US F-22 Jets Intercept 6 Russian Warplanes 55 Miles Off The Alaskan Coast

by Tyler Durden

Yesterday it was the UK which scrambled a squadron of Typhoon jets when two Russian Tu-95 "Bear" Bombers had gotten too close to its shores, even if still located in international space. Then overnight, none other than the US did the same when two F-22 fighter jets intercepted six Russian military airplanes just over 50 miles away from the western coast of Alaska, military officials said Friday, among which identified as two IL-78 refueling tankers, two Mig-31 fighter jets and the same two "Bear" long-range bombers, which are known to carry tactical ICBMs with nuclear warheads among their arsenal.

According to the AP, they looped south and returned to their base in Russia after the U.S. jets were scrambled.

Lt. Col. Michael Jazdyk, a spokesman for the North American Aerospace Defense Command, or NORAD, said the U.S. jets intercepted the planes about 55 nautical miles from the Alaskan coast at about 7 p.m. Pacific time Wednesday.

Additionally, at about 1:30 a.m. Thursday, two Canadian CF-18 fighter jets intercepted two of the long-range bombers about 40 nautical miles off the Canadian coastline in the Beaufort Sea.

In both cases, the Russian planes entered the Air Defense Identification Zone, which extends about 200 miles from the coastline. They did not enter sovereign airspace of the United States or Canada.

Jazdyk said the fighter jets were scrambled “basically to let those aircraft know that we see them, and in case of a threat, to let them know we are there to protect our sovereign airspace.”

In the past five years, jets under NORAD’s command have intercepted more than 50 Russian bombers approaching North American airspace.

So just more training missions by Russia, or is the Kremlin testing out US and UK response capabilities?

And if the US scrambles jets whenever Russian jets fly over international airspace, some 200 miles away from the coastline, how should Russia feel when US, pardon NATO, military jets do combat missions some 20 miles away from the Russian border from the Baltics all the way to Ukraine? Or perhaps the answer is irrelevant, because when it comes to "feeling threatened", only one side of the rational response story matters.

See the original article >>

Stocks Bull Market Resumes

by tony caldaro

REVIEW

The wild and volatile week we expected was nearly all to the upside. The market started the week unchanged, completed its 1.5 week pullback on Tuesday, then made new highs on Thursday and Friday. For the week the SPX/DOW were +1.5%, the NDX/NAZ were +0.5%, and the DJ World index rose 0.3%. Economic reports for the week were mixed. On the uptick: NY FED, NAHB, leading indicators, WLEI, monetary base, and weekly jobless claims improved. On the downtick: industrial production, capacity utilization, CPI, housing starts, building permits and the Philly FED. Next week we get more reports on Housing, Durable goods orders, and Q2 GDP.

LONG TERM: bull market

This week the FED announced they will be ending QE 3 in October, and the ECB had a somewhat disappointing TLTRO 1. Nevertheless US and European markets reacted well to both events. The count we have been carrying on the SPX remains as posted. Primary waves I and II, of an expected five primary wave bull market, ended in 2011. Primary wave III has been underway since then. Primary wave I divided into five Major waves with a subdividing Major wave 1. Primary III has also divided into five Major waves, but this time Major waves 3 and 5 have subdivided.

The SPX count suggests the market is currently in Intermediate wave v of Major 5. The last uptrend of Primary III. The recent underperformance of the R2K and the NYAD suggest this uptrend is indeed a fifth wave. Should this count work out to be the market’s count, then Primary IV would begin when this uptrend ends. Primary II lasted about five months, and the market lost 22% of it value. Primary IV should be a similar 3-5 month decline, while the market loses about 15%-20% of its value. The key level to watch is SPX 1905. Should the market decline to this level at any time in the near future Primary IV is underway.

Due to the odd pattern in the DOW, and the smaller than expected recent correction in the NDX/NAZ, we are carrying another count on the DOW charts. This counts suggests that the last uptrend high and downtrend low were of one lesser degree: Minor waves 1 and 2. Not Intermediate waves iii and iv. Under this count Intermediate wave iii would be extending, just like the Intermediate wave iii during Major 3. The key level to watch for this count is SPX 1991. After this uptrend completes, and the next downtrend begins, if the market drops below SPX 1991 the extension is invalidated. If one is adept at Elliott Wave they will now realize, any future downtrend that drops below SPX 1991, or is confirmed below 1991, suggests Primary IV is underway.

MEDIUM TERM: uptrend

The current uptrend started at SPX 1905 in early August. After it completed five waves up to SPX 2011 in early September, we expected a pullback into the 1973 or 1956 pivot ranges. That pullback completed at the open on Tuesday when the SPX traded at 1979. When the market made new highs on Thursday we updated the count to display the first five waves up only completed Minor wave 1 of the uptrend. Minor wave 2 ended at SPX 1979. Minor wave 3 is currently underway.

This uptrend should complete five Minor waves before we should look for an uptrend high. Typically third waves get quite overbought on the daily RSI, and MACD before they begin to top. Thus far we have only observed a 40 point rally off the recent Minor 2 low at SPX 1979. During this rally the RSI has just reached overbought, and the MACD is just beginning to turn higher.

When this uptrend began we gave a minimum target of the OEW 2019 pivot, which was reached on Friday. Our expected target was the OEW 2070 pivot, which we have been expecting for over a year heading into the timeframe. We would now like to add one more pivot at SPX 2085. Since these last two pivots nearly overlap there should be significant resistance once the SPX reaches their pivot ranges. Medium term support is at the 1973 and 1956 pivots, with resistance at the 2019 and 2073 pivots.

SHORT TERM

From the early August downtrend low at SPX 1905 we counted five waves up to SPX 2011. Waves 1 and 2 at 1945 and 1928. Wave 3 subdivided into five waves: 1964-1942-1995-1985-2005. Wave 4 was a simple decline to SPX 1991. Then wave 5 unfolded in a diagonal triangle: 2006-1995-2009-1998-2011. After that we got a somewhat complex zigzag. After a simple Wave A to SPX 1990, and wave B to SPX 2008, wave C got complex. Wave a of C declined: 1991-2000-1983; wave b of C rose: 1997-1986-1998; wave c of C declined: 1978-1987-1979. This pullback completed at the open on Tuesday.

From that SPX 1979 low the market rallied quite nicely to 2004 on Wednesday, and then had a series of reversals right after the FED released their FOMC statement. Since none of these swings actually registered quantitatively, we are considering them just post-FOMC noise. The market then gapped up on Thursday and Friday, hitting SPX 2019, and then had its first quantitative pullback since the low. Therefore, we are counting the entire rally from SPX 1979 to 2019 as one wave, potentially Minute i, and Friday’s pullback to 2007 as likely the major part of Minute ii. If Minute wave i is not subdividing, as we expect, the market should pullback a bit further Monday to end Minute ii. Then a rising Minute iii should be underway. Oddly, Minute i of Minor 1 was 40 points (1905-1945), and Minute i of Minor 3 appears to be 40 points (1979-2019). Short term support is at SPX 2000 and SPX 1993, with resistance at the 2019 and 2070 pivots. Short term momentum ended the week at neutral.

See the original article >>

Ukraine on the brink

by Sober Look

While we see a great deal of media coverage of Ukraine-related geopolitical risks, there hasn't been sufficient discussion about the dire economic and fiscal conditions the nation is facing. Writing about men in masks fighting in eastern Ukraine sells far more advertising than covering the nation's economic activity. However it's the economy, not the Russian army that has brought Ukraine close to the brink. And just to be clear, some of Kiev's economic and fiscal problems were visible long before the spat with Russia (see post from 2012).
Ukraine is now in recession. Deep economic ties with Russia have resulted in painful adjustments in recent months. The nation's exports are down some 19% from last year in dollar terms and expected to fall further. A great example of Ukraine's export challenges is the Antonov aircraft company known for its Soviet era large transport planes as well as other types of aircraft.

As the military cooperation with Russia ended, Antonov was in trouble. It had to take a $150 million hit recently by not delivering the medium-range An-148 planes to the Russian Air Force. The Russians will find a replacement for this aircraft, but in the highly competitive global aircraft market, it's far less likely that Antonov will find another client.
Here are some key indicators of Ukraine's worsening situation:
1. The nation's GDP is down almost 5% from a year ago and growth is expected to worsen.

2. Ukraine's retail sales are falling at the rate we haven't seen since the financial crisis.

3. And industrial production is collapsing.

4. The most immediate concern however is the nation's currency, which has been trading near record lows in spite of currency controls. In fact Friday's fall in hryvnia was unprecedented (over 11%), as Kiev fails to stem capital outflows.

Intraday exchange rate (source: Bloomberg)

Those who have spend any time in Ukraine during the winter know how harsh the weather can get. And at these valuations, hryvnia isn't going to buy much heating fuel from abroad. Furthermore, it's not clear if the government will have the wherewithal to provide sufficient assistance to the population.
5. Inflation rate is running above 14% and will spike sharply from here in the next few months if the currency weakness persists. Real wages are collapsing.
6. Finally, Ukraine's fiscal situation is unraveling. In its attempts to defend the currency, Kiev has been using up its foreign exchange reserves. It is only the access to some IMF funding that has allowed Ukraine's government to maintain some semblance of order in its FX markets.

Moreover, public debt levels continue to rise as the government attempts to keep the Ukrainian banking system afloat.

Fitch Ratings: - Government debt (including guarantees such as NBU liabilities to the IMF) to GDP has quadrupled since 2008, reflecting exchange rate depreciation, fiscal deficits, low growth and below-the-line costs such as recapitalisation of banks and Naftogaz. There is high dollarisation and foreign-currency exposure, making government solvency, banks' balance sheets and the overall economy vulnerable to sharp depreciation.

A number of economists now believe that given worsening economic crisis, the country's public debt problem is simply unsustainable and default is becoming increasingly likely.

Goldman: - We continue to see downside risks to activity and to our forecast for a contraction of output of 8% this year and for growth of 1% next year. As we recently argued, this severe economic weakness is likely to cause public debt to rise to 70% this year and 77% next year, above the IMF’s “high-risk threshold” for debt sustainability. These downside risks to our forecasts further call into question the sustainability of Ukraine’s debt trajectory.

See the original article >>

The Great Divergence Since 1999: Real Per Capita Income Up 20%, Median Household Income Down 8%

by Contributor

Re-posted from My Budget 360

The annual Census data was recently released and showed a grim picture when it comes to household income. While GDP continues to grow and the stock market continues to reach new peaks, the middle class continues to fall further behind economically. Americans however continue to add mountains of student debt and auto debt as to make up for the lack of income growth. This appears to be a seminar of better living through debt. The middle class is witnessing the impact of inflation. While the CPI figures highlight moderate growth, just look at the cost of housing, cars, education, food, and healthcare and ask yourself if inflation really is that tame. It is not. Inflation is hitting middle class Americans where it hurts the most unfortunately. That is why the new Census data combined with figures on debt growth highlight a disturbing trend. That is a trend where middle class families are plugging gaps in income with going into deeper debt.

Household income going nowhere

While GDP continues to expand and the stock market makes new peaks, it is hard to tell how much of this is filtering down to working class Americans. Keep in mind that many companies were able to boost earnings via lower wages, cuts in benefits, and passing on higher profits to a few in a company. 90 percent of all stock wealth is held in the hands of 10 percent of the population. The Census data is released once a year but does a good job at highlighting where things stand in the current economy.

If we look at per capita GDP and household income growth we would find the following:

Source: NY Times

While per capita GDP growth is up significantly, little of this is showing up in household income growth. That is tough on households that are finding the cost of many things soaring through the roof. If a family would like to send their kids to college, they can expect to pay a very large price tag. Many families are unable to help so students merely take on incredible levels of debt. We’ve also documented how many lower income Americans are being given subprime auto loans to purchase their vehicles. A car is a necessity in many cities but it is hardly an item to be counted as an asset.

Incomes absolutely matter because they are a proxy to what Americans can purchase. If most items in life are increasing in price and incomes are not keeping up, the standard of living will go down. This is why with a record in the stock market, general economic sentiment in the population is not good:

The Census figures simply tie into what we already know and that is the cost of living is increasing via inflation. This inflation is occurring largely because of the way debt is funneled into the economy. With schooling for example, the loans are backed by the government so schools have every incentive to push prices up to the level of maximum student debt. Many for-profits rely on Federal funding for virtually 100 percent of their revenues. The argument is, education should be an option for all so funding needs to be there. Yet if you truly believe in education for all, why not make it free? After all, with the $1.2 trillion in student debt outstanding I’m sure we can give access to many students.

This is the first generation since World War II that is likely to see their children in a tougher economic situation than their children. It isn’t like older Americans are walking in paradise either. Just look at retirement accounts for most Americans and the picture isn’t pretty.

The Census data merely highlights what we already know and that is for middle class families life is becoming more expensive and costs are rising.

See the original article >>

SPY Trends and Influencers September 20, 2014

by Greg Harmon

Last week’s review of the macro market indicators suggested, heading into September Options Expiration Week, that the equity markets look tired and ready for a pullback. Elsewhere looked for Gold ($GLD) to continue lower while Crude Oil ($USO) did the same. The US Dollar Index ($UUP) was strong and looked to continue higher while US Treasuries ($TLT) were biased lower. The Shanghai Composite ($FXI) was also strong and biased higher while Emerging Markets ($EEM) looked to continue their pullback. Volatility ($VIX) looked to remain subdued keeping the bias higher for the equity index ETF’s $SPY, $IWM and $QQQ. Their charts showed more consolidation in the zone for the IWM and a possibility of consolidation or even a pullback for both the SPY and QQQ.

The week played out with Gold pushing lower to new lows on the year while Crude Oil caught a Dead Cat Bounce before falling back. The US Dollar continued its break out higher while Treasuries found support and consolidated. The Shanghai Composite consolidated around resistance while Emerging Markets continued their pullback. Volatility poked higher over the moving averages only to finish back below them. The Equity Index ETF’s had a mixed week with the IWM falling but the SPY and QQQ making new closing highs Thursday and then intraday highs on Friday before pulling back. What does this mean for the coming week? Lets look at some charts.

As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

SPY Daily, $SPY

SPY Weekly, $SPY

The SPY had a roller coaster week. Sunday night the world was going to end and it opened lower Monday only to rally to new all-time closing highs by Thursday. Friday would have been another record if it had not paid a dividend. The price action on the daily chart is mixed. The price did hold over the 20 day SMA Friday, but with a red candle. The RSI on the daily chart is in the bullish zone but may be making a lower top, caution, with a MACD that is crossing up though, a good sign. On the weekly chart the picture is much more clear. There is consolidation at the highs with a strong RSI and a MACD avoiding a cross down by moving sideways. There is support at 200 and 199 followed by 198.30 and 196.50. Resistance stands at the new high at 201.85, with a 150% Fibonacci extension above that at 202.78 and Measured Moves to 208 and 209. Consolidation with an Upward Bias, in the Uptrend.

As we close the books on the September Options cycle and move into Fall, the equity markets still look strong but a bit tired. Elsewhere look for Gold to continue lower along with Crude Oil. The US Dollar Index continues to look strong while US Treasuries are bouncing in their downtrend. The Shanghai Composite is also strong and looks better to the upside while Emerging Markets are biased to the downside. Volatility looks to remain subdued keeping the bias higher for the equity index ETF’s SPY, IWM and QQQ. The SPY and QQQ look the strongest but on the weekly timeframe, with some cracks on the daily charts. The IWM looks weak in the short run and probably continues towards the bottom if its consolidation zone. Use this information as you prepare for the coming week and trad’em well.

See the original article >>

Do Market Divergences Signal a Warning for Stock Investors?

by oldprof

(09/21/14) In the wake of the FOMC meeting and the IPO hype, we face a week with little new information – the lull before earnings season. This sort of vacuum makes it difficult to predict the week ahead, but I have an interesting idea:

This week will feature discussion about market divergences — gold, oil, small caps, and bitcoin are losers. Large cap stocks have been winners. Why?

A lot of buzz came from a Bloomberg article saying that 47% of NASDAQ stocks were “mired in a bear market.” This was portrayed as showing a narrowing appetite for risk and loosely links it to prospective changes in Fed policy. It is an intriguing topic for further study.

Prior Theme Recap

In my last WTWA I predicted that the media focus would be the FOMC and the potential for changing course. That was very accurate, since the Fed meeting was the center of attention through Thursday. My question of whether the Fed would change course was answered with a firm, “No.”

Feel free to join in my exercise in thinking about the upcoming theme. We would all like to know the direction of the market in advance. Good luck with that! Second best is planning what to look for and how to react. That is the purpose of considering possible themes for the week ahead.

Calling All (Young) Writers

The Financial Times and McKinsey and Company have joined to offer the Bracken Bower Prize for the best proposal for a book on the challenges and opportunities for growth. A prize of £15,000 will be given for the best book proposal. It is also a good way to attract a publisher for your idea. Entries close on September 30^th. More information is available here.

This Week’s Theme

Whenever there is a light schedule for data and events, the market focus can easily change. We have some important housing data this week, but my sense is that many are still digesting the implications of the Fed meeting. It seemed to be a non-event, with no change in the “considerable time” language or the pace of QE tapering. Despite media efforts to coax a story out of nothing, the “spikes” in stocks and bonds exhibited less volatility than we often see on the average trading day.

What was interesting? The continuing strength of the dollar. The currency market was the closest to showing a real spike, even when the Scotland effect removed one threat to the Euro. The dollar strength is a combination of the perception of increasing US interest rates, the relative rate advantage for US investors, and the comparative strength of the US economy. If you are a European investor, and you do not see a currency risk, why not take the higher US interest rates? We can guess that some fund managers are doing this trade on a leveraged basis.

The expectation of higher interest rates comes not from the official policy statement or from Fed Chair Yellen, but from the “dot plots.” This chart reveals the individual expectations of Fed members. Despite repeated warnings that this is not official policy, that the group decision is not the sum of individual opinions, that not everyone has a vote, etc., etc., the market takes the dot plot seriously. Here is the recent version via MarketWatch:

Here are some interesting supporting themes. Expect to read and hear more about them in the week ahead:

• Outflows from European stocks (FT).
• Smallcaps struggling (Bespoke with the chart you expect).
• Gold has “looked like death” according to Joe Weisenthal. Josh Brown highlights the same point in time, comparing gold to stocks. Eddy Elfenbein joins in.
• Oil prices are falling (WSJ) and so are oil stocks.

• Izabella Kaminska sees “the end of bitcoin.” Josh Brown wouldn’t trade it, but thinks it is a key support level. Kaminska has some interesting charts, but here is the key argument:

  Well it’s the same old story of frivolity, irrational exuberance, hysteria and of course the mistaken belief that something like a free lunch is truly possible. (Not to mention the cult’s last great hope being lost, that of Scotland adopting Bitcoin…)

As usual, I have a few thoughts to help with these questions. First, let us do our regular update of the last week’s news and data. Readers, especially those new to this series, will benefit from reading the background information.

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

There was a lot of very good news, supporting the general thesis of economic strength.

• Dow Transports have been strong. Bespoke observes, “Many investors look for the Transports to lead the way, and the fact that it has done so well is a bullish sign for the major indices like the Dow and S&P 500 in our view.” See the full post for the expected fine chart.

• BLS benchmark revisions were extremely low. This little-followed story is actually very important. Each year, the BLS checks their monthly estimates of net job change by comparing the employment data from surveys with actual reports at state employment agencies. It takes months to compile, but it avoids the popular criticisms of the monthly employment data. There is no issue about seasonal adjustments, surveys, revisions, or the birth/death model. The job count is not exaggerated because no business will pay employment taxes on non-existent employees. It is our best employment data, but it comes with a delay. Barry Ritholtz highlights the story, quoting from employment experts at The Liscio Report:

  The annual benchmark is based on the unemployment insurance system’s records, which cover close to 100% of establishment employment, and are the last word in employment. It will be made official early in 2015.

  The revision, through March 2014, was an unusually small 7,000 jobs, which is less than +0.05%, far below the +/- 0.3% average of the last ten years.

  And concluding:

  This is, of course, a disappointment for those of us who await the annual benchmark with bated breath, but it might quiet some chatter about the birth/death model, whose job is done once the benchmark is in place. It was remarkably accurate for the 12 months ended March 2014.

  This is something to keep in mind each month as we get the employment data. Those who intone “birth death adjustment” while rolling their eyes, or complain about seasonal adjustments, or claim that data were fabricated —- they were completely wrong last year.

• Initial jobless claims hit a new low. Most people follow the seasonally adjusted four-week moving average, shown in the chart below. Bespoke also provides the NSA data and chart, the lowest reading for this week of the year since 2000.

• The Scotland independence referendum failed. Please note that I am scoring this as “good” because it was market-friendly, not because of the merits of the issue. There were many dire warnings about what would happen had it passed – bank failures, plunging European currencies, and worldwide ripples. Overnight futures rallied as the results came in.
• Homebuilder confidence is at the highest level since 2005. (Calculated Risk). Are they seeing something not apparent from the reported sales data? Builders report an increase in buyer interest and traffic. See also Nick Timiraos at the WSJ.

• Retail sales were in line, but the revisions were positive. Ed Yardeni shows the relationship with his earned income proxy and the continuing growth of both series.

• FOMC policy. No matter what you think of the Fed, the market quietly celebrated the decision and even held ground through the Yellen press conference.
• Inflation data were benign. See Doug Short’s deep dive for comprehensive analysis and his typical fine charts.

The Bad

There was also some important negative news, especially housing data.

• Industrial production fell 0.1%. A gain of 0.3% was expected. Steven Hansen of GEI looks at the story from several viewpoints, including the unadjusted data. See the full post and the interesting collection of charts.
• Student loan debt is hurting home sales. Nick Timiraos of the WSJ has a helpful account of a report from John Burns Real Estate Consulting. The estimate is that each $250 in monthly loan payments reduce purchasing power by $44,000. Those with $750 payments or higher are often completely priced out of the market.

• Earnings revisions drop significantly. Check out the green line in Ed Yardeni’s chart below and you will see the dramatic decrease in Q3 estimates. Dr. Ed looks on the bright side, expecting a strong beat rate. Earnings expert Brian Gilmartin still sees a chance for 2014 growth of 10% and highlights the potential in financial stocks.

• High frequency indicators show deceleration. New Deal Democrat has his regular important weekly update for these data.

• Housing starts were poor. So were building permits, my own preferred lead indicator. Calculated Risk comments as follows, while noting that the months in 2014 still show improvement over the same month in 2013:

  This was a disappointing report for housing starts in August.

  Starts were only up 8.0% year-over-year in August.

  There were 670 thousand total housing starts during the first eight months of 2014 (not seasonally adjusted, NSA), up 8.6% from the 617 thousand during the same period of 2013.  Single family starts are up 3%, and multi-family starts up 23%.  The key weakness has been in single family starts.

The Ugly

Our “ugly” list for the last few weeks remains unfortunately accurate. We had headline news from all conflicts with plenty of violence and death competing for our attention. The Ebola crisis, cited a few weeks ago, is deepening. Some are calling it a “Katrina moment” for the World Health Organization.

Looking for some new themes to worry about– a panel has suggested an overhaul in end-of-life health care. Here is another political third rail. We are delivering costly care that patients do not want while depriving them of counseling and comfort that they need. Until you have witnessed this personally, you do not really understand how dysfunctional our system is. Despite this, it defies correction.

The Silver Bullet

I occasionally give the Silver Bullet award to someone who takes up an unpopular or thankless cause, doing the real work to demonstrate the facts.  Think of The Lone Ranger. No award this week. Nominations are welcome.

Quant Corner

Whether a trader or an investor, you need to understand risk. I monitor many quantitative reports and highlight the best methods in this weekly update. For more information on each source, check here.

Recent Expert Commentary on Recession Odds and Market Trends

Doug Short: An update of the regular ECRI analysis with a good history, commentary, detailed analysis and charts. If you are still listening to the ECRI (three years after their recession call), you should be reading this carefully. Doug includes the most recent ECRI discussion concerning continuing economic weakness in Japan. Doug covers the possible implications for the US.

Bob Dieli does a monthly update (subscription required) after the employment report and also a monthly overview analysis. He follows many concurrent indicators to supplement our featured “C Score.”

RecessionAlert: A variety of strong quantitative indicators for both economic and market analysis. Dwaine’s “liquidity crunch” signal played out as projected. This week he highlights his HILO Breadth index which he has designed to pinpoint bottoms and to warn of protracted corrections. Current readings imply an opportunity that usually shows up only once a year. Check out the full post for a description and charts.

Georg Vrba: Updates his unemployment rate recession indicator, confirming that there is no recession signal. Georg’s BCI index also shows no recession in sight. Georg continues to develop new tools for market analysis and timing. Some investors will be interested in his recommendations for dynamic asset allocation of Vanguard funds.

Barron’s summarizes reasons to expect 3.5% economic growth through 2015. Check out the four interesting reasons.

The Week Ahead

After last week’s avalanche of news, we have a more normal week for economic data and events.

The “A List” includes the following:

• Initial jobless claims (Th). The best concurrent news on employment trends.
• New home sales (W). Housing remains crucial to the economic rebound and new homes have the biggest impact.
• Michigan sentiment (F). Good concurrent read on employment and consumption.

The “B List” includes the following:

• Existing home sales (M). Will we finally see a real rebound?
• Durable goods (Th). Wild swings in the headline number; ex-transportation was weak last month.
• GDP final estimate for Q214 (F). This is old news, but still an interesting baseline.

There is plenty of Fedspeak on tap. We might think that there is little fresh news on that front, but we still see surprises that add color to the official statements.

Breaking news from Ukraine and Iraq has become a part of the investment landscape. These stories are having an effect, but are nearly impossible to handicap on a short-term basis.

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 shifted from bullish to neutral based upon overall strength. Ratings for the broad market ETFs are mixed. Our Felix trading accounts remain fully invested for now because there are still at least three solid choices. With the generally modest ratings, Felix might signal a move to more cash during the coming week. The trading program can sometimes go short via the inverse ETFs, but that has not happened in more than a year.

Traders should all be reading everything from my friend, Dr. Brett Steenbarger. This week I especially liked his article about going “on tilt,” the emotional response familiar to poker players. Hint: Be realistic in your expectations.

You can sign up for Felix’s weekly ratings updates via email to etf at newarc dot com.

Insight for Investors

I review the themes here each week and refresh when needed. For investors, as we would expect, the key ideas may stay on the list longer than the updates for traders. The current “actionable investment advice” is summarized here. In addition, be sure to read this week’s final thought.

We continue to use market volatility to pick up stocks on our shopping list. We do this because we also sell positions when they reach our (constantly updated) price targets. Being a long-term investor is not the same as “buy and hold.”

Here is our collection of great advice for this week:

Economic prospects are better than most people think – including Alan Greenspan. Last week I featured the former Fed Chairman’s 9 Reasons Why the Economy Stinks. It seems only fair to include a response from John Kim, Chief Investment Officer at New York Life, who notes that he has access to a perspective different from Greenspan’s. He has 9 Reasons Why Alan Greenspan is Wrong about Everything. This is an interesting list, and I recommend taking a minute to consider the various points, listed in reverse order. The final point relates to big data. The following is a key section:

We are at a point where we can quantify the positive impact of Big Data, Kim said, noting that as we realize some $300-$600 billion in annual cost savings and productivity gains from Big Data, the U.S. economy is building fresh GDP equivalent to about +1.5 to +3%…all from Big Data. The Economist noted that data is new big natural resource, analogous to what steam was in the 18th century, what electricity was in the 19th century and what hydrocarbons were in the 20th century.

And the U.S. is driving it.

Beware of unregulated and leveraged commercial loans. Lisa Abramowicz at Bloomberg has an excellent story, Dirty Secret of $1 Trillion Loans Is When You Get Your Money Back, showing the dangers, the big payoffs for banks, and the possibility for cascading effects throughout the financial system. The reach for yield has driven fund managers to include these holdings, which are not securities. The article does not explain exactly how to protect yourself. I am studying this further. It fits a general pattern of investments that supposedly offer safe yield.

Celebrity stock pickers? Be careful. Barry Ritholtz starts with a story about leading jazz musician Kenny G (a favorite of Mrs. OldProf). He starts his day with Starbucks – the stock price, not the coffee! Barry reviews the results from Playmates, actresses, and models, as well as the infamous story of Lenny Dykstra. Remember when Gisele Bundchen insisted on payment in Euros? This article is fun, but it also has an educational lesson.

Strong dollar stocks? Here are some ideas from Reuters and from GaveKal.

Beware the pump-and-dump schemes. I know that I have emphasized this topic before, but I am trying to help individual investors. People continue to fall for these schemes. What is your defense? My colleague at Scutify, Cody Willard, will not permit the penny stock promotions that you see on other investment sites. Global Economic Intersection is all over these stories, with regular updates. Here is the key quote from the SEC on this one:

Zirk de Maison concocted an array of reverse mergers and company name changes on his way to gaining control of the vast majority of Gepco stock in order to conduct a multi-faceted manipulation scheme. To help avoid the pitfalls of microcap fraud, it’s important to check the histories of companies and determine their legitimacy before deciding whether to invest in them.

Speaking of Scutify, there is a new feature that you might want to try. If you register at the site and add #question to your scuttle, you can get answers from a number of experts with differing methods. It is easy, fun, and educational. There was a good debate Friday on Alibaba. (I was bidding for one of our programs – the “high-octane” portfolio – but it was too rich for us. Others bought and some were very skeptical.

Don’t go “all out” of the market. The safest investment strategy is not one of all cash. AllianceBernstein shows that even risk-averse investors should have a 20% stock allocation – even with time horizons of only three years.

If you are stuck in gold or out of the market completely, you might want to reconsider your approach. The current economic cycle is in the fifth inning. This is one of the problems where we can help. It is possible to get reasonable returns while controlling risk. You can get our report package with a simple email request to main at newarc dot com. Also check out our recent recommendations in our 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 and use feedback).

Final Thought

I currently have a free trial subscription to an “independent” take on the news. Each night I am told that the official government data are wrong, the stock rallies are all contrived, and the wheels will come off at any moment. Reading it is an interesting exercise, but I have an advantage. I know what to look for and taught graduate level classes in research methods and statistical analysis. My guess is that most consumers are either deceived or falling victim to confirmation bias.

The divergence story is a bit like that. When small stocks were leading the rally, we were warned that the market was frothy – a sign of a top. Now that the big stock/small stock relationship is coming into line, it is a sign of a “dangerous divergence.”

I have two suggestions:

1. Ignore the various death crosses and omens. Adam Grimes does a careful analysis of the Death Cross, showing that the effect lasts only a week or so and then quickly decays. His method is actually more likely to show an impact than you usually see, since his comparisons use the upward-sloping baseline from stock performance. His post, which you should read carefully if you are an investor who depends on technical indicators, notes that much of technical analysis depends upon compelling visual impressions rather than statistical support.
2. Many of the current effects are dollar-related and difficult to time. The obvious first-line effects are energy and materials stocks. These are core holdings for value managers because they are all cheap by traditional metrics. Gold is also a casualty.

The strong dollar will eventually be good for the US economy, consumers, and stock investors. It is important to understand this instead of chasing short-term dollar effects. Investors who want to understand the time frames better could start with this Barron’s article by Schwab’s Liz Ann Sonders. It is right on target.

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