By Stephen Blumenthal, CEO, CMG Capital Management Group
Archives for August 2015
Equity Market Risk Elevated
I’m moving up the level of equity risk due to several factors: One is a change in signal on volume demand vs. volume supply. Selling pressure is dominating buying demand, which is a concern in a period of low liquidity. Valuations remain stretched and the cyclical bull market is aged.
Trend evidence is positive but deteriorating. Sentiment is in the Extreme Pessimism zone which is historically bullish for equities. I lean towards giving upside the benefit of the doubt; however, I recommend to stay hedged on your equity exposure and include a number of other risk streams (such as liquid alternatives – which I define as anything other than traditional stock and bond buy-and-hold) in your portfolio(s).
Blumenthal on High Yield in Barron’s
CMG Capital Management Group CEO Steve Blumenthal talks to Barron’s “Income Investing” columnist Amey Stone about high yield bonds. Excerpt below from the Barron’s story Pain in High Yield Worsens:
Steve Blumenthal, CEO of CMG Capital Management Group, runs a tactical strategy that moves in and out of high yield based mainly on price momentum. He has largely been out of high yield since July. He thinks that demand for junk bonds could increase now that yields are above 7%. He will get back in when the index starts to move higher.
“You have to be very nimble with high yield exposure today,” Blumenthal told Barron’s.
Trend is Your Friend in High Yield
There are a number of ways to look at high yield bonds. For years, I trade with the view that “the trend is your friend.”
One of the charts that I look at frequently is below. It looks at small cap stocks (they are highly correlated with high yield bond funds and HY ETFs).
Trade Signals: Overall Trend Weakening But Bullish
I believe China’s surprise Yuan devaluation keeps the Fed on hold. Raising rates will further strengthen the dollar. A stronger dollar may ultimately be our greatest market risk – triggering crisis in the $9 trillion EM U.S. dollar denominated debt.
While the US economy looks ok, the global economy is at or near recession. We are in a debt driven deflationary spiral. So as market stress intensifies we collectively hope and pray for Fed support. Watch for Fed signaling that September is off the table. All about that Fed – until it’s not.
China Currency Move Stirring Global Risk
China’s Currency Move Causing Major Market Indigestion – Dow Testing December 2014 Low
Nearing an important test of its Feb and December lows. Concerning is what technicians call the “death cross” where the 50 day moving average line (dotted purple) crosses below the 200 day moving average line (dark blue).
The cyclical bull market move is aged, overvalued and starting to show signs a cyclical bear period may be near.
Eurozone Crisis Will Get Worse Says Mauldin
France isn’t that far away from a sovereign debt crisis, and Greece’s problems aren’t going away either, according to John Mauldin, Chairman of Mauldin Economics.
Mauldin described Greece’s latest agreement with its creditors as just another example of kicking the can down the road. ‘They’re borrowing money that they can’t pay, on top of money that they already can’t pay,’ said Mauldin. On Tuesday, Greece reached an agreement with its creditors on new bailout terms, but Mauldin believes a Greek exit from the eurozone remains a possibility in the future. ‘There has never been a monetary union in the history of the world that has stayed together, that hasn’t fallen apart, such as the Euro, without having a fiscal union,’ said Mauldin, who believes the next crisis will prompt the creation of a true fiscal union. ‘I think they actually do this, and I think they do this when France itself goes into a sovereign debt crisis. And France is not that far away from it.’ Mauldin spoke with TheStreet’s Rhonda Schaffler at Camp Kotok, an annual gathering of economists and money managers in Maine. See the Street: Economist John Mauldin Says Eurozone Crisis Will Only Get Worse
RELATED: On My Radar: High Probability of a Global Recession
Distressed Debt Reaches 2012 Level
Distressed debt reaching highest level since August 2012. #HighYield (Chart of the Day) http://t.co/icWy68pA5r pic.twitter.com/MouZ194mxM
— Kathy Jones (@KathyJones) August 10, 2015
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Junk Bonds Are The Investment Opportunity Of A Lifetime, Just Not Yet
Watch Junk Bonds For Early Warnings Of A New Financial Crisis
The Correction Gains Momentum

David Stockman, author of “The Contra Corner”
“US stocks declined for the seventh straight day on Friday, a dismal streak not seen for almost four years. The S&P 500 is now down 5 of the last 7 weeks although in total it is just 2.5% below the all time high. If you just own the index I suppose that is not much to be concerned about but there are warning signs galore. The S&P 500 is also basically unchanged in price for now over 8 months dating back to late November of 2014. That might not be a correction in price according to the accepted definition but it probably qualifies as a correction in time. And if you own anything other than the index you are probably suffering your own personal correction as the index itself only tells part of the story.
“If one defines rising as above the 200 day moving average (another one of those widely accepted definitions) then the S&P 500 is barely hanging on to bull market status with about 54% of the index above that line.
“Unfortunately, most other indexes show a majority of their constituents below that magic barrier. Despite all the recent hoopla about record highs, only 43% of NASDAQ stocks are still in uptrends. The NYSE fares even worse with just 39% moving higher. The small cap indexes have done even worse than their large cap counterparts; the Russell 2000 is no higher now than it was in March 2014, 5 quarters ago. So, I don’t know if we call it a correction but by time and price the individual constituents of the stock market indexes are not faring nearly as well as the indexes themselves. That is a result of using capitalization as a weighting factor, with the largest stocks having the greatest influence over the index.”
See the full story: The Correction Gains Momentum – Stocks Down 7 Straight Days by David Stockman.
All About Margin Debt

Steve Blumenthal, CEO, CMG Capital Management Group