Morning Note: Fundamentals do matter, just not lately…

Asian equities traded mixed overnight, although China saw a nice rally, as its central bank did more of the central bank stuff that world equity markets are lapping up these days. There’s of course the obligatory how long can they keep doing this, and/or, how long will markets continue to buy it? questions come to mind, but we’ll continue to explore those in other commentary. Europe’s having a nice morning so far, with 16 of the 19 markets we track in the green. US equities are mixed: Dow down 75 points (-0.27%), S&P 500 up 0.29%, Nasdaq up 0.70%, Russell 2000 up 0.38%.

The VIX (SP500 volatility) is flat, at 22.04, VXN (Nasdaq vol) is down 0.34%, at 29.04. 

Oil futures are up 1.02%, gold’s up 2.07%, silver’s up 3.48%, copper futures are up 1.28% and the ag complex is green nearly across the board. 

The 10-year treasury is rallying this morning (yield down) and the dollar is off -0.28%.

Our PWA core portfolio is starting the day off nicely, up 0.70% as I type. Silver, gold, base metals, emerging market equities, healthcare, and ag commodities are our leaders this morning. Financials, energy, industrials and Verizon are our losing components thus far.

As clients and regular readers know, our present, ever-evolving thesis is that a strong dollar is simply out of the question — given the utterly precarious global debt edifice — for the powers that be. Of course the currency market is indeed mammoth and, therefore, fundamentally, it can be difficult to control over longer periods of time. That said, while I absolutely expect to see significant counter-trend moves in the dollar as things play out, the longer-term fundamentals are anything but supportive. 

So, if a weak dollar is good for stocks, why not back up the truck, dump the hedge, and load it up with stocks? Well, there are these things called earnings, there’s this thing called valuation and there’s this elephant in the room called the global economy. Ultimately — not lately mind you — these things matter, and when they do, if they’re not properly reflected in equity prices, the adjustment can be quite dramatic…

The good news is, a weak dollar can be very good for commodities as well, and, by definition, we don’t have the above referenced equity market metrics to contend with. Hence our present 23% target allocation.

Have a great day!


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