An Alternative Market Outlook and Price Perspective_commented

An Alternative Market Outlook and Price Perspective

© Henrik Mikkelsen, Managing Partner, Iridis AG 1

Global Investors Summit 2015 Montreux , October 5th - 7th 2015

by Henrik Mikkelsen Iridis AG

http://www.iridisag.com/

DISCLAIMER

THIS PRESENTATION IS FOR EDUCATIONAL USE ONLY. IT DOES NOT CONSTITUTE IN ANY WAY ADVICE OR RECOMMENDATIONS TO TRADE.

RISK WARNING:

The risk of trading can be substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Futures Trading Risk Warning: Transactions in securities futures, commodity and index futures and options on futures carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract, meaning that transactions are heavily "leveraged". A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit: this may work against you as well as for you. You may sustain a total loss of initial margin funds and any additional funds deposited with the clearing firm to maintain your position. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit. Forex and OTC Trading Risk Warning: Trading cash Foreign Exchange ("FX") and other kind of OTC contracts carries the same high level of risk as futures trading (Futures Trading Disclaimer). However cash and OTC contracts, unlike futures FX contracts that are regulated by the Commodity Trading Futures Commission, are not regulated by any governmental agency. In addition, because there is not a central clearing house for cash FX transactions, there is also a counterparty risk for each contract traded. Please read the following CFTC risk warning. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

THEREFORE, PAST PERFORMANCE OR SIMULATED RESULTS ARE NO GUARANTEE OF FURURE PROFITS, AND TRADING INCLUDE LARGE RISKS OF FINANCIAL RUIN.

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.



Henrik Mikkelsen Managing Partner, Iridis AG

Investment and Wealth Advice for HNWI’s, Family Offices, Endowments, Funds and Pension Funds & Plans

Stratetically and Tactical Asset Allocation

Screening of investment products and management services and platforms

Corporate Consultancy on financial and operational aspects

Educational seminars on Rule-based Trading Strategies

2012 - Managing Partner Iridis AG 2004 - 2011 Head of Power Portfolio Management Vattenfall 2000 - 2003 Senior Portfolio and Client Manager Nordea AM & PB 1997 - 1999 Senior Market Maker Fixed Income Nordea IB 1988 - 1995 Interbank Trader FX and FI Danske Bank IB 1993 Thesis at CBS Business University, Finance & Investment Copenhagen Business School, CBS “Technical Analysis – An Input to Trading and Risk Management in Corporations”


Questions: What is your Outlook in the next 9- 12 months?

Yields: - US 10 Y Yields up +50 to 150 BPS? - US 10 Y Yields unch. -50 to +50 BPS? - US 10 Y Yields down -150 to -50 BPS? Stocks: - S&P500 up 25% +2.400? - S&P500 unch. 1.800 to 2.150? - S&P500 Down 25% 1.300 to 1.600? Commodities(Gold, Copper & Oil): - Commodities up 50% 1.800 - 3,5 - 75? - Gold or oil unch. 1.200 - 2,4 - 50? - Gold or oil down 25% 900 - 1,8 - 35?


Published at: http://blog.kimblechartingsolutions.com/2015/10/welcome-to-the-4th-quarter-here-is-what-to-expect

Q4 US Market Statistics for the S&P 500

Quarterly Perforance 1950 - 2014 1995 - 2014 Quarter Avg Return (65 years) Avg Return (65 years) Q1 2,32 % 1,75 % Q2 1,74 % 2,63 % Q3 0,57 % -0,53 % Q4 4,06 % 5,15 %

Q4 in the Presidential Cycle 1950 - Year 1 3,25 % Year 2 7,82 % Year 3 3,04 % Year 4 1,92 %

Q4 if September is negative 1950 – 2014 (35 times) Average 3,37 % Higher in 77,1 % times

Q4 if both August and September is negative 1950 – 2014 (14 times) Average 6,64 % Higher in 86,7 % times

Q4 when Q3 down by +5 % Average 11,08 % Higher in 100,0 %

http://blog.kimblechartingsolutions.com/2015/10/welcome-to-the-4th-quarter-here-is-what-to-expect






















Published at: http://blog.kimblechartingsolutions.com/2015/10/welcome-to-the-4th-quarter-here-is-what-to-expect @Ryandetric

S&P 500 Seasonal October Returns’s























Goldman Sachs’ EPS forcast and S&P 500- forcast , as pr. September 28th., 2015

Annual %-change in 12 mth fwd S&P 500 EPS expectations, SocGen's Andrew Lapthorne, SocGen, September 21st Based on forward consensus expectations and excludes many of the write-downs and exceptional items that are currently pushing down actual reported profits.

“Operational profits change has never been this negative outside of a recession!”


Is the FED fearing an upcomming US-recession or weakning of the economy? The input from here and commodities support it!


Has the sentiment and willingness to take on risk been to positive on corrections? This time the sentiment is vaning! Will the correction take longer this time ? Or is the rally over?


XXX

Sources: Reuters, FED, Martin Pring & AdvisorShares

Bernanke’s hope Investors fear

S&P Composite and the background of Bernanke’s policies, probably carried on by Mrs Yellen.

What ”gun powder” is left over for the next down turn?

1998 M A M J J A S O N D 1999 M A M J J A S O N D 2000 A M J J A S O N D 2001 M A M J J A S O N D 2002 A M J J A S O N D 2003 M A M J J A S O N D 2004 M A M J J A S O N D 2005 M A M J J A S O N D 2006 A M J J A S O N D 2007 A M J J A S O N D 2008 M A M J J A S O N D 2009 M A M J J A S O N D 2010 M A M J J A S O N D 2011 A M J J A S O N D 2012 M A M J J A S O N D 2013 A M J J A S O N D 2014 M A M J J A S O N D 2015 M A M J J A S O N

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© Henrik Mikkelsen, Managing Partner, Iridis AG

11

Scenario 1) Correction down already finished = New top coming in H1 2016, Target 2.150 to 2.250 Scenario 2) First part of 3 in correction down it finished = New top coming in H2 2016, Target 2.150 to 2.300 We believe the most probabal is Scenario 2, giving a positive outlook, but it requires time, something is different Scenario 3) Top seen since base in 2011 = Correction should take 50-60 % down from top to base = 1.550 The more negative scenario and resolution 3 exists, but this would require systematic and/or geopolical issue on large scale.

1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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x10

S&P500, 1928 - 2015

S&P 500 Scenarions (1998 – 2015)

1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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2300Daily SP500 Bar Chart


S&P 500 1979 - 2015, Nom. Scale Provides structural support in the ares around 1.800 – 1.850 in S&P 500


Sources: Reuters, OEC, Martin Pring & AdvisorShares

Inflation Adjusted Stock Charts – Give a rather exhausted look Inflation Adjusted MSCI World

Inflation Adjusted S&P Composit


XXX

Sources: Reuters, Yale Martin Pring & AdvisorShares http://www.etftrends.com/2015/09/a-turn-of-the-tide-revisited/

Inflation adjusted US equities and Shiller P/E Argues again for exhausted levels and potentially lower prices ahead, due to timespans of former corrections


Inflation adjusted US stocks and Shiller PE vs bond yields The relative valuation looks also stretched relative to yield levels!

Sources: Reuters, Yale, Moodys, Martin Pring & AdvisorShares

Corrective Signal

Corrective Signals

1990 2000 2010

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

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2 Y Treasury

6 M Treasury

5 Y Treasury

10 Y Treasury

30 Y Treasury

US6MT=RR, US5YT=RR, US2YT=RR, US10YT=RR, US30YT=RR


US Treasury Yields since 1985: The levels as well as the structure of the yield-bottoming process supports higher hields ahead!

1990 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

-0.5

0.0

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1.0

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3.5

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4.5

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9.5


German 10 Year Treasury Yields since 1990 – The Reunion The levels as well as the structure of the yield-bottoming process supports higher hields ahead

Source: MetaStock Xenith

or at least a sideways basing period ahead of us, but the bottom is most likely put in!


1990 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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Source: MetaStock Xenith

German 10 Year Treasury Yields since 1990 – The Reunion, Log Scale

Looking at Log Scale should make dropout/down more clear – Not sustainable


Courtesy: Strategas Research Partners LLP -12

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Free Cash Flow 10Y Treasury Yield FCF - 10Y Trsy Yield

“Yields” in Treasuries and Stocks

A change in convention or mispriced?


Courtesy: Waddel LLC and Strategas Research Partners LLP

S&P 500 Dividend Payout Ratio – Look rather appealing and supportive at first look, but looks deceive here!


Courtesy: Strategas Research Partners LLP

0%

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'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Shareholder Payout (Div + Buybacks)S&P 500 Shareholder Yield Payout (Dividends + Buybacks ) Share of Operating Income Including buybacks there is no consolidation in the S&P 500 stocks – everything is paid out!


Pricing in S&P 500 in 12m Fwd Earnings 12m Fwd Dividends 12m Fwd Book Value Index SPX

Vanishing expected earnings and rising dividends = falling S&P 500 and book value


Pricing in S&P 500 in 12m Fwd Earnings 12m Fwd Dividends 12m Fwd Book Value Index SPX


Pricing in S&P 500


Courtesy: Strategas Research Partners LLP

0%

1%

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'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

S&P 500 Shareholder Yield (Div + Buybacks / Operating Income) 10 Year Yield

Operating Income S&P 500 Shareholder Yield (Dividends + Buy backs ) 10 Year Yield


S&P 500 – Earnings yield 30 Year Treasury yield

Ratio S&P 500 vs US 30 Year Treasury yield


Pricing in S&P 500 - Fading momentum in earnings have earlier meant falling prices ahead


Constituents Analysis (Internals) - Stocks above and below 200 Days SMA


Movers in Stock Pricing (S&P 500 )


1987 M A M J J A S O N D 1989 M A M J J A S O N D 1990 M A M J J A S O N D 1991 M A M J J A S O N D 1992 M A M J J A S O N D 1993 M A M J J A S O N D 1994 M A M J J A S O N D 1995 M A M J J A S O N D 1996 M A M J J A S O N D 1997 M A M J J A S O N D 1998 M A M J J A S O N D 1999 M A M J J A S O N D 2000 M A M J J A S O N D 2001 M A M J J A S O N D 2002 M A M J J A S O N D 2003 M A M J J A S O N D 2004 M A M J J A S O N D 2005 M A M J J A S O N D 2006 M A M J J A S O N D 2007 M A M J J A S O N D 2008 M A M J J A S O N D 2009 M A M J J A S O N D 2010 A M J J A S O N D 2011 M A M J J A S O N D 2012 A M J J A S O N D 2013 A M J J A S O N D 2014 M A M J J A S O N D 2015 M A M J J A S

0102030405060708090

100Double Stoch

0

PPO

0.10.20.20.20.20.20.20.20.20.20.20.30.30.30.30.30.30.30.30.30.30.40.40.40.40.40.40.40.40.40.40.50.50.50.50.50.50.50.50.50.50.60.60.60.60.60.60.60.60.60.60.70.70.70.70.70.70.70.70.70.70.80.80.80.80.80.80.80.80.80.80.90.90.90.90.90.90.90.90.90.9

50.0%

61.8%

76.4%

Source: MetaStock Xenith Platform MetaStock R/T

Daily MSCI EM vs DM

MSCI Emerging Markets vs Developed Markets Relatively DM, 1987 - 2015

Lost more then 60 % relative to DM’s. Is it time to rotate?


MSCI EM vs DM, 1987 - 2015

S O N D 2009 M A M J J A S O N D 2010 M A M J J A S O N D 2011 A M J J A S O N D 2012 A M J J A S O N D 2013 A M J J A S O N D 2014 M A M J J A S O N D 2015 M A M J J A S O N

50Double Stoch

0PPO

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12000.0%

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61.8%

76.6%

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Weekly MSCI Emerging Markets

Source: MetaStock Xenith, Platf orm MetaStock R/T

1

A

B

C

MSCI Emerging Markets 1987 - 2015 Lost 55% since 2011! Time to rotate?


Rusian RTX

Returning to old supportive levels and trading at PE’s of 4,5!!!


MSCI EM vs DM, 1987 - 2015 Egypt US Investeble Given back 60 % of gains since the Egypt Spring with continuous GDP growth, PE 4,5


MSCI EM vs DM, 1987 - 2015 Indonesia Investeble USD Given back +60 % since the top in 2013 and bottom in 2008


MSCI EM vs DM, 1987 - 2015 Brasil Bovespa

Given back +60 % of gains earned 2008 - 2011


Gold

Gold – Correting, but structural corrections normally take much longer!!

Structural supports are at 1.085, ca. 1.000, 820 and 680 USD


Gold in other currencies

Structural and psycological support below 1.000 Mathematical support in 1.085 reached!! = 50 % corr.


Gold in other currencies

Gold in different currencies – Gold isolated from USD strength seem to be in stronger position!

Summery - Primo October 2015 Stocks markets: US, Europe and Japan major stock markets seem to tracing out a medium term correction, which all already have fulfilled their minimum corrective targets and structures. The road is still open for new highs in the major US, European and Japanese indices, but the road may turn out bumpy and long, and it could be time to rotate both sectors as well as geographical less loved in the last 3 years. Technically it could be argued that it is premature, but fundamentally a lot of value is contained in some of these areas relatively, so fundamentally the rotation can be supported. Emerging markets stock markets looks to be a place to be forward. The MSCI Emerging Market index have lost more then 55 % of its up-move from 2008 to 2011 (page 31) and lost more then 60 % relatively gain towards MSCI DM made from 1994 to 2011 (page 30), giving some attractive entry multiples like Price/Earnings around 4 in several countries like Russia and Egypt. The underperformance and relative cheap position of the emerging markets have been driven by falling commodity prices exagerated via falling local currenties and secundary access to financing. The overlooked parameter here could be the implicit debt situation on both public as well as private debt. EM and DM contains about 50 % of the GDP in the world each. DM’s holds 81 % of the debt leaving only 19% of the debt to EM’s. Looking forward, this could for me be the overlooked factor which and the error of the western investor. Consensus belief is that EM’s would suffer more if the US starts normalizing their monetary policy – the numbers 81 and 19 % does not support this view, in my view. So both relatively as well as nominally, technically and fundamentally like PE-ratios and debt wise, it seems that the emerging markets have started tracing out a bottom of generational magnitude, not to be missed. Setup is clear, triggers like debt focus and commodity prices just needs to be executed. Fixed Income: The Fixed income markets in Europe and Japan does not contain value and look to turn as if they have turned a corner. Here again the emerging market bond markets, both investment grade as well and higher yielding grades and local as well as hard currency denominated debt contains much more value - interesting yield levels of 5 – 8 %. Arguments could also be made that the extra yield from local currencies is worth taking, but that would require lower exposure. We would argue, from a risk allocation perspective, to keep the local currency exposure below 50 % and mainly take the hard currency denoninated debt issues, also to embed a tail risk hedge, especially here in the early and maybe to early part of the rotation process. Remember that all EM assets hold the local currency risk indirectly. Else value in European and Japanese debt seems non- existant. Growth, if or when it comes , should support equity multiples. Finally real estate in core regions like Germany and the Nordic countries should also be usefull and provide inflation hedge. Real estate seem to be the safest asset class in core Europe.

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An Alternative Market Outlook and Price Perspective

Thank you for listening

Henrik Mikkelsen Iridis AG

[email protected] +41 76 610 1325 www.iridisag.com

http://www.iridisag.com/

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An Alternative Market Outlook and Price Perspective_commented