position for the wors
outcome? If yes, you would never invest in anything. Do you anticipate the best outcome? That seems foolish. Is there a middle road? We
and that is why we use a combination of ETFs and bonds. That is why we recommend diversifying risk among several asset classes.
Below this introduction is a partial list of upcoming potential shocks. As readers will note, we can see the potential shock relatively clearly. Sc
MacDonald of MC Asset Management calls them dangerous seas ahead. His maritime metaphors sequence the Titanic and the Lusitania. L
AIG and the meltdown were the Titanic. This leaves us to wonder if the US economy is not like the Lusitania, operating in a high risk environ
but felt to be safe from prowling German U-boats in the North Atlantic. ponders Scott.
Of course, we cannot know the result of a potential risk before it happens. We cannot know the outcome and the policy shift. Therefore, the
anticipatory period preceding the risk and the aftermath, if as and when the risk is realized, are not symmetrical. In other words, you are inves
asymmetry. Knowing this in advance allows an asset-allocation rebalancing as the circumstances and probabilities change. In other words, re
reassess, reassess risks and rebalance, rebalance, rebalance.
Some of the discussion in our new book addresses these types of asymmetries.
In the book, we actually show the comparison with the ten sectors of the S&P 500 index and the relative performance of each sector in the be
in the subsequent bull market
Possible shock number 1. The Fed will cease Operation Twist on June 30. They conrmed the policy shift as recently as this last meeting an
Bernankes statement. What will a twist cessation bring to bond yields? Will it change home mortgage interest rates? Delay a housing marke
recovery? Alter the steepness of the yield curve? Or the atness of the yield curve? What happens to bond credit spreads? Pricing of repo
collateral? Maybe the whole thing will pass as a non-event. Nobody knows.
Now lets get to some potential shocks and comment about them.
Possible shock number 2. The so-called scal cliff is approaching at year-end. Strategas Dan Clifton and Jason Trennert have hammered t
theme. Their summary identies three elements: roughly one-third of the entire tax code expiring at the end of the year, the spending seq
beginning on January 2, a debt ceiling increase needed in the six weeks after the election and before the end of the year. How much will ma
anticipate these outcomes? How deep is scal drag? Is there a scal drag? Is Ricardian equivalence dead? How large is the policy shift dan
to our country from the Congress? From this president? From next years president, re-elected or new? All of these tax-spend-borrow outcom
are probable in the present-day realm of American politics. That puts our American destiny in the hands of a class of people who are very unp
and despised by the majority of American citizens. Our politicians have become the scurrilous, scatological scoundrels that we elect and send
Washington. We include both political parties in this opprobrium. Jack Bittner asks if we should limit all pols to a single term.
Possible shock number 3. The Bank of Japan has leaped to the top of the G4 central banks when it comes to balance-sheet expansion. BOJ
announced an increase in the rate of asset purchases and an extension of the duration of the Japanese sovereign debt it will buy. Initial mark
reaction was that this plan is not enough. BOJ is trying to get Japans ination rate UP! They have not succeeded in the past. Is this time d
What will be the impact on the foreign exchange markets? Will the yen weaken? If so, which currency will strengthen? We have written in th
that FX market adjustments are quite distorted when the G4 central banks are all maintaining their policy interest rates near zero.
Possible shock number 4. The FDIC limit on non-interest-bearing demand deposit insurance is scheduled to revert back to the pre-crisis level
end of this year. We quote from the FDIC website: From December 31, 2010 through December 31, 2012, at all FDIC-insured institutions, de
held in noninterest-bearing transaction accounts will be fully insured regardless of the amount in the account. For more information, see the FDcomprehensive guide, Your Insured Deposits, at www.fdic.gov/deposit/deposits. What will be the impact in the money-market end of the yield
Will there be an extension of the termination date if markets begin to tighten? What will happen to repo rates? Repo collateral pricing? How
is the Fed watching this development, since the Fed has been providing the market with more repo collateral (T-bills) through its Operation Tw
there a relationship, or will there be one? Can the banking system withstand larger withdrawals of zero-interest deposits if corporate agents d
deposits to be insecure without FDIC insurance coverage? Note that the FDIC just closed ve more banks this week. In the case of the Bank
Eastern Shore, Cambridge, Maryland, the FDIC has not found a buyer or merger partner, and the uninsured depositors are at risk of loss. Re
who are still worried about the safety of their bank deposits may check the FDIC website for the current rules.
This list comes to me from Damian Kestrel of CLSA in Asia.
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7/28/2019 Weekly Strategic Plan 04302012
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THIS COMMUNICATION IS INTENDED ONLY FOR THE USE OF INFINIUM CAPITAL MANAGEMENT, LCC AND ITS EMPLOYEES TO WHICH IT IS ADDRESSED AND CONTAINS OR MAY CONTAIN INFORMATION THAT IS PRIVILEGED, CONFIDENTIAL OR EXEMPT FROM DISCLOSURE UNDER APPLICABLE LAW. If the reader of this communicati on is not the intended recemployee or agent responsible for delivering to the intended recipient), you are hereby notied that any dissemination, distribution, or copying of this communication is strictly prohibited. If you have received this communication in error, please immediately inform Innium Capital Management, LLC and then disregard and delete this communication. Do nretain any copy of this communication.
Possible shock number 5. Watch the price and futures prices of Brent crude. Many are sanguine about oil and energy pricing and the gasoline price.
We are not. Libyan production is not coming back in a hurry (hat tip to Barclays for superb research on the risk of Libyan civil war). Geopolitical risk
is high in the Persian Gulf (Iran) and in Nigeria (see the developing news story of turmoil in this important oil-producing country). Worldwide demand
for oil inexorably rises. US energy policy still fails to accelerate our move to energy independence. Despite Energy Secretary Salazars protestations,
the fact is that the Obama Administration has a failed energy policy and continues to pursue it. We do not drill, we do not encourage the use of natural
gas in an accelerated and proactive way, and we do stymie new production and exploration. We do have pipelines running in the wrong directions,
and we do have distorted domestic oil pricing because of excess inventories in Cushing, Oklahoma. At Cumberland, we remain attentive to this sector
even as the market has become sanguine about it. We continue to hold our oil-energy-exploration and oil-service positions. The range of forecasts of
the oil price is a mile wide. We have seen a low of $40 a barrel within two years and a high of $175. We lean to the higher price, not the lower one.
I will stop now with the list of possible shocks and leave it to the readers imagination to complete this compendium with thoughts about Europe or
China slowing or future ination risk.
Here is how we see the portfolio management decision. Remember this is today. It could change tomorrow, next week, next month or next year. The
operative structure is reassess, reassess, reassess, rebalance, rebalance, rebalance.
Cumberland continues its fully invested approach using ETFs. We have been in that mode since the bear-market bottom of October 3. We think the
bull market that started on October 3 is only half over as to price change and only one-third to one-fourth over as to time. Of course, any shock could
derail this forecast.
This chart on net oil imports as a percentage of US conssumption is another a very positive change in future prospects for the United States. The
main source of the huge trade imbalance the US has had for years has been the cost of imported oil. Look at the improvement in the chart and realize
that is money we are not spending overseas. I recognize some of that decline is a result of economic slowdown suring the nancial crisis but much of
it is not. The bright prospects for energy resouce development in the US will keep improving and will have major effects world wide. If we shrink our
trade decits it will mean far fewer dollars owing overseas and will reduce pressure on the currency. Our lower decit means much lower surpluses
elsewhere. There will be major changes in relative economic strength that work in the US favor after decades of working against us. The 2020s and
30s are going to be much better than anticipated with one caveat. The governing bodies in Washington must begin to function. Congress must nd
the courage and integrity put our nancial house on a path to sustainability and restructure our labor force so that people have the skills to contribute
to productive enterprise and thus provide for their own welfare. The entitlement mentality must be destroyed.
Bruce Lawrence April 29. 2012
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