World Economy Big Picture

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A big picture and view of the world economy on the 4rth quarter of 2012

Transcript of World Economy Big Picture

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    Source: Accuvest Global Advisors, MSCI

  • Octobe

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    ple of the tive eness of n be seen easured bonds

    arnings and

    g to bond lds

    m market has been QE3 and gressive y policy y not be nable t more

    c stability en

    n asset n reflect range of n risk-various



    Earnings Yi

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    ow, the cost oclear that mar

    nce or protecdecay, but wit

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    measured morethat reflect a ry, arriving atther market ve does not hav

    Risk reductionmarket may h

    he wall of wonces finding ther without a coor a modest hountry exposuthe strategy oentum, strongose same traitfolios will be t allocation re


    of options is arket participa

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    e in terms of tmarket movet price levels ernacular thave to be a binan in an incremhave arrived

    orry causing bheir way into orrection. Hoharvesting of gures can, in ef gaining exp

    g fundamentalts. Exploring managed in tecommendati

    Bonds C35% 64% 25% 133%

    at low levels. ants do not haownside. The

    on in place a c

    re View 201

    the price of be that has gonthat could bet all means siary, all-in or

    mental, marginat these kinds

    bears to contistocks on eve

    owever, a certgains can alsoffect, buy lo

    posure to attrals, and low risome of thes

    the near-termions currently

    Cash Alts3% 12%5% 20%

    15% 6% 15%

    Using the VIave to pay as me cost of the ocertain amoun


    road ne too far e considered imply that all-out,

    nal way can s of levels

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  • October 2012

    Accuvest Global Advisors 4th Quarter Big Picture View 2012 9

    Volatility is low making options less expensive.

    Hedging a portion of the equity

    portfolio during the sugar high of

    QE3 could be prudent

    Country rotation continues to be one of the best tools to get efficent stock market exposures

    portfolio can be sold at a predetermined price, thus minimizing downside price moves. There is no limit to participating in gains in the market if prices move higher. The cost of the option would be lost in such a scenario, but that is the case with most insurance. The analogy of insurance is appropriate in that the cost of a hypothetical hurricane policy is low if there are presently no clouds in the sky. And just because you have insurance on your home, that doesnt mean you want a hurricane to appear. However, if it does you are protected. This works well in portfolio management as one can retain intact full exposure to strategies that have been in place with a longer-term view. Volatility Index

    Harvest gains. Some marginal selling of positions that have run their full course and are expensive relative to other stocks can certainly make sense as well. This kind of management clearly fits in the Tactical ring of CST portfolios which means the portion of a portfolio that can be in or out of the market must be limited. This is important because there is a risk in making a call that an index, a theme, a country, or a strategy is fully exhausted, can be sold and then re-bought at better levels. Persistent and consistent gains cannot be counted on in this kind of approach. Rotation of country exposure. A fitting analogy would be that of a horse race; you are not exiting the race, merely changing horses to one that seems to have better prospects from this point in the race. This kind of concept fits with the buy low, sell high theme as a portfolio is swapping out of a fully-valued asset into one that is relatively cheap. With a wide disparity amongst countries fiscal and monetary policy as well as political stability, the opportunity for meaningful and beneficial relative returns is clear. View again the country ranking data above and note the range in P/E ratios alone of 5.5x to 22.6x. The stock markets attractive relative valuation should drive prices higher over time. Once again, however, the short-term has been driven by liquidity while fundamentals have waned. The following table shows year-end S&P 500 levels as well as the P/E ratio that would be in place at that time given the analysts earnings estimates. This kind of valuation seems reasonably attractive, although notice that forecasts are for index levels more or less in line with where the market is now. The subsequent chart shows how these earnings estimates have been falling as of late which gives one pause when considering current price levels.







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  • Octobe

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    er 2012

    year-end 0 price

    PE ratios ill be ctive

    do show re is not ide in the

    expected ent levels

    the S&P s been while forecasts eclined

    hough rices are ear old s, the s now are more ctive


    S&P 500 Ye

    Bank of AmBank of MBarclays Citigroup Credit SuisDeutsche BGoldman SJP MorganMorgan StOppenheimUBS Wells FargMean Median High Low

    S&P 500 In

    Source: UBS S&P 500 In

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    ecast Table 20

    ed to earnings

    ed to previous

    4th Quarte

    012 Close 1450142513301425150014751250143011671450152513601412144015251167

    gs forecasts

    s market tops

    er Big Pictur

    2012 EPS

    $102.00 $98.50

    $101.00 $103.00 $100.10 $102.00 $100.00 $105.00 $100.00 $102.00 $102.50 $101.00 $101.22 $101.00 $105.00 $98.50


    re View 201

    S 201214141313141412131114141313141411


    2 PE .



  • Octobe

    The currmarket m

    not reahistorical

    in termmagnitu

    length of tor

    Possible pturmoil arfiscal clifcreate a s

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    Corporatilarge amocash comp

    history could leshareh

    friendly such as d

    paying, Mshare bu

    er 2012

    rent bull move has ached averages

    ms of ude or the move r

    political round the ff could situation to last (2011) debt was ded and

    k market ged

    ions hold ounts of pared to which ead to

    holder activity

    dividend M&A, and uybacks


    Historical B

    Source: JP Morgan

    ear DeclinesS&P 500 M

    Source: UBS

    Corporate C

    Source: JP Morgan

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