Troubling signs:  Correlations spike during recent market turmoil
June 25, 2013
   

Markets show troubling trend developing

 

We've noticed a troubling phenomenon under the surface of the global markets.  Starting just a matter of weeks ago, there was a violent shift in short-term asset class correlations.  Whereas in the past, U.S. bonds could be counted on to soften the blow of an equities market downturn, we're now seeing an unwelcomed situation, one in which stocks AND bonds fall simultaneously.

 

Below is a chart showing the Four Horsemen:  U.S. Stocks, International Stocks, U.S. Treasuries, and U.S. Corporate Bonds.  Most of the time, the two bond categories are not highly correlated to stocks and are a good diversification tool.  Unless bonds find much needed buyers again soon, we may be in for a time of highly correlated stocks and bonds, which won't be fun if they continue to fall together. 

 

Four Horsemen

(Source: Yahoo Finance.  Daily to 6/24/2013)  

 

Matter of fact, one has to venture back over 30 years ago to find a multiple month time period when all four asset classes fell in unison.  It was during the final stage of the bond bear market (yes, even bonds have bear markets) back in 1981.  All four asset classes fell double-digits, although the pain wasn't as great as when three of the four fell together during the 2008 financial crisis.  At that time, U.S. Treasuries soared in a bid for safety, which was a welcomed development, one we are not (so far) enjoying in the present.

 

What fate does the future hold?

 

In a recent interview, Jeffrey Gundlach from DoubleLine Funds seemed to imply that this back-up in yields has nearly exhausted itself and will peter out somewhere between here and 2.90% on the 10-year Treasury.  We see strong arguments for both sides of the issue.  We believe most of the arguments for the continued implosion of bond markets around the globe, but we also see strong signs of a global economic slowdown.  These two forces seem to be in a violent tug-of-war that until settled, only brings one certainty:  volatility.

 

Fortunately, a few of our tactical strategies have benefited from a rise in bond yields (via an inverse ETF) for several weeks now.  Our models will stay with that trade as long as the trend continues. Always seeking new opportunities, our tactical strategies will continue to monitor the rapidly changing investment climate, looking to take advantage of new trends as they emerge.  

 

 

 

 

 

For more information about this investment strategy, please contact us:

 

(877) 885-7468

www.optimusadvisory.com 

info@optimusadvisory.com 

 

 

 
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At Optimus Advisory Group, we're trying to meet the need for liquid tactical & alternative investment strategies.  
 

For more information about any of our programs, please contact us.  You may also download the fact sheets for any of our investment strategies by scrolling back up to the top and clicking the Investment Strategies webpage link.  Each fact sheet contains disclaimers and disclosures for each model.

 

Thank you for your interest in our investment strategies.  We'll continue to keep you informed as we move forward.

 

Sincerely,

 


Steve Rumsey

Chief Investment Officer
Optimus Advisory Group

(949) 727-4734

 

Advisory services offered through Optimus Advisory Group,
a registered investment advisor.

 

Disclosures

The performance results shown include the reinvestment of dividends and other earnings. Comparison of the Optimus Advisory Group Programs to any other indices is for illustrative purposes only and the volatility of the indices used for comparison may be materially different from the volatility of the Optimus Advisory Group Programs due to varying degrees of diversification and/or other factors. Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. Optimus Advisory Group does not make any representation that the Optimus Advisory Group Programs will or are likely to achieve returns similar to those shown in the performance results in this presentation. Optimus Advisory Group reserves the right to trade different funds within their models.
 

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that future performance will be profitable, or equal to any corresponding historical index. The S&P 500 Composite Index (the "S&P") is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard & Poor's chooses the member companies for the S&P based on market size, liquidity, and industry group representation. Included are the common stocks of industrial, financial, utility, and transportation companies. The historical performance results of the S&P (and those of all indices) do not reflect the deduction of transaction and custodial charges, nor the deduction of an investment management fee, the incurrence of which would have the effect of decreasing indicated historical performance results. The S&P is not an index into which an investor can directly invest. The historical S&P performance results (and those of all other indices and index funds used as proxies for indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual client or prospective client in determining whether the performance of the Optimus' portfolio meets, or continues to meet, his/her investment objective(s). It should not be assumed that any Optimus portfolio holdings will correspond directly to any such comparative index.
 

Different types of investments and/or investment strategies involve varying levels of risk, and there can be no assurance that any specific investment or investment strategy (including the investment strategies devised or undertaken by Optimus Advisory Group) will be profitable for a client's or prospective client's portfolio. All performance results have been compiled solely by Optimus Advisory Group and have not been independently verified.
 

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