Sunday, July 14, 2013

Red-Hot Summer Sectors

by Tom Aspray

The stock market’s rally from the late June lows has been impressive as some of the hottest sectors have gained 7-8% in just the past nine trading days. In many years this would be a respectable annual return as the 10-year average annual return for the S&P 500 through 2012 was just 7.1%.

By using the monthly, weekly, and daily relative performance analysis (Spot Market Leaders in Any Time Frame) you can often identify those sectors that are leading the market higher. This allows you to concentrate on stocks or ETFs in those sectors that are outperforming the overall market.

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The table above lists the 1st quarter, 2nd quarter, year-to-date, and July ‘s performance for the nine Select Sector SPDR funds and the Spyder Trust (SPY).Three are up over 20% so far this year, well ahead of the 15.1% gain in the SPY.

The Materials Select SPDR (XLB) has done the worst, up just 5.3%, followed by the 8.0% gain in the Utilities Select Spyder (XLU). This performance does not include dividends, and if you add them in for the XLU, it is up over 9.2% so far in 2013.

The ETFs that are clearly leading the pack, so far in July (through 7/9), are the Financial Select Spyder (XLF), which is up 3.6% and the Consumer Discretionary Select Spyder (XLY), up 3.8%. All of the Select Spyder ETFs are higher so far this month.

Sector selection was again important in the second quarter as energy was up 11%, while the utilities were down 3.8%, and materials lost 2.1%.

So which of the sector ETFs look the best in the coming months?

As I discussed earlier this month, the seasonal tendency is for the market to rally from late June until September, which is a tough month for stocks. To pick which sectors will likely do best, I look at the monthly, weekly, and daily technical studies.

The relative performance is especially important. In October 2010, the weekly relative performance analysis turned positive on the Select Sector SPDR Energy (XLE). By the end of the first quarter of 2011, XLE was up 40.8% but the more narrowly focused SPDR S&P Oil & Gas Exploration & Production ETF (XOP) was even better, gaining 51.5%. Both did much better than the SPY, which was up 16.2%, and of course, some of the individual energy stocks did even better than the ETFs

Given the sharp gains already this month, the entry level and stop are key considerations as they are two of the five rules that I think need to be followed if you want to increase the odds of success in 2013.

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The Select Sector SPDR Financial (XLF) was one of my Best Sector Bets for the New Year that I highlighted in the middle of December. The weekly chart shows that it tested the uptrend from the 2013 lows, line a, in June before turning higher. The 20-week EMA was violated but XLF did not close below it.

XLF is already close to the previous 2013 high at $20.35. The weekly starc+ band is at $20.88 with the monthly at $21.35. In 2007, XLF traded as high as $38.15 so the 50% Fibonacci retracement resistance is at $22.02.

The weekly relative performance broke its six-month downtrend, line b, in early September 2012, and later in the month, it pulled back to its rising WMA. The RS line has since made a series of higher highs, and on the recent pullback, held well above its WMA and the support at line c.

The weekly OBV moved to new highs last August and also shows a pattern of higher highs. The OBV dropped below its WMA and tested its uptrend in both December 2012 and April 2013. The OBV held above its WMA in June (see arrow).

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The five-week correction from the May highs took the Select Sector SPDR Financial (XLF) back to its daily starc- band and the uptrend, line a. They were both tested on June 21. The completion of the continuation pattern has a 127.2% Fibonacci retracement target at $20.82.

The rising 20-day EMA is at $19.64 with the recent swing lows at $19.34. The monthly projected support using the methods of John Person is at $18.86.

The daily relative performance shows a series of higher highs and the short-term downtrend, line b, was broken four days ago. It retested the WMA before the breakout. The daily OBV dropped slightly below its long-term downtrend, line e, in June.

The move in the daily OBV above the resistance at line d, confirmed that the correction was over. The OBV is now rising sharply as the volume was strong on Tuesday.

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The Select Sector SPDR Consumer Discretionary (XLY) has also been very strong this year as it is up 23.4% through Tuesday July 9. The weekly chart shows that the starc+ band was tested in May before the six-week correction back to the rising 20-day EMA. It had a low of $53.96 on June 24. The uptrend from the late 2012 lows is now at $52.55.

The relative performance has made new highs over the past two weeks and has turned up sharply. It last dropped below its 21-week WMA in February 2013 and shows a clear pattern of higher highs and higher lows.

The weekly OBV broke through resistance line d, and made new highs in early 2013 (point 1). The OBV dropped below its WMA for one week in late June, but is still below the prior highs. It has longer-term support at the uptrend, line e. Last week’s low and quarterly pivot provide good support now at $56.50 to $55.48.

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The downtrend, line a, on the daily chart was overcome on July 2 as the Select Sector SPDR Consumer Discretionary (XLY) has accelerated to the upside and is now testing the daily starc+ band. The 127.2% Fibonacci retracement target is at $59.24.

There is initial support now at $56.75-$56.95 and the rising 20-day EMA. The daily starc- band is at $56.04.

The daily relative performance made significant new highs this week and is well above its rising WMA. There is more important support now at line c, as the RS line broke out to the upside in April.

The daily OBV did confirm the highs in May before it dropped below its WMA. The OBV closed below its long-term uptrend, line d, for four days in late June but is now well above it. The daily OBV has not yet confirmed the new highs but it is not far below them.

The Select Sector SPDR Health Care (XLV) has been a favorite since May of 2012 as the S&P Health Care Sector broke out of a 12-year trading range in March. The initial upside target at 550 has already been overcome as it is trading above 560.

The XLV is a more narrowly focused healthcare play with over 13% in Johnson and Jonhson (JNJ) and over 10% in Pfizer (PFE). The weekly chart shows that the weekly starc+ band was tested in May and that it held above the 20-week EMA on the correction.

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The monthly and quarterly pivot lines are at $47.85 and $47.95, respectively, with June’s low at $46.81. There is next weekly resistance at $49.13 and then the all-time highs at $50.40 when a doji was formed. A low close doji (LCD) was triggered the following week, which was consistent with the recent correction.

The 127.2% Fibonacci retracement target is at $51.42, which is the next potential upside target.

The weekly relative performance broke through eight-month resistance, line b, in May 2012, which was a positive sign. In 2013, it peaked in April ahead of prices and did not make a new high in May. The RS line has broken its short-term downtrend and is still holding above its WMA (point 1).

The OBV did make a new high last week and is acting stronger than prices. It held well above its rising WMA during the recent correction with major support now at line d. The monthly OBV (not shown) did make a new high in May and is trying to turn up in July. It is well above its WMA and support.

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The daily chart shows that support going back to the April 8 low of $46.02, line a, was tested in June. A significant break below this level could complete a more significant top formation. There is next resistance on the daily chart at $49.10 and then further at $49.35.

The daily relative performance peaked in the latter part of April before dropping back to support. Since May it has been matching the performance of the S&P 500 but not leading it higher. A drop below the May lows will weaken the technical outlook.

The daily OBV did confirm the May highs for XLV and it turned up after testing the uptrend that goes back to the early 2013 lows, line d. The OBV is now back above its WMA, and it could make new highs with further strength.

The 20-day EMA is now at $48.10 with additional support in the $47.18-$47.23 area.

So which other ETFs could be candidates for market leading sectors as we start the last half of the year?

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Three of the Select Sector SPDR ETFs look the most interesting for new market leadership. The first I would like to look at is the Select Sector SPDR Industrials (XLI). Through March 15, XLI was one of the Best Bull Market Sectors as it was up 177% versus 131% for the Spyder Trust (SPY).

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Why a Recession for the U.S. Economy Within the Next 12 Months Is Inevitable

By Michael Lombardi

One fact has become quite clear: if we want to see robust growth in our gross domestic product (GDP), then there needs to be a significant change in consumer spending.

But current consumer spending in the U.S. economy is looking bleak, and it makes me skeptical about the GDP growth ahead. We’ve already seen GDP in the first quarter revised lower due to consumer spending; and it won’t be a surprise to me if something similar happens in the second quarter.

Don’t just take my word for it. Look at what the CEO of Family Dollar Stores, Inc (NYSE/FDO), Howard R. Levine, said about consumer spending while presenting his company’s corporate earnings for its fiscal third quarter (ended June 1, 2013):

“Our consumables sales remained strong and we continued to gain market share. However, our discretionary sales remained challenged as our customers have been forced to make spending choices between basic needs and wants. Consistent with market trends, we expect that our customers will continue to face financial headwinds…” (Source: “Press Release; Family Dollar reports Third Quarter Results,” Family Dollar Stores, Inc. web site, July 10, 2013.)

Remember: retailers like Family Dollar Stores see the patterns of consumer spending first-hand—their opinions shouldn’t be taken lightly.

More proof that consumer spending (which makes up a major portion of our GDP) isn’t as robust is the fact that wholesale trade sales are down and inventory figures are up. Inventories at wholesalers in May were up 3.3% as compared to a year ago. And inventories of durable goods were up 4.8% in the same period. (Source: U.S. Census Bureau, July 10, 2013.)

Inventory build-up is an indicator suggesting consumer spending isn’t what it was expected to be. In addition, surging durable goods inventories also suggest that consumers are not spending on their wants, but instead focusing on their needs for now.

Consumer spending on nondurable goods—goods that don’t last for long periods of time, like clothing—isn’t great either. From the fourth quarter of 2012 to the first quarter of 2013, real personal consumption—consumer spending adjusted for price changes—increased by just $14.6 billion, or 0.7%. (Source: Federal Reserve Bank of St. Louis web site, last accessed July 11, 2013.)

I can’t stress this enough: consumer spending won’t improve and the GDP will remain depressed until the average Joe American feels confident spending money.

Nothing has changed in the U.S. economy. The daily struggle for many Americans continues. Following the financial crisis, many Americans are now working at jobs that pay minimum wage or have part-time positions, while others are losing their skills the longer they are out of work.

That’s why I’m predicting the opposite of what so many analysts and economists are forecasting: they see growth, while I see the U.S. headed back to a recession within the next 12 months.

Michael’s Personal Notes:

Did the Federal Reserve just tell us it wants much higher inflation?

In the most recent meeting minutes from the Federal Open Market Committee (FOMC), it said:

“Most [members], however, now anticipated that the Committee would not sell agency mortgage-backed securities (MBS) as part of the normalization process, although some indicated that limited sales might be warranted in the longer run to reduce or eliminate residual holdings. A couple of participants stated that they preferred that the Committee make no decision about sales of MBS until closer to the start of the normalization process.” (Source: “FOMC Minutes,” Federal Reserve, July 10, 2013.)

Simply put, the majority of the members of the FOMC think the Federal Reserve shouldn’t sell the MBS it has accumulated on its balance sheet through its multiple rounds of quantitative easing.

While the key stock indices rally, and stock advisors continue to say we are going much higher, if the Federal Reserve doesn’t go ahead with this action and keeps the MBS on its balance sheet, this move could have serious implications ahead.

Mark my words: the biggest problem will be inflation.

This is how it works: if the Federal Reserve keeps the MBS it has bought from banks for the sake of providing liquidity to the financial system, then that will increase the money supply—which always causes inflation.

Take a look at the chart below. This chart sums up the relationship between the money supply and inflation. It compares M2 money stock (a measure of money supply and the consumer price index as indicated by the black line) and the “official” measure of inflation (marked by the red line).


   Chart courtesy of

Clearly, the correlation between money supply and inflation is very high and shouldn’t go unnoticed.

My problem is that the Federal Reserve still hasn’t stopped quantitative easing. The damage has already been done—through quantitative easing, the Federal Reserve has inflated its balance sheet to more than $3.0 trillion, and the money supply has increased significantly. Just like throwing more fuel on a fire, the continuation of quantitative easing will only make inflation soar higher.

We are already seeing some inflation, even if the official numbers suggest otherwise. Some mainstream economists are even saying we may see deflation ahead. They will soon find out they are wrong.

Dear reader, I am a consumer, and I go out and shop. I notice that the price of gas has increased substantially, and containers of our favorite foods are shrinking in size with a “no price change” tag slapped on them. Inflation will get much worse, and possibly even get out of control, unless the Federal Reserve starts pulling back on its $85.0 billion-a-month printing program.

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Best Stock Market Indicator Ever Rises to 92%; Secondaries Say 'Tradable'

By John F. Carlucci

The $OEXA200R (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on used to find the "sweet spot" time period in the market when you have the best chance of making money.

Latest Indicator Position

According to this system, the market is now tradable. In addition to the OEXA200R being above 65%, currently ast 92%.

Of the three secondary indicators:

  • RSI is POSITIVE (above 50)
  • Slow STO is POSITIVE (black line above red)
  • MACD is NEGATIVE (black line below red)

Background on How I Use This Indicator

The OEXA200R is a valuable metric used to accurately assess the state of the market in order to make profitable trading decisions. That is, whether we are in a bull, a bear or transitioning from one to the other, as well as market volatility and risk within each of those situations. Historically, it has also given traders a clear early warning signal of impending serious market downturns and later safe re-entry points. While not intended as a day trading tool per se it can certainly be used as background information by day or highly speculative traders. Simply put, the OEXA200R gives traders the ability to identify the most opportune conditions within which to execute their various long, short or hold strategies.

Definition of Terms:

"Tradable" refers to the point at which it is most advantageous to enter and continue long trading.

"Un-tradable" refers to the point at which it is advisable to exit all long positions that have not already automatically closed with a trailing stop loss. Please be aware that the OEXA exit points are not always timed at the exact top of any run up, that is impossible to predict. However, a trailing stop will follow the price to the highest point and close out as it falls from there, meaning most positions should have closed before the OEXA exit signal appears and thus should close at a point higher than at the exit signal.

Following a major market correction, the conditions for safe re-entry are when:

a) Daily $OEXA200R rises above 65% (I follow the Daily but do not publish the chart here)
And two of the following three also occur:
b) Weekly RSI rises over 50
c) Weekly MACD black line rises above red line
d) Weekly Slow STO black line rises above red line

Without the solid foundational support of two out of three Weekly secondary indicators it is unsafe to trade even if Daily OEXA200R edges above the 65% line. The market is considered safely tradable as long as Daily OEXA200R remains above 65% and two Weekly secondary indicators remain positive. Volatility and risk for long traders are relatively low. The trend is on their side.

Conversely, when Daily OEXA200R drops to 65% and / or two out of three Weekly secondary indicators turn negative it is taken as the conservative signal to exit all long positions, even if Daily OEXA is above 65%. Volatility and risk increase substantially. In the past, this has often been a "tipping point" condition presaging a substantial market drop.

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Britain’s Gas Chance

by Bjørn Lomborg

PRAGUE – In late June, the British Geological Survey announced the world’s largest shale-gas field. The Bowland Shale, which lies beneath Lancashire and Yorkshire, contains 50% more gas than the combined reserves of two of the largest fields in the United States, the Barnett Shale and the Marcellus Shale.

This illustration is by Margaret Scott and comes from <a href=""></a>, and is the property of the NewsArt organization and of its artist. Reproducing this image is a violation of copyright law.

Illustration by Margaret Scott

The United Kingdom has been reluctant to join the hydraulic-fracturing (or fracking) revolution. Yet tapping the Bowland Shale could reignite the UK economy and deliver huge cuts in CO2 emissions.

At the same time, the UK Parliament has approved stringent new measures to reduce carbon emissions by 2020, with the biggest CO2 cuts by far to come from an increase of more than 800% in offshore wind power over the next seven years. But offshore wind power is so expensive that it will receive at least three times the traded cost of regular electricity in subsidiesmore than even solar power, which was never at an advantage in the UK. For minimal CO2 reduction, the UK economy will pay dearly.

This is just one example of current climate policy’s utter remove from reality – and not just in the UK. We are focusing on insignificant – but very costly – green policies that make us feel good, while ignoring or actively discouraging policies that would dramatically reduce emissions and make economic sense.

Consider the three standard arguments for a green economy: climate change, energy security, and jobs. As it turns out, fracking does better on all three.

Assuming complete success for the UK’s scheme, offshore wind power could produce more than 10% of the country’s electricity in 2020 and reduce its CO2 emissions by up to 22Mt, or 5%, per year. But the cost would also be phenomenal. The UK would pay at least $8 billion annually in subsidies to support this inherently inefficient technology.

Compare this to the opportunity of the Bowland Shale. If, by 2020, the UK could exploit its reserves there at just one-third the intensity of the exploitation of the Barnett and Marcellus Shales today, the outcome would be phenomenal.

Natural gas is much more environmentally friendly than coal, which continues to be the mainstay of electricity production around the world and in the UK. Gas emits less than half the CO2 per kWh produced, and it emits much lower amounts of other pollutants like NOx, SO2, black carbon, CO, mercury, and particulates. If the UK sold its shale gas both domestically and abroad to replace coal, it could reduce local air pollution significantly and reduce global carbon emissions by 170Mt, or more than a third of UK carbon emissions. At the same time, instead of costing $8 billion per year, shale-gas production would add about $10 billion per year to the UK economy.

Likewise, it is often argued that the green economy will increase energy security, as green resources will leave countries less dependent on fossil-fuel imports. But even much higher supplies of wind power would improve security only marginally, because the UK would still have to import just as much oil (wind replaces mostly coal, rarely oil) and much of its gas, leaving it dependent on Russia. For countries closer to Russia’s sphere of influence, like Poland and Ukraine, this dependence becomes palpable.

And yet the UK could improve its energy security dramatically, because it has enough gas reserves to cover roughly the entirety of its gas consumption for a half-century or more. Moreover, increased UK production would lower world prices, making countries with fewer or no shale-gas resources safer. And, of course, any country that is $10 billion richer, rather than $8 billion poorer, will have a better chance to handle future problems.

Finally, green-economy advocates promise a surfeit of green jobs. But economic research convincingly shows that while subsidies can buy extra jobs, they eventually have to be financed with increased taxes, costing an equal number of jobs elsewhere.

In comparison, shale gas in the US has created an estimated 600,000 jobs that are generating about $100 billion in added GDP and almost $20 billion in public revenue.

Current global climate policy is unsustainable; the UK’s commitment to boosting offshore wind power is only the latest example. Distressed economies cannot afford to pay more than $350 to avoid each ton of CO2, which could be cut on the European market for about 50 times less. Shale gas could cut the cost of reducing CO2 seven times more while actually helping Europe’s ailing economy.

Though it is not the ultimate solution, shale gas is greener. With good regulation, during the coming decade it can do the most good worldwide in terms of cutting CO2 emissions and improving living conditions. Mindless subsidies that we cannot afford will not create a green economy; what will is investment in research and development to bring down costs, so that green energy eventually can outcompete gas.

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Green and back

by Economist

The dollar is enjoying a rare period of strength. How far can the rally go?

VISITORS to America this summer will find their money does not stretch quite as far as on previous trips. The dollar has risen this year against a broad range of currencies, so holiday purchases will be a bit pricier than usual. A strengthening dollar is a rare thing. The upward bursts in the early 1980s and the late 1990s were deviations from a generally falling trend. Since it was freed from the Bretton Woods system of fixed exchange rates four decades ago, the dollar has mostly fallen in value against other rich-world currencies. But a growing band of analysts reckon it is time for the greenback to regain a bit of lost ground.

The immediate spur for optimism about the dollar is the recent signalling from the Federal Reserve that its purchases of bonds with newly created money may start to tail off as soon as September. The prospect of an end to quantitative easing has already pushed up long-term interest rates. The yield on ten-year Treasuries has risen to 2.6% from a low of 1.6% in May. As yields rise, capital is attracted to America from riskier parts of the world. That in turn pushes up the dollar.

The deeper cause of the dollar rally is the relative health of America’s economy. Bad mortgage debts have been cleaned out of banks. The housing market is recovering. Jobs are growing steadily. Non-farm employers added 195,000 workers to their payrolls in June, in line with the average increase so far this year.

GDP growth has been modest even if it is likely to strengthen a bit. In an update to its projections, the IMF this week forecast that the American economy will grow by 2.7% next year. That is hardly a boom. But other big rich economies, such as Japan and Britain, cannot hope to do nearly as well. And the euro zone is still in recession.

As if to underline these divergent fortunes central banks in Europe indicated earlier this month that looser monetary policy may still be required on their patch. Mario Draghi, the president of the European Central Bank (ECB), said on July 4th that the bank expects to keep its main interest rates “at present or lower levels for an extended period of time”. This was the first time the ECB had given explicit guidance about the future path of interest rates. It came shortly after a statement from the Bank of England’s monetary-policy committee, meeting for the first time under its new governor, Mark Carney, which said the British economy was still too weak to warrant the increases in the bank’s benchmark interest rate implied by recent rises in longer-term bond yields.

The Fed’s own forward guidance about the probable “tapering” of its bond purchases is what pushed up these yields in Europe. As the extent to which monetary policy in America and Europe are on different paths becomes clear, the transatlantic gap in market interest rates is likely to widen. The dollar ought to rise further.

Still shallow

But how much further? For now a fitful upwards grind of 5-7% against the other major currencies might well be the limit. America’s economy is doing well enough to give its currency a boost, but it is not yet so strong as to spur the sort of bull run the dollar enjoyed in the late 1990s. Even if the Fed dials back bond purchases soon, it might be years before it raises its benchmark interest rate from near zero. The Fed has said it will stay where it is until unemployment, now 7.6%, has fallen to 6.5%; on July 10th Ben Bernanke, its chairman, said the rate could stick at near zero long after that. And the Fed would itself react to a fast-rising dollar: no rich country is keen to have a strong currency when growth is scarce. That is why the dollar rally will be a shallow one, says Kit Juckes, an analyst at Société Générale.

There may also be a limit to how far the euro can fall. The euro zone’s sovereign-debt crisis has dragged on for more than three years. Yet in all that time the euro could rarely be described as cheap. And even after the monetary-policy steers from the Fed and the ECB, the euro is still a bit above the fair value of $1.26 suggested by the Big Mac index, our rough-and-ready guide to currencies (see article).

One reason for this resilience might be that euros are harder for foreigners to earn than dollars are: the euro zone has a large current-account surplus whereas America has a big deficit. Another is that China’s central bank may have used any temporary weakness in the euro as an opportunity to diversify its huge reserves away from the dollar. Can the euro get below, say, $1.20? “You’ll have to ask the Chinese,” says a US-based hedge-fund manager.

The dollar seems likely to make the biggest gains against emerging-market currencies. A handful of countries, including India and South Africa, which depend on foreign capital to finance their trade deficits have already seen their currencies fall by around 10% since the beginning of May, merely on the prospect that the Fed might take its foot off the monetary-policy pedal (see chart). As long as bond yields were low in America, rich-world investors were happy to buy emerging-market bonds. But such capital will be a lot harder to secure from America as quantitative easing comes to an end.

Some emerging markets have already reportedly sold a slug of dollars from their foreign-exchange reserves to slow the descent of their currencies. There may be some second-round effects from this as these central banks then replenish their dollar reserves by selling some of their euros. By next summer visitors to America may find the dollar that bit stronger and their wallets emptying that bit faster.

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Zen Saying Applicable To Markets Now

By All About Trends

The following is an excerpt from yesterday’s premium report by All About Trends. Enjoy a free 15 day trial to their service and receive daily stock picks, market analysis, and a complete trading plan.

Eeeeeeeasy Grasshopper!

When I look at the daily index charts below I can’t help but think of the old eastern Zen phrase of EASY GRASSHOPPER. We all know grasshoppers always want to jump so it’s a pretty fitting phrase for those who have a hard time managing their emotions considering the indexes just jumped into new highs in the form of a news driven event AFTER we’ve been gapping up pretty hard here the last few weeks.

Take a look at the daily index charts below.

All week we’ve been saying:

“Does the market take a breather and digest the gap and then make another gap higher to retest the ultimate highs? If we are going higher to retest the highs then that’s what it needs to do here for a few days.”

We all got the answer to that compliments of uncle Ben’s wild rice gang’s press conference yesterday which you guessed it led to a big gap up. Think “Now that we’ve got that all out of the way” and along with that comes “We now return you to our regularly scheduled programming” and that is?

We’re overbought and stretched with us being nowhere near and type of support zones we can work with here. Let’s not forget about the V bottom which are very unstable patterns by the way.

And then there are those grasshoppers that want to buy because they see wow the market broke into a new high so we gotta buy because the talking heads are highly emotional with glee. Let cooler heads prevail. Listen to the market and not the opinions here for a bit. Buying here IS bus chasing plain and simple!

Let’s also not forget that you are buying AFTER we’ve run for two weeks with the bulk of that run taking place in the form of gaps up (which create air pockets on the way down you know). And while I’m on the subject of gaps? More often than not the market gaps and after the dust settles it goes nowhere or drifts down.

So you see buying here is super late to the party and being a grasshopper. Don’t forget bus windshields have a tendency of pick up grasshoppers and not in a good way. So CAUTION over the next few days is advised!

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The Fed's latest dilemma

by SoberLook

The Fed continues to be divided over the next steps for its unprecedented monetary expansion program. Varying interpretations and conflicting headlines in the press leave the public bewildered and frustrated. The following two stories for example have appeared right next to one another on Bloomberg today.

But now the Fed has a new problem. The central bank's securities purchases are financed with bank reserves, which have been rising steadily in 2013 (chart below).

Source: FRB

And to many on the Fed that was justifiable as long as US commercial banks continued to expand their balance sheets. But recently that expansion has stalled.

Source: FRB

To some this calls into question the effectiveness of the whole program, since the transmission from reserves into credit is so weak. The Fed is now facing the following choices:
1. slow the purchases and run the risk of shrinking credit and rising interest rates or
2. continue with the program and risk QE "side effects" without the needed credit expansion (which has stalled).
That's why we are likely to see the Fed even more divided going forward, adding to more uncertainty and frustration by investors (including those outside the US) as well as the public.

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Weighing the Week Ahead: Have Stock Investors Dodged the (Correction) Bullet?

by Jeff Miller

In last week's prediction for the week ahead my streak of good guesses came to an end. I had the temerity to suggest that market focus might finally be moving beyond the Fed policy/QE debate and turning to corporate earnings. While earnings provided some important stories, the biggest news came when the market ignored the slightly bearish Fed minutes and found comfort in a few words from Chairman Bernanke. While many of us saw nothing new, it is a matter of perception. I described the three schools of thought in this post. The trader school finally got the message this week, causing media types to conclude that he must have said something different or the markets would not be moving. Sheesh!

Is the Fed fixation finally behind us? In a week where Bernanke testifies before Congress, the Beige book comes out, and Fed Presidents are on the rubber-chicken circuit, this seems like a dangerous prediction. Undaunted, I will try again. This week's key question will be all about new records in stocks and the lessons for corporate earnings reports. In particular, people will be asking:

Have we dodged the bullet?

Was the modest June swoon the extent of the market correction, or is there something else to fear? Ed Yardeni charts the corrections in the current bull market:

Yardeni Corrections

Here are three current viewpoints:

  1. We are beyond the seasonal weakness in evidence during the last few years. Most see economic and earnings improvement in the second half of 2013. Brian Gilmartin reports that forward earnings are at a new record, year-over-year earnings growth is about 5%, and the earnings yield on the S&P 500 is 7.15% -- all indicating a cheap market. He is expecting a new market record in the next few months. The top economic forecaster is looking for 3.25% growth in the second half of 2013.
  2. Economic threats – the sequester, reduced home purchases due to rising rates, or effects from abroad – may derail the earnings story. Doug Kass is "very concerned" about earnings and pessimistic about the economic "false dawn." He predicts that Q2 earnings will actually decline by 1%. This is a dramatic prediction with a near-term time frame.
  3. We are OK for now, but political leaders in Europe and the U.S. have plenty of time before the year ends. The debt ceiling talks are on "life support" (via The Hill) and the debt ceiling must be raised this fall. Will it be a replay of 2011? Nothing bad actually happened from that debt ceiling debate, but consumer confidence plummeted as people watched the process. This week the political science world lost Alan Rosenthal of Rutgers, who studied the state legislatures of every state and helped to reform 35 of them. His New York Times obituary explains as follows:

    "Observing the Ohio General Assembly, he decided to test the old saying that likened the legislative process to sausage making, so he visited a sausage factory. His conclusion, written for State Legislatures magazine in 2001, was that sausage making was cleaner, more efficient, more collaborative and better labeled."

I have some thoughts on the potential for a market correction, which I will take up in the conclusion.  First, let us do our regular update of last week's news and data.

Background on "Weighing the Week Ahead"
There are many good lists of upcoming events.  One source I regularly follow is the weekly calendar from For best results you need to select the date range from the calendar displayed on the site. You will be rewarded with a comprehensive list of data and events from all over the world. It takes a little practice, but it is worth it.

In contrast, I highlight a smaller group of events.  My theme is an expert guess about what we will be watching on TV and reading in the mainstream media.  It is a focus on what I think is important for my trading and client portfolios. Each week I consider the upcoming calendar and the current market, predicting the main theme we should expect. This step is an important part of my trading preparation and planning. It takes more hours than you can imagine.

My record is pretty good. If you review the list of titles it looks like a history of market concerns. Wrong! The thing to note is that I highlighted each topic the week before it grabbed the attention. I find it useful to reflect on the key theme for the week ahead, and I hope you will as well.

This is unlike my other articles at "A Dash" where I develop a focused, logical argument with supporting data on a single theme. Here I am simply sharing my conclusions. Sometimes these are topics that I have already written about, and others are on my agenda. I am putting the news in context.
Readers often disagree with my conclusions. Do not be bashful. Join in and comment about what we should expect in the days ahead. This weekly piece emphasizes my opinions about what is really important and how to put the news in context. I have had great success with my approach, but feel free to disagree. That is what makes a market!

Last Week's Data

Each week I break down events into good and bad. Often there is "ugly" and on rare occasion something really good. My working definition of "good" has two components:

  1. The news is market-friendly. Our personal policy preferences are not relevant for this test. And especially -- no politics.
  2. It is better than expectations.

The Good

This was a light weak for economic news, but there were a few positive items.

  • A federal budget surplus? According to Karl Smith, the probability is increasing that we will see this in the next few years. I am scoring this as "good" since it reflects better revenues. Might it be happening too quickly? Scott Grannis sees the positive side:

Deficit % of GDP

  • The early bank earnings reports were strong. Eddy Elfenbein reports on JPM and WFC. Cardiff Garcia refutes concerns about the impact of rates on housing and bank earnings:

    "The bottom line is that the construction recovery is nowhere near ended. The building permits numbers point to a decent gain in housing starts in June (data out Wednesday). And with starts still well below historically normal levels, homebuilding volumes will keep rising for some time after that…"

  • European trade is achieving balance, proving the doomster's wrong according to Olaf Storbeck at Breakingviews. He writes, "The latest German trade data confirm that one of the fundamental causes of the euro crisis may be fading away. The long-standing intra-euro zone trade and current account imbalances are disappearing slowly but surely. The progress is hidden behind the statistics' headline numbers."

The Bad

There was also a little bad news.  Feel free to add in the comments anything you think I missed!

  • The IMF reduced global growth forecasts. See analysis from Neil Irwin at Wonkblog.
  • Jobless claims were a bit higher than expected, perhaps influenced by the July 4th holiday. The four-week moving average was also a little higher, but the report was within the normal noise level.
  • Oil and gasoline prices moved higher, reflected in the PPI. It is time to review the PPI core versus headline numbers with Doug Short's informative chart:



The Ugly

This week's "ugly" award goes to the anonymous bond trader who moaned and groaned to CNBC's Bob Pisani about Bernanke's market moving comments in the Q and A following his long-scheduled speech to the NBER conference in Cambridge. Pisani repeatedly reported that traders were unhappy about this news and some on the network even described it as market manipulation.

These complaints illustrate a serious and important discrepancy between the reality of policy making and the reality of trading. I have been a member of both groups. As a trader, I never expected government actions, speeches, or data releases to conform to my trading convenience. The timing was announced in advance. It was up to me to decide if I wanted to carry a position overnight. I did not expect much from the Bernanke speech, and I was surprised that the market thought it was fresh news. The Fed minutes seemed more important. It was a surprise, just as like many other events.

Should Bernanke decline any speeches that are outside of market hours? Refuse to answer questions, even if repeating what he has already said before?

When you have a losing trade, you just accept it and move on.

The Indicator Snapshot

It is important to keep the current news in perspective. I am always searching for the best indicators for our weekly snapshot. I make changes when the evidence warrants. At the moment, my weekly snapshot includes these important summary indicators:

  • For financial risk, the St. Louis Financial Stress Index.
  • An updated analysis of recession probability from key sources.
  • For market trends, the key measures from our "Felix" ETF model.

Financial Risk

The SLFSI reports with a one-week lag. This means that the reported values do not include last week's market action. The SLFSI has recently edged a bit higher, reflecting increased market volatility. It remains at historically low levels, well out of the trigger range of my pre-determined risk alarm. This is an excellent tool for managing risk objectively, and it has suggested the need for more caution. Before implementing this indicator our team did extensive research, discovering a "warning range" that deserves respect. We identified a reading of 1.1 or higher as a place to consider reducing positions.

The SLFSI is not a market-timing tool, since it does not attempt to predict how people will interpret events.  It uses data, mostly from credit markets, to reach an objective risk assessment.  The biggest profits come from going all-in when risk is high on this indicator, but so do the biggest losses.

Recession Odds

I feature the C-Score, a weekly interpretation of the best recession indicator I found, Bob Dieli's "aggregate spread."  I have now added a series of videos, where Dr. Dieli explains the rationale for his indicator and how it applied in each recession since the 50's.  I have organized this so that you can pick a particular recession and see the discussion for that case.  Those who are skeptics about the method should start by reviewing the video for that recession.  Anyone who spends some time with this will learn a great deal about the history of recessions from a veteran observer.

I have promised another installment on how I use Bob's information to improve investing.  I hope to have that soon.  Meanwhile, anyone watching the videos will quickly learn that the aggregate spread (and the C Score) provides an early warning.  Bob also has a collection of coincident indicators and is always questioning his own methods.

I also feature RecessionAlert, which combines a variety of different methods, including the ECRI, in developing a Super Index.  They offer a free sample report.  Anyone following them over the last year would have had useful and profitable guidance on the economy.  RecessionAlert has developed a comprehensive package of economic forecasting and market indicators, well worth your consideration. Of special interest is the Leading SuperIndex, which accurately forecast the absence of a summer swoon. Since the weekly data are still mixed, it is important to monitor the index closely. Here is the most recent update and chart:


Georg Vrba's four-input recession indicator is also benign. Here is his latest update where he concludes, "Based on the historic patterns of the unemployment rate indicators prior to recessions one can reasonably conclude that the U.S. economy is not likely to go into recession anytime soon." Georg has other excellent indicators for stocks, bonds, and precious metals at iMarketSignals.

Unfortunately, and despite the inaccuracy of their forecast, the mainstream media features the ECRI. Doug Short has excellent continuing coverageof the ECRI recession prediction, now over 18 months old.  Doug updates all of the official indicators used by the NBER and also has a helpful list of articles about recession forecasting.  His latest comment points out that the public data series has not been helpful or consistent with the announced ECRI posture.  Doug also continues to refresh the best chart update of the major indicators used by the NBER in recession dating.

The average investor has lost track of this long ago, and that is unfortunate.  The original ECRI claim and the supporting public data was expensive for many.  The reason that I track this weekly, emphasizing the best methods, is that it is important for corporate earnings and for stock prices.  It has been worth the effort for me, and for anyone reading each week.

Readers might also want to review my Recession Resource Page, which explains many of the concepts people get wrong.

Our "Felix" model is the basis for our "official" vote in the weekly Ticker Sense Blogger Sentiment Poll. We have a long public record for these positions.  Two weeks ago we switched to a bearish position, but it was a close call. Last week we switched back to neutral, which was also a close call. The inverse ETFs were more highly rated than positive sectors by a small margin, but remained in the penalty box. This week we are almost in bullish territory. This has been an amazing change in only two weeks. I will stick with "neutral" for this week, but the bias is to the upside.

These are one-month forecasts for the poll, but Felix has a three-week horizon.  Felix's ratings have improved a bit. The penalty box percentage measures our confidence in the forecast.  A high rating means that most ETFs are in the penalty box, so we have less confidence in the overall ratings.  That measure remains elevated, so we have less confidence in short-term trading.

[For more on the penalty box see this article. For more on the system ratings, you can write to etf at newarc dot com for our free report package or to be added to the (free) weekly ETF email list.  You can also write personally to me with questions or comments, and I'll do my best to answer.]

The Week Ahead

There is a lot of news and data on this week's calendar.

The "A List" includes the following:

  • Bernanke testimony (W-Th). The semi-annual report to Congress spans two days. This time he starts in front of the House Financial Services Committee and then presents exactly the same statement the next day to the Senate Banking Committee. Next time the order will be reversed. The feature of both sessions will be questions from our legislators. While I do not expect any new information, traders seem to
  • Initial jobless claims (Th).   Employment will continue as the focal point in evaluating the economy, and this is the most responsive indicator.
  • Housing starts and building permits (W). Housing may now be the most important economic driver and building permits are the best leading indicator.
  • Retail sales (M). An important confirmation of other data on consumers.

The "B List" includes the following:

  • Industrial production (T). Especially important for those few who still fear an imminent recession.
  • Beige book (W). The Fed's collection of anecdotal evidence will be in front of the participants at the next FOMC meeting, so it could be interesting. The various regions take turns in preparing this material.
  • Leading indicators (Th). Still a favorite of many, and showing only a modest positive.
  • CPI (T). This will be influenced by energy prices, while the core remains subdued. This is not really a factor at the moment, but it bears watching.

There is plenty of other news, including Chinese economic data on Monday, various speeches by Fed bank presidents, and the regional Empire State and Philly Fed releases. Any of these might move the markets if unusual.

And most importantly – more earnings!

How to Use the Weekly Data Updates

In the WTWA series I try to share what I am thinking as I prepare for the coming week. I write each post as if I were speaking directly to one of my clients. Each client is different, so I have five different programs ranging from very conservative bond ladders to very aggressive trading programs. It is not a "one size fits all" approach.

To get the maximum benefit from my updates you need to have a self-assessment of your objectives. Are you most interested in preserving wealth? Or like most of us, do you still need to create wealth? How much risk is right for your temperament and circumstances?

My weekly insights often suggest a different course of action depending upon your objectives and time frames. They also accurately describe what I am doing in the programs I manage.

Insight for Traders

Felix has continued a neutral posture in equities. We have had a successful long position in oil (via USO) and a one-day foray into the inverse ETF for the DJIA (DOG). DOG went back to the penalty box – or should I say the doghouse – after only one day! Like any human trader, Felix makes mistakes. The overall ratings are now slightly positive, so we may see some new positions this week. It is fair to say that Felix remains cautious about the next few weeks. Felix did well to avoid the premature correction calls that have been prevalent since the first few days of 2013, accompanied by various slogans and omens. More recently, Felix has avoided the treacherous stock trading of the last few weeks while making some profit in short bonds and long oil.

Insight for Investors

This is a time of danger for investors who are stubbornly sticking to losing ideas. My recent themes are still quite valid. If you have not followed the links below, please find a little time to give yourself a checkup. You can follow the steps below:

  • What NOT to do

Let us start with the most dangerous investments, especially those traditionally regarded as safe. Interest rates have been falling for so long that investors in fixed income are accustomed to collecting both yield and capital appreciation. An increase in interest rates will prove very costly for these investments. It has already started. Check out Georg Vrba's bond model, which continues to signal the risk. Other yield-based investments have also suffered, and it is not over. Check out the latest interest rate forecast from LearnBonds. Or the timetable to a 4% ten-year note from Goldman Sachs (via Joe Weisenthal).

  • Find a safer source of yield: Take what the market is giving you!

For the conservative investor, you can buy stocks with a reasonable yield, attractive valuation, and a strong balance sheet. You can then sell near-term calls against your position and target returns close to 10%. The risk is far lower than for a general stock portfolio. This strategy has worked well for over two years and continues to do so. I have had a number of questions about this suggestion, so I recently wrote an update. That post provides background as well as concrete examples showing how you can try this strategy yourself. There is nothing quite as satisfying as watching your account grow while the market is doing nothing or trading in a range.

  • Balance risk and reward

There is always risk. Investors often see a distorted balance of upside and downside, focusing too much on news events and not enough on earnings and value. You need to understand and accept normal market volatility, as I explain in this post: Should Investors be Scared Witless?

  • Get Started

Too many long-term investors try to go all-in or all-out, thinking they can time the market. There is no reason for these extremes. Recent weeks have been tough for traders. Most were surprised by the market reaction to more FedSpeak and the spike in interest rates.

For investors it was a different story. If you had your shopping list, there have been good opportunities to buy stocks. For those following our enhanced yield approach you had both the chance to set new positions and to sell calls against old ones.

And finally, we have collected some of our recent recommendations in a new investor resource page -- a starting point for the long-term investor.  (Comments and suggestions welcome.  I am trying to be helpful and I love feedback).

Final Thought

There is always the potential for a market correction. We know that corrections will occur even during the best of years.

The biggest challenge for the intelligent investor is the flow of news. There is always something to worry about. Smart people try to draw conclusions about anything that might be a threat. Every week I get calls from new clients – very intelligent, well-educated people who have been successful in their day jobs. When they tried to apply these skills to their own investments, something went seriously awry.

The biggest single reason is a failure of perspective. Instead of trying to explain, let me highlight the best investment article from last week, Josh Brown's Why the Long Bias? He writes as follows:

"It's very simple.

Optimism as a Default Setting is the only way to successfully fund a retirement over the long stretch. Unless you believe that you have the god-like ability to dance into and out of the markets with good timing on a consistent basis. I know you can't and I don't even know you.

Fun fact - pick any day of any month of any year over the last 50 years - if you bought the stock market on that date, you had a 75% of being up one year later. That's the math of being in the game and being long-biased at all times."

That is just a sample. You really need to read the entire post. Josh is especially trustworthy because he is aligned with the average investor, as I described in my review of his informative and very entertaining book.

Most importantly, few investors should be "all out." Look at a chart – stocks, GDP, population, profits, number of homes, number of computers --- you name it. Things improve. That should be the "default setting." You can adjust your defaults by looking for risks as we do each week in this series.

Insist on quantification. There are always worries. For perspective, compare your own current list with those when the Dow was at 10K – Dow 20K and the Wall of Worry.

What I recommend is in sharp contrast to the various sources telling investors that stocks are too expensive. Those who unwisely use, for example, the Shiller CAPE ratio for market timing have a short bias as their default setting. Prof. Shiller himself does not take this approach, although many of those citing him draw that conclusion. See the full story here.

See the original article >>

What Do Rising Numbers of Welfare Claimants Really Mean?

by Aziz

As we know, food stamp claimants are soaring to new highs. But this just mirrors the numbers of people who are jobless:


This isn’t a product of people getting lazy and choosing to live off the state. It’s a product of a weak economy that isn’t creating a large enough supply of jobs to meet the demand for work.

Because as we know, there are lots more job-seekers than there are jobs being created:

As I noted recently, solving the challenge of high unemployment is not a matter of job-seekers working harder to look for work. It’s a matter of the economy being able to create enough jobs and demand to absorb job-seekers.

I worry that we aren’t taking unemployment seriously even five years into a crisis that is defined by soaring unemployment. It may be hard for  policymakers and wealthy business people — the people who are in a position to spend to create jobs and seriously lower the unemployment rate — to have any idea what unemployment really means. After all, as a successful, wealthy person with a high quality of life, who has been successful in life from school, to university, to the workplace, then perhaps it is hard to empathise with the plight of people who are struggling to find a job. It seems easy to notice the rising costs of welfare, and the rising numbers of welfare claimants and jump to the conclusion that these things are caused by laziness or lack of discipline or immorality. Yet the simple, demonstrable fact that there are not at present enough jobs to go around entirely debunks this.

Trying to nudge unemployed people into looking harder for work seems like a futile exercise. If the government wants to get people off unemployment, the only real option is job creation.

See the original article >>

The Bernanke Conundrum

By EconMatters

Ben Bernanke gave a press conference after the last Fed decision where he laid out the Fed`s plans for exiting their stimulus program and the market to put it bluntly freaked out with Bonds yields soaring, and all other asset classes selling off sharply. The Fed didn`t like the reaction, especially with bond yields jumping much higher than they ever anticipated, and immediately sent numerous Fed governors to the media trying to talk back the market, again especially bond yields.

The Definition of a Bubble

The fact that the market would react so dynamically without the fed actually doing anything, and only talked about slowly transitioning from QE purchases in a tapering fashion with a rather drawn out process through the summer of 2014 means the federal reserve has created massive bubbles in several asset classes.

Further Reading: Gasoline Futures Market Rises 45 Cents in 10 Days

This is the very thing they were lecturing everyone about on how fed policy going forward would be different this time and that they finally learned their lesson after the 2007-08 financial crisis caused by having the fed rates too low for a prolonged period in order to stimulate the housing industry. 

Well not only has the federal reserve kept the fed funds rate too low for far too long a period, but they injected billions and billions of dollars into asset classes with their various outright purchase programs which had the effect of pushing many asset classes several standard deviations beyond their normal sustainable levels through normal market conditions. This is the definition of a bubble all over again!

Further Reading: China GDP To Hit 6.7%

The Conundrum

The catch 22 is that they cannot exit now without markets and asset classes freefalling back to natural sustainable levels, yet markets are at hundred year highs! The real problem is that if they cannot exit now, then they push markets and asset classes even higher artificially to even more unsustainable levels! The drop becomes even more pronounced a la the Tech bubble where stocks trading in the 100`s dropped to zero, silicon valley had their fire sale for property as all the business built up around unsustainable market valuations came crashing back to reality.

The Original Plan

The thought was that, or rather the original hope by the fed, I am sure they thought of it more as a theory was that they would push or support asset prices up until the economy picked up and then the next business cycle would kick in and take over or be able to support asset prices as they withdrew the stimulus. But it has been five years of artificial stimulus and the economy still cannot hold up or replace the fed`s stimulus measures without asset classes falling precipitously.

Further Reading: Oil Myths & Why WTI Is a Short

The Bubble is too Big for Original Plan

Here is the most salient point the bubble is so big now after five years of artificial stimulus that even a robust economy that creates 350,000 new jobs each month, and a GDP of 3.5% cannot replace the offset of the fed removing their stimulus from the markets. Asset prices are going to fall rather hard once the fed leaves as we witness even at the hint of tapering.

This is because asset prices have been inflated for five consecutive years. This has never been done in the history of financial markets.  The fed has outdone every previous bubble they have ever created, and as all asset classes are inter-related, leverage is used, and the correlation of asset classes in greater than ever before in markets. There is no possible exit without causing massive money flow disruptions in financial markets. Every asset class is based upon and relies on the fed stimulus each month like a financial market crack addict.

The Withdrawal Effect

Shoot you cannot even get prescription sleeping aids these days without your doctor lecturing you on the effects of the withdrawal phase. Not receiving $85 Billion each month that finds its way into financial assets is going to create a significant withdrawal phase for markets. The longer the policy continues the more severe the withdrawal phase becomes similar to withdrawal from a highly addictive drug.

Portfolio Expiration is a nice trick, but only addresses a third of the Withdrawal Effect

The talk of just letting the portfolio expire on the fed`s books without them selling these assets into the markets completely misses the point. Yes that will make it worse selling those massive positions, but that is a foregone conclusion that they cannot sell those into the market. It is the stimulus each month during these QE1,2,3,4 programs that being taken away is where there is no way to mitigate or hedge the market withdrawal, i.e., the bubble effect.

Further Reading: Pipeline vs. Rail: Canada Oil Train Crash

When you have Amazon going from a $50 stock to a $310 stock on several years of poor earnings results, an electric car company in Tesla that has a stock price at $130 a share in a boutique market, where low growth companies like Microsoft, Yahoo and Intel are all having ridiculous multiple expansion for dying business models illustrates how valuations are getting really frothy and bubbly in financial markets.

Fed Options & Damage Control

There is a bubble, and I think the fed realizes it and are trying to figure a way out of their predicament. The best way is to take some short-term pain and stick with the program. The worst way is too never stop the program because the bubble gets so big when it crashes it will crash despite the fed`s participation, and given no more bullets the entire system collapses. This results in disaster cleanup mode where after the carnage somebody picks up the pieces and starts all over again trying to construct healthy markets from scratch.

Somewhere between these two options is to intend to stop in the near-term future in a tapering fashion but the markets leave or front-run the fed and correct or price-in the collapse/money flow disruptions on their own in essence breaking the fed`s credibility.

The Bond Vigilantes

This is what the bond market is already starting to do in fits and spurts. But we haven`t seen anything yet by the bond vigilantes. The only thing we have seen so far is an $80 Billion withdrawal from bond funds as investors try to protect principal. Make no mistake we haven’t even begun to experience any vigilantism in bond markets.

When this happens the worst thing the fed can do is try to fight them as the perception that they are out of touch further erodes credibility, and the market becomes panic stricken where normal valuations and previous models go out the window.

The Fed behind the Curve due to Market Appeasement

I think the fed realizes there may be a problem, but I don`t think they have a clue how serious the problem is because they just don`t understand actual market structures these days. These are all economic trained academics and not a single fed member has any actual market experience in the industry.

Academics don`t fully understand financial markets – Underestimate consequences of policy

They have no clue about how leverage is used these days with futures and options, the interconnectedness of assets, and how once the bubble starts receding or losses start in one area of the market they become exponentially compounded because of the advanced financial tools meant to maximize profits on gains.

Well the reverse happens on losses and despite credit default swaps being monitored more closely, i.e., firms probably are not going to sell more credit default swaps than the value of their firm; other lever-able tools and structured trades in the current system are more than enough to create massive losses on the bursting of the Fed QE inflated bubble.

The Federal Reserve just doesn`t understand the magnitude of the unintended consequences of this current QE conundrum that they are locked into. The inescapable fact is that the busting of this bubble, and it will bust at some time, is going to cause massive losses in the financial system.

The question is what if anything can they do to minimize the collateral damage from a known bubble that exits in numerous asset classes, and how to minimally prick or slowly deflate this bubble without ending up in a worse place than you started out at five years ago. This is the Fed Conundrum!

See the original article >>

La lenta caduta del leader che lascia dietro di sé un Paese alla bancarotta

by Curzio Maltese

La lenta caduta di Berlusconi e del berlusconismo non assomiglia alla tragica fine di altri regimi della storia d’Italia. Non vi sarà un piazzale Loreto, per fortuna s’intende, sebbene qualche macchietta di corte si sforzi di evocarlo. Non avremo da vivere neppure una Mani Pulite, con il suo carico di speranze e di dolori, come quella che pose fine al cinquantennale corso della Prima Repubblica. Berlusconi e il berlusconismo sono immagini di plastica che ingialliscono col tempo, mentre piovono condanne dai processi per miserabili reati comuni assai frequentati
dagli italioti, come evadere le tasse e incoraggiare la prostituzione. È la fine grottesca che merita la più ridicola avventura politica nella storia del Dopoguerra.

Il bilancio del ventennio, più che drammatico, suona imbarazzante. Una generazione di padri puerili dovrà spiegare a una generazione di figli resa adulta dalla crisi le strane ragioni per cui un Paese ricco di talenti e di risorse si sia ridotto a un passo dalla bancarotta per inseguire i sogni ignoranti di un imbonitore televisivo, di un peracottaro nemmeno così affascinante e geniale come l’hanno dipinto servi e nemici. Una nazione non soltanto rimbecillita, ma torvamente rimbambita. Attraverso il quotidiano esercizio di un astio derisorio nei confronti
di ogni forma di intelligenza, eccellenza, rigore morale. Il peggio non sono state una politica economica inesistente e una politica estera da buffoni, ma la sistematica svalutazione di ogni valore di civiltà e cultura.

Per vent’anni si è raccontato ai giovani che non vale la pena di studiare e migliorarsi perché altre erano le strade verso il successo. Lo scandalo vero di Berlusconi non sono Ruby e le altre ragazzine alle cene di Arcore, ma la Gelmini ministro dell’Istruzione. Il risultato di questa egemonia anti culturale è devastante. L’Italia è l’unica fra le nazioni ricche ad aver compiuto giganteschi passi indietro in tutti i settori, in tutte le classifiche internazionali. I giovani migliori se ne sono andati da un pezzo e non torneranno. Gli altri dovranno adattarsi a un futuro da marginali.

Il Berlusconi che pian piano scompare dalla scena lascia insomma un gran vuoto, quello da lui stesso creato. Qui nella Macondo televisiva tutti hanno disimparato a leggere e a scrivere e non ricordano più i nomi delle cose. Si avrebbe almeno voglia di sperare, se non in una palingenesi, in una fine rapida, che permetta di voltare pagina. Tocca invece assistere al lento dissolversi quotidiano dello stupidario di un ventennio. Anche stasera in televisione straparla la Santanchè. La Santanchè, santo cielo. Ma in quale povero altro Paese una così sarebbe un personaggio pubblico?

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