Good morning folks.

It only took two days for the troops to catch up to the generals.  We have updated the charts in our Macro post earlier this week so you can see how significant the ramp in the Russell 2000, KBW Bank Stock Index, and the S&P Industrial sector has been in such a short period of time.  It has ramped to the point of not wanting to chase that run either.  This is an incredible environment that moves too quickly to even begin making high conviction moves, which is why I haven’t felt the need to chase the upside.

All the news appears good because it was so bad, but this still appears to be a Fed driven short-covering rally.  I think we did a good job on de-risking with our market downgrade on 01/20, and our panic relief rally call for a median 17% jump in late march, but we missed the extra upside.  There are so many strange things taking place that as uncomfortable as it feels, the best move when the fundamental backdrop is so clouded is to not take an action.

Our four key tactical indicators identified the close proximity of the panic low and relief rally, but we need to see more evidence of expected economic recovery in the 10-year U.S. Treasury Note yield and 2-10 year U.S. Treasury Yield Curve before adding exposure at current levels.  There has been a Fed induced recovery in the corporate bond market where Investment Grade bonds have seen a record level of new issuance.  That is why we called the 04/09 Fed decision to potentially buy high yield corporate debt game changing, and protects against the worst-case scenario.

The corporate bond market is suggesting companies should survive, the U.S. Treasury market is suggesting it should take more time before they can actually grow.


Past performance is not a guarantee of future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses.

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