Another four years of the same

This past weekend saw Chi Fan for Charity 2012 take place in Beijing which was another huge success with all funds raised going to their selected charities Little Flower Projects and The Starfish Project. Here at Austen Morris Associates, and with the support of the Shanghai community, we’re now gearing up for the 2nd annual event of Chi Fan for Charity this Saturday 17th November from 7:30pm. Tickets are still available if you’re in town and want to be involved. Please visit www.chifanforcharity.org/shanghai for tickets.
In other news, as I’m sure you all saw, last Tuesday, Mr. Obama got re-elected for his second term, while Green Moon took the Melbourne Obama WinCup, running to an amazing victory ahead of many other favourites. All of that excitement however was followed by the US stock market declining on very heavy volume a day later and Wall Street also failed to bounce on Thursday with major US indices closing near the day’s lows. Not all was lost though – US treasuries and precious metals having moved strongly to the upside at the same time.
As we write to you, the stock market remains in correction mode and the path of least resistance remains down. It is noteworthy that as mentioned, all major US indices closed below the 200-day moving average last week Thursday and this puts the broad market on thin ice. Despite this, we do believe we are getting close to short term oversold conditions meaning a bounce in the markets is looking more likely.
Commodities CopperOver in the commodities complex, the CCI Index has declined below the 200-day moving average and this weakness is in line with our expectations. Copper is now trading below the 200-day moving average and it is deteriorating, which could pose a buying opportunity in the near future.
In the precious metals patch, both gold and silver have appreciated by almost 4% from their recent lows and given the strength in the US Dollar, this action is impressive. In order to improve the technical picture, both gold and silver will need to close above the 50-day moving average. However, the ongoing strength in the world’s reserve currency could turn out to be a major headwind. From our point of view, we recommend having exposure to precious metals in investment portfolios and believe it is still one of the best hedges against inflation.
Looking at currencies, the charts reveal that the world’s temperature is rising and the US Dollar Index has now climbed above the recent high asDollar Stregnth well as the key 200-day moving average. By doing so, it has established its uptrend and bearing in mind the ongoing QE, this strength is impressive. At this stage nobody knows why the US Dollar is advancing but it is conceivable that the private sector debt deleveraging in the West is partly responsible for this rally. Furthermore, it is also possible that the greenback is discounting a US recession or additional credit strains in Europe. Regardless, as long as the US Dollar is showing signs of strength, other major currencies are likely to decline.
Over in the bond market, US Treasuries are rallying as a safe haven asset. In our view, if the economic outlook deteriorates further, long-term interest rates in the US will probably decline to record lows, so the 30-Year US Treasury Bond may climb to a new high. On the whole, we currently have a modest position in US Treasury securities in most of our portfolios that we recommend to investors and believe it is an important part in providing portfolio balance.
ChinaFinally, with China’s Communist Party policy makers meeting in Beijing to anoint new leaders for the next decade, it should be an interesting week ahead and we’ll reflect on this in next week’s Money Matters.
For Austen Morris Associates investors – remember to hold a balanced portfolio and talk with your advisor about any repositioning to take advantage of markets at this time. For more updates on the world financial news please visit our Weekly Global Economic Outlook.
Wishing you all a great week!
Co-Head of Portfolio Management,
Bill Longstreet
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com