Global Macro Portfolio
In the month of February, we have kept our small positions in China and India indices that we opened in January 2012. We were expecting a correction to come soon, which is way overdue. Thus, this month, we have seriously underperformed the S&P 500.
From this month onwards, we will be adding another two benchmark indices, giving a better gauge of our performance. The two indices are the Dow-CS HFI and Emerging Markets ETF. The Dow-CS HFI stands for Dow-Credit Suisse Core Hedge Fund Index, which can be found at www.hedgeindex.com. The Emerging Markets ETF (EEM) is a product developed by iShares to represent the growth in Emerging Markets. The two indices are shown in the tables below:
S&P500 was obviously the best performing for the month. However, we at Stoxster are not that disappointed with our results as we have only invested a little bit over 10% of our capital, and have not leveraged up as many hedge funds would have.
Too Much Optimism In The Markets
Looking at both the S&P500 and the Emerging Market ETF (EEM), we are seeing way too much optimism. Buying with the herd will be a big mistake.
US Housing Index (Case-Shiller Index) Made New Lows
The weakest link in the markets today is the US housing index. The index has made new lows.
Due to problems in Greece, markets have not been focusing on the US housing situation. In addition to this, markets are happy to see that US exports have been increasing thus decreasing the deficit. However there is no concrete sign that US will become the net exporter in the foreseeable future. Americans are still enjoying the cheap imports from emerging markets.
As you can see, the chart above is still in negative territory , meaning that US is still importing more than they are exporting and they have been doing this since 1974. Habits are very hard to change.
DXY in Bullish Divergence Mode
Another interesting observation is that the Dollar Index (DXY) has given a bullish divergence signal. This goes to show that the US Dollar will likely be rising against major currencies. The major trend for the last ten years has been that when S&P 500 rises, the dollar falls. Right now, the S&P 500 is rising with the dollar. We believe this is because of the uncertainty in the European situation, which will eventually push the Euro down further, giving strength to the US Dollar, in turn the DXY index. The DXY’s uptrend is a factor that shows that a correction is near, but not a factor to show a crash is coming.
Investing More After A Correction
Stoxster believes the markets are very optimistic and rather overbought from all perspectives – fundamentally, technically and even psychologically. A correction is overdue, and when it does happen, we will be investing more into emerging markets as we believe the indices are relatively undervalued compared to the S&P 500. Most of the information here in this very blog post seems very negative. Yup. Stoxster is very bearish at the present moment, but this does not mean we should short all the time. Governments worldwide have been putting in an overdose of stimuli, which has made us bullish for the medium term.