One of the largest problems that seems to be getting little attention is that of the pension fund crisis.  While it has yet to hit in earnest it is definitely upon us.  The basic problem is that due to poor returns, both nominal and adjusted for inflation, pension funds are extremely underfunded.  While everyone in the investment world seems to know about the problem it does not seem as though anyone is talking about it.  So here are some charts that show the problem with the standard pension fund.

In the chart below we are looking at someone who started at the beginning of 1995 investing $1,000 a month, in a 70/30 stock bond mix, rebalanced monthly.  We are using real returns on the SP500 and on the Dow Jones Corporate Bond Index as our investment proxies.  Also in the chart is the same $1,000 a month invested solely in T-Bills. 

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Why are bonds going up at the same time that gold is climbing? Real yields are the highest that they have been since the late 1980’s and the third highest in the last 100 years, investors expecting slow to negative inflation and growth are buying and will keep buying as they grasp for yield. (click on chart to enlarge)

10-Year T-Note Real Yield

Why has the SP500 continued higher even when earnings have been weak and unsustainable and demand has been virtually non-existent?  There are several contributing factors such as the oversold condition, sentiment, etc. but our favorite one is that the Government is debasing our currency and in the process it is driving asset prices but not their actual values higher, if your investment in the SP500 is up but the

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A lot is made of relative returns and how one strategy or fund does against the SP500.  While not the best benchmark for something like Global Macro it is nonetheless the benchmark that everyone is most familiar with and that is used the most on CNBC and in magazines.  So how does global macro stack up to the SP500?

The chart below shows how $1000 invested in the SP500 and the Barclays Global Macro Index would have done for YTD for 2009.  As you can see the SP500 while getting off to a rocky start is now leading the macro index by 9.68% so far.  While the performance of the SP500 has been impressive the other side of the story is that to get the 18.04% return in the SP500 you first had to go through a -19.56% drawdown in January and February to get it.  Contrast that to

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Gimme fuel, gimme fire, gimme that which I desire,

Can’t fight the need for speed,

I’m loose, I’m clean, I’m burning lean and mean, and mean.

Ignite the open trail,

Excite, exhale, comin on, hot from hell, yeah hot from hell.

-Metallica “Fuel for Fire”

Where has all of the money gone? We know that the world should be running out of green ink any day now due to the Treasury printing money 24/7, but with all of this money coming into the economy we would have expected runaway inflation.  Up to now we have seen, for the first time in decades, steady deflation.  In fact as you can see in the chart below, since 3/1/09 YoY CPI has been negative. (click on chart to enlarge)

CPI 12-Month % Change

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The market continues to whipsaw traders out of positions as volatility rises. I have put together a few charts to show you where each of our commodities are trading along with the SPX (SP500 index). My Gold Stock Breakout Model – Monthly Chart I use this chart to keep my big picture trades on the right side [...]

Joining us today is John Bougearel, author of the renowned book Riding the Storm Out. Enjoy as Jon states his case for why the third quarter high may already be in place. As always be sure to comment and let us know your thoughts.

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The problem with being perpetually short is the need to be willing to be perpetually chased out of the market for an untold number of short-covering rallies. This strategy works well for nimble traders that have a great feel for market behavior. The reason I start this report off with the saying “if you’re not short already is that you will indeed risk missing the turn. We got a lot of ground to cover, here, so let’s start with the big picture on the weekly charts, then move right into the daily and intraday charts.

Don’t Mess with Mr. 18

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If over the past six months or so it has seemed as if you were partying like it was 1999 it might be time to reevaluate your stance.  One thing that we have been taking a closer look at lately is the pricing of risk.  Obviously when investors think that risks are low they will demonstrate risk seeking behavior.  We have seen this as the SP500 has climbed 56.6% from the March lows to the highs on 8/28/09.  With a rise like that you would think that 2008 never happened, of course if you believe that then you also believe  in a land of make believe with money trees, the fountain of youth, and SI models for all of us.

Of course some investors counter saying that while things could be better we are seeing the beginning of a recovery.  They then say that while the market will likely climb slower,

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After being the largest hedge fund strategy in 1990 representing 71% of the overall hedge fund assets global macro has shrunk and now only represents about 15% of total assets.  While most people assume that this dropoff in assets was due to poor performance the numbers actually show a totally different story.  In fact according to the Credit Suisse/Tremont Hedge Fund Indexes, global macro has been the number one investment strategy with a total return of 502% from 1994 through June 2009.  Compare that with a total return of 335% from long short equity or 321% from event driven funds.

Of course most investors also have a misguided perception that every trade is like the trade that “broke the Bank of England.”  That trade in 1992 made Soros and his Quantum Fund over $1 Billion in a few days and garnered a lot of publicity.  The funny thing is

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In our ETF based newsletter, the carry trade is one of the strategies that we employ.  For those unfamiliar with the carry trade, you are essentially trading the interest rate differentials of different countries.  You short a low-yielding currency and go  long a higher-yielding currency.

You can make money in two ways.  You earn the “carry” if the currencies remain very stable, and neither move.  You can also make money in this trade by being correct in the direction.  For instance if you are short the Japanese Yen and long the Australian dollar, then you can also make money if the Australian dollar goes up, and the Yen goes down.

As an example of how to earn the carry, lets look at the Japanese Yen versus the Australian Dollar.  The Yen has been the carry trade vehicle of choice for much of the past decade because Japan has

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div style="text-align: justify;"Merrill Lynch/BAM is out with span style="font-weight: bold;"cautious comments on Apparel players /spansaying following easy sales and weather comparisons in March, underlying momentum may still be weak (adjusting for the Easter shift) as retailers continue to face traffic and ticket pressures.br /br /Firm also notes relative outperformance of retail stocks (vs. SP500) usually ends in May as Retail stocks typically outperform the SP500 starting in Jan / Feb, peaking in Mar, and then underperform in May/Jun until Aug/Sep. Branded Apparel stocks typically start to underperform the SP500 in Jun and July.br /br /They are downgrading span style="font-weight: bold;"Ralph Lauren (NYSE:RL)/span to Underperform from Neutral (with a $42 tgt) noting that after benefiting from the upward mobility in customer spending patterns (as key dep’t stores customers focused on up-scaling merchandise assortments through ‘06-’07), dep’t stores shift away from a higher AUR strategy and emphasis onsharper price points, coupled with ...