Egg Yolks as Dangerous as Smoking, and other Weekend Reads

Thursday, August 16th, 2012

Here are this week’s reading diversions for your personal enlightenment. Have a truly serene weekend!

Egg Yolks As Dangerous As Smoking, Experts Say

A researcher at Western University in London said he’s found more evidence pointing to the harmful effects of egg yolks.

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Food For Healthy Bones: Olive Oil And 8 Other Picks

Olive oil may be most well known in the health world for its heart benefits, but the monounsaturated fat could also protect against breast cancer, improve brain health and perk up hair, skin and nails.

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8 Surprising Things Your Headache Might Mean – MSN Healthy Living – Headaches and Migraines

Headaches are one of the most common symptoms, taking a variety of forms and with dozens of possible causes. While most headache triggers aren’t serious — stress, a hangover, a cold, falling or bumping into something, the “brain freeze” from ice cream — others can be more concerning.

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Migraines, Headaches, and Caffeine

Caffeine is a commonly used drug that increases alertness, decreases fatigue, and improves muscle coordination. Though coffee comes to mind as the most common source of caffeine, it’s also naturally found in tea and chocolate, and it is often added to soft drinks and non-prescription drugs like pain-relievers and cold remedies. People vary in their sensitivity to caffeine. If used excessively, caffeine can be too stimulating and cause anxiety, sleep problems, muscle twitching, or abdominal pain

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Red Wine Information – Ask.com

One small study looked at 33 adults in Brazil who considered themselves regular red-wine drinkers and believed that the beverage had caused migraines in the past. All were asked to drink half a bottle (375 milliliters) of a Malbec, Tannat, Cabernet Sauvignon and Merlot wine from South America at least four days apart.

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Crohn’s Disease Symptoms & Warning Signs: Sharp Abdominal Pain, High Fever, Blood in Stool

Crohn’s disease can cause osteoporosis, which is a condition that affects bone density. People with osteoporosis experience a higher risk of developing bone fractures. Other possible conditions that result from Crohn’s disease include seizures, strokes, peripheral neuropathy, headaches, and depression.

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How Drinking Coffee Could Improve Your Health | LIVESTRONG.COM

Though drinking coffee excessively can increase levels of the stress hormone cortisol and foster a dependence on caffeine, here are ten areas where coffee consumption just might be beneficial – if you limit the cream and sugar.

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How Coffee Increases Blood Pressure | LIVESTRONG.COM

The caffeine contained within coffee is the main culprit in the effect your morning cup of joe has on your cardiovascular system. Caffeine works as both a stimulant and diuretic. Though you may be drinking coffee for a quick wake-up, it may be doing more than stimulating your brain. Cardiovascular side effects of coffee include an increase in blood pressure and heart rate.

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Ten Disease Fighting Superfoods

These 10 superfoods are proven, expert-beloved disease fighters and energy boosters, says fitnessmagazine.com. Add them to your meals and get on the fast track to a super-healthy body.

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11 Benefits of Green Tea That You Didn’t Know About

Not for the love of the taste — no way! I drink it because I’m told it’s good for me…or, to be honest, the real reason I drink it is because I believe it help keeps my weight in check. But recently I decided to look into it a bit deeper and see what are all these other benefits of green tea people talk of.

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11 Benefits of Green Tea That You Didn’t Know About

Not for the love of the taste — no way! I drink it because I’m told it’s good for me…or, to be honest, the real reason I drink it is because I believe it help keeps my weight in check. But recently I decided to look into it a bit deeper and see what are all these other benefits of green tea people talk of.

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Dr. Joseph Mercola: Cinnamon for Diabetes? A Half Teaspoon A Day Could Help Control Cholesterol

Researchers have been investigating a number of powerful natural agents that can help you stabilize your blood sugar, and once again, cinnamon has proven itself as a viable contender in the fight against diabetes, as the study in Diabetic Medicine reveals.(1)

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7 Doctor’s Secrets : Heart Health : Men’s Health Spotlight : MensHealth.com

With doctor’s offices busier than ever, you’re lucky if you get 20 minutes with your M.D. Which is why it’s not surprising that even when it comes to your most vital organ, the advice you receive can sound somewhat boilerplate: Exercise regularly, watch your diet, don’t smoke, and limit your drinking—right? But there’s more information lurking within your doctor’s language than you hear. So we asked George Vetrovec, M.D., the chair of cardiology at the Medical College of Virginia, to identify the details your doctor may not be telling you. Read carefully, your heart’s health depends on it.

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Supplements You Need : Heart Health : Men’s Health Spotlight : MensHealth.com

Don’t want to end up on a stretcher? Then supplement your ticker with these pills and nutrients to prevent any trouble in the first place. “I think of supplements as things that enable the body. A lot prescription medicines block a process, so I prefer to enable instead of block, enhance instead of stop,” says Keith Berkowitz, M.D., from the Center for Balanced Health in New York City. From the vitamin that helps boost good cholesterol to the fat that helps lube the arteries, we have five recommendations that will arm your body against cardiac arrest.

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Study: Overweight Adults Over 70 May Live Longer – TIME

Putting a smile on chubby faces everywhere, a new study by Australian researchers finds that being overweight may be a boon for the elderly: among the 9,240 adults ages 70 to 75 in the study, those who were overweight were the least likely to die over 10 years, compared with people who were of normal weight or obese

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Tags: Blood In Stool, Brain Freeze, Brain Health, Brazil, Breast Cancer, Cabernet Sauvignon, Cause Anxiety, Cold Remedies, Crohn S Disease, Healthy Bones, Heart Benefits, High Fever, Migraines Headaches, Muscle Coordination, Personal Enlightenment, Red Wine, Skin And Nails, Sleep Problems, Soft Drinks, University In London, Wine Drinkers
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Some Numbers Worth Thinking About

Thursday, August 16th, 2012

What Are Investors Thinking About Coming Into the Home Stretch?

Whether it is right or wrong, many still think of investing on a calendar year basis. So as we crawl through this period of incredibly low volatility and low volume it is time to start thinking about the home stretch. Coming into year end there are some striking numbers that investors and money managers must be thinking of and are likely to influence their decisions for here on out.

Equities

The S&P 500 is up 11.8% for the year. The Nasdaq is up 16.3%. Had you been lazy and just bought AAPL (which is allegedly the most owned stock by hedge funds), you would be up 55.8%. Had you “tried to lose client money” by buying banks, you would have failed there too. XLF is up 16.4% and even JPM, with the whale trade and LIBOR is still up 11.5% this year (remember how bearish everyone was on banks at the start of the year?).

Okay, what about Europe? Well an investment in the STOX 50 would be down 1% in USD, but still up 4.9% in Euro. The Nikkei is up 7.5% in Yen terms and 4% in dollars.

China, with all of its problems and daily headlines of various types of landings, is down only 4% in local terms and 5% in USD.

In many ways it would have been hard to lose money investing in equities. Just simple equity investments and that’s without timing any of the bigger moves. Yet the composite hedge fund ytd return is only about 3%.

Fixed Income

The fixed income case is even more depressing for hedge funds. It has been almost impossible to find a losing investment here. The 10 year treasury return is over 2.5%, Investment Grade bond index is 7.9%, High Yield bond index is 8.6% and even boring, senior secured, floating rate leveraged loans have generated 7.1%. The Municipal bond index is up only 5% but some of that income is tax-free. Emerging markets have been stellar with core dollar denominated debt up 11.9% and even local currency debt now up 4.4%.

Even an investment in a 5 year Italian bond would be up 8.8% so far. I haven’t converted that to dollars where it is less, but this number is worth thinking about. Close your eyes, but Italian 5 year bonds at the start of the year, and you would be up 8.8% so far in Euros. At least Spain has had the decency to be down. Had you bought 5 year Spanish bonds at the start of the year you would have a 2.1% loss in Euros (slightly less in dollars). All the time and focus spent on how bad Spain is and you would only be down 2.1% on a five year bond, strikes me as surprising.

On fixed income, I continue to believe that specific credit and bond selection is necessary here, as the “go go” bonds have gone about all they can. The ETF’s are underperforming the benchmarks in many cases now, at least in part because the “beta” has been played out.

Others

The dollar has done well this year. Investing in DXY would have produced a 3.2% return. Investing in commodities would have lost 3.3% based on the CRB index. That surprised me, given how much talk there is about inflation.

Can You Sell Sharpe Ratio?

At a glance, the hedge fund composite index returns are pretty lackluster. Obviously some funds have done a great job, some are designed for low volatility or tail risk environments, etc., but some are designed to generate total returns for their investors. It must be getting hard for some investors to wonder why they are paying 2 and 20 to get returns that just aren’t that good. So many investments have outperformed, and there are so few losers, some investors will question how it was possible to achieve such low returns.

That is the key game that is getting played out now. The weaker hedge funds, those without long track records and good relationships with their investors are racking their brain on how to outperform coming into year end. Clients may say they want steady returns, especially in bad times, but we all know that many of them are as likely to chase returns as stick with that philosophy.

These weak funds need returns, not sharpe ratio. They need to keep assets under management. They need to justify their existence. It is reasonably safe to assume that many of the laggards have been short the market, since so much has gone up. They can add to that position, or they can decide not to fight the Fed and ECB and go long chasing returns that way. I think every day now that we continue in this low volume, low volatility environment, these funds will become more and more tempted to chase returns from the long end and will scrounge the world for the highest beta assets that they can buy and push up in this low liquidity environment.

Clearly the good funds remain in the driver seat, but they have the luxury of being patient and figuring out what they want to do. It is those most desperate for returns into year-end that are likely to swing for the fences, and I think it is becoming more likely that means another big push higher in risk assets.

I wouldn’t do it if I was them. I remain between 0% and 50% now and continue to be tempted to set shorts (I’m now eyeing the S&P Sept 1,370 puts since they are cheaper than when I started watching the 1,350′s). For now I remain long and biased towards Spain, Italy, banks, and continue to think CDS can have a capitulation tighter (low trading volumes will turn the big banks into net income hogs again, reducing their desire to hedge).

Tags: Aapl, Client Money, Currency Debt, Emerging Markets, Equity Investments, Fixed Income, Hedge Fund, Hedge Funds, High Yield Bond, High Yield Bond Index, Home Stretch, Investing In Equities, Landings, Leveraged Loans, Libor, Money Managers, Municipal Bond, Nasdaq, Stox, Whale Trade
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Intermediate Trend Up, Relative Strength Positive, in Technology, Materials, Industrials, Energy, and Financials

Thursday, August 16th, 2012

by Donald Vialoux, Tech Talk

Interesting Chart

The uranium ETF came alive yesterday. Nice break to the upside on higher volume, a move above its 20 and 50 day moving average as well as early signs of outperformance.

Mark Leibovit’s Recommended List Changes

Bulletin

Adding UEC and NLR (both uranium plays) to the recommended list at the market. I know we’re weighted heavily in uranium, but I’m looking for some further diversification. We already own URRE, USU and DNN.

Stop 1.75. Target 3.75 in UEC.
Stop 13.00. Target 18.00 in NLR.

Gold Seasonality

“So while gold has its monthly ups and downs, you can see that, on a historical basis, we have arrived at gold’s peak performance period of the year. Based on 10 years of data, gold bullion has historically increased 2 percent in August and 4 percent in September.”

– Frank Holmes

Source: BullionBuzzeNewsletter

Yesterday, Gold moved above its 20 and 50 day moving averages.

Adrienne Toghraie’s “Trader’s Coach” Column

More Isn’t Always BetterFor Traders

By Adrienne Toghraie, Trader’s Success Coach

www.TradingOnTarget.com

While it is important to have a good education in trading, you must know when to stop and execute what you have learned. Education junkies will not become the best traders unless they have already proven themselves to be successful at being a trader before adding additional information to their memory bank.

Education junkie Ray

Ray is a highly educated man in several professional fields. As a scientist, where he has mainly focused his attention, addictively gathering information has been a good strategy for success in his field.

When Ray was introduced to trading, he decided to read every book that was recommended by professional traders he encountered at trade shows and other events. Four years into his studies he still has not been able to develop a clearly defined strategy. The reasons are:

· He is trying to come up with the perfect system

· The information he has learned very often is in conflict

· If he uses all of the filters that are recommended, he will never find a decent opportunity

· He is afraid of being wrong

· He is afraid of loss

· Loss for him is an indication that he needs more information

· Knowledge itself has become an addictionWhen I met Ray at an Expo, I asked him if he wanted to be a trader who earned money, or if he wanted to be a trading academic? He, of course, said that he wanted to be a trader. When I suggested to him that he put down the books and come up with a strategy, he found it impossible. This is when he called me to invest in coaching.

On the first day of our coaching, which was mostly dedicated to gathering information on how he thinks, he said, “What will I do with my evenings if I can’t read my books?” I handed him a short mystery novel. This started a debate and ended with him wanting to prove to me that he was not addicted. Of course, I knew that he would not be able to read the novel. This was another wake up call for Ray.

Ray was also addicted to energy deprivation. He trained his neurology to adapt to living life with a high level of stress and little sleep. In other words, he was borrowing energy from his future, and he was almost bankrupt. His addictive behavior of cluttering his mind with more information added to his stress. When he stopped pushing, all he wanted to do was sleep. He was so sleep deprived it was not easy to keep him awake during our second day session.

Ray had to learn how to simplify, plan, de-stress and be willing to study in an area other than trading.

Other areas of trading where you might be doing too much

If traders can be honest with themselves, they may find out that their over-kill behaviors are the reason that they are not earning profits from trading. Here are some to consider:

· Too many systems or strategies

· Too many indicators

· Too many time frames

· Too many commodities

· Too much time spent on trading in a day/week

· Too much listening to the advice of others

· Too much environmental stress

Conclusion

There are many reasons you might not be making profits in trading. Consider the possibility that perhaps you are doing too much in one or more areas of trading.

New Free Monthly Newsletter

More Articles by Adrienne Toghraie, Trader’s Success Coach

Sign Up at – www.TradingOnTarget.com

Don Vialoux on BNN Television Yesterday

Following are links to the interview:

http://watch.bnn.ca/#clip740726

http://watch.bnn.ca/#clip740727

http://watch.bnn.ca/#clip740729

http://watch.bnn.ca/#clip740733

http://watch.bnn.ca/#clip740735

http://watch.bnn.ca/#clip740736

http://watch.bnn.ca/#clip740740

http://watch.bnn.ca/#clip740744

Weekly SPDR Select Sector Review

Technology

· Intermediate trend is up.

· Units remain above their 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains positive.

Materials

· Intermediate trend is up.

· Units trade above their 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains neutral.

Consumer Discretionary

· Intermediate trend is neutral. Support is at $41.58 and resistance is at $46.11

· Trades above its 20, 50 and 200 day moving averages

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains negative.

Industrials

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains positive.

Energy

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains positive.

Financials

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains neutral.

Consumer Staples

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought and showing signs of rolling over.

· Strength relative to the S&P 500 Index remains negative.

Health Care

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought and showing early signs of rolling over.

· Strength relative to the S&P 500 Index remains negative.

Utilities

· Intermediate trend is up

· Trades above its 50 and 200 day moving averages and below its 20 day moving average.

· Short term momentum indicators are trending down.

· Strength relative to the S&P 500 Index remains negative.

Special Free Services available through www.equityclock.com

Equityclock.com is offering free access to a data base showing seasonal studies on individual stocks and sectors. The data base holds seasonality studies on over 1000 big and moderate cap securities and indices.

To login, simply go to http://www.equityclock.com/charts/

Following is an example:

Bristol Myers Squibb Co. (NYSE:BMY) Seasonal Chart

Disclaimer: Comments and opinions offered in this report at www.timingthemarket.ca are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.

Don and Jon Vialoux are research analysts for Horizons Investment Management Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons Investment Management Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management Inc

Horizons Seasonal Rotation ETF HAC August 15^th 2012

Tags: Frank Holmes, Gathering Information, Gold Bullion, Good Education, Intermediate Trend, Memory Bank, Moving Average, Moving Averages, oil, Peak Performance, Performance Period, Professional Fields, Professional Traders, Ray Ray, Relative Strength, Seasonal, Seasonal Trades, Seasonality, Success Coach, Target, Technology Materials, Ups, Ups And Downs
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Dog Days (Sonders)

Thursday, August 16th, 2012

August 10, 2012

by Liz Ann Sonders, Senior Vice President, Chief Investment Strategist, Charles Schwab & Co., Inc.
and Brad Sorensen, CFA, Director of Market and Sector Analysis, Schwab Center for Financial Research
and Michelle Gibley, CFA, Director of International Research, Schwab Center for Financial Research

Key Points

• The scheduled possible catalysts for the market have come and gone, giving the market a modest upward bias, but we now appear to be firmly in the dog days of summer. Low volume and little conviction may dominate through Labor Day but investors need to stay vigilant and now is a good time to prepare for the potential fireworks in the fall.
• The recent Federal Reserve meeting yielded no new action, but policy makers reiterated that they will act if necessary. This is a nice sentiment, but we are skeptical that more stimulus measures would have a lasting impact on the economy or the market.
• A waiting game has ensued in Europe as investors look for action following hopeful comments from various officials. But despite concerns over corn prices, we believe central banks will continue to ease, helping to support global growth.

NOTE: The next Schwab Market Perspective will be published one week later than normal-August 31, 2012.

In the past two weeks, we have seen the Federal Reserve and the European Central Bank meet, 2Q earnings season largely wind down, another trading “glitch,” and still more political posturing on both sides of the Atlantic. Stocks, meanwhile, have continued to trade within roughly the same price range that we’ve seen for a couple of months, but with a modest upward bias that may surprise investors. While this can be frustrating at times, it is interesting to note that the broad market is up more than 6% since May 31, apparently, at least for now, bucking the conventional wisdom of “sell in May, go away.” This illustrates our common refrain that no one can consistently and accurately predict the direction of the market in the near term, and reinforces the importance of appropriate diversification of investment assets.

Now that we’ve moved passed the scheduled possible market moving events, and appear to be in a bit of a quiet period with no apparent market-moving catalysts on the calendar, it is a great time for investors to make sure their asset allocation matches their risk tolerance and their investments are appropriately diversified for when the action seems certain to heat up this fall. For the near term, we expect continued muted action in a rough trading range as politicians and major Wall Street investors are largely on vacation, and central bankers are between meetings. For now, we expect activity to heat up beginning in late August when the Fed holds its annual get-together in Jackson Hole, Wyoming. Fed Chairman Ben Bernanke has previously made market-moving comments at this event.

Keep an eye on the economy
Despite the temptation to forget the market as summer winds down, we suggest investors keep at least one eye on stocks and the economy as market-moving events can occur at any time. Additionally, economic data will continue to roll in, which could have an impact on stocks in the near term and potentially spark Federal Reserve action at its meeting in mid-September. Recent data have continued to tell a largely slow-growth story in the US. Regional manufacturing surveys remained mixed around the flatline, with the Dallas Fed Index falling to its lowest level since September 2011, but the Chicago PMI getting a slight bump higher and remaining in territory depicting expansion. On the national level, the Institute for Supply Management (ISM) Manufacturing Index stayed roughly flat at 49.8, the second month in a row in territory depicting contraction, while new orders moved up slightly but the employment component fell to 52.0 from 56.6.

US manufacturing appears to be weakening

Source: FactSet, Institute for Supply Management, US Dept. of Labor. As of August 6, 2012.

On the service and consumer fronts, we saw the ISM non-Manufacturing Index move higher, to 52.6 from 52.1 in the previous month. Unfortunately, the employment component of this report also fell, to 49.3 from 52.3. Also, personal spending was flat, further confirming at least a cautious consumer that was evident earlier by a third-straight month of lower retail sales.

Certainly the continued weak recovery in the labor market is contributing to the cautiousness of the consumer. According to the recently released unemployment report from the Labor Department, the unemployment rate remains elevated at 8.3%, up slightly from the previous month, while jobs continue to be added at a relatively anemic pace, although better than the previous few months, with a better-than-expected 163,000 jobs added during July. While still not considered rapid-enough job growth to meaningfully bring down the unemployment rate, it is at least somewhat encouraging that the US continues to add jobs and that the more forward-looking indicator of initial jobless claims remains well below the key 400,000 level, suggesting that the employment picture, while murky, continues to improve—albeit too slowly for most people.

Fed holds, but stands ready to act—in contrast to Congress
Both the Federal Reserve and politicians are included in the group that is dissatisfied with the pace of improvement in the labor market. In the statement following the most recent Federal Open Market Committee meeting, policy makers noted that they expect unemployment to decline “only slowly” and that, while holding monetary policy constant, they are ready to “provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in the labor market.”

This is a nice sentiment, but we continue to question what new “accommodation” would have a lasting impact on either the economy or the market. The problem does not appear to be a lack of liquidity. Companies appear to have plenty of cash on their balance sheets that they could put to work.

Cash doesn’t appear to be the problem.

Source: FactSet, Federal Reserve. As of August 6, 2012. * Cash includes: check deposits & currency, commercial paper, foreign deposits, money market funds shares, mutual funds shares, time deposits & savings, and govt. agency & Treasury securities.

This development must be frustrating to Bernanke and his colleagues as it doesn’t follow the traditional script of monetary easing. Typically, the Fed reduces interest rates or, in the case of quantitative easing, pushes cash into the economy, and businesses borrow at those reduced rates and use that cash for capital investment and/or hiring new employees. Those new employees then have more money to spend at other businesses, starting the cycle all over again. As you can see, however, this time around businesses appear to be content to keep that cash—short-circuiting the virtuous loop that the Fed hoped to facilitate. The Federal Reserve can’t force demand to increase, as far as we know, leaving it limited options to actually influence economic activity.

This brings us to policymakers down the street in Washington in Congress and the Obama Administration. While Congress is currently out of session, political posturing never ceases—and that is even more true as we approach a presidential election. Businesses continue to cite uncertainty about regulation and especially the tax code as hindrances to their willingness to take on risk and invest in their businesses. Unfortunately that seems unlikely to change soon as the possibility of any substantial progress being made prior to the November election seems remote and the so-called “fiscal cliff” grows ever closer—not exactly the confidence-boosting action that appears to be needed from Washington.

Waiting game in Europe
Like the Federal Reserve, the European Central Bank (ECB) held off on providing immediate measures at its August policy meeting, and markets have been left to speculate about whether the ECB will “walk the walk” after promising to do “whatever it takes” to preserve the euro.

While the lack of immediate action disappointed markets, we found both negatives and positives after the ECB meeting:

• Potential positive and negative: conditional help. Sequence of events is important for ECB action – countries must ask for help first from the bailout funds of the temporary European Financial Stability Facility (EFSF) and permanent European Stability Mechanism (ESM), then the ECB may undertake open market operations. Additionally, countries must commit to “conditionality” in the form of fiscal austerity and structural reforms in exchange for ECB help. While this may delay action, it could also force countries to make much-needed reforms.
• Negative: lack of urgency. The details of what the ECB’s “open market operations” will entail will be figured out “in coming weeks.”
• Negative: firepower of the ESM cannot yet be enlarged via a banking license.
• Negative: health of European banks is still not addressed, neither is the negatively reinforcing link between banks and sovereigns.
• Positive: seniority concerns would be addressed in future actions. Prior purchases negatively affected investor perception, because the more the ECB purchased, the potential that bondholders would be further subordinated grew because the ECB’s bond holdings had seniority.
• Positive: future potential purchases would be of “adequate size” to reduce sovereign debt risk premium to reach its objective to improve the working of the monetary policy transmission channel. In other words, the ECB indicated it is prepared to purchase as much debt as necessary to keep yields at the short-end of the yield curve under control.
• Key potential positive: possible purchases may not be sterilized. Prior purchases were sterilized – any infusions of money from the ECB into the financial system were withdrawn completely by the ECB issuing seven-day bills of the same amount. If the ECB begins unsterilized purchases (which would be more similar to the asset purchases made by the Fed), there is the potential for a larger total and the result would likely increase the amount of money banks could lend.

While the ECB has yet to provide details, there are at least two aspects of the crisis that could potentially change and stabilize the crisis. First, firepower could be bolstered in a dual-barreled approach if the ECB makes unsterilized sovereign bond purchases in tandem with countries tapping the EFSF/ESM bailout funds. Secondly, while some view “conditionality” as a negative hurdle that would delay action, we regard it as a potential positive. By forcing countries to commit to fiscal targets and reforms, resistance to bond purchases could soften – already, the traditional “northern front” of countries appeared to weaken their opposition within the ECB, with only Germany’s central bank president Weidmann named as resistant. Even within Germany there appears to be a growing recognition that more needs to be done to fight the crisis, and various members of the German government have backed the ECB’s proposal.

Markets are now in a waiting game – waiting for the details from the ECB on whether potential purchases will be unsterilized and waiting to see if Spain in particular will ask for aid. Spain may hold off due to negatives of a perceived loss of sovereignty and watchful eye of a formal bailout, and amid some uncertainty as to whether more onerous requirements would be imposed or not. Hope for Spain stems from comments from the International Monetary Fund’s (IMF’s) Lagarde, who said that if Spain were in a bailout program, the IMF would not ask Spain for much more than what it has done and is committed to doing.

Bottom line? Leaving the market in limbo is a risky game—lack of action could result in confidence slipping and another sell-off in Europe. Conversely, there is also the potential for fierce rallies as expectations and valuations appear low, and the potential for upside surprises appears elevated. Amid the volatility, we caution against making drastic investment decisions on European stocks until there is more clarity.

Where is global growth headed?
Looming uncertainty from the euro-zone debt crisis, the US fiscal cliff, and the potential for a hard landing in China has weighed on global growth. Amid the doom, it may be surprising that global activity has remained in expansion territory and even moved higher last month.

Global activity not that bad?

Source: FactSet, Bloomberg. As of August 7, 2012.

Manufacturing deterioration is well known, but under the radar, the service sector globally has remained resilient. It is unclear if the service sector can continue to hold out with job pressure globally and the traditionally leading global manufacturing PMI falling to 48.4 in July, the lowest level since June 2009.

We remain relatively optimistic about global growth amid continued central bank easing, a key difference from the slowdowns in both 2010 and 2011. Although the drought in the United States and spike in corn prices may have some questioning the potential for inflation in the future, this could halt central bank easing.

We believe there are factors that could keep food inflation overall in check:

• Food prices consumers pay are less volatile than the underlying commodity prices.
• Corn prices are flat versus a year ago, and the impact on the economy usually occurs later.
• Grain prices could stabilize due to substitution, an increase in supply in response to high prices, a relaxation of ethanol regulations, and other factors.
• Not all food commodities are higher priced.

Overall food prices not yet a major concern

Source: FactSet, Commodity Research Bureau. As of August 7, 2012.

We believe the rise in food prices is not yet a major concern for developed-market stock performance. According to Ned Davis Research, since 1980, the S&P 500 Index typically incurs trouble once the CRB Foodstuff sub-index rises at a yearly rate of 15% or more, versus the -10% rate currently.

Rising food prices, however, could reduce the attractiveness of emerging market stocks if prices increase further, because spending on food consumes two to five times more of incomes in these countries than in developed countries. Positively, prices for the important staple of rice remain subdued.

Read more international research at www.schwab.com/oninternational.

So what?
While it can seem like a dead period in the market and few potential market-moving events are scheduled in the next few weeks, we’ve seen that surprises can come at any time. In fact, recently, we’ve seen a good deal of action in the traditionally slow month of August that leads us to suggest investors remain alert. Again, maintaining a diversified portfolio is important and potential volatility over the next few months should give investors opportunities to sell into sharp rallies and buy on steep dips as needed to position your portfolio appropriately for risk tolerances and time horizons.

Important Disclosures
The MSCI EAFE® Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States and Canada. As of May 27, 2010, the MSCI EAFE Index consisted of the following 22 developed market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.

The MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of May 27, 2010, the MSCI Emerging Markets Index consisted of the following 21 emerging-market country indexes: Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.

The S&P 500® index is an index of widely traded stocks.

Indexes are unmanaged, do not incur fees or expenses and cannot be invested in directly.

Past performance is no guarantee of future results.

Investing in sectors may involve a greater degree of risk than investments with broader diversification.

International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Investing in emerging markets can accentuate these risks.

The information contained herein is obtained from sources believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation or a recommendation that any particular investor should purchase or sell any particular security. Schwab does not assess the suitability or the potential value of any particular investment. All expressions of opinions are subject to change without notice.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Tags: Brazil, BRICs, India, Russia
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Market Trying to Retest Yearly Highs but Far Fewer Participants than in April

Thursday, August 16th, 2012

by Mark Hanna, Market Montage

An interesting graph from one of the people on twitter I follow @hertcapital below. While the S&P 500 is basing a stone’s throw away from yearly highs, the breadth of participation is not near levels seen early this year, or during other intermediate pushes up to highs during early 2010 and then during the QE2 rally of latter 2010 through early 2011. The top chart is the % of S&P 500 stocks over the 50 day moving average (overlaid with the S&P 500), and the bottom chart is the % of S&P 500 stocks over the 150 day moving average (also overlaid with the S&P 500).

I find the bottom one to be particularly illuminating because in a knee jerk move up by the market many stocks can quickly jump over their 50 day moving average, but getting over the 150 day takes a lot more strength. During the bulk of the earlier major rallies we saw 80%+ of stocks over their 150 day moving average…. and at minimum at least 70%. Currently that figure is hovering just over 60%.

[click photo 2x to enlarge]

This shows us thus far it’s been a relatively narrow rally, and “top heavy” if you will with focus on the larger S&P 500 stocks that move the index more – recent examples are Apple and Google. Other names that are near or above April highs from a quick glance are Exxon, General Electric, Chevron, AT&T, Wells Fargo, and Johnson & Johnson. So that is 7 of the top 12 components of the S&P 500 near or above April 2012 highs. While there are obviously 500 stocks in the S&P 500, the largest 25 make up almost 20% of the composition.

The takeaway is we don’t have the same breadth here as the multi month rallies seen over the past few years. Now it could just be because we are in the early stage of a multi month move (remember 2 weeks ago this market was flip flopping around like a fish out of water), but at this moment the S&P 500 index itself has rallied on a smaller subset (but more impactful group of companies) than in early 2012. This lack of breadth is also obvious in the Russell 2000 which is nowhere near April’s highs – and remember *it* was lagging the S&P 500 substantially earlier this year as well.

As for the general market, the S&P 500 tried to break out of its narrow 7 day range yesterday but was rejected in the afternoon. There is some mild pressure in premarket but really it feels like an empty market on auto control as volume is nowhere to be found. Semis and commodities which held the market up last week have been pressured thus far this week as money has rotated into healthcare and Apple/Google. The digestion continues but the fact so many gaps created by multiple gap up mornings 6-8 sessions ago remain, is something to be aware of. Strangely, bonds sold off with the market yesterday – these two markets have generally traded inverse with each other, not in line with each other. Same situation in premarket.

Copyright © Market Montage

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41 Years After The Death Of The Gold Standard, A Look At “How We Ended Up In This Economic Purgatory”

Thursday, August 16th, 2012

Via Kenneth Landon, JPMorgan… Yes, JPMorgan

Landon Lowdown: “Brother, Can You Spare $1.37″?

As we await the latest developments out of the Eurozone and Washington, I take a moment to look back on this very important day in history. If you want to understand current events, then you first have to understand history. How did we get here? More specifically for financial markets, how did we end up in this mess — this economic purgatory? The answer boils down to a simple proposition on the philosophical level, which I will leave to the reader to identify because my doing so would likely ruffle a few too many feathers. So I will keep the discussion on the concrete-bound level. However, I am willing to say that the political philosophy that drove us to the current state of affairs was responsible for the respective concrete measures implemented over the years. The crisis in confidence that we observe today resulted from cumulative effects of those measures.

This being August 15, 2012, students of the history of monetary economics no doubt are aware that this is the 41th Anniversary of the breakdown of Bretton Woods. It was on this day 41 years ago that President Nixon defaulted on the promise to exchange gold for paper dollars presented for exchange by foreign central banks. Aug 15th marks the anniversary of the collapse of Bretton Woods and the gold-exchange standard that was established after WW II. (Notice that dollar debasement has been bipartisan over the years: Republicans Nixon and Bush and Democrats Carter and Obama have all presided over major declines in the value of U.S. money.)

The current crisis in the global monetary system pales in magnitude to the sundering of gold from central banks’ fiat paper currencies in 1971. That is, we are not witnessing the wholesale dismantling of an entire monetary system. What we are witnessing is a loss of confidence in the current monetary system, which, of course, is equivalent to a loss of confidence in central banks’ ability to restore stability. However, the decision to renege on the gold-exchange standard that was made 41 years ago is still reverberating today. In *fact*, many or most of the problems observed today are the direct result of wrong-headed discretionary monetary policies.

What was it that made the current morass inevitable once the paper dollar was severed from gold?

The answer is simple: fiat paper money that is not grounded in any objective standard can be manipulated at the whim of the issuer. Without the requirement to exchange fiat money for gold or some other commodity, the central bank can issue unlimited amounts, thus making its value subject to extreme volatility and, as we have seen, perpetual debasement.

Chart 1 (above) shows the extent of debasement of the value of U.S. money since 1913 when the Fed was established. To summarize in simple terms, a child with 4 cents in his pocket could buy the same amount of candy in 1913 as his descendant could with $1 in 2012. Today, it takes a quarter to buy what a penny did in 1913. The dollar has lost 96% of its purchasing power since 1913! (using CPI statistics) Once the dollar lost all linkage to gold, its value plummeted at an accelerated rate. Since 1971 when Bretton Woods was intentionally dismantled, the dollar has lost 82% of its purchasing power. 82%! Because Nixon sabotaged the last vestige of honest money, a child in 2012 would need $1 to buy the same amount of candy purchased by children for just 18 cents in 1971.

Monetary debasement has rendered obsolete the expression “brother, can you spare a dime?”, which was the title of a 1930′s Depression-era song that became a common refrain of panhandlers in those days. In 2012, the equivalent would be “brother, can you spare $1.37?”

An honestly governed gold standard eliminates “discretionary” monetary policy by centralized authorities (i.e., central banks).

Gold is an honest check on the amount of leverage that can build in the financial system and it limits the amount of money the government can borrow. A government that does not have a captive central bank and fiat paper currency cannot borrow massive amounts of money (think Greece). Fiat paper money managed by complicit central banks remove any discipline of free-spending politicians. Thus, central banking and huge deficit spending go hand in hand.

Let’s turn to a former Chairman of the Fed to give some added explanation:

“Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit.

They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of society lose value in terms of goods.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold [in 1933]. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

Alan Greenspan, 1966

When Greenspan later rose to a position of prominent political power when named Chairman of the Fed, he disavowed his essay about gold. However, that disavowal does not detract from the truth of his written word. His words stand on their own. (What changed since 1966 was Mr. Greenspan and not the truth.)

We are currently witnessing in both Europe and the U.S. a crisis relating to the financing of the modern-day Social Welfare State that goes to the core of the generally-accepted political philosophy upon which they rest. The resolution of the problem is therefore not as simple as coming up with a new policy that is a derivation of previous ones (e.g., using debt to solve debt). The real resolution will come only after a major shift in political power, if seen at all, that results in a significant reduction in spending of the respective governments. Otherwise, it will be more of the same: a continued decline in living standards and individual liberty in countries experiencing this rot. Profligate central banks are a symptom and enabler of the political rot. They are not the cause.

The chart 2 (above) shows the gold content of one U.S. dollar. Today, one dollar buys a pitiful 0.0006 ounce of gold, which compares to about 0.05 ounce a hundred years ago just before the Fed existed. The deprivations that Mr. Greenspan wrote about are illustrated in the sharp decline in the gold content of the dollar.

For point of historical reference, Chart 3 (above) shows the silver content of the Roman Danarius between 64A.D. and 270A.D. You can draw your own conclusions.

“Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”

George Washington, in letter to J. Bowen, Rhode Island, Jan. 9, 1787

Sadly, few people understand the process by which paper money leads to “fraud and injustice” as President Washington accurately warned in 1787. If they did, then perhaps days like Aug 15, 1971 would never have happened.

To end with one last quote, this time from a Socialist who knew the importance of gold:

“You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”

George Bernard Shaw

Shaw wanted to end the Capitalist system and knew, like Greenspan, that gold stood in the way of a Socialist government from achieving its objectives.

August 15, 1971: A day that will live in infamy.

h/t Wallstreetmane

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Market Complacency: Sell Signals May Soon Be Ahead of Us

Thursday, August 16th, 2012

by Don Vialoux, EquityClock.com

Upcoming US Events for Today:

1. Weekly Jobless Claims will be released at 8:30am. The market expects Initial Claims to show 368K versus 361K previous. Continuing Claims are expected to reveal 3300K versus 3332K previous.
2. Housing Starts for July will be released at 8:30am. The market expects 763K versus 760K previous. Building Permits are expected to reveal 770K versus 755K previous.
3. The Philadelphia Fed Survey for August will be released at 10:00am. The market expects –5.0 versus –12.9 previous.

Upcoming International Events for Today:

1. Great Britain Retail Sales for July will be released at 4:30am EST. The market expects a year-over-year increase of 1.6% versus 1.4% previous.
2. Euro-Zone Consumer Price Index for July will be released at 5:00am EST. The market expects a year-over-year increase of 2.4%, consistent with the previous report.

Recap of Yesterday’s Economic Events:

The Markets
Equity markets finished little changed on Wednesday on extremely light volume as investors digested a mixed set of economic reports. Volume, yet again, was dismal with the S&P 500 ETF showing the lowest activity of the year. The NAHB Hosing Market Index was reported at the highest level since 2007, fueling confidence that a rebound in the housing market is upon us. However, at the other end of the “hope” spectrum, a report on manufacturing significantly missed estimates, reiterating that the economy is still struggling. The Empire Manufacturing Survey for August was reported at –5.85, below even the lowest analyst estimate at –2; the average analyst estimate was for a print of +7, essentially unchanged from the previous report. Manufacturing remains seasonally negative until October, suggesting further pain could be realized before a rebound takes hold. The Philly Fed Index, a key gauge of manufacturing activity, will be released on Thursday.

With such low volumes suggesting a severe lack of conviction to equities, hints of a market top can be implied. Tops are a process that typically do not happen overnight; rarely will you see a market stop on a dime at a peak and head sustainably lower. Looking at the past two significant peaks during the recovery rally from the March 2009 low, it took the market approximately 5 and a half months for each peak to mature before equity indices began breaking through levels of support. The trade over these timeframes was both positive and negative, but, at the end of the period, flat returns were the result, leading to investor frustration and a selloff below the 5-month trading range. Looking more broadly, a trading pattern has become evident. Since the March 2009 low, the market has trended positive for 7 to 8 months, followed by a 5 and half month topping process, and eventually resulting in a swift short-term decline. The pattern repeats from the conclusion of the swift market plunge, on of which was realized in June 2010 (10% correction) and the other in August 2011 (20% correction). Assuming that the market began a toping process in the middle of March of this year as indices were charting new highs, the end point to the 5 and a half month range is now upon us (between the end of August and the beginning of September). Markets trended positive following last August’s plunge for a period of seven months into the March highs, leading into a peak that has effectively has resulted in flat return between then and now. If the pattern continues a very swift plunge could soon be realized, potentiality taking equity markets out of the positive trend that has remained intact since the beginning of June.

Also, for Elliott Wave theorists out there, equity benchmarks, such as the S&P 500, are within wave 5 of a basic 5-wave impulse sequence from the March ‘09 low. This implies that an ABC corrective sequence lies ahead of us, which could potentially drag equities significantly lower. To read the basics of Elliott Wave Theory from StockCharts.com, visit the following link: http://stockcharts.com/school/doku.php?id=chart_school:market_analysis:elliott_wave_theory.

Sentiment on Wednesday, as gauged by the put-call ratio, ended bullish at 0.75. This is one of the lowest put-call ratios this year, beat by the middle of March low of 0.70, which was also around the time of the equity market peak thus far for 2012. Complacent activity, such as this, has been notorious for preceding market tops, suggesting that Sell signals may soon be ahead of us.

S&P 500 Index

Chart Courtesy of StockCharts.com

TSE Composite

Chart Courtesy of StockCharts.com

Horizons Seasonal Rotation ETF (TSX:HAC)

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Tags: ETF, ETFs, oil, Thackray
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