Archive for August 23rd, 2012
10 Success Principles We Often Forget, and Other Weekend Reads
Thursday, August 23rd, 2012
Here are this week’s reading diversions for your personal enlightenment. Have a terrific weekend!
10 Secrets Your Pilot Won’t Tell You | Reader’s Digest
If you’ve ever wondered what your pilot was really thinking, now is your chance to find out. We interviewed real-life pilots and they shared all the secrets you probably should know but were afraid to ask.
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Diabetes Risk Higher In Women Than Men With No Job Control
“How men and women react to stress is not totally clear, but it’s clear that in the work environment, stress can have an impact on health,” Dr. Richard Glazier, one of the Toronto researchers who conducted the study published Tuesday, said in an interview with CBC News.
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Five natural ways to manage your migraines… | Chatelaine.com
There’s nothing that will stop you in your tracks faster than a pounding headache or debilitating migraine. If you find yourself regularly reaching for non-steroidal anti-inflammatory drugs (NSAIDs) and pain relievers, you may want to implement these natural methods for taking the edge off your head pain.
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Power Of Smiling: Study Says Fewer Smiles Can Make You More Powerful
“Smiles can put you in a positive light by signalling that you’re friendly and trustworthy, and that you aren’t a threat to others. But higher-status individuals often want to appear in charge and as a threat, and they lose some of that power by smiling,” says study co-author Timothy Ketelaar, associate professor of psychology at New Mexico State University told The Vancouver Sun.
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13 Best Foods for Crohn’s Disease – Health.com
If you’ve got inflammatory bowel disease (IBD), you need to make calories count.
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10 Success Principles We Often Forget
Sometimes we find ourselves running in place, struggling to get ahead simply because we forget to address some of the basic success principles that govern our potential to make progress. So here’s a quick reminder:
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Dragon Fruit Health Benefits | LIVESTRONG.COM
Dragon fruit, otherwise known as the pitaya fruit, is a colorful fruit that grows on a vine-like cactus plant. It can be eaten fresh or dried. The dragon fruit’s nutritional profile boasts high concentrations of certain nutrients, offering a plethora of health benefits.
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Are you getting enough of the sunshine vitamin? – thestar.com
Vitamin D can also help prevent infections by keeping the immune system healthy. When paired with calcium, it helps build strong bones and teeth. And recent research suggests that it may have a role in preventing diabetes, heart disease, hypertension, multiple sclerosis, and colon, prostate and breast cancer
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Both regular yogurt and Greek yogurt contain probiotics, which are sometimes referred to as “good” bacteria. These probiotics are beneficial to a healthy digestive system by maintaining the balance of organisms found in the intestines. Probiotics used in the production of yogurt have also been found to strengthen the immune system and help battle illness and infections.
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Foods To Lower Blood Pressure Naturally
Dr. Mercola advises cutting out foods that are rapidly converted to sugar, such as pasta, bread, potatoes, rice and cereal. In addition, he recommends cutting out foods that are high in fructose, including fruit like mangoes, raisins and grapes.
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Why you shouldn’t tip restaurant servers on your credit card – USATODAY.com
When you charge a meal on a credit card, if you want the servers to be assured of their fair share, you should leave the tip in cash, more than one server has told me.
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7 Reasons Your Neighbors Have More Money Than You
You look out the window of your home each night after dinner, staring across the street at your neighbors. You long for the cars they drive, their weekly manicured lawns, and even the vacations they seem to take several times a year.
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‘Japanification’ (PIMCO)
Thursday, August 23rd, 2012
‘Japanification’
by Scott Mather and Dirk A. Jeschke, PIMCO
- During Japan’s banking crisis deflationary expectations became embedded in the economy early on, preventing real short-term rates from remaining negative and thereby clogging monetary transmission. Although deflationary winds are a risk in the developed world, they have yet to become embedded in expectations.
- One of the chief explanations for the outbreak of deflation in Japan was the difference in the structure of the labor market. In Japan, at the onset of the banking crisis nominal wages quickly began to fall. In contrast, in the current crisis, the response of most of the developed world’s labor markets has been quite different.
Ballooning fiscal deficits, record low interest rates, depressing economic growth, private sector deleveraging, uncoordinated and ineffective governmental responses and monetary authorities increasingly exhausted and reluctant to act. Over the past two decades, people would have associated this characterization with Japan. However, more recently, they are accurate descriptions of the status quo in many other developed countries, raising the question: is the developed world becoming “Japanified?”
Japan has lived through lost decades while the rest of the developed world is suffering through only the fourth or fifth year of stagnation. Since the debate is relatively nascent it has so far focused mainly on superficial similarities, namely the converging level of interest rates (see Figure 1) and deteriorating demographics, especially the retirement of the baby boomer generation in the U.S. The Japanese experience, however, is a well-known movie without a happy ending that is fresh in policymakers’ and investors’ minds: it was hoped that a path similar to Japan’s could be avoided.
At the beginning of the crisis, most economists thought the severe economic and social costs of full “Japanification” could be averted if the crisis response was radical and quick enough. And at first, it appeared to be working. Growth rebounded in 2009 and 2010 (albeit weaker than historical experience) and deflation was avoided. The optimists believed that policymakers, armed with the lessons of Japan’s history and studies of debt deflation, deleveraging and balance sheet recession dynamics during the Great Depression, would be able to avoid anything reminiscent of such a stark outcome. Increasingly, however, it appears that the developed world is repeating the same mistakes, in particular through political paralysis and hesitance to fully engage central bank balance sheets. Even in the U.S., where Fed Chairman Bernanke had studied extensively and published scholarly works on mistakes made during the Great Depression and lectured Japanese policymakers in the early 2000s on ways to break free, we are seeing increasing frustration and reluctance to continue policy activism in the face of the inability to restore employment and economic growth to the pre-crisis trend.
It is therefore fair to question whether a Japanese outcome can even be avoided. Undoubtedly, fiscal and monetary policy actions are facing diminishing marginal returns. But is it time for policymakers to give up and resign the U.S. and Europe to full “Japanification,” with decades of low growth and seemingly inescapable deflationary debt traps ahead?
We think it is not too late to act. Optimists point to many real differences between the experience of Japan and the current state of the developed world, most prominently inflation and deflation dynamics and real interest rates. In Japan’s case, deflationary expectations became embedded in the economy early in the crisis period, preventing real short-term rates from remaining negative and thereby clogging monetary transmission further (see Figure 2). Although deflationary winds are a risk in the developed world, in particular in countries undergoing pronounced deleveraging (e.g., Spain), they have yet to become embedded in expectations. This is a very important advantage because deflationary conditions dramatically worsen debt dynamics by increasing the real debt burden. This prevents negative real rates from offsetting the weaker demand due to deleveraging and necessitates stronger counter-actions by central bankers even as their willingness to respond has been weakened. But why did the onset of deflationary expectations come so quickly in Japan and is this a risk for the rest of the developed world?
One of the chief explanations for the outbreak of deflation in Japan was the difference in the structure of the labor market. The working age population in Japan began to shrink in the mid-1990s, leading to lower expectations for future GDP growth and shifting the focus on future costs of age-related spending. In addition, Japan made every effort to limit employment losses, even as activity slowed. As a consequence, unemployment did not rise as fast as in developed countries during the onset of the current financial crisis. And while the merits of attempting to maintain full employment are admirable from a social perspective, something had to give. In Japan’s case, it was the level of nominal wages, which quickly began to fall (Figure 3). Combined with the tepid response from the BOJ, this is perhaps the best explanation for why deflation set in so quickly in Japan.
In contrast, the response of most of the developed world’s labor markets has been quite different. As economic slack rose, employment was aggressively cut while wages slowly increased. In addition, although working age population growth is slowing in many countries, it is not falling as quickly as it did in Japan. This has helped forestall the onset of deflationary expectations. That does not mean the developed world is without risk of wage deflation. A close inspection of wages in many countries reveals that wage growth is beginning to fall from levels that were already only slightly positive (Figure 4). In addition, inflation is already low and falling in many countries with structural inflationary pressures low due to high unemployment, large output gaps and low capacity utilization. In the absence of continued policy support, another economic shock or simply a longer period of malaise may be all that is necessary for wage levels to drop. If this were to happen, the difficult job of policymakers would get even more difficult and the economic environment could resemble Japan in more ways than just the converging level of interest rates.
While the developed world’s “Japanification” is by no means complete, as positive inflation expectations and negative real rates allow for a relatively orderly deleveraging in many developed nations, disappointingly low growth rates persist. And, policymakers are falling behind the curve and the risks of deflation are rising. Bold leadership, continued monetary accommodation and a comprehensive pro-growth attack on structural problems will be needed to avoid prolonging this period of economic stagnation even further. Otherwise, the same dark forces that Japan has been battling will continue to infect the developed world. In the meantime, invest for capital preservation and position for a low growth environment. Until bolder steps are taken, bank on low yields for as far as the eye can see.
Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material contains the opinions of the author but not necessarily those of PIMCO and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. ©2012, PIMCO.
Copyright © PIMCO
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Bad News, Rising Markets … Why Not? (Bradley)
Thursday, August 23rd, 2012
By Tom Bradley, Steadyhand Investment Funds
August 22, 2012
“Stock rally defies fears of a slumping economy.”
That was the title on an article in today’s Report on Business. To me, it’s further evidence of the macro mania that I wrote about in last weekend’s Globe article (Three Market Waves That Can Rock Your Portfolio). Investors are looking at the big picture (Spain, Washington, China) and considering little else in their decision-making process. So when they see the market going up when Europe is facing impending doom, they don’t get it.
The problem is that there’s a lot else that goes into market returns. I sort the myriad of factors into three categories – fundamentals, valuation and sentiment.
Certainly the economic outlook looks poor, but Spain etc are not the only fundamentals at play. It also matters what’s going on with the companies in the portfolio – new products, market share gains, free cash flow, acquisitions, emerging markets expansion and dividend increases.
As for valuation, if stocks get too cheap, they can go up in any news environment. People shook their heads all the way through 2009 as stocks skyrocketed. Was there lots of positive news at that time? Not that I remember. The news was probably less bad, which helped, but the first six months of that rally were driven by one thing – stocks got so cheap in the fall of 2008, they were trading at unsustainably low multiples. Now May, 2012 wasn’t March, 2009 in terms of valuation, but multiples were pretty reasonable going into this market run.
Beyond fundamentals and valuation, Art Phillips taught me to look at one other factor – market sentiment. He used the mood of the market as a contrarian indicator. In other words, if everyone is bullish, it’s time to get more cautious. And when investors are scared and bearish about future prospects, it’s a time to put some blue (buy) tickets on the trading desk.
Sentiment is far from a precise timing tool, but the investor fear that has been evident this year has provided some comfort that most of the distress selling is behind us.
Nobody knows where the markets will go during the remainder of the year, but be assured that the Euro crisis, U.S. election and China slowdown will only be part of the mix. There will be plenty of other factors at play as well.
Copyright © Steadyhand Investment Funds
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Scott Minerd: Investment Outlook (August 2012)
Thursday, August 23rd, 2012
by Scott Minerd, Chief Investment Strategist, Guggenheim Partners LLC
August 2012
The Faustian Bargain
In Goethe’s 1831 drama Faust, the devil persuades a bankrupt emperor to print and spend vast quantities of paper money as a short-term fix for his country’s fiscal problems. As a consequence, the empire ultimately unravels and descends into chaos. Today, governments that have relied upon quantitative easing (QE) instead of undertaking necessary structural reforms have arguably entered into the grandest Faustian bargain in financial history.
As a result of multi-trillion dollar quantitative easing programs, central banks around the world have compromised their ability to control the money supply, making them vulnerable to runaway inflation. When interest rates rise, the market value of central bank assets could fall below the face value of their liabilities, potentially rendering the banks incapable of protecting the stability and purchasing power of their currencies.
In the Beginning, There Was Gold
To better understand the potential consequences of quantitative easing, it is useful to review the historical evolution of central banking. Early central banks acted as clearing houses for gold. Individuals and trading companies placed their bullion on deposit at a central bank and received a claim that could be redeemed upon demand. The system’s strength was largely derived from its simplicity. This innovation had a profound effect on global trade. In the British Empire, for example, it meant a gold-backed pound note from London could be used for commercial purposes in Bombay.
Today, the gold standard no longer exists and for the first time the entire global monetary system is built on a foundation of fiat currencies. This monetary paradigm works because of an abiding faith that paper money will be accepted as a medium of exchange and remain a store of value. At the core of this system is the presumption that central banks, as the issuers of paper money, have enough assets that can be readily sold in the event that their currencies’ value begins to fall and the money supply needs to be reduced. When confidence in a central bank’s ability to reduce its money supply in a sufficient amount to maintain its currency’s purchasing power is drawn into question, there is a risk of a currency crisis or even hyperinflation.
While Europe has had central banking since the 17th century, the United States did not have a central bank until the beginning of the 20th century. As a direct result of the panic of 1907, the Progressive political movement created the Federal Reserve System in 1913. Under the newly created Federal Reserve, the definition of eligible central bank reserve assets was extended beyond gold to include short-term bills of trade such as bankers’ acceptances. By expanding the definition of reserve assets the Federal Reserve had the ability to temporarily increase the money supply in excess of the amount of its gold reserves, to provide elasticity to credit markets. This incremental flexibility in money creation was designed to reduce the risk of panics which had plagued the U.S. through most of the 19th century under the gold standard.
During the Great Depression of the 1930s the Federal Reserve sought greater flexibility and leverage. In 1934, the Federal Reserve noteholders’ right to convert paper to gold on demand was unexpectedly revoked and the U.S. government seized all of the citizenry’s gold holdings. Subsequently, the Treasury arbitrarily re-valued the price of gold from $20.70 to $35 per ounce. Nevertheless, the presumption remained that every U.S. dollar was “as good as gold” because the Federal Reserve continued to hold bullion as its primary reserve asset.
A Dangerous Game
In 1935, the Federal Reserve was also granted “temporary” emergency powers allowing it to begin using Treasury securities, or government debt, as a reserve asset. The problem with Treasury securities as a reserve asset is that, unlike gold, they are affected by changes in the level of interest rates. The impact of interest rates on the value of these securities is commonly measured in units of time and price sensitivity referred to as duration.
The higher the duration of an asset, the more sensitive its price is to changes in interest rates. For example, an upward move in interest rates will cause the value of a bond with a duration of 10 years to fall by 10 times the value of a bond with a duration of one year. As the Federal Reserve’s holdings of Treasury securities increased relative to its gold holdings, its portfolio took on greater duration risk. For the first time, the potential existed that rising interest rates could cause the market value of the Federal Reserve’s assets to fall below the face value of its liabilities (Federal Reserve notes). This was not a concern under the tautological gold-backed system because the value of a central bank’s outstanding notes was directly tied to the amount of gold in its vaults.
The way to minimize the risk of a meaningful decline in the value of balance sheet capital resulting from a rise in interest rates was for central banks to maintain a relatively low debt-to-equity ratio while keeping a relatively short interest rate duration on its assets. By maintaining this discipline the Federal Reserve was virtually assured of having enough liquid assets at market levels to repurchase dollars without incurring large losses on its portfolio.
A Quantitative Quagmire
From the 1930s until the early part of the current century, the Federal Reserve was able to engage in relatively effective monetary policy. In 2008, just prior to the first of two rounds of quantitative easing, the Federal Reserve had $41 billion in capital and roughly $872 billion in liabilities, resulting in a debt-to-equity ratio of roughly 21-to-1. The Federal Reserve’s asset portfolio included $480 billion in Treasury securities with an average duration of about 2.5 years. Therefore, a 100 basis point increase in interest rates would have caused the value of its portfolio to fall by 2.5%, or $12 billion. A loss of that magnitude would have been severe but not devastating.
Beginning in 2008, the monetary orthodoxy of the previous 95 years quickly disappeared. By 2011, the Federal Reserve’s portfolio consisted of more than $2.6 trillion in Treasury and agency securities, mortgage bonds, and other obligations. This resulted in an increase in the central bank’s debt-to-equity ratio to roughly 51-to-1. Under Operation Twist the Federal Reserve swapped its short-term Treasury securities holdings for longer-term ones in an attempt to induce borrowing and growth in the economy. This caused an extension of the duration of the Federal Reserve’s portfolio to more than eight years.
Now, a 100 basis-point increase in interest rates would cause the market value of the Federal Reserve’s assets to fall by about 8% or approximately $200 billion which would leave the Federal Reserve with a capital deficit of $150 billion, rendering it insolvent under Generally Accepted Accounting Principles (GAAP). Although this may not happen in the immediate future, if interest rates rose five percentage points the Federal Reserve could lose more than a trillion dollars from its fixed income portfolio.
Staring Into a Monetary Abyss
Unlikely as it seems in a world of zero-bound interest rates, someday, as the economy continues to expand, the demand for credit will increase to the point that interest rates will begin to rise. In time, significantly stronger growth will create economic bottlenecks, placing upward pressure on prices. At that time the Federal Reserve would be expected to restrain credit growth by selling securities, resulting in a further increase in interest rates. As interest rates rise, the market value of the Federal Reserve’s assets will fall. It could then become apparent that the face value of the Federal Reserve’s obligations had become greater than the market value of its assets. This could leave the Federal Reserve without enough liquid assets to sell to protect the purchasing power of the dollar, resulting in a downward spiral in its value.
If the dollar weakens relative to other currencies, its use as a reserve currency, and the safety of U.S. Treasuries, could falter. Given the United States’ dependence on foreign capital to finance its large fiscal deficits, a reduction in foreign flows could cause Treasury securities to lose a significant amount of value. The Federal Reserve could then find itself having to support the price of the country’s debt by becoming the buyer of last resort for Treasury securities. This scenario would closely resemble events unfolding in the periphery of Europe today. By printing increasing amounts of money to finance the national debt, the Federal Reserve would lose control of its ability to manage the money supply, leaving the government hostage to its printing press.
Investment Implications
To hedge against deterioration in the dollar’s purchasing power, investors have already begun migrating toward hard assets such as gold, commercial real estate, artwork, collectibles, and rare consumer products like fine wines. Such diversification may have significant barriers to entry, however, considering the risks built into financial assets, long-term investment portfolios should be at least partially composed of tangible assets. Other areas that are likely to perform well in the immediate term due to effects of quantitative easing are credit-related instruments including bank-loans and asset-backed securities. High yield debt should perform well because abundant liquidity means default rates will remain low. Additionally, the ongoing balance sheet expansion by the European Central Bank means European equity prices are likely to outperform U.S. equities over the coming years.
Long-duration, fixed-rate assets such as government bonds are likely to underperform. Given the primacy of Treasury securities in the Federal Reserve’s current yield curve management program, Treasury bonds will come under the greatest pressure once the Federal Reserve ends QE. This asset class’ yields have fallen by over 1100 basis points in the past three decades. While no one knows if we have reached the bottom for Treasury rates, staying in the market for the final 50 or 60 basis points appears imprudent. As Jim Grant has noted, investors’ perception of U.S. Treasuries – and most sovereign debt – is shifting from representing risk-free return to “return-free risk.” Now is a better time to sell Treasury securities than to buy them, and for the stout of heart this is an opportunity to set short positions in the asset class.
An Uncertain Future
Half a year before the centennial of central banking in the U.S., neither policymakers nor investors have much to celebrate. By abandoning monetary orthodoxy and pursuing large-scale asset purchases, global central banks have increased the risk of inflation and compromised their ability to stamp it out. Inordinately higher leverage ratios and the extension of central bank portfolio duration means governments now face the potential for central bank solvency crises. It is too early to predict exactly how this Faustian bargain will play out; but, with each additional paper note that rolls off the printing press or gets conjured up in the ether, the likelihood of a happy ending becomes increasingly evanescent.
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Disclaimer
Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy or, nor liability for, decisions based on such information.
This article is distributed for informational purposes only and should not be considered as investment advice, a recommendation of any particular security, strategy or investment product or as an offer of solicitation with respect to the purchase or sale of any investment. This article should not be considered research nor is the article intended to provide a sufficient basis on which to make an investment decision. The article contains opinions of the author but not necessarily those of Guggenheim Partners, LLC its subsidiaries or its affiliates. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and nonproprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed as to accuracy.
This article may be provided to certain investors by FINRA licensed broker-dealers affiliated with Guggenheim Partners. Such broker-dealers may have positions in financial instruments mentioned in the article, may have acquired such positions at prices no longer available, and may make recommendations different from or adverse to the interests of the recipient. The value of any financial instruments or markets mentioned in the article can fall as well as rise. Securities mentioned are for illustrative purposes only and are neither a recommendation nor an endorsement.
Individuals and institutions outside of the United States are subject to securities and tax regulations within their applicable jurisdictions and should consult with their advisors as appropriate. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC.
Copyright © 2012, Guggenheim Partners, LLC.
Marc Faber On Keynesian Folly, The ‘Missing’ Inflation, And Bubble-Blowing
Thursday, August 23rd, 2012
In as-comprehensive-an-explanation-as-we-have-seen of the monetary malfeasance and misunderstanding of the standard Keynesian central-banker, Gloom-Boom-Doom’s Marc Faber addressed an instutional audience in the Middle East earlier this year. Faber begins by explaining his (correct) view that ‘Keynesian’ intervention into the free-market or capitalistic society (with fiscal and monetary measures), in order to ‘smooth’ the business cycle, has in fact created a more violent business cycle – as they attempt to address long-term structural problems with short-term fixes (or bubbles). His lecture expands from his insight that in 1970 not a single investment bank was public – they were all private partnerships (implicitly playing with their own money as opposed to other-people’s – dramatically impacting the risk profile in the world) to the notion that central bank money printing (pushing dollars out the door) does have inflationary symptoms – but they do not necessarily have to show up in wages or CPI in the US (think Chinese wage inflation, or commodity price rises, or Aussie housing bubbles). Central bankers can determine the quantity of money but they cannot determine what we do with those USD bills. Must watch.
Faber covers it all – from macro-economics to energy supply-and-demand and from the consequences of incessant money printing and how to hedge for the long-term.
With volumes still muted, and a general malaise of hand-sitters, it seems now is a great time to spend 45 minutes clarifying your perspective on just what the experimental efforts of our global elite is doing to the world – and whether that is a good thing economically or not… we suspect the conclusion will not surprise you…
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Precious Metals and Gold Equities Continue Their Breakout Upwards, Equity Markets Fatigue
Thursday, August 23rd, 2012
by Don Vialoux, Timingthemarket.ca
Interesting Charts
The precious metals sector continues to show strong technical momentum. Platinum led the way yesterday.
Gold and its related ETFs are responded to a technical breakout above resistance.
Gold equities and related ETFs continue to outperform gold.
After a long downtrend, nickel prices finally are showing technical signs of bottoming.
Maryanne Bartels, Merrill Lynch’s technical analyst noted last night on CNBC that she expects U.S. equity markets to decline 8-10% by the end of September. The Dow Jones Industrial Average is showing early signs of peaking: about to break its 20 day moving average, short term momentum indicators are rolling over from overbought levels and strength relative to the S&P 500 Index is negative.
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Weekly SPDR Select Sector Review
Technically, most sector SPDRs either are showing early signs of rolling over from overbought levels or already have rolled over.
Technology
· Intermediate trend is up. However, stock recorded a key reversal of Tuesday.
· Units remain above their 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 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. Short term trend is up. Intermediate 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 has changed from negative to neutral.
Industrials
· Short and intermediate trend is up. Recorded a key reversal on Tuesday.
· Units trade 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 positive.
Energy
· Short and intermediate trend is up.
· Units trade above their 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 positive.
Financials
· Short and intermediate trend is up.
· Units trade above their 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 neutral.
Consumer Staples
· Short and intermediate trend is up. Recorded a key reversal on Tuesday
· Trades above their 50 and 200 day moving average, but fell below its 20 day moving average yesterday.
· Short term momentum indicators have rolled over from overbought levels.
· Strength relative to the S&P 500 Index remains negative.
Health Care
· Short and intermediate trend is up. Resistance is at $38.90.
· Trades above its 50 and 200 day moving averages, but fell below its 20 day moving average yesterday.
· Short term momentum indicators are overbought and have rolled over.
· Strength relative to the S&P 500 Index remains negative
Utilities
· Intermediate trend changed from up to down on a break below support at $37.09.
· Remained below its 20 day moving average and recently fell below its 50 day moving average.
· Short term momentum indicators are trending down.
· Strength relative to the S&P 500 Index remains negative.
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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:
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FP Trading Desk Headlines
FP Trading Desk headline reads, “September a rough month for investors”. Following is a link to the report:
http://business.financialpost.com/2012/08/22/september-a-rough-month-for-investors/
FP Trading Desk headline reads, “Gold should continue to rise: Desjardins”. Following is a link to the report:
http://business.financialpost.com/2012/08/22/gold-should-continue-to-rise-desjardins/
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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
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Horizons Seasonal Rotation ETF HAC August 22nd 2012
Tags: ETF, ETFs, Seasonal, Seasonal Trades, Seasonality, Vialoux
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Hints of Further Fed Easing Buoys Commodities and Bonds, but When Will it Come? Buckle Up.
Thursday, August 23rd, 2012
by Don Vialoux, EquityClock.com
Upcoming US Economic Events for Today:
- Weekly Jobless Claims will be released at 8:30am. The market expects Initial Claims to show 365K versus 366K previous. Continuing Claims are expected to reveal 3298K versus 3305K previous.
- Flash PMI Manufacturing Index for August will be released at 9:00am. The market expects 51.0 versus 51.8 previous.
- The FHFA Housing Price Index for June will be released at 10:00am. The market expects an increase of 0.6% versus 0.8% previous.
- New Home Sales for July will be released at 10:00am. The market expects 362K versus 350K previous.
Upcoming International Events for Today:
- German GDP for the Second Quarter will be released at 2:00am EST. The market expects a year-over-year increase of 1.0% versus an increase of 1.2% previous.
- German Flash PMI Manufacturing Index for August will be released at 3:30am EST. The market expects 43.6 versus 43.3 previous. Flash PMI Services is expected to show 50.2 versus 49.7 previous.
- Euro-Zone Flash PMI Manufacturing for August will be released at 4:00am EST. The market expects 44.3 versus 44.1 previous. Flash PMI Services is expected to show 47.9 versus 47.6 previous.
The Markets
Markets ended around the flat-line on Wednesday as early morning losses were erased following the release of the latest FOMC minutes, which indicated an increased probability for further monetary stimulus in the near future. The minutes indicated that “many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.” Economic data released since the meeting has already shown considerable improvement over prior releases, including that pertaining to employment and retail sales. Even the Citigroup Economic Surprise Index, which measures the miss/beat rate of actual economic results compared to expectations, has been improving, suggesting that expectations have become much more realistic and current market prices properly reflect the struggling state of economic momentum. And the debt concerns in Europe have seemingly stabilized, for now, with yields in Spain and Italy breaking recent up-trends that were setting the stage for a potential collapse in the Euro. With these new revelations, further QE from the Fed is all but a foregone conclusion, implying that further stimulus might not be received as soon as what investors are anticipating. The upcoming election in the US may deter any action until next year when issues with the fiscal cliff are resolved and certainty, whether positive or negative, returns to the market. Buckle up for a wild ride into the end of this year.
With the Fed’s suggestion of further monetary easing, commodities rallied, breaking firmly above the 200-day moving average, according to the CRB Commodity Index. And while commodities rallied, the US Dollar Index plunged, coming close to achieving the target suggested by the short-term head-and-shoulders top of 81. This bearish setup for the US Dollar was pointed out on this site at the beginning of the week, however, thoughts were that the move would play out over a matter of weeks rather than days. With the US Dollar nearing that downside target, the long-term rising trend-line could soon be tested, potentially offering a hindrance to this commodity rally. Despite the significant dollar decline over the past two sessions, equity markets have failed to move higher, hinting of equity market exhaustion at current overbought levels. The US Dollar Index remains seasonally negative through September before stabilizing into October and November.
Currencies and commodities weren’t the only asset classes to move following the Fed minutes. Bond yields fell in what was the largest move lower since May. The ten year yield bounced firmly off of its 200-day moving average, rolling over from overbought territory. Bond prices, according to the 7-10 Year Treasury Bond ETF (IEF), rebounded from oversold territory. The Bond ETF is maintaining a long-term positive trendline that dates back to the start of 2011. However, struggle may become apparent down the road as the positive trendline also marks the lower limit of a rising wedge pattern, which could imply significant negative potential upon breakdown below the pattern. A breakdown in the bond market would likely translate into equity market strength as funds flow from one asset to another.
Sentiment on Wednesday, as gauged by the put-call ratio, ended close to neutral at 0.97. The ratio has recently broken out of a falling wedge pattern, suggesting a change of trend from bullish to neutral/bearish may be becoming realized.
S&P 500 Index
Chart Courtesy of StockCharts.com
TSE Composite
Chart Courtesy of StockCharts.com
Horizons Seasonal Rotation ETF (TSX:HAC)
- Closing Market Value: $12.41 (up 0.32%)
- Closing NAV/Unit: $12.43 (up 0.32%)
Performance*
| 2012 Year-to-Date | Since Inception (Nov 19, 2009) | |
| HAC.TO | 2.07% | 24.3% |
* performance calculated on Closing NAV/Unit as provided by custodian
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