The race to finish line 2012 begins

Author: Tom Yorke, Oceanic Capital

Covestor models: Global Diversified Conservative, Global Diversified Moderate, Global Diversified Aggressive

The summer holidays are officially over and the global rush to end the year on a high note has begun. This week, however, is hardly one to bet the ranch on, with so many different items cooking in the schedule. The multitude of possible outcomes make it clear: market timing strategies are just waiting to fail.

Will it be Risk–On or Risk-Off?  Given the amount of possible outcomes, predicting when to be “all-in” or on the sidelines is a real fool’s game. Again, we feel diversity clearly wins, being able to roll with the market’s punches, knowing you have prepared well in advance for times like these. This helps to maximize sleep and minimize losses.

Lately the European front has been relatively calm; European Central Bank (ECB) Mario Draghi has made a several comments trying to support the Euro and The European Union.  The combination of the lowest level of volatility in about a year, as measured by The Chicago Board Options Exchange Volatility Index (the VIX), and Mr. Draghi’s promises helped quiet things, but maybe everyone just got tired of the subject. Who knows where the next landmine in this story blows up?

The Federal Reserve met in Jackson Hole, Wyoming at their annual “Big Picture” event and admitted the Fed will come to the rescue with “additional policy accommodation as needed.” The general level of the labor force, or lack thereof, was clearly the culprit. It’s practically universally agreed that some additional level of stimulus is coming, but what and when? Will the Fed come to the rescue at its policy meeting this week? Perhaps with yet another round of bond buying, called Quantitative Easing (QE III), at the risk of being called too politically motivated. Will they come up with some other more dramatic program to really get the banks lending again? We heard some earlier rumors of a streamlined 1st & 2nd mortgage refinancing program. As others have pointed out, it’s a question if the Fed can get the same response now to further easing of monetary policy, given the extreme levels of US debt.

The recent release of the August unemployment statistics were clearly a problem. Fewer jobs are being created and more people are just dropping out of the labor pool. Add in lower average earnings and then a drop in weekly hours worked, and things don’t look so good. Stay tuned, but just so you know… three month Libor, that now infamous short term rate that Barclays made so many headlines with, is now trading below 1% as a futures contract well into next year.

There is a Dutch election going on this month. They are not the Eurozone first string, but any change in the political leaders there may influence the German- led austerity drive with southern Europe.

The major equity market indexes have been climbing a wall of worry all summer, largely because US equities appear the safest port in the current storm. However, there seem to be a few issues on the horizon. What will the election bring? How about those expiring tax laws? What about the budget? How high will food costs go as a result of the massive drought in the US Midwest?  Do we really think a lame duck Congress will be able to make any headway with these tough issues?  Warning: there could be some rough weather ahead.

We are coming up on rebalancing time for our portfolios, and we will look to return back to the target levels we set at the beginning of the year. Some likely changes: a slight reduction and possible shifting of domestic equities, a bit more Emerging Markets, a shifting and add to Oil & Gas, and putting a little more cash to work in Commodities and Real Estate.

Additionally, we are looking at rolling a small amount of our gold ETF (GLD) or metal investments into the major metal miners ETF (GDX). The miners have underperformed gold for so long that we feel like they are about to turn.

Tom Yorke

About Tom Yorke

Oceanic Capital Management, LLC is a registered investment adviser based in New York. I am Tom Yorke, Oceanic’s Managing Director. I founded the company in 2008 after a 25-year career in institutional markets. Previously, I worked as Managing Director at Tokai Securities, and as a Vice President at Lehman Brothers.I believe that actively managed investment in alternative asset classes can potentially generate above average returns. My goal is to help create generational wealth through the use of longer-term investment strategies, diversification of assets, and a controlled-risk profile.As Managing Director at Oceanic, I maintain several securities registrations including registered representative, general securities principal, equity trader, options principal, and a registered investment adviser representative.