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Chasing Cars

Norway Government Forces Sovereign Wealth Fund To Buy $100 Billion More In Stocks "To Safeguard The Country's Riches"

As we reported late last year, the Norwegian government ordered its Sovereign Wealth Fund to increase its equity allocation to 70% to try and paper over what’s expected to be a 70 billion kroner ($11.1 billion) drawdown – the first in the fund’s history. 

That money was needed to plug a budget hole created by falling oil prices, and it seems the brilliant minds at the Norwegian Ministry of Finance and the Norges Bank figured they could easily recoup the fund's losses by upping its risk exposure. Indeed, they’ve already raised the fund’s expected average annual real return to 2.5 percent over 10 years and to 3.5 percent over 30 years, compared with 2.1 percent and 2.6 percent previously.

According to data cited by Bloomberg, the fund held 65.1 percent in stocks, 32.4 percent in bonds and 2.5 percent in properties during the second quarter. Its mandate is now to keep about 70 percent in stocks, 30 percent in bonds, with about 7 percent in real estate that’s now separate from the main portfolio. 

 DYI:

Norwegian politicians will be in for a rude shock when global markets are down 55% to 70% from peak to trough.  Of course they will move into high gear denial game that they actually mandated this course of action.  The U.S. market is in valuation stratosphere pushing our model portfolio to an allocated position of zero percentage for stocks. 

 Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION - 8/1/17

Active Allocation Bands (excluding cash) 0% to 60%

76% - Cash -Short Term Bond Index - VBIRX

22% -Gold- Precious Metals & Mining - VGPMX

 2% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

[See Disclaimer]

Stocks have a long way to fall before valuations completely mean invert from secular overvaluation to secular undervaluation.  Stocks as shown below based on sentiment are “on top of the mountain” with no other direction to go but down no matter what interest rate policies the Feds decide.  What is really happening in Norway is nothing more than past performance chasing – just as dogs chase cars – by their politicians.  With valuations at this level (U.S. market) on a nominal basis stocks bought or held for the next 10 years will be lucky to break even which is a 0% average annual return.

Market Sentiment

Smart Money buys aggressively!
Capitulation
Despondency
Max-Pessimism *Market Bottoms* Short Term Bonds
Depression MMF
Hope Gold
Relief *Market returns to Mean* 

Smart Money buys the Dips!
Optimism
Media Attention
Enthusiasm

Smart Money - Sells the Rallies!
Thrill
Greed
Delusional
Max-Optimism *Market Tops* U.S. Stocks
Denial of Problem Long Term Bonds
Anxiety
Fear
Desperation

Smart Money Buys Aggressively!
Capitulation

So….Hold onto your hats and your cash better values are ahead.

THE GREAT WAIT CONTINUES……

DYI