This Week In Money Interview - A Technical Analysis of the Financial Markets - Mike Swanson (05/11/2014)

I did this radio interview discussion with investment adviser and technical analyst Ross Clark of CIBC Wood Gundy. We talked about the big trends impacting the market now and what we are both keeping our eye on in the charts. This broadcast was part of This Week in Money.

To listen to this interview go here.


Plausible explanation

News from

Why did Nasdaq, yields fall? Pension funds

Saturday, May 10, 2014

Scott Barlow, Globe Investor's in-house market strategist, writes exclusively for our subscribers at ROB Insight and Inside the Market online. Subscribe to Globe Unlimited at

A strengthening U.S. economy, along with rising equity markets and interest rates, was the consensus forecast among economists as 2014 began. It hasn't turned out that way, and a prominent interest-rate strategist presents a fascinating, compelling explanation why.

Kevin Ferry is the founder of the Chicago-based Cronus Futures management and is among the most respected voices in the arcane but very important worlds of eurodollars, credit swaps and interest-rate futures.

Mr. Ferry advanced a theory that the March selloff in growth stocks, and the decline in U.S. bond yields, is the result of a massive portfolio re-allocation by pension funds.

"Public corporate pension funds, thanks to the over 30 per cent gain in the S&P 500 last year and the rise in rates .... are 100 per cent to 110 per cent funded. At the end of the first quarter, a number of large pension funds were up 8 per cent on the year because of their holdings in the [momentum] stocks ... it became attractive to reduce growth assets and increase hedge [fixed income] assets."

In other words, pension funds became overweight equities because of the strong performance of U.S. growth stocks in the 12 months ended February. In response, they took profits in successful stock investments and bought bonds with the proceeds to help meet future liabilities.

The accompanying chart, comparing the yield of the 10-year U.S. Treasury bond with the technology-heavy Nasdaq composite index, suggests the theory is at least partially correct.

Beginning March 18, the Nasdaq and bond yields began moving lower, roughly in tandem. This is what we'd expect - the selling of Nasdaq stocks drove the index lower and, since bond prices and yields move in different directions, the increased buying of bonds drove yields lower.

For investors, the bad news is that high-valuation momentum stocks like Facebook Inc. and Twitter Inc. are unlikely to recover any time soon. U.S. public pension funds are generally much better funded than they were, they're content with longer-dated bonds to ensure they'll have cash on hand to match the benefit payments they'll have to make, and so they don't need to increase their portfolio risk right now.

The potential silver lining is that the collapse of the mini tech bubble will see the more conservative, valuation-conscious investment strategies move to the fore. Last year, attempting to outperform the equity benchmarks virtually forced investors to chase stocks like Inc. (which was trading at over 500 times trailing earnings) and praying that they won't fall apart - in vain, as it turned out.

A more conventional market environment, where stocks with attractive price-to-earnings ratios and reliable growth outperform, is much more navigable for investors and should be welcomed. It reaffirms the proven, long-term benefits of prudent stock picking and risk management.

\\// "Nowhere am I so desperately needed as among a shipload of illogical humans"

Kevin Ferry is the real thing. I have a lot of respect for his views.


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