MARKET INTELLIGENCE REPORT

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Cycle Dates The Institutional Strategist January 5, 2010
1 0 0 V I L L A G E C E N T E R D R I V E  S 2 6 0
U I T E  N O R T H O A K S , M I N N E S O T A  5 5 1 2 7 - 3 0 2 4  U S A
P H O N E : 651.379.5070; T O L L F R E E : 866.527.8698   F A X : 651.379.5080  E - M A I L T I S @ T I S G R O U P . N E T

Cycle Date—January 4th was a lunar cycle

date along with being the point of the sun’s CRB—5th Wave Completing
perihelion, thus suggesting a window of market
volatility starts now. We should know by the
close of trading what the next phase of the
markets cycle has in store for us as we view the
day before and the day after a cycle date as the
time window in which either prices accelerate a
trend or reverse it. Based on the price action
and 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 target
band 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 should
trade in tandem with the S&P, as will emerging
markets. Why should the S&P correct now?
Sentiment is definitely too bullish on risk. On
December 24, the AAII poll of individual in- Courtesy of Paul Nesbitt, BNP Paribas Wealth Management
vestors recorded 63% bulls, the highest level in
years. Reading a number of beginning-of-the-
year forecasts this weekend, it was hard to find
a bear on equities or on commodities, which is
where the leverage is. Several weeks ago, I
showed 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 minimum
S&P 500—5th Wave Completing
target on the CRB is 304, also a 10% drop
from the highs. Commodities have been the
leadership group during the equity markets
run-up, so if commodities are about to fall, we
need to understand why, particularly in light of
otherwise pretty good fundamentals for equi-
ties. Cash inflows to equity mutual funds have
turned positive, QE2 is chugging along, corpo-
rate earnings should be up this year and the
world economies recovering. So why should
stocks fall?
There are two problems about to surface
which the equity/commodity markets have not
only not priced, they have priced the opposite
outcome. First, the world markets are rising
on a tide of USD liquidity courtesy of the Fed, Courtesy of Paul Nesbitt, BNP Paribas Wealth Management

but also helped along by other central banks.

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 MARKET INTELLIGENCE REPORT
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Cycles The Institutional Strategist January 5, 2010
1 0 0 V I L L A G E C E N T E R D R I V E  S 2 6 0
U I T E  N O R T H O A K S , M I N N E S O T A  5 5 1 2 7 - 3 0 2 4  U S A
P H O N E : 651.379.5070; T O L L F R E E : 866.527.8698   F A X : 651.379.5080  E - M A I L T I S @ T I S G R O U P . N E T

Anything which reduces that liquidity will have

an effect on asset prices. The best reflection of DXY—U.S. Dollar Index
USD liquidity are currency cross rates. I would
submit to you that the Canadian Dollar trading
below parity with the USD and the SF/USD at
0.93 are both too high, at this point. Both cur-
rencies, the CAD and SF/USD are about to
weaken (so the USD strengthens and in the
CAD's case that means gold comes down for a
while) and gold has been the lead story for
metals. So the USD, in my view, is about to
rise, 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 must
refinance €400 billion in the spring and it was
an inability to refinance debt, which triggered
the Greek and Irish debt crises. Hundreds of Courtesy of Bloomberg LP

billions of Euros are also maturing in the mort-

gage markets during the first half of the year. I
am looking for a surge in European debt issu-
ance in January as companies rush to market to
fund themselves while the financing window is
open. As a result, at both the sovereign level
and in the private sector, I think there is a good
chance the debt markets will freeze up, sending Which European Bonds Would You Own?
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 will
have another chance to buy commodities at
lower prices than we have today. I think this is
coming 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 on
Monday, but if I were the asset allocator in
China, I would give limited help now and more
help (financing) later when Spanish debt prices
are 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 and
take on risk. The Foundation for the Study of
Cycles has indicated commodity bull markets
run for about eighteen years. Some have been
as brief as nine years. Typically, at the halfway Courtesy of Bloomberg LP

point of a secular commodity bull market, a

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 MARKET INTELLIGENCE REPORT
₤ € R$ ¥ $ pyб ₩ € ¥ $
Cycles The Institutional Strategist January 5, 2010
1 0 0 V I L L A G E C E N T E R D R I V E  S 2 6 0
U I T E  N O R T H O A K S , M I N N E S O T A  5 5 1 2 7 - 3 0 2 4  U S A
P H O N E : 651.379.5070; T O L L F R E E : 866.527.8698   F A X : 651.379.5080  E - M A I L T I S @ T I S G R O U P . N E T

major correction occurs. This commodity bull

run started in 1999, so nine years later, 2008 Spain CDS 5-Yr. (Green) & 10-Yr. (Black)
should have produced a major commodity cor-
rection, which did occur. So this commodity
decline, though probably sharp, should not be
the end of the secular commodity bull market.
This is primarily a call on commodities. The
absolute top is more likely to come in 2013 or
2014 and at much higher prices. The USD and
U.S. Treasury bonds should trade up for now.
Sources:
Bloomberg News
Bloomberg Data
Duarte, Esteban and Bryan Keogh. “Emerging Europe Safer Than
West for First Time: Chart of Day” BN 4 January 2011.

Courtesy of Bloomberg LP

Deletion from Global/U.S. Models—

BVN
XG CN
SLW

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