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Sept. 3, 2015, 2:07 p.m. EDT

Is the U.S. bull ending while the emerging-markets bull begins?

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About Michael A. Gayed

Michael A. Gayed, CFA, winner of the 2014 Dow Award, is chief investment strategist and co-portfolio manager at Pension Partners, LLC., an investment advisor which manages mutual funds and separate accounts according to its ATAC (Accelerated Time and Capital) strategies focused on inflation rotation. Prior to this role, Gayed served as a portfolio manager for a large international investment group, trading long/short investment ideas in an effort to capture excess returns. From 2004 to 2008, Gayed was a strategist at AmeriCap Advisers LLC, a registered investment advisory firm that managed equity portfolios for large institutional clients. In 2007, he launched his own long/short hedge fund, using various trading strategies focused on taking advantage of stock market anomalies. Follow him on Twitter @pensionpartners and YouTube youtube.com/pensionpartners.

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By Michael A. Gayed

Wednesday we asked, “Has the bull market ended with a bang?” Perhaps the better question is — which bull market?

Charlie Bilello, our Director of Research and co-author with me of our award-winning papers (click here to download), put a great post up on our blog about how quickly serene markets can flip to extreme volatility.

MarketWatch’s Sara Sjolin did a nice piece Wednesday summarizing his thoughts on managing risk, which is something I've hammered for some time here in my various writings. Some in the comments section of Sara's writing mistakenly thought that a "call" was being made that the bull market is over. Incorrect. The issue isn't whether the secular bull market in stocks is over, but rather that the bull market in no-risk/all-return is.

"People put so much effort into starting a relationship and so little effort into ending one."

—Marina Abramovic

You can still have a bull market driven by volatility. What has been at issue for most tactical risk manager such as ourselves has been the path of equity-market movement and the unrelenting belief that small-sample movement is emblematic of the way markets work long-term.

Small-cap stocks /zigman2/quotes/209961116/composite IWM +0.90%  have basically gone back to February 2014 levels. Think about that for a second. That means all those bullish writings which seemed right in the moment ... all of that bullish sentiment for over a year has been wrong. Rarely will anyone admit this, but that is how volatility works, and how markets act to conviction.

U.S. stocks have been the center of the all-return-with-no-risk thinking. Emerging markets, on the other hand, have been the center of all-risk-and-no-return. Is this about to change?

Take a look below at the price ratio of the iShares JPM USD Emerging Markets Bond ETF /zigman2/quotes/202964510/composite EMB -0.55%  relative to the iShares Treasury Bond 20+ Year ETF /zigman2/quotes/206026314/composite TLT +0.42% . As a reminder, a rising price ratio means the numerator/EMB is outperforming (up more/down less) the denominator/TLT. Notice that the ratio has not made new lows and is trending higher in the very short-term. What makes this even more powerful is the fact that EMB has a shorter duration than TLT.

I wonder if throughout all of the hand wringing, if the no-risk U.S. bull market has ended, and the return bull market is about to begin in emerging markets and broader commodities. Certainly volatility /zigman2/quotes/202248173/composite VXX -4.14%  can continue, and the move does not have to begin here, but this is the time to get greedy when others are fearful. I’m pretty sure everyone is scared of Brazil /zigman2/quotes/208893627/composite EWZ +1.62% , Russia , India and China /zigman2/quotes/208670743/composite FXI -0.41% . I'm also pretty sure almost no one will be in it and everyone will chase long after the move has already begun.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

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