12/14/11   Cash is King As Long As It’s Green

Editor’s Corner

Investor Heat Map: 12/14/11Cash is King As Long As It’s Green

Ron Rowland

At the risk of enraging literary scholars, we begin today with a new version of an old quote: “Meetings, meetings everywhere, but no solution yet.”

Friday’s European Union summit ended with yet another “comprehensive” solution to the continent’s debt dilemma.  This one involves a series of new treaties to plug leaks in the current mechanisms.  Traders were not fooled for long this time.  Britain’s David Cameron, well aware his voters would not accept the German-led deal, was first to say the new plan could not work.  The same now seems true in other key nations as well.  Legal obstacles look like they will also be big hurdles. 

Back in the U.S., the Federal Reserve had its last policy meeting of the year and decided to do nothing different.  The statement included no “QE3” stimulus program, but it did not rule one out, either.  The next scheduled meeting will be in late January.

The result, at least for now, is that inflation pressures seem to be easing.  Crude oil and gold prices fell, and bond prices rose.  U.S. stocks proved unable to hold recent gains.  The S&P 500 benchmark briefly flirted with its 200-day moving average in early December but lost momentum quickly. 

Euro chaos and signs of weakness in Asia are combining to make the U.S. Dollar not only the currency of choice, but the favorite asset class of investors everywhere.  At some point the U.S. will need the rest of the global economy to prosper as well, of course.  Fortress America doesn’t have room for everyone.


Defensive sectors are in the lead again.  Consumer Staples and Utilities pushed last week’s leader, Industrials, back down to third place.  Technology climbed a notch to #4, though Monday’s warning from Intel (INTC) made some investors rethink their positions.  Energy fell hard, dropping from #2 all the way to #7, and will likely slip into a downtrend soon.  Crude oil’s retreat back below $100 was the proximate cause.  The bottom three sectors are still Telecom, Materials, and Financials.  A bad report from Dupont (DD) along with weakness in industrial and precious metal stocks forced Materials into the last-place spot previously reserved for Financials.


The Style categories deteriorated since our last report.  As we have noted, relative rankings are prone to sharp change when the scores are so tightly clustered.  Mega Cap’s move back into first place is consistent with the ongoing equity weakness.  At such times, investors whose mandate prevents them from holding non-equity asset classes tend to shift toward the perceived safety of global blue chips.  Yet we also have Micro Caps moving off the bottom for the first time in months.  Presently there is no advantage to either Growth or Value categories; both are equally unimpressive.


For the moment, domestic stocks are a small speck of green in an otherwise red global sea.  A slight positive reading kept the U.S. on top of the list.  This isn’t necessarily bullish; it simply means the U.S. has so far not been hurt as badly as other markets.  Dollar strength is a major factor.  The U.K. held its #2 position as its choice not to join the Euro years ago is proving to have been a good decision.  Japan jumped from last to fifth place even while losing value.  Other markets lost even more.  Political risk, particularly in Russia, was negative for the Emerging Markets benchmark.  Japan was replaced on the bottom of the list by Europe.


The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.

“Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth.”

FOMC Statement December 2011


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