Sunday, September 8, 2013

Nuova crisi bancaria alle porte?

 

Ecco i segnali che indicano l'arrivo di una nuova crisi finanziaria:

- Il rendimento sulle obbligazioni decennali del Tesoro USA è in rapido e continuo aumento.
- La rapida crescita dei tassi d'interesse sta spaventando gli investitori e causando la loro uscita dalle obbligazioni. Nel mese di Giugno sono stati tolti 69 miliardi di dollari, il dato più alto mai registrato.
- La fuga dai titoli di stato USA è guidata da Cina e Giappone, che nel solo mese di Giugno hanno venduto 67 miliardi di dollari, il dato più grande da Agosto 2007.
- Con il rapido aumento dei tassi di interesse alcuni grossi fondi obbligazionari in borsa sono sempre più sotto pressione, iBoxx $ Investment Grade Corporate Bond (LQD) è sceso del -7,94% dal 2 Maggio, iShares Barclays 20+ Year Treasury Bond (TLT) sono precipitati del -15,9% nello stesso periodo, iShares Barclays 3-7 Year Treasury Bond (IEI) sono scese del -3,2% dal 2 Maggio, 3.PowerShares Emerging Markets Sovereign Debt (PCY), è diminuito del -12,7% (Dati aggiornati al 25 Agosto).
- Le recenti crisi geopolitiche e la guerra in Siria hanno spinto le quotazioni del Brent al livello più alto degli ultimi mesi.
- I titoli europei sono scesi parecchio nelle ultime settimane.
- Il debito nazionale giapponese ha recentemente superato il quadrilione di yen e molti si aspettano che il loro sistema finanziario possa saltare in qualsiasi momento.
- In Indonesia il mercato azionario sta scendendo a rotta di collo.
- In India il rendimento dei loro titoli di Stato decennali è salito alle stelle.

Da qui in avanti bisognerà guardare con molta attenzione le banche, soprattutto quelle che i geni dell'attuale classe politica nel 2008 avevano definito "troppo grandi per fallire". Con il risultato che adesso sono ancora più grandi ed anche i loro derivati sono più grandi, in pratica tutto quello che c'era di sbagliato nel 2008 adesso non solo è ancora li ma è ancora più sbagliato.

Nel 2008 il bilancio della Fed USA era di 800 miliardi di dollari, adesso è arrivato a 3000 miliardi ed aumenta di 1000 miliardi di dollari l'anno. La prossima crisi bancaria/finanziaria sarà molto peggiore di quella vista nel 2008 perché le banche sono più grandi e le risorse per farvi fronte sono finite!

Di conseguenza consiglio di togliere i soldi dalle banche, lasciare sui conti il minimo indispensabile al loro mantenimento, uscire da tutti gli investimenti di medio/lungo periodo, non avventurarsi in attività commerciali a rischio, abbassare il personale profilo economico.

E a chi ha il problema di cosa fare dei propri soldi sarò ben felice di dare la mia personale opinione senza impegno alcuno.


Bubble

Ior, fuga di capitali verso la Germania. Svuotati i conti italiani

di Marco Lillo e Valeria Pacelli

In poco meno di quattro anni, la banca vaticana ha spostato all’estero circa mezzo miliardo di euro depositati negli istituti di credito del nostro Paese. Le indagini della Guardia di Finanza hanno portato alla luce ingenti trasferimenti soprattutto verso la Deutsche Bank tedesca

Ior, fuga di capitali verso la Germania. Svuotati i conti italiani

Eccola la fotografia di una delle più grandi fughe di capitali mai realizzate: quella dello Ior ricostruita nero su bianco dal Nucleo di Polizia Valutaria della Guardia di Finanza guidato dal generale Giuseppe Bottillo.

Poco meno di mezzo miliardo di euro è sparito dalle banche con sede nel nostro paese in tre anni e nove mesi, dal 2009 al settembre del 2012, dai conti correnti dello Ior, l’Istituto per le opere di Religione. La Guardia di Finanza ha ricostruito il dare e l’avere dei conti intestati alla banca del Vaticano in Italia scoprendo che sui dieci conti Ior accesi in nove istituti (due dei quali sono filiali italiane di banche estere, JP Morgan e Deutsche Bank) in tre anni e 9 mesi sono entrati 3 miliardi e 377 milioni di euro ma ne sono usciti molti di più.

 

E hanno preso la strada della Germania. L’informativa è stata consegnata il 7 giugno scorso ai pubblici ministeri Nello Rossi, Stefano Pesci e Stefano Fava. La Procura di Roma che indagava già sulla violazione delle disposizioni antiriciclaggio previste dall’articolo 55 comma 2 e 3 del decreto 131 del 2007 da parte dell’allora direttore generale dello Ior Paolo Cipriani e dell’allora vicedirettore Massimo Tulli, ha iscritto a loro carico un secondo e separato procedimento. Poche settimane dopo la consegna dell’informativa, a seguito del rinnovamento introdotto da Papa Francesco, i due dirigenti indagati hanno lasciato l’istituto. Nell’informativa i finanzieri segnalano numerose operazioni ai pm e scrivono: “E’ bene rappresentare come lo Ior, nel corso degli anni dal 2010 al 2012, abbia progressivamente concentrato all’estero la propria operatività, trasferendo presso la Deutsche Bank AG – Germania le somme depositate presso le banche italiane. La circostanza coincide temporalmente con le considerazioni della Banca d’Italia del 18 gennaio 2010 circa ‘la posizione dell’istituto vaticano modificata ai fini antiriciclaggio”. Appena lo Stato italiano ha cominciato a fare sul serio il Vaticano ha spostato in Germania i soldi.

Nel periodo registrato, per esempio, il conto Ior acceso alla filiale della Banca del Fucino ha registrato entrate per 275 milioni ma uscite per 378 milioni; quello della ex Banca di Roma di via della Conciliazione, ora Unicredit, è stato uno dei più attivi. Si registrano 930 milioni di entrate in tre anni ma anche uscite per 948 milioni. Fino a quando il 30 settembre 2011, il conto si è azzerato ed è stato chiuso per sempre; alla Bpm invece lo Ior ha adottato una tecnica di svuotamento ancora più brutale: solo 10 milioni di entrate e ben 133 milioni di uscite; il conto alla Bnl ha registrato solo uscite per 10 milioni.

Diverso il discorso per le filiali delle due banche straniere ma operanti in Italia con società localizzate nel nostro paese. Lo Ior a un certo punto ha pensato di evitare le nostre occhiute autorità (Bankitalia e Procura) spostando l’operatività presso l’unica filiale della banca Jp Morgan a Milano. Così nell’istituto americano si sono registrate entrate per un miliardo e 361 milioni di euro. Ma per non lasciare un solo euro sotto la vigilanza della Banca d’Italia ogni sera il conto era riportato a zero. Fino a quando (dopo le ripetute richieste di informazioni della banca americana allo Ior sui reali intestatari dei fondi, tutte senza risposta adeguata da parte del Vaticano) il conto è stato svuotato e chiuso il 30 marzo 2012. Dopo l’indagine, la Deutsche Bank filiale italiana ha continuato ad operare (dopo il primo giugno del 2010) solo per l’incasso dei pos dei bancomat installati dentro la Città del Vaticano. Gli incassi poi erano “sistematicamente prelevati”, scrive la Guardia di Finanza, “dallo Ior attraverso operazioni di giroconto verso la Banca del Fucino e Deutsche Bank AG – Germania. Successivamente – proseguono le Fiamme gialle – la Banca d’Italia ha deciso di sospendere il servizio fornito dalla Deutsche Bank nonché di respingere la richiesta di ‘sanatoria’ mancando la necessaria autorizzazione. Il provvedimento ha comportato l’interruzione dei rapporti dello Ior con Deutsche Bank Spa dove giacciono anche in questo caso somme inutilizzate” per l’esattezza 97 milioni di euro al 31 agosto 2012.

I due conti Ior presso Banca Intesa hanno registrato 529 milioni di euro di entrate e 423 milioni di uscite, i due conti del Credito Artigiano hanno registrato 96 milioni di euro di entrate e 69 milioni di uscite. Le altre due banche ad avere registrato più entrate che uscite sono quindi Banca Intesa che oggi ha un saldo finale di 30 milioni e la Banca Desio che ha registrato 2 milioni di entrate in più delle uscite.

Alla fine di questa sarabanda miliardaria, dove sono i ‘pochi’ soldi del Vaticano in Italia? Alla data di settembre 2012, oltre ai 30 milioni di Bankintesa, ci sono 97 milioni depositati presso Deutsche Bank e altri 29 milioni al Credito Artigiano, 10 milioni al Banco Desio e 2 milioni alla Banca del Fucino. In tutto sono circa 169 milioni di euro disponibili. Spiccioli al confronto di quelli nascosti nella cassaforte del Vaticano, in Svizzera e soprattutto in Germania, terra di Benedetto XVI e dei suoi consiglieri più fidati in materia.

See the original article >>

Italian government hopes to avoid political crisis

By Giancarlo Navach

CERNOBBIO, Italy (Reuters) - Italian government leaders expressed hope on Saturday that the fragile ruling coalition could avoid a breakdown that would threaten strained finances and risk wrecking the trust won during months of painful austerity.

"I am confident, I believe there won't be a crisis," Economy Minister Fabrizio Saccomanni told reporters on the sidelines of a business conference in the northern town of Cernobbio.

He warned that Italy risked a "totally unforgivable loss of credibility" if political turmoil disrupted efforts to keep its public deficit within European Union limits and renewed doubts about its budget stability.

There have been weeks of tension over the political future of center-right leader Silvio Berlusconi after Italy's top court found him guilty of being at the center of a vast tax fraud conspiracy at his Mediaset broadcasting empire.

Allies of the former premier have said they could pull out of Prime Minister Enrico Letta's unwieldy left-right coalition if center-left members of a Senate panel vote to strip Berlusconi of his seat in the upper house of parliament.

However, senior allies of the 76-year-old media billionaire have struck a more conciliatory tone in the past two days, following a statement from President Giorgio Napolitano warning parties against provoking another crisis.

"The country needs responsibility. We have guaranteed this sense of responsibility today," Renato Schifani, the floor leader in the Senate of Berlusconi's People of Freedom (PDL) party, told SkyTG24 television.

The cross-party panel, in which the center-left Democratic Party (PD) holds the largest number of seats, meets on Monday but it may take weeks for the complicated procedure that could lead to Berlusconi's expulsion from parliament to be completed.

Letta told the BBC in an interview that he was confident the government would now carry on.

But political risks have weighed on Italian government bonds in recent sessions and analysts say Rome may see weaker demand and be forced to pay higher yields at an auction next week if investors believe the government risks collapse.

A breakdown of the coalition, raising the prospect of early elections at a time when Italy should be planning next year's budget, would push yields on Italian government bonds further up, increasing debt payments, Saccomanni warned.

"Fresh tensions on government bonds would make it more difficult (for Italy) to manage the budget deficit and keep it within the 3 percent limit," he said.

COURT OF HUMAN RIGHTS

As the manoeuvring continued, Berlusconi's lawyers filed documents for an appeal to the European Court of Human Rights in Strasbourg to have the law under which he could be expelled from parliament declared invalid in his case.

The appeal says that the so-called "Severino law", which makes politicians convicted of serious offences ineligible for parliament, should not apply to Berlusconi because it was only passed last year, after the events over which he was convicted.

The center-left Democratic Party has rebuffed PDL efforts to delay the Senate panel hearing while a separate appeal to Italy's constitutional court is heard, and party leaders appeared to rule out any accommodation.

"If anyone decides to pull the plug on the government if Silvio Berlusconi is declared ineligible as senator, they will have to take responsibility before the country and the international community," PD leader Guglielmo Epifani told a party conference in Genoa.

Berlusconi allies have accused the PD of colluding with what they call leftist magistrates to eliminate the media tycoon politically and say any crisis would be its fault.

The friction within the coalition, established after the inconclusive election in February that left no party able to form a government, has reawakened memories of 2011 when Italy came close to dragging the euro zone into a life-threatening crisis.

The euro zone's third largest economy is still stuck in its longest postwar recession and is facing rising headwinds as it fights to keep its deficit under the EU's limit of three percent of gross domestic product.

The main gauge of investor confidence, the risk premium demanded by investors for Italian 10 year government bonds over safer German Bunds, has crept up steadily although it is still well off the dramatic levels seen two years ago.

See the original article >>

The Market Implications Of Middle East Turmoil

by Tyler Durden

The conflict in Syria is very complex, given the country’s diverse ethnic mix and the influence of foreign powers. This implies a high risk of a further dramatic escalation of the conflict, with negative spillovers into the broader region. Short term, UBS notes that the response of the Assad regime to a potential military strike will be crucial, while a key question for the medium term will be whether state structures can be preserved in Syria, so that contagious chaos can be avoided. UBS sees the impact on the international economy comes mainly via risk appetite and oil prices. Should the conflict be contained, the global economic fallout should be limited. However, the worst-case scenario of a regional spread of hostilities, involving Iran, Israel or the GCC, would be a lot more damaging.

Via UBS' Stephane Deo,

Market implications
There are essentially two channels by which the situation can impact markets: an increase in oil prices and a decline in risk appetite. We show that such a supply shock on oil prices would have a straightforward negative effect on risky assets, notably equities. The impact on yields is less obvious as inflation expectations would surge. On balance though, we think higher oil prices would create a FI rally only if they derail the nascent recovery. We also analyse market reactions in case of a surge in risk aversion. We find that the only place to “hide” is the US yield curve. We also provide historical analysis of the optimal portfolios for different risk regimes.

Oil prices

We do not think that Syria per se is large enough to have a meaningful and long-lasting impact on oil prices. However, more widespread turmoil in the region, or simply markets pricing in a greater geopolitical risk premium, could definitely have an impact on oil pricing. The correlation between oil price and the stock market can change as the two charts below demonstrate. The reason is simple: a supply shock will generate a negative correlation between oil and the stock market. The example we chose is the 1990-1991 period during the first Gulf War.

Chart 2 clearly shows that oil prices were driving the S&P down. Conversely, if oil prices move because of greater demand, the correlation with the S&P is positive. In our example (Chart 3), the phase of strong growth at the end of the 1990s was associated with rising stock market and oil prices and indeed both oil prices and the stock market fell at the end of 2001 when growth faltered.

So the implication of a surge in oil prices on risky assets would be straightforward: the impact on growth as well as the impact on risk appetite would push risky asset prices down.

The correlation with safe havens, especially risk-free rates, is much more difficult to analyse. Indeed, the economic slowdown from a surge in oil prices should reduce yields, but the surge in inflation should increase yields. The easy part of the curve to forecast is thus break-even inflation (BEI), and indeed the short part of the BEI curve is highly correlated with energy prices, which contribute to a large share of the short-term volatility in actual inflation.

What does recent history tell us? The following chart shows that since the beginning of the year both oil prices and yields have steadily increased in tandem. We would attribute that essentially to a demand effect: the improvement in the world economy is consistent at the same time with higher rates and higher oil prices. However, it seems clear that on a number of occasions (the three short periods highlighted below), the move in oil prices was opposite to the move in yields. This suggests that if the oil price move is too quick, for instance on the upside, it signals risk for growth and risk aversion mounting on the back of geopolitical issues; both bringing yields down.

In short, nominal rates would go down if the surge in oil prices is sufficient to threaten the recovery.

Risk premium

The second impact on markets would be via a reduction in risk appetite. When the crisis escalated, or was perceived to escalate, we saw the familiar “risk-off” rush with Treasuries and other forms of risk-free assets rallying while the risky or high-beta plays were selling off. This is a pattern we have seen repeatedly in the past. Hence, we ran some analysis on exactly what are the safe havens and what are the sectors most penalised by a jump in risk aversion.

The way to take into account a jump in risk aversion in the asset allocation space is to produce an investment clock depending on risk. The following chart shows the dependency of asset class performance on the level of risk aversion and the change in risk aversion.

We find that the usual suspect (cash) is a good hedge and the only other asset class that would provide protection in this circumstance would be core government debt. Interestingly, we find that both the Treasury market and US linkers would perform, but also gilts and JGBs. Why not also European bonds? Probably for two reasons: firstly, because we take USD indices and the EUR has historically depreciated in these circumstances; and secondly, because the European bond index is not a risk-free rate but an average of all European sovereigns, hence it underperforms when spreads widen.

In conclusion, we believe the only asset class that would provide protection to both the economic downturn and the jump in risk premium is the US curve, particularly the very short-dated part, which we call “cash” in our portfolio, or the longer-dated part, whether in real or nominal terms. The only decision would thus be a duration bet on the US curve.

Currently, we are in the “medium and falling” risk-appetite regime where historically it has been best to short equities and inflation-linked bonds and go heavily overweight in developed market corporate bonds. When risk appetite starts to rise again (“medium and rising”), the position becomes short government bonds and long corporate bonds and long equity. If the rally continues to high-risk appetite, the profile remains the same, with more aggressive positions in equity and credit.

See the original article >>

Economic Effects of a Syria Strike

by Stratfor


As the U.S. administration continues its efforts to drum up support in Congress for a limited intervention in Syria -- and as European leaders look to Washington to take the lead -- a key question we need to consider is the actual economic impact such a strike would have on the region.

General conflict in the Middle East, whether it’s an attack in Syria or an Israeli invasion of Gaza, tends to be automatically and often irrationally linked to potential oil disruptions. Syria is a marginal oil producer, producing some 100,000 barrels per day compared to the 400,000 barrels per day it was producing a couple years ago, with most of its current production divided between the regime and competing rebel factions in the north and east. Moreover, Syria does not sit on a strategic choke point in the region, like the Suez Canal or the Strait of Hormuz. Syria simply doesn’t have much of a direct impact on the markets beyond speculation.

But we also need to place in context the indirect fallout from a limited, punitive strike:

Lebanon is intrinsically tied to the Syrian conflict and is already showing signs of descending into a familiar state of civil war as Sunni provocations against Hezbollah escalate and threaten to draw the Shiite militant group’s attention back home. Lebanon’s main port at Beirut will see a relative boost in traffic for goods that usually travel through Syria’s Alawite-dominated coastal ports at Tartus and Latakia. However, Lebanon is facing growing limitations in its role as an eastern Mediterranean transit corridor for the Levant and the Arabian Peninsula, so any goods moving beyond Lebanon will still have to transit Syria, where trucks face an array of threats on roads weaving through rebel-held and regime-held territory. Most shipping traffic in the eastern Mediterranean will continue to be rerouted through Mersin port on the southern Turkish coast.

Turkey, like Jordan, is highly susceptible to retaliatory attacks by Syria and Iran for suspected collaboration in a military operation, and it's preparing its defenses accordingly. Turkey’s burgeoning current account deficit, significant outflows of portfolio investment along with investor skittishness over the stability of the government following the Gezi Park demonstrations have already applied significant strain on the Turkish economy. Any militant attacks, particularly ones that are capable of reaching beyond the Syrian-Turkish border into major urban areas in Turkey, will only further undermine investor confidence in this once-celebrated emerging market.

Iran may try to activate militant proxies in other parts of the region, but its efforts are unlikely to have much of a meaningful impact. We will be watching closely for militant efforts to disrupt traffic through the Suez Canal, through which some 3 million barrels per day of crude passes through the canal and underwater pipeline. Even relatively minor attempted attacks, like on Aug. 31 when gunmen using light weapons tried targeting a Chinese-owned and Panamanian-flagged container ship, have the potential to spook markets and raise insurance rates. However, the groups operating in this area have not demonstrated the capability to launch more sophisticated operations, such as trying to ram an explosives-laden speedboat into a vessel or hijacking a vessel in these heavily patrolled waters.

Iran has so far refrained from highlighting its threat to close the Strait of Hormuz, and will likely reserve that threat for a much more critical situation down the line -- a limited attack on Syria, after all, that aims to preserve the regime does not hold the same weight as a credible military threat against Iran, and Iran needs to preserve that prong of its deterrence strategy.

Iraq, like Lebanon, is tied into the wider sectarian conflict currently being fueled by the Syrian civil war. Jihadist attempts in Iraq to exploit major shifts on the Syrian battlefield can be expected, though the energy infrastructure most susceptible to these attacks, like the Kirkuk-Ceyhan pipeline through the north, is already operating well below capacity due to frequent sabotage attacks. Jihadists are more limited in southern Iraq, and Iran has no interest in destabilizing energy production in its extended Shiite sphere of influence.

Rather than waging a major retaliatory campaign, Iran is actually more inclined to exercise restraint in responding to a limited strike that aims to preserve the regime anyway. Overall, a more careful examination of the likely impact of a strike reveals that market reactions over Syria will tend to be overblown.
a> is republished with permission of Stratfor."

See the original article >>
As the U.S. administration continues its efforts to drum up support in Congress for a limited intervention in Syria -- and as European leaders look to Washington to take the lead -- a key question we need to consider is the actual economic impact such a strike would have on the region.

General conflict in the Middle East, whether it’s an attack in Syria or an Israeli invasion of Gaza, tends to be automatically and often irrationally linked to potential oil disruptions. Syria is a marginal oil producer, producing some 100,000 barrels per day compared to the 400,000 barrels per day it was producing a couple years ago, with most of its current production divided between the regime and competing rebel factions in the north and east. Moreover, Syria does not sit on a strategic choke point in the region, like the Suez Canal or the Strait of Hormuz. Syria simply doesn’t have much of a direct impact on the markets beyond speculation.

But we also need to place in context the indirect fallout from a limited, punitive strike:

Lebanon is intrinsically tied to the Syrian conflict and is already showing signs of descending into a familiar state of civil war as Sunni provocations against Hezbollah escalate and threaten to draw the Shiite militant group’s attention back home. Lebanon’s main port at Beirut will see a relative boost in traffic for goods that usually travel through Syria’s Alawite-dominated coastal ports at Tartus and Latakia. However, Lebanon is facing growing limitations in its role as an eastern Mediterranean transit corridor for the Levant and the Arabian Peninsula, so any goods moving beyond Lebanon will still have to transit Syria, where trucks face an array of threats on roads weaving through rebel-held and regime-held territory. Most shipping traffic in the eastern Mediterranean will continue to be rerouted through Mersin port on the southern Turkish coast.

Turkey, like Jordan, is highly susceptible to retaliatory attacks by Syria and Iran for suspected collaboration in a military operation, and it's preparing its defenses accordingly. Turkey’s burgeoning current account deficit, significant outflows of portfolio investment along with investor skittishness over the stability of the government following the Gezi Park demonstrations have already applied significant strain on the Turkish economy. Any militant attacks, particularly ones that are capable of reaching beyond the Syrian-Turkish border into major urban areas in Turkey, will only further undermine investor confidence in this once-celebrated emerging market.

Iran may try to activate militant proxies in other parts of the region, but its efforts are unlikely to have much of a meaningful impact. We will be watching closely for militant efforts to disrupt traffic through the Suez Canal, through which some 3 million barrels per day of crude passes through the canal and underwater pipeline. Even relatively minor attempted attacks, like on Aug. 31 when gunmen using light weapons tried targeting a Chinese-owned and Panamanian-flagged container ship, have the potential to spook markets and raise insurance rates. However, the groups operating in this area have not demonstrated the capability to launch more sophisticated operations, such as trying to ram an explosives-laden speedboat into a vessel or hijacking a vessel in these heavily patrolled waters.

Iran has so far refrained from highlighting its threat to close the Strait of Hormuz, and will likely reserve that threat for a much more critical situation down the line -- a limited attack on Syria, after all, that aims to preserve the regime does not hold the same weight as a credible military threat against Iran, and Iran needs to preserve that prong of its deterrence strategy.

Iraq, like Lebanon, is tied into the wider sectarian conflict currently being fueled by the Syrian civil war. Jihadist attempts in Iraq to exploit major shifts on the Syrian battlefield can be expected, though the energy infrastructure most susceptible to these attacks, like the Kirkuk-Ceyhan pipeline through the north, is already operating well below capacity due to frequent sabotage attacks. Jihadists are more limited in southern Iraq, and Iran has no interest in destabilizing energy production in its extended Shiite sphere of influence.

Rather than waging a major retaliatory campaign, Iran is actually more inclined to exercise restraint in responding to a limited strike that aims to preserve the regime anyway. Overall, a more careful examination of the likely impact of a strike reveals that market reactions over Syria will tend to be overblown.
a> is republished with permission of Stratfor."

Video Transcript: 

As the U.S. administration continues its efforts to drum up support in Congress for a limited intervention in Syria -- and as European leaders look to Washington to take the lead -- a key question we need to consider is the actual economic impact such a strike would have on the region.

General conflict in the Middle East, whether it’s an attack in Syria or an Israeli invasion of Gaza, tends to be automatically and often irrationally linked to potential oil disruptions. Syria is a marginal oil producer, producing some 100,000 barrels per day compared to the 400,000 barrels per day it was producing a couple years ago, with most of its current production divided between the regime and competing rebel factions in the north and east. Moreover, Syria does not sit on a strategic choke point in the region, like the Suez Canal or the Strait of Hormuz. Syria simply doesn’t have much of a direct impact on the markets beyond speculation.

But we also need to place in context the indirect fallout from a limited, punitive strike:

Lebanon is intrinsically tied to the Syrian conflict and is already showing signs of descending into a familiar state of civil war as Sunni provocations against Hezbollah escalate and threaten to draw the Shiite militant group’s attention back home. Lebanon’s main port at Beirut will see a relative boost in traffic for goods that usually travel through Syria’s Alawite-dominated coastal ports at Tartus and Latakia. However, Lebanon is facing growing limitations in its role as an eastern Mediterranean transit corridor for the Levant and the Arabian Peninsula, so any goods moving beyond Lebanon will still have to transit Syria, where trucks face an array of threats on roads weaving through rebel-held and regime-held territory. Most shipping traffic in the eastern Mediterranean will continue to be rerouted through Mersin port on the southern Turkish coast.

Turkey, like Jordan, is highly susceptible to retaliatory attacks by Syria and Iran for suspected collaboration in a military operation, and it's preparing its defenses accordingly. Turkey’s burgeoning current account deficit, significant outflows of portfolio investment along with investor skittishness over the stability of the government following the Gezi Park demonstrations have already applied significant strain on the Turkish economy. Any militant attacks, particularly ones that are capable of reaching beyond the Syrian-Turkish border into major urban areas in Turkey, will only further undermine investor confidence in this once-celebrated emerging market.

Iran may try to activate militant proxies in other parts of the region, but its efforts are unlikely to have much of a meaningful impact. We will be watching closely for militant efforts to disrupt traffic through the Suez Canal, through which some 3 million barrels per day of crude passes through the canal and underwater pipeline. Even relatively minor attempted attacks, like on Aug. 31 when gunmen using light weapons tried targeting a Chinese-owned and Panamanian-flagged container ship, have the potential to spook markets and raise insurance rates. However, the groups operating in this area have not demonstrated the capability to launch more sophisticated operations, such as trying to ram an explosives-laden speedboat into a vessel or hijacking a vessel in these heavily patrolled waters.

Iran has so far refrained from highlighting its threat to close the Strait of Hormuz, and will likely reserve that threat for a much more critical situation down the line -- a limited attack on Syria, after all, that aims to preserve the regime does not hold the same weight as a credible military threat against Iran, and Iran needs to preserve that prong of its deterrence strategy.

Iraq, like Lebanon, is tied into the wider sectarian conflict currently being fueled by the Syrian civil war. Jihadist attempts in Iraq to exploit major shifts on the Syrian battlefield can be expected, though the energy infrastructure most susceptible to these attacks, like the Kirkuk-Ceyhan pipeline through the north, is already operating well below capacity due to frequent sabotage attacks. Jihadists are more limited in southern Iraq, and Iran has no interest in destabilizing energy production in its extended Shiite sphere of influence.

Rather than waging a major retaliatory campaign, Iran is actually more inclined to exercise restraint in responding to a limited strike that aims to preserve the regime anyway. Overall, a more careful examination of the likely impact of a strike reveals that market reactions over Syria will tend to be overblown.

When Dominance Leads to Incompetence and Catastrophe

by Charles Hugh Smith

Dominance means leaders and employees alike lose the ability to experience risk.


Lost amidst the week's geopolitical and propaganda dramas was a signal event in the long history of dominance leading directly to collapse: Microsoft bought Nokia's mobile phone business for $7.2 billion (5.44 euros). Considering that this business was valued at 260 billion euros ($340 billion) not that long ago, that is a rather precipitous decline from tech-dominance grace.

As Microsoft buys Nokia, Finns mourn their claim to fame

Microsoft has a long history of acquiring innovations by buying tech companies by the dozen, and of overpaying for acquisitions and eventually writing down the value of the purchases. With Nokia's market share down to 4%, it could be argued Mr. Softee is once again overpaying, but perhaps the patent portfolio will be worth the purchase price.

Or maybe not. Patent trolling is no substitute for creativity, innovation and appreciation of risk.

Microsoft is a case study in dominance leading to incompetence and catastrophe. Within the moat of near-monopoly/dominance, competence dwindles to the ability to keep doing what worked spectacularly well in the past, and keeping bureaucratic infighting and divisional rivalries down to a dull background erosion of initiative and talent.

Doing more of what succeeded spectacularly in the past works until it doesn't, at which point doggedly pressing on with the old formula of success leads to catastrophic failures.

Nokia and Blackberry are recent case studies, but the rise of Google Chrome and smart-phone/tablet computing is beginning to threaten Microsoft's core business of being the utility monopoly in the PC space.

Dominance means leaders and employees alike lose the ability to experience risk. The customer will take what is delivered, regardless, for the simple reason that alternatives are either unavailable or cumbersome.

In the PC space, the other mainstream choice to date has been the costly Macintosh family of Apple computers.

Now that cheap tablets running the free Chrome operating system can do pretty much everything a PC can do, and do so on the go, Microsoft's monopoly is threatened. It's not just that consumers hate the Windows 8 operating system--the entire PC platform is slipping from dominance.

Millions of users such as myself would switch to a Chrome OS on the PC in a heartbeat, just to jettison the bloated Windows OS entirely. The Windows Office near-monopoly (Word and Excel) is equally vulnerable to an alternative that opens old Word and Excel files and offers basic word processing and spreadsheet functions in the Chrome OS.

It's rather staggering to list Microsoft's failures over the past decade. The strategy that worked in the 1990s--copy rivals and add more features to the copycat products and services--is no longer working.

1. Microsoft's Internet Explorer browser has lost most of its once-dominant market share to rivals such as Google Chrome.

2. Microsoft spent a reported $10 billion competing in search with Google; Mr. Softee's Bing search service remains an also-ran.

3. MSFT's tablet has never gained traction and is an also-ran.

4. Microsoft bought a slew of mobile-software companies in pursuit of dominance; as a direct consequence of this aggressive strategy, its share of the smart-phone software market has dwindled from over 10% to 1%.

5. The XBox gaming platform was supposed to dominate the convergence-web-TV space; that never gained traction, either.

Dominance in any space breeds complacency and enables the luxuries of political squabbling, sclerosis and loss of focus. Competence becomes incompetence, and the infrastructure that fosters creativity and flexibility--that is, a keen appreciation of risk and spontaneity--is slowly dismantled.

That applies not just to corporations but to governments, nations and empires.
Programs/books of note: My recent appearance on Max Keiser:



Does Money Grow On Trees - Lindsay Williams Interviews Lee Adler


Mike Swanson's new book:
The War State: The Cold War Origins Of The Military-Industrial Complex And The Power Elite, 1945-1963

See the original article >>

Power Your Portfolio With The Mass Index

by Tom Aspray

The majority of technical tools that I use in my analysis and discuss in my trading lessons are ones that I have used for decades or are strategies that have evolved over the years. I was fortunate in the early 1980s to have access to CompuTrac, which included the majority of today’s most frequently used technical indicators.

I do continue to do additional research and came across a technical tool that, I think, investors as well as traders should consider adding to their arsenal of market-timing indicators.

It is called the Mass Index, which first appeared in the June ‘92 Technical Analysis of Stocks & Commodities article “The Mass Index”, by Donald Dorsey. As he said in the article “Range oscillation, not often covered by students of technical analysis, delves into repetitive market patterns during which the daily trading range narrows and widens. Examining this pattern, Donald Dorsey explains, allows the technician to forecast market reversals that other indicators may miss.” Dorsey proposes the use of range oscillators in his Mass index.

Essentially, it measures the narrowing and widening of the range between the high and low prices. The signals do not tell you the direction of the trend change but that is when I rely on other tools such as the NYSE Advance/Decline and the on balance volume.

To calculate the Mass Index:

  1. Calculate a nine-day exponential moving average (EMA) of the difference between the high and low prices.
  2. Calculate a nine-day exponential moving average of the moving average calculated in Step 1.
  3. Divide the moving average calculated in Step 1 by the moving average calculated in Step 2.
  4. Total the values in Step 3 for the number of periods in the Mass Index (e.g., 25 days).

In my research I found the Mass Index to be most useful on the weekly data. On the weekly chart of the S&P 500, the Mass Index is in blue and there are two horizontal lines, one at 27 (in red) and the other at 26.5 (in green).The chart covers the period from the early part of 2006 until early in 2010.

chart
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Mr. Dorsey looked for what he called “bulges” which was when the Mass Index moves above the 27 level. The first example occurred on August 7, 2007, (line 1), which was two weeks after the July stock market high as the first hints of the mortgage crisis resulted in a wave of selling. Two weeks later, the S&P 500 formed a panic low on August 16.

The Mass Index dropped back below the 27 level at the end of September but did not drop below the 26.50 level, which would have signaled a change in trend. A second bulge occurred the week ending November 16 (line 2) as the Mass Index stayed above 27 until the middle of December.

Then on February 1, 2008, the Mass Index dropped to 26.46 (line 3), which was below the key level of 26.50 (green line) and signaled a trend change. As I discussed in detail in an earlier article, the NYSE Advance/Decline line (see chart) had formed a series of negative divergence since June of the prior year and was already in a well-established downtrend. This indicated that the trend change was to the downside.

The Mass index started to turn up in the fall of 2008, and on November 7, another bulge was formed (line 4). The Mass Index continued higher and peaked at 28.04 in early December. The Index then declined dropping to 26.33 on February 27 and a new trend change was signaled.

The S&P 500 made its bear-market low the following week, and by the end of March, the A/D line had broken its long-term downtrend and had turned positive.

So what has happened since? In this example we are looking at, the Spyder Trust (SPY), which gave identical signals in 2007 as the cash S&P 500. The next bulge occurred on July 7, 2010, (line 1), which was almost a month before the debt ceiling vote, the downgrade of US debt, and plunge in the stock prices.

chart
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On August 27, 2010, the Mass Index dropped to 26.36 (line 2) indicating that a trend change was at hand. At the time, the AAII survey of individual investors revealed that only 20.7% were bullish. This was an historically low level that was consistent with a stock-market bottom. In the September 8, 2010, report I noted that the NYSE A/D line had made a new high, which was a bullish sign for stocks.

The Mass Index stayed below the zero line until the following August as it moved back above 27 (line 3) on August 27, 2011. This came during a period of much concern over the Eurozone debt, and by the later part of September, many analysts thought we were already in a recession.

The selling reached a fever pitch on October 4 as most stocks dropped sharply before reversing back to the upside and closing the day higher. The high-to-low ranges were quite extreme as the Spyder Trust (SPY) had a high of $112.98 and a low of $107.43. Just seven days after the lows, the A/D lines on the S&P 500 and Dow Industrials completed their bottom formations.

chart
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This analysis can then be compared with that of the PowerShares QQQ Trust (QQQ) as the weekly chart covers the period from late 2008 until early September of 2013. The Mass Index moved above 27 on November 11, 2008 (line 1). This alerted the investor to be looking for a change in trend.

The Mass Index dropped below 26.50 on January 9, 2009, signaling a trend change (line 2). In early March, the QQQ dropped back towards the November 21 low of $25.05 but only hit a low of $25.63 suggesting a double bottom could be forming. The relative performance analysis at the time indicated that the QQQ was acting stronger than the S&P 500.

The Mass Index stayed below 27 until July 7, 2010, (line 3), which was a month before the previously mentioned debt ceiling fight and stock market plunge. The new uptrend was in place on the chart when the Mass Index dropped below 26.50, line 4, on September 17, 2010.

It was almost a year before the Mass Index again moved above the 27 level (line 5) on August 12, 2011. It was almost five months later when the Mass Index dropped to 26.35 confirming a new trend change. As is the case for the Spyder Trust (SPY), the Mass Index has stayed well below the 27 level, which is consistent with no change in the major uptrend for stocks.

What about other major market turns? This chart covers the Nasdaq Composite from the middle of 1995 until the latter part of 2000. On August 4, 1995, the Mass Index moved above the 27 level and stayed above it until the end of the year.

chart
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The inset on the chart (1995-1996) shows that four weeks after the Mass Index signaled a trend change, the continuation pattern, lines a and b, was completed. This was an indication that the prior uptrend had resumed.

The Mass Index did not come close to the 27 level until January 16, 1998, (line 3), when it hit a high of 26.99. A month later, it dropped below the 26.50 level, but because it had not moved above the 27 level, a trend change was not generated.

Of course, these levels could be adjusted or optimized, but in my initial review, I wanted to start with the guidelines of the creator. Modifications may be included in a future article.

The next “bulge” or what I would call an early warning signal was on September 25, 1998, (line 4), when it came close to the 28 level. The prior high, line c, was overcome in the middle of December. The Nasdaq Composite gained about 12.8% before the Mass Index dropped below the 26.50 level, line 5, on February 26, 1999.

The Nasdaq Composite closed at 2288 and then rose 85% until February 4, 2000, (line 6), when the Mass Index next moved above the 27 level (line 6). Of course, the Nasdaq Composite peaked at 5132 in March of 2000, but the Mass Index did not drop back below the 26.50 level until July 28 (line 7).

chart
Click to Enlarge

When I research an indicator or methodology, I also like to look at some of the key historical periods, so I can gain further insight on how it might have performed. This chart covers the S&P 500 from late 1971 through the latter part of 1975, which includes one of the worst bear markets.

The warning signal came on November 19, 1971, as the Mass Index crossed above the 27 level one week before the S&P made its low. Two months later, the Mass Index dropped to 26.40 and signaled a change in trend.

The S&P 500 rallied until early 1973, and by the middle of February 1973, one of my favorite market timing indicators, the weekly NYSE Advance/Decline line had turned negative.

The signal or bulge in the Mass Index did not occur until June 1, 1973, (line 3), as it rose to a high of 27.81 by the middle of July. By September 7, 1973, a trend change was identified as the Mass Index dropped to 26.39, line 4. The S&P 500 rallied for seven weeks before it was hit with heavy selling.

From the October 1973 high, point a, to the October 1974 low (point b) the S&P 500 lost 43.5%. I also looked at some periods from the 1960’s where the Mass Index also performed well. For example, it signaled a trend change near the S&P 500’s low in September 1962 and then another in early 1963 very close to the highs.

See the original article >>

Weighing the Week Ahead: What does the Syrian Crisis Mean for Stocks?

by Jeff Miller

Last week I predicted that we would see volatility without clarity. The market concerns include Syria, changes in Fed policy, the nomination for Fed Chair, and the debt ceiling, roughly in that order. We got the employment report, the last big piece of economic data before the FOMC meeting, and plenty of speeches and pundit pontification. What do we know? Nothing more than we did a week ago! This looks like a victory on the cloudy crystal ball front.

My volatility prediction was also accurate. While the stock market week was positive, the ride was pretty wild, as you can see from the weekly chart.

Yahoo finance weekly chart

The early Tuesday gains had a short life, with reports of missile tests in the Mediterranean. Wednesday clawed back gradually, and Thursday was one of the quietest days of the year. Friday deserves special attention, so let us turn to Doug Short's great chart and explanation:

Dshort snapshot

There was an initial positive reaction to the employment number, a comment by Putin, and then more commentary from Obama and others at the G20 meetings. This is the essence of volatility driven by headlines.

The Week Ahead

The story line for the coming week will be all about Syria. There is little new economic data, The FOMC meeting is more than a week away and FedSpeak is in a quiet period. The market will gyrate with each piece of news about Syria, so what should we be watching?

As always, I am not writing about what the policy should be. As citizens, we all can and should have an opinion. As investors, we need to understand the risks. Here are the key questions.

Will there be military action?

What are the possible consequences?

Is there possible mitigation?

  • If oil prices move too high, the US might respond with a release from the Strategic Petroleum Reserve (via the FT).

When will there be an answer?

  • A failure in the Senate could forestall US action as soon as next week.
  • House action could be delayed for a week or more. Republican leaders are calling for a "robust debate."
  • Whether or not there is immediate action, the issue could well last continue for months.

What are the likely market effects?

Fedor Sannikov takes an exhaustive look at the market effects after the outbreak of wars, suggesting that adverse economic and stock market effects are usually overstated. He shows statistics for a long list of wars, concluding as follows:

"I don't mean to sound callous about any of this but my job is to look at it from an economic perspective. The historical performance of the market following the outbreak of both major and minor wars seems to indicate that, regardless of the actions taken by the U.S. or UN forces, there will likely not be a lasting effect on global equity markets.

For the moment, assume these recent developments drag the U.S. into the middle of another civil war in the region and ground forces are brought in to stop the killing of Syrian civilians. History teaches us that wars are not harbingers of bear markets. Certainly in the short run conflicts can cause the market to drop as people fear the worst and investors' risk aversion tends to increase.

However, when you look at historical equity returns following the outbreak of a war, you'll find the wars seem to have a slightly positive impact on the equity markets."

I have some thoughts on what to expect about Syria which I'll report 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 Investing.com. 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 pretty good week for economic data – with one very important exception.

  • The technical picture is a bit more bullish. See Charles Kirk for the full story and what to watch for this week. Our condolences go to Charles and his family on the loss of his uncle. Everyone missed his regular weekly chart show updates (small subscription required, and well worth it). We also congratulate Charles on the tenth anniversary of his blog – only one indication of how many people he has helped.
  • Vehicle sales topped the 16 million annualized rate. Ed Yardeni calls it the "second recovery" because of pent-up demand for housing and vehicles. One special indicator is the Ford F150 since it also provides some insight into small business and construction activity. Here is one chart from Bespoke Investment Group, showing that YTD sales are the highest since 2006. Check out the full post for another chart and further analysis:

Ford Trucks YTD August

  • Rail traffic is at a five-year high. Todd Sullivan provides both charts and analysis. He observes, "When you couple this data with recent auto and housing data, you have a recipe for increasing GDP growth for Q4."
  • US Oil consumption is lower because gas mileage is better. See the excellent article and many charts from James Hamilton.

Mpg_sep_13

Fredgraph09072013

  • The ISM services index solidly beat expectations. Doug Short has charts and analysis.
  • ISM manufacturing was stronger than expected. Steven Hansen provides an in-depth analysis of how the last few months have reversed the trend from mid-2011.

Fredgraph

The Bad

There was some bad news, and the worst was the most important.

Bullish Sentiment Rises Modestly

  • The employment report was weaker than expected on all fronts. The WSJ summarizes the bad news.

    • Payroll job growth was lower than expected, and prior months were revised lower.
    • The reduction in the unemployment rate is illusory, based upon lower labor force participation.
  • The weak report continues the uncertainty about Fed policy, and the market hates uncertainty.

    • The sluggish growth is just good enough to meet the Fed's rough guidelines for the start of tapering.
    • John Hilsenrath calls it a "cliffhanger."
    • Calculated Risk provides the four charts to watch to forecast changes in Fed policy.

The Ugly

Everything about civil wars and military actions is ugly, but poison gas is yet another dimension. As part of the campaign to convince the public, the Senate Intelligence Committee has posted videos of victims. This is very, very tough to watch. And there are no easy answers to controlling these weapons.

The Investigative Report

John Lounsbury at Global Economic Intersection has a brilliant expose', the real truth about why Bernanke is leaving the Fed. Those who pass this test might also try the most recent Pew news knowledge survey. (I missed an answer that I should have known). Feel free to report your scores in the comments.

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 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. Dwaine has also developed a market-timing approach which follows ten bear-market signals. His latest installment provides detail and a current look.

Georg Vrba's four-input recession indicator is also benign. "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. For those interested in gold, he has a recent update, asking when there will be a fresh buy signal.

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.  A few weeks ago we briefly switched to a bullish position, but it was a close call. While we are currently "bearish," Felix might switch to a neutral posture if the overall market holds its ground. The key change from last week is that the inverse ETFs are significantly more highly rated than positive sectors. These are one-month forecasts for the poll, but Felix has a three-week horizon.  Felix's ratings seem to have stabilized at a low level. 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

This week brings an interesting mixture of news and important policy decisions. The economic data will be less important than usual.

The "A List" includes the following:

  • Senate vote on Syria (W). The date might drift. This could stop the plan for military action, but will not enable it without House support as well.
  • Obama speech (T evening). The speech and the public reaction will be important influences on Congressional action.
  • Initial jobless claims (Th).   Employment is the focal point in evaluating the economy – both for us and for the Fed. This is the most responsive indicator.
  • Michigan sentiment index (F). This remains a good concurrent indicator for employment and spending – after removing the noise of fluctuations in gas prices as political news.

The "B List" includes the following:

  • Retail sales (F). Especially interesting given the relatively weak earnings for retailers and slack in consumer spending.
  • Business inventories (F). Noteworthy for the impact on GDP.
  • PPI (F). Inflation remains a back-burner concern, but some will watch producer prices for the first signs.

Fed officials will not be speechifying in advance of next week's FOMC meeting. We can expect plenty of international commentary on the Syrian situation.

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 moved to a bearish posture, now fully reflected in trading accounts which are 2/3 short via inverse ETFs. While it is a three-week forecast, we update the model every day and trade accordingly. It is fair to say that Felix is cautiously bearish about the next few weeks.

Insight for Investors

The challenge for investors is to distinguish between the major trends and the short-term uncertainty. The main themes are not related to headlines news, even though sentiment may drive market fluctuations. Do not be seduced by the idea that you can time the market, calling every 10% correction. Many claim this ability, but few have a documented record to prove it. Most who claim past success are using a back-tested model. Please see The Seduction of Market Timing.

Josh Brown has a great new post drawing on the work of George Goodman, who wrote The Money Game under the pseudonym of Adam Smith. "Smith" explains that the successful decision of good money managers use new pieces of information as incremental information, adding to everything they already know. Most investors seriously over-estimate their feel for the market and their ability to use news. Josh highlights another Smith conclusion: "If you do not know who you are, this [the market] is an expensive place to find out."

Here are the current key concepts.

  • Beware of yield plays. For several months, I have accurately emphasized the danger of yield-based investments – yesterday's source of safety. The popular name for this is "The Great Rotation." It is still in the early innings, since bond fund investors are only getting the bad news from their statements. Even the best bond managers (like Gross and Gundlach) cannot win when interest rates are rising.
  • 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 freely share how we do it and you can try it yourself. Follow here).

  • Lose the focus on fear! Many are rewarded for making sure that you are "scared witless" (TM OldProf euphemism). If you are addicted to gold and allegedly safe yield stocks, you need a checkup. Gold works in times of hyperinflation or deflation/crisis. When neither happens, the ball is going between these Golden Goalposts. There is a good transition plan for those with a fixation and fear and gold.

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

Until the question of military action in Syria is resolved, that will be the principal market focus. Continuing news stories will lead to significant daily volatility. So far this has not shown up in our quantitative risk measures. Some events require additional scrutiny, so this is worth watching closely. I am monitoring all of the risk factors listed in the introduction, but I expect that there will be time to adjust positions if necessary.

President Obama has a tough job in convincing the public on Tuesday night. If he fails, the prospect for military action might die in the Senate on Wednesday. I doubt that Obama will act without Congress, now that he has sought approval.

Interest rates are another important issue – the #1 threat, according to Josh Brown. Josh is concerned about how rapidly rates increase, not just the level. I agree. Scott Grannis emphasizes that increased rates continue to reflect a better economy. Most of the data seem to support this viewpoint.

Stocks have digested the increase in rates pretty well. It fits the scenario I have described as a likely destination for the economy and financial markets. This is helpful in avoiding excessive focus on any single variable in a world where so many things are correlated. I expect the economy to improve, interest rates to move higher (starting with the long end), PE ratios to increase (as is usually the case when rates go to 4% or so), profit margins to decrease somewhat, and the U.S. deficit to decrease. This climate will be very negative for some stocks and sectors and very positive for others. (I provide more detail here.)

See the original article >>

Evidence mounts that China had escaped the worst of emerging markets rout

by SoberLook.com

The latest data seem to suggest that China has so far been able to elude the severe economic headwinds faced by other emerging economies. Signs of stability have been around for a few weeks, but the first set of direct evidence came from Markit/HSBC PMI, showing China's manufacturing contraction easing (see Twitter post). The official PMI number (to the extent it can be trusted) confirmed the HSBC's result.

Official China Manufacturing PMI (source: Fung Business Intelligence Centre)

The nation's exports (once again to the extent the official data here can be trusted) unexpectedly picked up last month as well.

Bloomberg: - Overseas shipments rose 7.2 percent from a year earlier, the General Administration of Customs said in Beijing today. That compares with the 5.5 percent median estimate of 46 economists surveyed by Bloomberg News and July’s 5.1 percent gain. Imports rose a less-than-estimated 7 percent from a year earlier, leaving a trade surplus of more than $28 billion.
The Fung Business Intelligence Centre reported improvements in China's logistics index (from 52.4 to 52.9), which tends to be a leading indicator of activity. Here are the details.

Source: Fung Business Intelligence Centre

After a liquidity squeeze forced a sharp selloff in June (see post), the stock market has stabilized for now. The profitability of the banking system has been declining for some time (see Twitter post), but so far we haven't seen any failures as some had predicted. That doesn't mean such an event is off the table - bad assets can be hidden for a long time. But if it were to happen, the government may not let such news see the light of day. Investors seem cautiously optimistic.

Shanghai Stock Exchange Composite Index (source: Bigcharts)

Perhaps the best indicator of China's recent economic stability comes from outside the country. Australian markets are often viewed as a proxy to China, given the two nations' close trade relationship. The Australian dollar, after touching a multi-year low of around 89 US cents a couple of times, is now back around 92. And the Australian stock market has been tremendously resilient lately, outperforming the S&P500 by 6% over the past two months.

blue = S&P/ASX 200, red = S&P500

Putting these facts together paints a picture of the Chinese ecenomy that is not about to "fall out of bed". If this trend can be sustained, it is certainly good news for the global economy. Most importantly this recent stability could provide some cushion to other emerging economies who trade with China - as they grapple with capital outflows driven by the Fed's expected action.

See the original article >>

Twin Distortions

By Cullen Roche

If you’re looking for the bearish view on the economy and the markets then look no further than John Hussman’s annual letter in which he describes why he thinks the US equity market is in a bubble due to “twin distortions”:

“First, as job losses accelerated and household savings collapsed in order to maintain consumption, U .S . fiscal policy responded with enormous government deficits approaching 10% of GDP . Since the deficits of one sector always emerge as the surplus of another, the record combined deficit of governments and households was reflected – as it has been historically – by a mirror image surplus in corporate profit
margins, which have surged to record levels in recent years . Essentially, government and household deficits have allowed consumer spending and corporate revenues to remain stable – without any material need for price competition – even though wages and salaries have plunged to a record low share of GDP and labor force participation has dropped to the lowest level in three decades . This mirror-image behavior of profit margins can be demonstrated in decades of historical data, but investors presently seem to believe that these profit margins are a permanent fixture, and have been willing to price stocks at elevated multiples of earnings that are themselves elevated over 70%, relative to historical norms .

Second, the monetary policy of quantitative easing has gradually become the nearly exclusive focus of investors . The goal of quantitative easing is to create a “wealth effect” – to encourage greater consumption and economic activity by intentionally distorting the prices of financial assets . Unfortunately, economists have known for decades (and Milton Friedman won a Nobel Prize partly by demonstrating) that people don’t consume based on fluctuations in the value of volatile assets like stocks, but instead on the basis of their perceived lifetime “permanent income .” As a result, each 1% change in the value of the equity market has historically been associated with a short-lived change in Gross Domestic Product of only 0 .03% to
0 .05% . Meanwhile, while lowering long-term interest rates might have a positive effect on the demand for credit (though a negative effect on its supply), the fact is that long-term interest rates are virtually unchanged since August 2010, when Federal Reserve Chairman Ben Bernanke first hinted at shifting to quantitative easing as the Fed’s main policy tool.

Despite individual features that convinced investors in each instance that “this time is different,”my perspective is that the truly breathtaking market losses in history share a single origin: the willingness of investors to forgo the need for a risk premium on securities that have always required one over time . Market crashes are largely synonymous with a spike in risk premiums from previously inadequate levels . Once the risk premium is beaten out of stocks, there is no way out, and nothing that can be done about it . Poor subsequent returns, market losses, and the associated destruction of financial security are already baked in the cake . This should have been the lesson gleaned from the period since 2000, but because it remains unlearned, I am convinced that it will also become the lesson of the coming decade.”

I think it’s hard to deny that there have been distorting effects from the government’s deficit as well as QE.  Both have played huge psychological and even fundamental roles in the economic and market performance of the last few years.  I don’t necessarily think Dr. Hussman is wrong that this could all come back to haunt us, but I am not nearly as bearish as he is in the near-term and when it comes down to it, these kinds of bets on big outlier events are largely about timing and thus far the fear trade has been a big loser….

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Can Silver Hold $23 ? $26 Should

By: Michael_Noonan

The silver situation continues to grow more positively, based on developing market activity. Almost everyone has an opinion, but they are all subservient to whatever the market dictates with its most current and most reliable information. It is then a matter of reading the message. Sometimes it is very clear, sometimes not.
The resistance for silver at $26 is uppermost on the mind of everyone with any degree of awareness for this market. A lesser market message, but one still quite clear was the lesser resistance from a demonstrated failed swing high retest back in April.

The new swing high in August closed poorly, the market advertising the likelihood of a correction to follow, as one did. We took no defensive action on this, at the time, with the "belief" that $26 would be the more important area from which to respond, and the activity for silver was developing positively. The point is, even though the market gives out important information, it is not always heeded, for a variety of reasons. For the most part, many do not even "see" the "message."
The TR box on the left shows how price failed to overcome $23 at the end of May and early June. There was an indication of how $23 could be important when price held that level, earlier in April. Broken support becomes resistance. The second, smaller TR box at the right shows that $23 was traded above/below for six TDs before rallying strong above the TR, making it support, once again.
The upside breakout gap is shown as a measure of potential strength underlying presently developing market activity. The sharp volume increase on the first TD in September is likely to be further defended by buyers, and it was. The question posed, will $23 hold?
A look at the intra day for a possible answer.


The starting point for this scenario was 23 August, when silver had a breakout from a wedge formation on exceptionally strong volume, [shown on the 3rd chart]. Whenever there is high volume behind a breakout, it will be defended on any retest, as those who bought, at the time, want to protect their purchases.
The first retest came on 1 September. There was an effort for price to go lower, but it failed, evidenced by the market's ability to respond with a strong rally. This is an example of the HOW a market responds to a known support/resistance area, and it gives us added information from newly developing market activity that $23 is holding very well.
The failure rally of the 28th, in between, had a secondary retest right after the S/D wide range bar lower, and that little retest effort failed at just under $24.60. Its importance became evident when price contained another attempt at that level, early in September. This created a small TR between 24.55 and 23.
There were two more attempts to break support at $23 on Thursday and Friday, and both failed when, for a period of time, $23 looked like it would not hold. The increased volume sell off on the 5th became pivotal on the 6th when another retest was failing to confirm the attempted break. You can see the high volume rally that created a collective sigh of relief for silver longs, at that point.
What makes that strong rally bar even more significant was the bar just before it. It had all the appearances of a potentially failed rally, followed by a poor close that looked like new lows were eminent. That would be a legitimate opinion, at the time, but the market does not care what we think. It will do what it will do, regardless of anyone's opinion.
For now, silver is in a small trading range, and $23 has held. This can change on Monday, if silver were to sell off under $23. We do not know, nor do we have to know. All anyone can do is deal with the available information in the present tense. If new, future market activity alters that view, we get to deal with it then, and respond accordingly.
If that little bar just prior to Friday's strong rally tells us anything, it is to wait for confirmation before acting. Had we determined silver was about to break under $23, by the looks of that bar, and acted on it, we would have missed out on the rally, just a few minutes later. This is why we always say to follow the market, not lead it.


This chart of the then lead month, Sep, is included to show how the breakout on the 23rd occurred on very strong volume. It was a pivotal piece of information, and still is.

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