Risk Assets becoming more risky again...

We have advised our clients to scale down equity exposure on Friday of last week (Sept 20) due to the following factors:

1) Increasing divergence between the slightly worsening macro figures and equity market performance. 

2) Lack of "Risk On" follow-through after the ECB and Fed announcements.

3) Total complacency in the market as measured by a big portion of our Contrarian Indices.

4) Unexpectedly rising Geopolitical Risks -  which in our opinion have not been properly priced in yet.

5) Various cycles and indicators pointing to a high probability of a potentially strong correction between Sept 25 and Oct 15.



The Japan-China "conflict" has clearly been orchestrated by the Chinese side, and we suspect it severs to distract from internal problems and to create a sense of national unity among the populace.  This means that the current "leadership transition" is not going as smoothly as many China Bulls might have hoped. This is also what the continuously falling Shanghai Index is signalling:  the Chinese Growth engine is stuttering, and currently, nobody there seems to be able to take courageous decisions to deploy massive stimulus and risk renewed inflation.  By the way, has anybody noticed that Iron Ore prices have fallen by about 35% from their March peak?

We also suspect that the Anti-American uprisings currently taking place throughout the entire Muslim world look a bit too spontaneous, given the dubious nature of their alleged "trigger": a video which has a very strange history of origin and most probably has not been seen by a lot of people at all.  Meanwhile, a third US navy battle group is approaching the Persian gulf. 

While everything still looks fine, we prefer to err on the cautious side. The markets currently behave as if the ECB and Fed announcements were cases of "buy the rumour, sell the news" - so far quite contrary to the stimulus rallies that ensued in the previous 2 instances.

Could it be that the markets start to smell out that money printing might possibly help to avoid the big deflationary liquidation, but does little to actually "stimulate growth" ?

"This is it." The Bond Bubble will deflate from here.

After another overshoot earlier this year, we believe we are now seeing the Beginning of the End of the biggest bubble in of the last 30 years: The Bubble in G7 Government Debt.

If you still own long-dated government bonds, even of the "best quality", sell it.

Outlook 2012 and Beyond - Important Longer Term Dynamics....

We have just published our Outlook 2012 and beyond.

It can be downloaded here:

http://www.compass-capital.ch/pdf/20120125_AnnualOutlook.pdf

This Outlook sheds light on some important longer-term dynamics that are, unfortunately, more or less pre-determined and will shape the global investment landscape as a background factor for years to come.

It also contains a review and grading of our Outlook 2011.



Just to give some additional perspective:

Here is what what we had told our clients and friends in our Outlook 2011 (published on January 24th, 2011) regarding global equity markets:

2011: „Buy the next 7-10% correction, but be prepared

for a larger decline into summer or late autumn.“

And here is what the Market Strategists of the established Wall Street Banks forecasted for their clients for 2011 (taken from the Barron's Strategists survey 2011:

Average year-end target for the S&P500 by the 10 strategists surveyed by Barron's: 1373.  

Actual close:  1244 (9% lower), AND the S&P500 experienced a 20% drawdown in between. That is relevant because that is a correction where most investors start to sell.

The same thing goes for the „exclusive“ CNN MONEY SURVEY for 2011.  Those surveyed Investment strategists and money managers expected the S&P 500 to rise 11%, on average. 

Not one of the 32 experts surveyed by CNNMoney forecasted that the S&P 500 would close flat or that equity markets would decline in 2011, as most markets in Europe and Asia did.