A Macro Price Distribution Year……with update at 1:50 PM
As the short term price action declines off the years highs in stocks and commodities it seems important to me that one look at the price action so far this year as a big distribution area for a Macro top and declines that will resolve themselves eventually in the 2013 – 2015 period.
We all know the reasons behind this development. We have talked about them at length. The bottom line is that induced austerity at this stage of the economic cycle will not work. That probably isn’t all bad as a pattern of investing based on inflated price projections had to be cleaned out eventually.
In analyzing the price action during this seven month distribution period, of the 13 markets that we provided price projections early in the year (see January 24, 2011 post for details) , five markets have seen overall volatility well below the levels of 1980-2007. The Dow, S&P 500, Nasdaq 100, copper, and soybeans are about 40 percent of normal, in line with our beginning of the year forecast of a low macro volatility year. On the other hand four markets have seen macro volatility more than double the normal level, ie the commodities, gold, cotton, corn, and wheat markets. Crude oil and cattle have been just above normal while the dollar is a little below normal. What this detail means probably requires a little more digestion on my part.
In the meantime we will be lowering our short stock positions this week and increasing our short gold and silver positions.
Update at 1:50 PM
The S&P hit our 1130 downside objective. As such we have covered all short stock positions. At the moment the portfolio is 20 percent short gold and equivalents and 80 percent cash.