Jeff Saut - Investment Strategy
This is a somewhat bearish but worthwhile read - Jeff Saut quotes Richard Russell (who gave a Dow Theory ‘bear market’ signal last week) and GaveKal (who have come up with 4 scenarios for global markets): “Bulls, bears, and retests”
“I stated on Wednesday’s site (Nov. 21) that the breakdown of the Industrials signaled THE EXISTENCE of a primary bear market. It didn’t signal the beginning of a bear market, Wednesday’s action gave us the final word via Dow Theory that a primary bear market was in force”.
“I remind subscribers that a rally here, even a powerful rally, will not mean that the bull market has suddenly been reborn. This bear market will not end in four months. But any rally here will allow subscribers to ‘trim their sails’.”
As the always insightful GaveKal organization recently noted, there are four possible outcomes:
“Scenario 3: The Fed ultimately cut rates, but this fails to rejuvenate the system and get growth going again. This would likely mean stagflation. As such, gold and other commodities would do well, while stocks and the U.S.$ would struggle. Excluding bonds, this is increasingly what the market is pricing in today”.
. . . the market is betting on Scenario 3 and thus one has to be concerned that the Fed’s hand could be forced by the market to cut rates.
Now that these credit spreads are widening, it could spell trouble for the overcrowded “long stuff stock,” short “U.S. dollar” trade that has made us so much money over the last six years . . . This is one of the reasons why we have been rebalancing our stuff-stock positions (read: selling partial positions and holding the balance in cash) and reducing our anti-dollar “bets.”
If the market is right and ‘Scenario 3′ unfolds, what does it mean for Indian investors?
- Prepare for single / low double digit returns in India.
- Stock/sector selection, option strategies & short positions become important.
- Buy gold (ETFs). If the rupee weakens, even better.
- Will agricultural commodities do better than industrial commodities?
Related Posts: