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TIS MIR 01.05.10

TIS MIR 01.05.10

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Published by: Broyhill Asset Management on Jan 05, 2011
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01/06/2011

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Cycle Dates January 5, 2010
 
 
R$¥$pyб¥$
 
The Institutional Strategist
100
 
V
ILLAGE
C
ENTER
D
RIVE
 
S
UITE
260
 
 
N
ORTH
O
AKS
,
 
M
INNESOTA
 
55127-3024
 
 
USAP
HONE
:
 
651.379.5070;
 
T
OLL
F
REE
:
 
866.527.8698
 
F
AX
:
 
651.379.5080
 
 
E-M
AIL
TIS@TISG
ROUP
.N
ET
 
This report has been prepared by
TIS
Group on behalf of itself and is provided for information purposes only. Under no circumstances is it to be used or considered as an offer to sell, or a solicitation of any offer to buy secu-rities. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it shouldnot be relied upon as such. The market, currency, economic, political, business, technological and other factors upon which our analysis are based may change without warning. Accordingly, all opinions expressed herein aresubject to change without notice. From time to time,
TIS
Group and any officers or employees of 
TIS
Group may, to the extent permitted by law, have a position or otherwise be interested in any transaction, in any invest-ments (including derivatives) directly or indirectly which are the subject of this report. This report is provided solely for the information of clients of 
TIS
Group who are expected to make their own investment decisionswithout reliance on this report. Neither
TIS
Group nor any officer or employee of 
TIS
Group accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
This report may NOT be reproduced, distributed or published by any recipient for any purpose without the prior express consent of 
TIS
Group, Inc.
 
M
 ARKET 
I
 NTELLIGENCE
EPORT 
 
Cycle Date
 —January 4th was a lunar cycledate along with being the point of the sun’sperihelion, thus suggesting a window of market volatility starts now. We should know by theclose of trading what the next phase of themarkets cycle has in store for us as we view theday before and the day after a cycle date as thetime window in which either prices accelerate atrend or reverse it. Based on the price actionand what I describe here as the set-up, I am willing to make the following trades. The S&P 500 hit the upper end of our targetband on Monday morning at 1,276. Techni-cally, the S&P should correct now to the 1,155-1,176 area, a 10%-11% drop. Europe shouldtrade in tandem with the S&P, as will emerging markets. Why should the S&P correct now?Sentiment is definitely too bullish on risk. OnDecember 24, the AAII poll of individual in- vestors recorded 63% bulls, the highest level inyears. Reading a number of beginning-of-the-year forecasts this weekend, it was hard to finda bear on equities or on commodities, which is where the leverage is. Several weeks ago, Ishowed a chart on the CRB and suggested it was close to an intermediate term top. I think that top is in place (see chart) and a minimumtarget on the CRB is 304, also a 10% dropfrom the highs. Commodities have been theleadership group during the equity marketsrun-up, so if commodities are about to fall, weneed to understand why, particularly in light of otherwise pretty good fundamentals for equi-ties. Cash inflows to equity mutual funds haveturned positive, QE2 is chugging along, corpo-rate earnings should be up this year and the world economies recovering. So why shouldstocks fall? There are two problems about to surface which the equity/commodity markets have notonly not priced, they have priced the oppositeoutcome. First, the world markets are rising on a tide of USD liquidity courtesy of the Fed,but also helped along by other central banks.
CRB—5
th
Wave Completing
Courtesy of Paul Nesbitt, BNP Paribas Wealth Management
S&P 500—5
th
Wave Completing
Courtesy of Paul Nesbitt, BNP Paribas Wealth Management
 
Cycles January 5, 2010
 
 
R$¥$pyб¥$
 
The Institutional Strategist
100
 
V
ILLAGE
C
ENTER
D
RIVE
 
S
UITE
260
 
 
N
ORTH
O
AKS
,
 
M
INNESOTA
 
55127-3024
 
 
USAP
HONE
:
 
651.379.5070;
 
T
OLL
F
REE
:
 
866.527.8698
 
F
AX
:
 
651.379.5080
 
 
E-M
AIL
TIS@TISG
ROUP
.N
ET
 
I
F YOUR FIRM UTILIZES A VOTING SYSTEM TO PAY FOR RESEARCH
,
PLEASE VOTE FOR US
.
 
(TIS
 
G
ROUP IS AN
 
INDEPENDENT RESEARCH BOUTIQUE
.
 
W
E DEPEND ON YOUR SUPPORT
.)
 
M
 ARKET 
I
 NTELLIGENCE
EPORT 
 
 Anything which reduces that liquidity will havean effect on asset prices. The best reflection of USD liquidity are currency cross rates. I wouldsubmit to you that the Canadian Dollar trading below parity with the USD and the SF/USD at0.93 are both too high, at this point. Both cur-rencies, the CAD and SF/USD are about toeaken (so the USD strengthens and in theCAD's case that means gold comes down for a while) and gold has been the lead story formetals. So the USD, in my view, is about torise, primarily for the following reason.European banks are in line to refinance about €400 billion during the first half of 2011.European governments need to rollover an-other €500 billion. Spain and Italy alone mustrefinance €400 billion in the spring and it wasan inability to refinance debt, which triggeredthe Greek and Irish debt crises. Hundreds of billions of Euros are also maturing in the mort-gage markets during the first half of the year. Iam looking for a surge in European debt issu-ance in January as companies rush to market tofund themselves while the financing window isopen. As a result, at both the sovereign leveland in the private sector, I think there is a goodchance the debt markets will freeze up, sending European interest rates higher, U.S. Treasury yields lower and the U.S. Dollar up. If the U.S.Dollar runs up on Euro debt crisis 3, we willhave another chance to buy commodities atlower prices than we have today. I think this iscoming and it's a Q1 trade, not a Q4 trade. The Chinese may well be interested in helping out as China's new Premier announced onMonday, but if I were the asset allocator inChina, I would give limited help now and morehelp (financing) later when Spanish debt pricesare lower.For most of last year, I advised buying gold,buying silver, and then in the fall made an out-right call to buy commodities, buy stocks andtake on risk. The Foundation for the Study of Cycles has indicated commodity bull marketsrun for about eighteen years. Some have beenas brief as nine years. Typically, at the halfway point of a secular commodity bull market, a
DXY—U.S. Dollar Index
Courtesy of Bloomberg LP
 Which European Bonds Would You Own?
Courtesy of Bloomberg LP

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