October 31, 2014 1:50 pm

excellent newsletter for you

Posted In: Uncategorized

Hi Subscriber-

I'm forwarding a newsletter below with an interesting perspective on the markets. This week it talks about interest rates and the stock market in a way I hadn't seen before. Other weeks have different topics to help you stay on top the markets.

The newsletter is produced by the research department of Delta Investment Management, my new business partners. More on that later. Right now, I just want to send you a quick forward of this issue while it is fresh.

If you would like to get this newsletter in your inbox every Friday, at no cost to you, just click this link to enter your name and email:


Best wishes for your success,



Delta Investment Management is a registered investment advisory firm. Delta manages client portfolios in separately managed accounts at Charles Schwab and TD Ameritrade. Please contact Delta at [2]http://www.deltaim.com/welcome/ or 415-249-6337 if you would like to explore opening an account. ______________________________________________________________________

October 31, 2014

Infinity Ends

QE3 was originally labeled "QE Infinity" as it began with no pre-defined end. QE Infinity, defined by the Fed putting new money to work in asset purchases, has ended. But, the Fed's balance sheet will not be shrinking near term. The Fed will continue to reinvest principal payments in mortgage backed securities and roll-over maturing Treasury securities. And, the Fed will hold the Fed Funds rate at 0 to 1/4 percent for a "considerable time."

Shown below is a chart of the Fed's balance sheet rising from about $1 trillion to about $4.5 trillion from late 2008 forward as the three quantitative easing programs were deployed.

Successive quantitative easing programs substantially lowered borrowing costs/interest rates making home ownership and business investment/financial engineering (capital spending, stock buybacks, dividend increases, acquisitions, etc.) more affordable.

Lowered interest expense on a society burdened by high levels of debt achieved the objective of stabilizing and strengthening our collective balance sheets. Asset values (homes and stocks) appreciated and the cost of ownership declined.

Ending QE3 is a first step. Over time, the Fed will attempt to reduce its balance sheet and allow interest rates to be increasingly determined by free markets. Artificial financial stimulants cannot be sustained forever and they distort pricing. In the long-run, having asset prices be set organically is healthy as free market price signals are the core of a well-functioning capitalistic society.

In the near-term, the end of QE3 marks an important threshold in the Fed having gained confidence in the advancement of the real economy. Annualized GDP growth in the third quarter was 3.5%. Going forward, the Consumer Confidence Index is now at 94.5, its strongest point since October 2007 and has finally recovered from the Great Recession. Additionally, gasoline prices at four-year lows should help boost consumer spending through the holiday season when a disproportionately high amount of spending is done. Rising consumer confidence and strong fundamental growth are usually associated with rising stock market Price/Earnings (P/E) multiples.

The 10-year treasury rate is currently about 2.3%. In June 2007 before the Credit Crisis, Great Recession and three rounds of quantitative easing, the 10-year treasury rate was about 5%. The end of QE may cause rates to trend higher. While P/E multiples may expand, will rising rates counteract this bullish force and hold stock values down?

Shown below is a chart of correlation between stock returns and interest rate movements. Historically, as long as the 10-year treasury rate remains below 5%, the correlation between rising interest rates and a rising market is positive. They both can go up at the same time. Once the 10-year treasury rate is above five (vertical orange dashed line), rising rates have a negative correlation with stock valuations. Rates go up and stocks go down.

Delta Market Sentiment Indicator

The Delta Market Sentiment Indicator (MSI) is rapidly approaching bullish territory. Over the past two weeks, our MSI has climbed from 18.1 to 48.6, which is the largest two-week positive move since the Fall of 2011 and the second largest in eight years. There is a good probability that many of our tactical strategies will be increasing equity exposure in the near term. If the MSI is judged on its timing of taking us out of risk assets (stocks) during periods of high risk (increased volatility), then it did its job in October.

The investment landscape at the end of October is the polar opposite of the start of October. At the beginning of this month, stocks were trending down at an accelerating rate. The S&P 500 came to within less than a percent of an official 10% correction. On October 16, the day after a panic sell-off in stocks, Fed members helped talk the market back up by suggesting the Fed might delay the end of Infinity or would be open to another round of QE. We end October with the S&P 500 actually higher than the September 30 closing price of 1972.29 and with a definitive end to this round of QE.

The incredibly fast recovery of the market from such a sharp downturn is not unlike other whipsaw market events that have occurred in 2014 but is unusual when looked at almost all other years in market history. Heavy intervention in the financial markets by the Fed and other central banks around the world likely distorted normal asset pricing trends. The end of quantitative easing is the beginning of a process which eventually will entail the reduction of the Fed's balance sheet towards historical norms and rising interest rates. We would not be surprised to see much stronger performance from tactical investment strategies as Fed market intervention lessens and normal market trading patterns resume.

The Delta Wealth Accelerator website is [3]http://deltawealthaccelerator.com/Delta_Wealth_Accelerator_J.html.

As always, if you have any questions or any interest in our tactical strategies and our wealth management solutions, please give us a call at (415) 249-6337 or email us at [4]info@deltaim.com. ___________________________________________________________________________ ___ Pursuant to the provisions of Rule 206(4)-1 of the Investment Advisors Act of 1940, we advise all readers to recognize that they should not assume that recommendations made in the future will be profitable or will equal the performance of past recommendations. This publication is not a solicitation to buy or offer to sell any of the securities listed or reviewed herein. The contents of this letter have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness. Nicholas Atkeson and Andrew Houghton are also principals of Delta Investment Management, a registered investment advisor. Clients of Delta Investment Management and individuals associated with Delta Wealth Accelerator may have positions in and may from time to time make purchases or sales of securities mentioned herein.



Delta Investment Management One California Street, Suite 2800 San Francisco, CA 94111 (415) 249-6337 [6]http://www.deltaim.com/welcome/

Important Notes: [7]Background on Delta Investment Management and [8]Jackie's relationship to Delta IM.


1. http://deltawealthaccelerator.com/Delta_Wealth_Accelerator_J.html 2. http://www.deltaim.com/welcome/ 3. http://deltawealthaccelerator.com/Delta_Wealth_Accelerator_J.html 4. mailto:info@deltaim.com 5. http://deltawealthaccelerator.us5.list-manage.com/track/click?u=6290498a6fc0ac56d49a507bd&id=ed04cb4ea3&e=00e23b9d75 6. http://www.deltaim.com/welcome/ 7. http://jackieannpatterson.com/wp-content/uploads/DeltaIM_ADV_Part2_2014-06-20.pdf 8. http://jackieannpatterson.com/wp-content/uploads/JackieAnnPatterson_Solicitor_Disclosure_Statement.pdf

This message was sent to oompaloompa80301@divergence-alerts.com from: Jackie Ann Patterson | jackiep@backtestingreport.com | Own Mountain Trading Company | PO Box 620427 | Woodside, CA 94062-0427

Update Profile: http://app.icontact.com/icp/mmail-mprofile.pl?r=87279561&l=143530&s=DD01&m=1125730&c=369225

This page displays best in the Firefox or Chrome browsers. Internet Explorer not recommended.
Trading and Investing always carry the risk of loss. All material on this site is intended for educational purposes, not investment advice. Consult a licensed professional for advice.
Disclaimer | Terms of Use | Privacy Policy | Contact
© Own Mountain Trading Company — All Rights Reserved.
Designed by Premium WordPress® Themes     Powered by WordPress®