Cautious Bullish Stance Appropriate – Accumulate the Stronger Seasonal Sectors

Monday, August 20th, 2012

by Don Vialoux, TechTalk

Economic News This Week

FOMC minutes for the July 31st /August 1^st meeting are released at 2:00 PM EDT on Tuesday.

June Canadian Retail Sales to be released at 8:30 AM EDT on Wednesday are expected to increase 0.1% versus a gain of 0.3% in June.

July Existing Home Sales to be released at 10:00 AM EDT on Wednesday are expected to increase to 4.55 million units from 4.37 million units in June.

Weekly Initial Jobless Claims to be released at 8:30 AM EDT on Thursday are expected slip to 365,000 from 366,000 last week.

July New Home Sales to be released at 10:00 AM EDT on Thursday are expected to increase to 368,000 from 350,000 in June.

July Durable Goods Orders to be released at 8:30 AM EDT on Friday are expected to increase 2.5% versus a gain of 1.3% in June. Excluding transportation, Goods are expected to increase 0.5% versus a decline of 1.4% in June.

Earnings Reports This Week

Equity Trends

The S&P 500 Index added 12.29 points (0.87%) last week. Intermediate trend changed from down to neutral on a break above resistance at 1,415.23. Next resistance is at 1,422.38. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of peaking.

Percent of S&P 500 stocks trading above their 50 day moving average increased last week to 81.40% from 80.20%. Percent is intermediate overbought, but has yet to show signs of peaking. Percent has reached a level where an intermediate peak above the 80% level normally leads to at least a short term correction.

Percent of S&P 500 stocks trading above their 200 day moving average increased last week to 73.40% from 70.60%. Percent remains intermediate overbought, but has yet to show signs of peaking

The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the Up/Down ratio) increased last week to (289/128=) 2.26 from 1.92. The ratio is intermediate overbought, but has yet to show signs of peaking.

Bullish Percent Index for S&P 500 stocks increased last week to 70.00% from 67.80% and remained above its 15 day moving average. The Index remains intermediate overbought, but has yet to show signs of peaking.

The Up/Down ratio for TSX Composite stocks increased last week to (139/81=) 1.72 from 1.46. The ratio is intermediate overbought, but has yet to show signs of peaking.

Bullish Percent Index for TSX Composite stocks increased last week to 60.57% from 56.91% and remained above its 15 day moving average. The Index remains intermediate overbought, but has yet to show signs of peaking.

The TSX Composite Index gained another 199.00 points (1.67%) last week. Intermediate trend changed from down to up on a break above resistance at 11,936.16. The Index remains 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.

Percent of TSX stocks trading above their 50 day moving average increased last week to 69.92% from 66.26%. Percent is intermediate overbought, but has yet to show signs of peaking. Peaks near the 70% level normally lead to at least a short term correction by the Index.

Percent of TSX stocks trading above their 200 day moving average increased last week to 48.37% from 40.65%. Percent continues to trend higher.

The Dow Jones Industrial Average gained another 67.25 points (0.51%) last week. Intermediate trend is up. Next resistance is at 13,338.66. The Average remains 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.

Bullish Percent Index for Dow Jones Industrial Average stocks increased last week to 86.67% from 83.33% and remained above its 15 day moving average. The Index remains intermediate overbought, but has yet to show signs of peaking.

Bullish Percent Index for NASDAQ Composite stocks increased last week to 53.69% from 52.42% and remained above its 15 day moving average. The Index continues to trend higher.

The NASDAQ Composite Index gained another 57.74 points (1.81%) last week. Intermediate trend is up. Next resistance is at 3,134.17. The Index remains 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 at least neutral.

The Russell 2000 Index added 18.34 points (2.29%) last week. Intermediate trend is down, but turns positive on a break above resistance at 820.44. The Index remains 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 at least neutral.

The Dow Jones Transportation Average gained 130.83 points (2.58%) last week. Intermediate trend is down. Resistance is at 5,290.06. The Average moved back 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.

The Australia All Ordinaries Composite Index added 91.02 points (2.12%) last week. Intermediate trend is down. Support is at 4,033.40 and resistance is at 4,515.00. The Index remains 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.

The Nikkei Average gained another 271.06 points (3.05%) last week. Intermediate trend changed from down to up on a break above resistance at 9,136.02 on Friday. The Average remains above its 20 and 50 day moving averages and moved above its 200 day moving average last week. 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 at least neutral.

The Shanghai Composite Index slipped another 53.92 points (2.49%) last week. Intermediate trend is down. The Index remains below its 50 and 200 day moving averages and fell below its 20 day moving averages last week. Short term momentum indicators are trending down. Strength relative to the S&P 500 Index remains negative.

The London FT Index added 0.91 (0.02%), the Frankfurt DAX Index improved 75.89 points (1.09%) and the Paris CAC Index gained 31.67 points (0.92%) last week.

The Athens Index added 21.04 points (3.40%) last week. The Index remained above its 20 and 50 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 slightly negative.

Currencies

The U.S. Dollar Index added 0.05 (0.06%) last week. Intermediate trend is up. Support is at 81.16 and resistance is at 84.10. The Index remains just below its 20 and 50 day moving averages. Short term momentum indicators are trending down. Stochastics already are oversold.

The Euro added 0.42 (0.34%) last week. Intermediate trend is down. Support is at 120.42 and resistance is at 126.93. The Euro remains below its 50 and 200 averages, but remains above its 20 day moving average. Short term momentum indicators are trending higher. Stochastics already are overbought.

The Canadian Dollar added 0.18 U.S. cents (0.17%) last week. Intermediate trend is neutral. Support is at 95.76 and resistance is at 102.05. The Dollar remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of peaking.

The Japanese Yen fell 2.07 (1.62%) last week. Intermediate trend is down. Support is at 124.12 and resistance is at 128.77. The Yen fell below its 20, 50 and 200 day moving averages. Short term momentum indicators are trending down. Stochastics already are oversold.

Commodities

The CRB Index added 1.67 points (0.55%) last week. Intermediate trend is up. The Index remains above its 20, 50 and 200 day moving averages. Strength relative to the S&P 500 Index has turned neutral.

Gasoline dropped $0.11 (3.65%) when the futures contract rolled over. Gasoline remains above its 20, 50 and 200 day moving averages. Strength relative to the S&P 500 Index remains positive.

Crude oil gained another $2.39 per barrel (2.56%) last week. Intermediate trend is up. Crude remains above its 20 and 50 day moving averages and just below its 200 day moving average. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains positive.

Natural Gas fell another $0.06 per MBtu (2.15%) last week. Intermediate trend is up. Resistance has formed at $3.28. Gas remains below its 50 day moving average and fell below its 20 day moving average last week. Short term momentum indicators are trending down. Strength relative to the S&P 500 Index has changed from up to at least neutral.

The S&P Energy Index slipped 0.78 points (0.14%) last week. The Index is testing resistance at 544.25. The Index remains 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.

The Philadelphia Oil Services Index gained 0.97 (0.42%) last week. The move above a reverse head and shoulder pattern continues. The Index remains above its 20, 50 and 200 day moving averages. Strength relative to the S&P 500 Index remains positive.

Gold slipped $4.00 per ounce (0.25%) last week. Intermediate trend is down. Support is at $1,526.70 and resistance is at $1,642.40. Gold remains above its 20 and 50 day moving averages and below its 200 day moving averages. Short term momentum indicators are neutral. Strength relative to the S&P 500 Index remains neutral.

The AMEX Gold Bug Index added 4.88 points (1.13%) last week. Intermediate trend is down. Support is at 372.74 and resistance is at 464.76. The Index remains above its 20 and 50 day moving averages. Short term momentum indicators are trending higher. Strength relative to gold remains positive.

Silver added $0.01 per ounce (0.04%) last week. Intermediate trend is down. Support is at $26.10 and resistance is at $28.44. Silver remains below its 200 day moving average and above its 20 and 50 day moving averages. Short term momentum indicators are trending higher. Strength relative to gold remains neutral.

Platinum jumped $68.90 per ounce (4.92%) last week following labor strife at Lonvin, the world’s third largest platinum mine. Strength relative to gold turned from negative to positive. Platinum moved above its 20 and 50 day moving average.

Palladium jumped $23.75 (4.00%) last week. Nice breakout on Friday on a Leibovit Volume Reversal! Strength relative to the S&P 500 Index had turned from negative to positive.

Copper was unchanged last week. Intermediate trend is down. Support is at $3.24 and resistance is at $3.56. Copper moved back above its 20 and 50 day moving averages on Friday. Short term momentum indicators are neutral. Strength relative to the S&P 500 Index remains negative.

The TSX Global Metals and Mining Index eased 8.48 points (0.97%) last week. Intermediate trend is down. Support is at 781.13. The Index remains above its 20 and 50 day moving averages. Short term momentum indicators are trending higher. Stochastics already are overbought. Strength relative to the S&P 500 Index has been negative and showing early signs of change.

Lumber gained another 6.89 points (2.29%) last week. Lumber remains above its 20, 50 and 200 day moving averages. Strength relative to the S&P 500 Index remains positive.

The Grain ETN slipped $0.22 (0.35%) last week. Units remain above their 20, 50 and 200 day moving averages. Strength relative to the S&P 500 Index has turned negative.

The Agriculture ETF added $0.23 (0.46%) last week. Intermediate trend is up. Units remain above their 20, 50 and 200 day moving averages. Short term momentum indicators are overbought and showing early signs of peaking. Strength relative to the S&P 500 Index remains negative.

Interest Rates

The yield on 10 year Treasuries increase 16.7 basis points (1.01%) last week. Short term momentum indicators are overbought, but have yet to show signs of peaking.

Conversely, price of the long term Treasury ETF fell another $4.10 (3.26%) last week.

Other Issues

The VIX Index fell another 1.29 (8.75%) last week. It broke support at 13.66 to reach a five year low. Short term momentum indicators are oversold, but have yet to show signs of bottoming.

Earnings reports to be released this week are unlikely to have a significant impact on equity markets.

Economic reports this week are expected to be neutral/positive this week. Next major event is the Jackson Hole Economic conference where Benanke and Draghi are scheduled to speak.

Macro news heats up this week. China and the Eurozone release their PMI reports on Thursday. Mid-east tensions continue to ramp up.

Short and intermediate technical indicators for most equity markets and sectors are overbought, but have yet to show signs of peaking.

North American equity markets have a history of moving flat to lower in mid-August. September historically is the weakest month of the year. Seasonality turns positive after mid-October.

Cash on the sidelines on both sides of the border is substantial and growing. However, political uncertainties (including the Fiscal Cliff) preclude major commitments by investors and corporation. The selection of Paul Ryan as the Republican Vice President candidate has boosted Romney’s ratings on the polls, but the polls continue to show a tight race.

The Bottom Line

Equity markets on both sides of the border have had a good ride since their lows set on June 4^th. The Dow Jones Industrial Average is up 10.3%, the S&P 500 Index has gained 12.0% and the TSX Composite has increased 7.9%. Investing in equity markets has become less attractive. Accumulation of seasonal trades on weakness continues to make sense as long as the seasonal trades are outperforming the market. Sectors in this category include agriculture, energy, leisure & entertainment, software and gold. A cautious bullish stance appears appropriate.

Tom Rogers’ Weekly Elliott Wave Blog

Following is a link:

http://www.tomrogers.net/signpost.htm

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:

ETF News

The latest weekly update on ETFs in Canada to August 17^th is available at

http://www.etfinsight.ca/

Leibovit Volume Reversal Signal on Palladium

More information on Mark’s services is available at http://www.vrtrader.com/login/index.asp

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 17^th 2012

Copyright © TechTalk

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Technical Talk: Intermediate Trend is Down, Short Term Indicators Overbought, Not Yet Peaked (August 13, 2012)

Monday, August 13th, 2012

by Don Vialoux, timingthemarket.ca

Economic News This Week

July Producer Prices to be released on Tuesday at 8:30 AM EDT is expected to increase 0.2% versus a gain of 0.1% in June. Core PPI is expected to increase 0.2% versus a gain of 0.2% in June.

July Retail Sales to be released on Tuesday at 8:30 AM EDT are expected to increase 0.3% versus a drop of 0.5% in June. Ex autos, July Retail Sales are expected to improve 0.4% versus a decline of 0.4% in June.

The August Empire State Manufacturing Index to be released on Wednesday at 8:30 AM EDT is expected to slip to 7.2 from 7.4 in July.

July Consumer Prices to be released on Wednesday at 8:30 AM EDT are expected to increase 0.2% versus no change in June.

July Industrial Production to be released on Wednesday at 9:15 AM EDT is expected to increase 0.5% versus a gain of 0.4% in June. July Capacity Utilization is expected to increase to 79.2 from 78.9 in June.

July Housing Starts to be released on Thursday at 8:30 AM EDT are expected to slip to 752,000 from 760,000 in June.

August Philadelphia Fed to be released on Thursday at 10:00 AM EDT is expected to improve to -4.0 from -12.9 in July.

August Michigan Consumer Sentiment to be released on Friday at 9:55 AM EDT is expected to slip to 72.2 from 72.3 in July.

July Leading Indicators to be released on Friday at 10:00 AM EDT are expected to increase 0.2% versus a 0.3% decline in June.

Earnings Reports This Week

Equity Trends

The S&P 500 Index added 14.88 points (1.07%) last week. Intermediate trend is down. Support is at 1,266.74 and resistance is at 1,415.22. The Index remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of peaking.

Percent of S&P 500 stocks trading above their 50 day moving average increased last week to 80.20% from 74.80%. Percent is intermediate overbought, but has yet to show signs of peaking. Percent has reached a level where an intermediate peak above the 80% level normally leads to at least a short term correction.

Percent of S&P 500 stocks trading above their 200 day moving average increased last week to 70.60% from 63.60%. Percent is intermediate overbought, but has yet to show signs of peaking.

The ratio of S&P 500 stocks in an uptrend to a downtrend (i.e. the Up/Down ratio) increased last week to (273/142=) 1.92 from 1.40. The ratio is intermediate overbought, but has yet to show signs of peaking.

Bullish Percent Index for S&P 500 stocks increased last week to 67.80% from 63.00% and remained above its 15 day moving average. The Index remains intermediate overbought, but has yet to show signs of peaking.

The Up/Down ratio for TSX Composite stocks increased last week to (131/90=) 1.46 from 1.02. The ratio is intermediate overbought but has yet to show signs of peaking.

Bullish Percent Index for TSX Composite stocks increased last week to 55.91% from 51.63% and remained above its 15 day moving average. The Index is intermediate overbought, but has yet to shows signs of peaking.

The TSX Composite Index gained 228.30 points (1.96%) last week. Intermediate trend is down. Support is at 11,209.55 and resistance is at 11,936.16. The Index remains 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.

Percent of TSX stocks trading above their 50 day moving average increased last week to 66.26% from 52.44%. Percent is intermediate overbought, but has yet to show signs of peaking. Peaks near the 70% level normally lead to at least a short term correction by the Index.

Percent of TSX stocks trading above their 200 day moving average increased last week to 40.65% from 35.37%.

The Dow Jones Industrial Average added another 111.78 points (0.85%) last week. Intermediate trend is up. Resistance is at 13,338.66. The Average remains 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.

Bullish Percent Index for Dow Jones Industrial Average stocks was unchanged last week at 83.33% and remained above its 15 day moving average. The Index remains intermediate overbought.

Bullish Percent Index for NASDAQ Composite stocks increased last week to 52.42% from 49.75% and moved above its 15 day moving average.

The NASDAQ Composite Index gained 52.95 points (1.78%) last week. Intermediate trend changed from down to up on a break above resistance at 2,987.94. The Index remains 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.

The Russell 2000 Index added 13.07 points (1.66%) last week. Intermediate trend is down. Support is at 729.75 and resistance is at 820.44. The Index remains above its 50 and 200 day moving averages and moved last week above its 20 day moving average. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains negative.

The Dow Jones Transportation Average fell 22.76 points (0.45%) last week. ‘Tis the season! Intermediate trend is down. The Average fell below its 20, 50 and 200 day moving averages last week. Short term momentum indicators are neutral. Strength relative to the S&P 500 Index remains negative.

The Australia All Ordinaries Composite Index added 59.80 points (1.41%) last week. Intermediate trend is down. Support is at 4,033.40 and resistance is at 4,515.00. The Index remains above its 20 and 50 day moving averages and moved above its 200 day moving average last week. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains neutral.

The Nikkei Average jumped 336.33 points (3.93%) last week. Intermediate trend is down. Support is at 8,238.96 and resistance is at 9,136.02. The Average moved above its 20 and 50 day moving averages last week, but remains below its 200 day moving average. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index is negative, but showing early signs of change.

The Shanghai Composite Index added 36.01 points (1.69%) last week. Intermediate trend is down. Support is forming at 2.100.25 and resistance is at 2,478.38. The Index remains below its 50 and 200 day moving averages, but moved above its 20 day moving average last week. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index is negative, but showing early signs of change.

The London FT Index gained 64.23 points (1.11%), the Frankfurt DAX Index added 99.33 points (1.45%) and the Paris CAC Index improved 82.52 points (2.45%) last week.

The Athens Index gained 20.11 points (3.36%) last week. Intermediate trend is down. Support is at 471.35 and resistance is at 662.49. The Index remains below its 200 day moving average and above its 50 day moving average. Last week it moved above its 20 day moving average. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index remains slightly negative.

Currencies

The U.S. Dollar Index added 0.17 (0.21%) last week. Intermediate trend is up. Support is at 81.16 and resistance is at 84.10. The Dollar remains above its 200 day moving average and below its 20 and 50 day moving averages. Short term momentum indicators are trending down.

The Euro fell 0.87 (0.70%) last week. Intermediate trend is down. Support is at 120.42. The Euro remains below its 50 and 200 day moving averages and above is 20 day moving average. Short term momentum indicators are trending higher.

The Canadian Dollar added 1.03 cents U.S. (1.03%) last week. Intermediate trend is neutral. Support is at 95.76 and resistance is at 102.05. The Canuck Buck remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are overbought, but have yet to show signs of peaking.

The Japanese Yen added 0.45 (0.35%) last week. Intermediate trend is down. Support is at 124.12 and resistance is at 128.77. The Yen remains above its 20, 50 and 200 day moving averages. Short term momentum indicators are trending down.

Commodities

The CRB Index added 1.12 points (0.37%) last week. Intermediate trend turned positive on a break above resistance at 305.04. The Index remains above its 20 and 50 day moving averages and briefly tested its 200 day moving average. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index is neutral/positive.

Gasoline gained another $0.08 per gallon (2.73%) last week following news of a fire at a California refinery. Gasoline remains above its 20, 50 and 200 day moving averages. Strength relative to the S&P 500 Index remains positive.

Crude oil added $1.97 per barrel (2.16%) last week on growing Middle East tensions and declining inventories. Intermediate trend changed from neutral to up on a break above resistance at $93.25. Crude remains above its 20 and 50 day moving averages and below its 200 day moving average. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains positive.

Natural Gas fell $0.09 per MBtu (3.12%) last week. Intermediate trend is up. Resistance may be forming at $3.28. Gas remains above its 50 and 200 day moving average and below its 20 day moving average. Short term momentum indicators are trending down. Strength relative to the S&P 500 Index remains positive, but showing early signs of a change.

The S&P Energy Index added 12.38 points (2.34%) last week. The Index is testing resistance at 544.25. The Index remains 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. ‘Tis the season!

The Philadelphia Oil Services Index gained 7.13 points (3.22%) last week. The move above a reverse head and shoulders pattern continues. The Index remains above its 20 and 50 day moving averages and moved above its 200 day moving average last week. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains positive. ‘Tis the season!

Gold added $15.30 per ounce (0.95%) last week. Intermediate trend is down. Support is at $1,526.70 and resistance is at $1,642.40. Gold remains below its 200 day moving average and above its 20 and 50 day moving averages. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index remains neutral/positive. ‘Tis the season!

The AMEX Gold Bug Index gained 22.62 points (5.55%) last week. Intermediate trend is down. Support is at 372.74 and resistance is at 464.76. The Index remains below its 200 day moving average and above its 20 day moving average and moved above its 50 day moving average. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to gold has turned positive. ‘Tis the season!

Silver gained $0.31 per ounce (1.12%) last week. Intermediate trend is down. Support is at $26.10 and resistance is at $28.44. Silver remains below its 200 day moving averages and above its 20 and 50 day moving averages. Short term momentum indicators are trending higher. Strength relative to gold remains neutral.

Platinum fell $2.90 per ounce (0.21%) last week. Intermediate trend is down. Platinum remains below its 20, 50 and 200 day moving averages. Short term momentum indicators are trending higher. Strength relative to gold remains negative.

Copper added $0.04 cents per lb. (1.19%) last week. Intermediate trend is down. Support is at $3.24 and resistance is at $3.56. Copper remains below its 20, 50 and 200 day moving averages. Short term momentum indicators are bottoming and trending higher. Strength relative to the S&P 500 Index remains negative.

The TSX Global Metals and Mining Index jumped 47.21 points (5.71%) last week. Intermediate trend is down. Support has formed at 781.13. The Index remains below its 200 day moving average and above its 20 day moving average and moved above its 50 day moving average last week. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index has been negative, but is showing signs of change.

Lumber gained $15.29 (5.35%) last week. On Friday, it broke to a 17 month high. Lumber remains above its 20, 50 and 200 day moving averages. Strength relative to the S&P 500 Index remains positive.

The Grains ETN slipped $0.06 (0.10%) last week. Intermediate trend is up. Resistance has formed at $64.83. The ETN remains above its 20, 50 and 200 day moving averages.

The Agriculture ETF added $0.52 (1.04%) last week. Intermediate uptrend resumed on a break above resistance at $50.54. The ETF remains above its 20, 50 and 200 day moving average. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains neutral/slightly negative.

Interest Rates

The yield on 10 year Treasuries increase 0.072 (4.57%) last week. Intermediate trend changed from down to neutral on a break above resistance at 1.686%. Short term momentum indicators are overbought, but have yet to show signs of peaking.

Conversely, price of the long term Treasury ETF fell another $1.72 (1.35%) last week. It briefly broke support at $123.56.

Other Issues

The VIX Index fell another 0.90 (5.75%) last week. It broke below support at 15.45 last week. The Index remains below its 20, 50 and 200 day moving averages. Short term momentum indicators are oversold, but have yet to show signs of bottoming.

Second quarter earnings reports are winding down. The focus this week is on reports from the retail merchandisers.

Economic reports this week are expected to be neutral/positive for equity markets. The next major economic event to watch is the Jackson Hole Economic Conference hosted by the Fed from August 30^th to September 1^st. Bernanke previously announced Quantitative Easing at the Jackson Hole Conference. Will he announce QE III at this conference?

Macro news is relatively quiet this week. European economic data to be released on Tuesday could attract attention.

Short and intermediate technical indicators currently are overbought, but have yet to show signs of peaking.

North American equity markets have a history of moving flat to lower in mid-August

North American equity markets have a history of moving higher from July to August during a U.S. election year. However, equity markets also normally show at least a shallow correction in September and into early October.

Cash on the sidelines on both sides of the border is substantial and growing. However, political uncertainties (including the Fiscal Cliff) preclude major commitments by investors and corporations.

The Bottom Line

Equity markets on both sides of the border have had a good ride since their lows set on June 4^th. The Dow Jones Industrial Average is up 9.7% and the S&P 500 Index has gained 11.0%. Investing in equity markets has become less attractive. Accumulation of seasonal trades on weakness continues to make sense as long as the seasonal trades are outperforming the market. Sectors in this category include agriculture, energy, leisure & entertainment, software and gold. A cautious bullish stance appears appropriate.

Tom Rogers’ Weekly Elliott Wave Blog

Following is a link:

http://www.tomrogers.net/signpost.htm

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:

Platinum Futures (PL) Seasonal Chart

ETF News

The latest weekly update on ETFs in Canada to August 10^th is available at

http://www.etfinsight.ca/

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 10^th 2012

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Tags: Amp, Canadian, Canadian Market, Capacity Utilization, Core Ppi, Decline, Don Vialoux, Earnings, Economic News, Empire State, ETF, ETFs, Intermediate Trend, Leading Indicators, Michigan Consumer Sentiment, Momentum Indicators, Moving Averages, oil, Philadelphia Fed, Producer Prices, Resistance, Retail Sales, Signs, Stocks, Term Indicators
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The Economy and Bond Market Radar (August 13, 2012)

Saturday, August 11th, 2012

The Economy and Bond Market Radar (August 13, 2012)

Treasury yields rose for the third week in a row. It is interesting that as we get closer to additional monetary easing in the U.S., Europe and China, the Treasury bond market has already anticipated that and is selling into the news. This would follow a similar pattern as the two quantitative easing programs in 2009 and 2010, as bond yields moved higher immediately after the announcements.

Strengths

• Initial jobless claims fell to 361,000 this week, indicating a somewhat better job dynamic than a couple of months ago.
• The Labor Department reported that job openings in June were the highest since July 2008.
• The U.S. trade deficit narrowed to $42.9 billion in June, lower by more than $5 billion. Exports grew while imports contracted.

Weaknesses

• New foreclosures rose 6 percent in July, the third monthly increase in a row.

• European economic data remains weak as Italian GDP has contracted for four quarters in a row.

• Economic news out of China was weaker than expected for July as exports grew a meager 1 percent and industrial production was weaker than expected.

Opportunity

• The ECB appears ready to implement some form of quantitative easing in the very near future.
• With weak economic data out of China this week, odds of additional easing measures continue to move higher.
• Interest rates are likely to remain very low for the foreseeable future.

Threat

• Europe remains a wildcard with the markets shifting focus on a weekly basis.
• China also remains somewhat of a wildcard as the economy has slowed and officials appear in no hurry to take decisive action.

Tags: Bond Yields, Decisive Action, ECB, Economic Data, Economic News, Foreclosures, GDP, Hurry, Initial Jobless Claims, Italian Gdp, Job Openings, Labor Department, Market Radar, Quantitative Easing, Quarters, Shifting Focus, Trade Deficit, Treasury Bond Market, Treasury Yields, Wildcard
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Overcoming Objections to Equities (Doll)

Tuesday, March 27th, 2012

March 27, 2012

Rising Bond Yields: A Concern?

Stocks sank last week, but the focus for investors has been on developments in the bond market. Within equities, the Dow Jones Industrial Average lost 1.2% to 13,080 and the S&P 500 Index declined 0.5% to 1,397, while the Nasdaq Composite managed to post a 0.4% gain to 3,067.

The yield on the benchmark 10-year Treasury had been trading at around the 2.0% level for a period of several months before moving sharply higher in recent weeks. The yield rose to above 2.35% last week before settling at around 2.25% by the end of the week (bond prices move inversely to yields). The selloff in bonds has caused some to wonder whether we are at the forefront of a bond bear market. Additionally, it raises questions about what yield movements mean for the stock market.

First, as we indicated last week, we would not be surprised to see additional upward moves in yields, at least in the short term. Economic news has been relatively good over the past few months and as long as that trend continues, yields should retain an upward bias. This is not to say, however, that a bond bear market is upon us. Typically, bond bear markets happen during periods of interest rate policy tightening. While the Federal Reserve has indicated that economic trends have been improving, there is almost no evidence to suggest that the United States is entering into an inflationary environment, and the central bank has maintained its forward guidance that short-term interest rates are set to remain low for some time.

Additionally, we do not believe that higher bond yields by themselves will act as an impediment to the stock market. While it is true that any sharp and sudden moves in yields have the potential to unnerve investors, such effects are likely to be temporary. Over the longer term, we do not believe that modestly higher yields should be a source of concern for stocks, especially since we believe that the rise in yields is coming as a result of improved economic conditions.

Economic Trends Remain Market Friendly

So what are some of the improved economic conditions that have been pushing yields higher? We have devoted quite a bit of space in recent weeks to discussing the improvements in the labor market, and while jobs growth is certainly among the most important economic indicators, there are other factors that have been showing signs of improvement as well.

Debt deleveraging remains a source of concern, but we have been seeing progress on that front. Individuals have been paying down their debt over the past few years and household debt levels have been falling noticeably. Similarly, the housing market has long been a significant source of weakness, but that sector of the economy does appear to be in the midst of a long-term bottoming process and may be entering into some sort of recovery.

An additional issue on the minds of many investors is the US fiscal situation. The end of this year marks several important deadlines, including the scheduled expiration of the Bush-era tax cuts and temporary incentive measures as well as the beginning of scheduled spending cuts. Forecasting exactly what will happen on the fiscal front is complicated due to this November’s elections, but our guess is that there is probably a 50% chance (maybe marginally higher) that some sort of tax compromise is enacted either later this year or early next year. The likelihood of a bipartisan compromise on entitlement reform would be less likely.

Looking Past Downside Market Risks

There are a number of angles that could be taken if one wanted to emphasize potential downside market risks. In addition to concerns over rising yields, we could point to economic and debt problems in Europe, concerns over growth in China, relatively modest levels of global economic growth, weakening trends in corporate profits and escalating geopolitical tension in the Middle East.

While all of these concerns are real, we would argue that the current strong run for equities has mostly been a result of macro risks receding. We argued at the beginning of the year that as long as fundamentals were at least decent, that should be good enough for risk assets. We never believed that solid market performance would require a significant turnaround in global economic growth conditions and a continued environment of modestly positive fundamentals should remain a market-friendly one.

In our view, stocks still remain attractively valued and the market is still discounting a more negative environment than what we expect. Corporations remain flush with cash and are poised to engage in a number of shareholder-friendly activities. From an individual investor perspective, a large number of people are still underweight stocks and we have yet to see significant moves into equity mutual funds. As such, we believe we have not yet seen the end of the market’s upward moves.

About Bob Doll

Bob Doll is Chief Equity Strategist for Fundamental Equities at BlackRock^® a premier provider of global investment management, risk management and advisory services. Mr. Doll is also Lead Portfolio Manager of BlackRock’s Large Cap Series Funds. Prior to joining the firm, Mr. Doll was President and Chief Investment Officer at Merrill Lynch Investment Managers.

You should consider the investment objectives, risks, charges and expenses of any fund carefully before investing. The funds’ prospectuses and, if available, the summary prospectuses contain this and other information about the funds, and are available, along with information on other BlackRock funds by calling 800-882-0052. The prospectus and, if available, the summary prospectuses should be read carefully before investing.

The information on this web site is intended for U.S. residents only. The information provided does not constitute a solicitation of an offer to buy, or an offer to sell securities in any jurisdiction to any person to whom it is not lawful to make such an offer.

Sources: BlackRock, Bank Credit Analyst. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of March 26, 2012, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks. International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

BlackRock is a registered trademark of BlackRock, Inc. All other trademarks are the property of their respective owners.

Prepared by BlackRock Investments, LLC, member FINRA.
NOT FDIC INSURED / MAY LOSE VALUE / NO BANK GUARANTEE

Tags: 10 Year Treasury, Bear Market, Bear Markets, Bond Market, Bond Prices, Bond Yields, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Average, Economic News, Economic Trends, Impediment, Inflationary Environment, Interest Rate Policy, Nasdaq Composite, Overcoming Objections, Selloff, Sudden Moves, Term Interest, Upward Bias
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Guest Post: Americans Will Need “Black Markets” To Survive

Sunday, March 4th, 2012

Submitted by Brandon Smith from Alt-Market

Americans Will Need “Black Markets” To Survive

As Americans, we live in two worlds; the world of mainstream fantasy, and the world of day-to-day reality right outside our front doors.  One disappears the moment we shut off our television.  The other, does not…

When dealing with the economy, it is the foundation blocks that remain when the proverbial house of cards flutters away in the wind, and these basic roots are what we should be most concerned about.  While much of what we see in terms of economic news is awash in a sticky gray cloud of disinformation and uneducated opinion, there are still certain constants that we can always rely on to give us a sense of our general financial environment.  Two of these constants are supply and demand.  Central banks like the private Federal Reserve may have the ability to flood markets with fiat liquidity to skew indexes and stocks, and our government certainly has the ability to interpret employment numbers in such a way as to paint the rosiest picture possible, but ultimately, these entities cannot artificially manipulate the public into a state of demand when they are, for all intents and purposes, dead broke.

In contrast, the establishment does have the ability to make specific demands or necessities illegal to possess, and can even attempt to restrict their supply.  Though, in most cases this leads not to the control they seek, but a sudden and sharp loss of regulation through the growth of covert trade.  The people need what the people need, and no government, no matter how titanic, can stop them from getting these commodities when demand is strong enough.

This process of removing necessary or desirable items from a trade environment leads inevitably to counter-prohibition often in the form of strict cash transactions, barter markets, or “black markets” as they are normally derided by those in power.  The problem for economic totalitarians is that the harder they squeeze the masses, the more intricate the rebellion becomes, especially when all they want is to participate in free markets the way our forefathers intended.

The so called “drug war” is proof positive of the impossibility of locking down a product, especially one that has no moral bearing on the people who are involved in its use.  Only when a considerable majority of a populace can be convinced of the inherent immoral nature of an illicit item can its trade finally be squelched.  During any attempt to outlaw a form of commerce, a steady stream of informants convinced of their service to the “greater good” is required for success.  Dishonorable governments, therefore, do not usually engage in direct confrontation with black markets.  Instead, they seek to encourage the public to view trade outside mainstream legal standards as “taboo”.  They must condition us to react with guilt or misplaced righteousness in the face of black market activity, and associate its conduct as dangerous and destructive to the community, turning citizens into an appendage of the bureaucratic eye.

But, what happens when black markets, due to calamity, become a pillar of survival for a society?  What happens when the mainstream economy no longer meets the available demand?  What happens when this condition has been deliberately engineered by the power structure to hasten cultural desperation and dependence?

In this event, black markets not only sustain a nation through times of weakness, but they also become a form of revolution; a method for fighting back against the centralization of oppressive oligarchies and diminishing their ability to bottleneck important resources.  Black markets are a means of fighting back, and are as important as any weapon in the battle for liberty.  Here are just a few reasons why such organizational actions may be required in the near future…

The Mainstream Economy Is Slowly Killing Us

There are, unfortunately, some Americans out there who have not caught on yet to the grave circumstances in which we live.  Obviously, the stock market seems to have nearly recovered from its epic collapse in 2008 and 2009, and employment, according to the Labor Department, is on the mend.  The numbers say it all, right?  Wrong!  The numbers say very little, especially when they are a product of “creative mathematics”.

Despite the extreme spike in the Dow Jones since 2010, and all the talk of recovery, what the mainstream rarely mentions are the details surrounding this miraculous return from the dead for stocks.

One of the most important factors to consider when gauging the health of the markets is “volume”; the amount of shares being traded and the amount of investors active on any given business day.  Since the very beginning of the Dow’s meteoric rise, the markets have been stricken with undeniably low volume interspersed with all too brief moments of activity.  In fact, this past January recorded the lowest NYSE volume since 1999:

http://www.bloomberg.com/news/2012-01-23/stock-trading-is-lowest-in-u-s-since-2008.html

Market volume has tumbled over 20% since last year, and is down over 50% from 2008 when the debt implosion began:

http://blogs.wsj.com/marketbeat/2012/02/24/trading-volume-anemic-this-year/

So then, if trade is sinking, why has the Dow jumped to nearly 13,000?  Low volume is the key.  In a low volume market, less individual investors are present to counteract the buying and selling of larger players, like international banks.  When this happens, the big boys are able to trigger market spikes, or market drops, literally at will.  Add to this the high probability that much of the stimulus that the Federal Reserve has regurgitated into the ether probably ended up in the coffers of corporate banks which then used the funny money to snap up equities, and presto!  Instant market rally!  But, a rally that is illusory and unstable.

Improving employment numbers are yet another financial hologram.  As most of us in the Liberty Movement are well aware, the Labor Department does not calculate true unemployment in the U.S.  Instead, it merely calculates those people who currently receive unemployment benefits.  Once a person hits the extension limit (99 weeks in many states) on his benefits, he is removed from the rolls, and is no longer counted in the “official” unemployment percentage.  While Barack Obama and MSM pundits are quick to point out the drop in jobless to 8.3%, what they conveniently fail to mention is that MILLIONS of Americans have been unemployed for so long that they have been removed from the statistics entirely, and this condition is what has caused the primary fall in jobless percentages, not burgeoning business growth.

Roughly 11 million Americans who are jobless have nonetheless been excluded from the statistical government tally because of a loss of benefits:

http://dailycaller.com/2012/02/17/white-house-economic-report-hides-sharp-drop-in-number-of-working-americans/

According to the Congressional Budget Office, over 40% of the currently unemployed have been so for over 6 months.  It also points out that America is suffering the worst case of long term unemployment since the Great Depression:

http://www.cbo.gov/sites/default/files/cbofiles/attachments/02-16-Unemployment.pdf

More than 10.5 million people in the U.S. also receive disability payments, which automatically removes them from the unemployment count, making it seem as though jobs are being created, rather than lost:

http://www.foxnews.com/politics/2012/02/19/report-millions-jobless-file-for-disability-when-unemployment-benefits-run-out/

Around 8.2 million Americans only work part time, meaning they work less hours than are generally considered to be necessary for self-support.  These people are still counted as “employed” even if they work a few hours a week.

True unemployment, according to John Williams of Shadowstats, is hovering near 23%:

http://www.shadowstats.com/alternate_data/unemployment-charts

Combine these circumstances with the ever weakening dollar, price inflation in foods and other commodities, and rocketing energy costs, and you have an economy that is strangling the life out of the middle-class and the poor in this country.  It is only a matter of time before the populace begins searching for alternative means of subsistence, even if that entails “illegal” activities.

Government Cracking Down On Freedom Of Trade

I was recently walking through the parking lot of a grocery store and ran into a group of women huddled intently around the back of a mini-van.  One of the women was reaching into a cooler and handing out glass containers filled with milk.  I approached to ask if she was selling raw milk, and if so, how much was she charging.  Of course, they turned startled and wide eyed as if I had just stumbled upon their secret opium ring.  Somehow it had slipped my mind how ferocious the FDA has become when tracking down raw milk producers.  The fact that these women were absolutely terrified of being caught with something as innocuous as MILK was disturbing to me.  How could we as a society allow this insanity on the part of our government to continue?

That moment reminded me of the utter irrelevance of petty law, as well as the determination of human beings to defy such law.

The Orwellian hammer has been thrust in the face of those who trade in raw milk, organic produce, and herbal supplements, while small businesses are annihilated by government dues and red tape.  In the meantime, law enforcement officials have been sent strapped to shut down children’s lemonade stands (no, seriously):

http://www.cbsnews.com/2100-500164_162-20079838.html

Government legislation which would give the FDA jurisdiction over personal gardens has been fielded.  Retail gold and silver purchases of over $600 are now tracked and taxed.  The IRS even believes it has the right to tax barter exchanges, even though they do not explain how bartered goods could be legally qualified as “income”, or how they can conceive of ever being able to trace such private trade:

http://www.irs.gov/newsroom/article/0,,id=205581,00.html

Want to choose what kind of currency you would like to use to protect your buying power?  Not if  the Department Of Justice’s Anne Tompkins has anything to say about it. After the railroading of Liberty Dollar founder Bernard von NotHaus, she stated:

“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism…”

“While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country,” she added. “We are determined to meet these threats through infiltration, disruption, and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.”

http://www.fbi.gov/charlotte/press-releases/2011/defendant-convicted-of-minting-his-own-currency

As our economic situation grows increasingly precarious in this country, more and more people will turn towards localized non-corporate, non-mainstream business methods and products.  And, the government will no doubt attempt to greatly restrict or tax these alternatives.  This mentality is driven in part by their insatiable appetite for money, but mostly, it’s about domination.  They do what they do because they fear decentralized markets, and the ability of the citizenry to conceive of choices outside the system.  Slaves are not supposed to choose the economy they will participate in…

A “black market” is only a trade dynamic that the government disapproves of, and the government disapproves of most things these days.  Frankly, its time to stop worrying about what Washington D.C. consents to.  They have unfailingly demonstrated through rhetoric and action that they are not interested in the fiscal or social health of this nation, and so, we must take matters into our own hands.

Black Market Advantages

If the events in EU nations such as Greece, Spain, and Italy are any indication, the U.S., with its massive debt to GDP ratio (real debt includes entitlement programs), is looking at one of two possible scenarios:  default, austerity measures, and high taxes, or, hyperinflation, and then default, austerity measures, and high taxes.  In the past we have mentioned barter networking and alternative market programs springing up in countries like Greece and Spain allowing the people to cope with the faltering economy.  Much of this trade is done away from the watchful eyes of government, simply because they cannot afford the gnashing buffalo-sized bites that bureaucrats would take from their savings in the process.  When a government goes rogue, and causes the people harm, the people are in no way obligated to continue supporting that government.

Black markets give the citizenry a means to protest the taxation of a government that no longer represents them.  In a country stricken with austerity, these networks allow the public to thrive without having to pay for the mistakes or misdeeds of political officials and corporate swindlers.  In a hyperinflationary environment, black markets (or barter markets that have been deemed unlawful), can be used to supplant the imploding fiat currency altogether, and energize community markets that would otherwise be unable to function.  Ultimately, black markets feed and clothe the grassroots movement towards economic responsibility, and every man and woman with any sense of independence should rally around this resource with the intention to fight should it ever be threatened.

“Legality” is arbitrary in the face of inherent conscience, or what some call “natural law”.  Without arbitrary legality, and unjust and unwarranted regulation, many federal alphabet agencies would not exist, including the FDA, the IRS, the EPA, the BLM, etc.  These institutions do not matter.  What they say has no meaning.  What matters is what is honorable, what is factual, and what is right.  Our loyalty, as Americans, is to our principles and our heritage.  Beyond that, we don’t owe anyone anything.  A black market in one place and time is a legitimate market in another.  For now, private localized trade is able to flow with only minor interference, but there will come a day when even the most practical and harmless personal transactions will be visited with administrative reproach and vitriol.  Alternative market champions will be accused of “extremism”, and undermining the mainstream economy.  We will be vilified as separatists, isolationists, terrorists, and traitors.  I believe it will be far more surreal than what we can possibly imagine now.

They are welcome to call us whatever they like.  Honestly……who cares?  Let the paper pushers do their angry little dance.  The goal is freedom; in life, in politics, and in trade.    If we do not change how this country does business ourselves, the results will be far more frightening than any government agent at our doorstep, and the costs will be absolute…

Tags: Black Markets, Brandon Smith, Cash Transactions, Central Banks, Constants, Disinformation, Economic News, Employment Numbers, Federal Reserve, Financial Environment, Foundation Blocks, Front Doors, Gray Cloud, House Of Cards, Intents And Purposes, liquidity, Necessities, Prohibition, Trade Environment, Two Worlds
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Dwelling in Uncertainty (Hussman)

Tuesday, January 17th, 2012

As of last week, the combination of evidence we observe continues to be associated with strong recession risk and the likelihood of a “whipsaw trap” in the stock market. We’ll respond to new data as it changes, but I expect that the primary window of interest here is about 6-8 weeks. In the event that economic data can produce fairly upbeat readings over that horizon, and the S&P 500 can remain at or about present levels, our estimate of oncoming recession risk would back off fairly quickly. Presently, that outcome would be outside of the norm based on the leading economic measures we track, as well as the overvalued, overbought, overbullish condition of the stock market.

I want to emphasize again that I am neither a cheerleader for recession, nor a table-pounder for recession. It’s just that given the data that we presently observe, an oncoming recession remains the most probable outcome. When unseen states of the world have to be inferred from imperfect and noisy observable data, there are a few choices when the evidence isn’t 100%. You can either choose a side and pound the table, or you can become comfortable dwelling in uncertainty, and take a position in proportion to the evidence, and the extent to which each possible outcome would affect you.

With most analysts dismissing the likelihood of recession, I have been vocal about ongoing recession concerns not because I want to align myself with one side, but because the investment implications are very asymmetric. A slow but steady stream of modestly good economic news is largely priced in by investors, but a recession and the accompanying earnings disappointments would destroy some critical pillars of hope that investors are relying on to support already rich valuations. We’re always open to shifting our investment stance and outlook in response to new evidence, but the “optimistic” evidence that many observers are using to discard recession concerns is generally based on coincident or lagging data.

In the past couple of weeks, we’ve seen few articles presenting various opposing views to our (and ECRI’s) recession concerns. A few of these are about as valuable as what you might fish out of a Cracker Jack box, focusing on the Conference Board LEI (despite its heavy reliance on real M2, which even the Conference Board has decided to discard beginning with the next report), or framing the ECRI’s view as if it is driven only by the weekly leading index. Another article presents an index that does in fact turn down during recessions, but with varying lead and lag times, and inconsistent thresholds, so there’s no way to define a useful signal except with hindsight.

While I am convinced that the data weigh heavily toward recession risk, there is a well-done and more optimistic piece by Dwaine van Vuuren out of South Africa that is worth reading, particularly for methodological reasons. I appreciate van Vuuren’s approach because the investment world desperately needs more analysts who thoughtfully examine long-term data rather than using toy models or tossing opinions off the top of their heads. He constructs a super-composite of nine economic indices, noting that one can only “safely proclaim” recession when the majority of those has turned negative. I agree with that observation, but that’s mainly because the particular measures included in the composite (such as the ISM, Chicago Fed and Philly Fed indices) are largely coincident, very short-leading, or short-lagging. Even if one alters the weights on these, it is very difficult to create leading indicators out of coincident ones. My impression is that the implications of that super-composite are likely to shift in fairly short order, possibly as soon as the Conference Board introduces its new version of the LEI, so it will be interesting to see how these measures evolve in the next couple of months.

On a statistical note, the fact that only a few of the indices in the super-composite are currently in recession territory doesn’t translate well into the conclusion that recession risk is low*, because of that distinction between leading and coincident indicators. For investors, this is a particularly important issue. The stock market itself is a short-leading indicator of recession, so from an investor’s standpoint, coincident or short-lagging recession indicators are not as useful as one would wish. By the time it’s safe to proclaim a recession and close the barn door, the horses are already out. This is why investors have to be very sensitive to early measures of recession risk.

[*Geek's note: There's limited information from running a logit model using "recession 4 months from now" as the dependent variable, if the independent variables generally don't lead at that horizon. Also, there's risk in fitting a multivariate logit or probit model with ordinary variables rather than binary flags, because your output will generally be very sensitive to the exact covariance structure of the data, so a model that fits almost perfectly in training data will typically deteriorate rather quickly in out-of-sample data. The other problem with continuous values in probability models is that when you use them in univariate logit/probit estimations, the model amounts to a threshold filter that is highly nonlinear around a single value, producing probability estimates that cluster either at zero or 100%, with abrupt leaps in-between. The practical difficulty is that this can send your signal from about zero chance of recession to near-certainty of recession with the addition of just one or two slightly weaker data points.]

Capturing a syndrome

Recession evidence is best measured by capturing a syndrome of conditions that reflects broad deterioration in both real activity and financial indicators. What’s perplexing to me is that the recession concerns we’re seeing are evident even in composites of very widely tracked economically-sensitive indicators. For example, the chart below is simply the average of standardized values (mean zero, unit variance) of the following variables: 6 month change in S&P 500, 6 month change in nonfarm payrolls, 12 month change in nonfarm payrolls, 6 month change in average weekly hours worked, ISM Purchasing Managers Index, ISM New Orders Index, OECD Leading Indicator – total world, OECD Leading Indicator – US, ECRI Weekly Leading Index growth, Chicago Fed National Activity Index – 3 month average, credit spreads (Baa vs 10-year Treasury), Industrial commodity prices – 12 month and 6 month change, and New building permits 6 month change.

The current average is at levels that have always and only been associated with recession (and at about the same level where most recessions have started), though there was a brief dip nearly approaching these levels in 2002, just after the 2000-2001 recession.

While we prefer to construct discriminator variables (similar to our Recession Warning Composite , which helps to capture interactions and minimize “outlier” effects), we should be reluctant to casually dismiss the downturn we observe in a whole range of economic measures here.

Of course, it’s possible that the downturn we’ve observed to date will quickly reverse to a new growth path, but we should keep in mind that GDP is just the sum of consumption, real investment, government spending, and net exports, and then ask what will drive that reversal. Have the credit strains in Europe been durably addressed? Can European economies presently be expected to expand? Is there now less need for fiscal restraint in the U.S.? Has the overhang of troubled mortgages in the financial system been worked out? Have savings rates rebounded or pressure on household budgets eased? Is consumer demand is sustainably rebounding? Is there pent-up demand for capital goods despite having drawn spending forward due to expiring tax credits last year? Are exports to the rest of the world expected to accelerate? Are profit margins likely to expand from already record levels in order to accommodate growth in corporate profits? Do companies expect demand to be strong enough to commit to large-scale or multi-year investment projects? Not all of these factors have to reverse in order to have a sustained expansion, but the headwinds don’t appear light.

My intent isn’t to go to battle on the recession side of this debate, but rather to share what I’m looking at, and the concerns I have about continuing economic risks – particularly since the implications for the stock market are lopsided. If we are destined to have a recession, I would prefer for us to correctly anticipate it, but I don’t hope for one, and my preference would be not to observe the kind of data we’re seeing here at all. Rather than overstating the case or dismissing the risks, we’re willing to dwell in uncertainty by acting in proportion to the data we observe and its implications for the financial markets. At present, the data strongly implies recession risk, though with less than 100% certainty. The problem is that with overvalued, overbought, overbullish market conditions, the loss implications for the market in the event of a blindside recession are far more hostile than the possible gains in the event of a recovery that is already anticipated.

Market Climate

As of last week, the Market Climate for stocks was characterized by a continued negative return/risk profile, holding Strategic Growth and Strategic International to a tightly defensive position. As noted above, we are open to a more constructive shift in our investment position particularly if economic data and market internals can hold to reasonably upbeat levels over the next 6-8 weeks, but this would be an unusual outcome given the current condition of the data, so we’ll evaluate the evidence as it arrives. In bonds, we continue to see pressures that give a downward bias to interest rates, but those rates are already sufficiently depressed that short yield spikes can easily wipe out weeks of modest gains, as well as a year or more of yield. For that reason, Strategic Total Return continues to carry an average duration of about 3-4 years. The Fund also has about 12% of assets in precious metals shares, where our overall return/risk estimates remain very positive, but volatility could be high in the event that economic expectations shift abruptly, leading us to take a constructive but moderate position in that market.

—

In honor and remembrance of Dr. Martin Luther King, Jr.

There’s no way to condense Dr. King’s insights into a few quotations, or to embrace his wisdom through one or two speeches. But he said that he tried to speak on one particular topic at least once a year, so this seems to be a good place to start.

Loving Your Enemies
November 17 1957

- I want to use as a subject from which to preach this morning a very familiar subject, and it is familiar to you because I have preached from this subject twice before to my knowing in this pulpit. I try to make it a, something of a custom or tradition to preach from this passage of Scripture at least once a year, adding new insights that I develop along the way out of new experiences as I give these messages. Although the content is, the basic content is the same, new insights and new experiences naturally make for new illustrations.

- So I want to turn your attention to this subject: “Loving Your Enemies.” It’s so basic to me because it is a part of my basic philosophical and theological orientation- the whole idea of love, the whole philosophy of love. In the fifth chapter of the gospel as recorded by Saint Matthew, we read these very arresting words flowing from the lips of our Lord and Master: “Ye have heard that it has been said, – Thou shall love thy neighbor, and hate thine enemy.’ But I say unto you, Love your enemies, bless them that curse you, do good to them that hate you, and pray for them that despitefully use you; that ye may be the children of your Father which is in heaven.”

- Over the centuries, many persons have argued that this is an extremely difficult command. Many would go so far as to say that it just isn’t possible to move out into the actual practice of this glorious command. But far from being an impractical idealist, Jesus has become the practical realist. The words of this text glitter in our eyes with a new urgency. Far from being the pious injunction of a utopian dreamer, this command is an absolute necessity for the survival of our civilization. Yes, it is love that will save our world and our civilization, love even for enemies.

- Now let me hasten to say that Jesus was very serious when he gave this command; he wasn’t playing. He realized that it’s hard to love your enemies. He realized that it’s difficult to love those persons who seek to defeat you, those persons who say evil things about you. He realized that it was painfully hard, pressingly hard. But he wasn’t playing. We have the Christian and moral responsibility to seek to discover the meaning of these words, and to discover how we can live out this command, and why we should live by this command.

- Now first let us deal with this question, which is the practical question: How do you go about loving your enemies? I think the first thing is this: In order to love your enemies, you must begin by analyzing self. And I’m sure that seems strange to you, that I start out telling you this morning that you love your enemies by beginning with a look at self. It seems to me that that is the first and foremost way to come to an adequate discovery to the how of this situation.

- Now, I’m aware of the fact that some people will not like you, not because of something you have done to them, but they just won’t like you. But after looking at these things and admitting these things, we must face the fact that an individual might dislike us because of something that we’ve done deep down in the past, some personality attribute that we possess, something that we’ve done deep down in the past and we’ve forgotten about it; but it was that something that aroused the hate response within the individual. That is why I say, begin with yourself. There might be something within you that arouses the tragic hate response in the other individual.

- This is true in our international struggle. Democracy is the greatest form of government to my mind that man has ever conceived, but the weakness is that we have never touched it. We must face the fact that the rhythmic beat of the deep rumblings of discontent from Asia and Africa is at bottom a revolt against the imperialism and colonialism perpetuated by Western civilization all these many years.

- And this is what Jesus means when he said: “How is it that you can see the mote in your brother’s eye and not see the beam in your own eye?” And this is one of the tragedies of human nature. So we begin to love our enemies and love those persons that hate us whether in collective life or individual life by looking at ourselves.

- A second thing that an individual must do in seeking to love his enemy is to discover the element of good in his enemy, and every time you begin to hate that person and think of hating that person, realize that there is some good there and look at those good points which will over-balance the bad points.

- Somehow the “isness” of our present nature is out of harmony with the eternal “oughtness” that forever confronts us. And this simply means this: That within the best of us, there is some evil, and within the worst of us, there is some good. When we come to see this, we take a different attitude toward individuals. The person who hates you most has some good in him; even the nation that hates you most has some good in it; even the race that hates you most has some good in it. And when you come to the point that you look in the face of every man and see deep down within him what religion calls “the image of God,” you begin to love him in spite of. No matter what he does, you see God’s image there. There is an element of goodness that he can never slough off. Discover the element of good in your enemy. And as you seek to hate him, find the center of goodness and place your attention there and you will take a new attitude.

- Another way that you love your enemy is this: When the opportunity presents itself for you to defeat your enemy, that is the time which you must not do it. There will come a time, in many instances, when the person who hates you most, the person who has misused you most, the person who has gossiped about you most, the person who has spread false rumors about you most, there will come a time when you will have an opportunity to defeat that person. It might be in terms of a recommendation for a job; it might be in terms of helping that person to make some move in life. That’s the time you must do it. That is the meaning of love. In the final analysis, love is not this sentimental something that we talk about. It’s not merely an emotional something. Love is creative, understanding goodwill for all men. It is the refusal to defeat any individual. When you rise to the level of love, of its great beauty and power, you seek only to defeat evil systems. Individuals who happen to be caught up in that system, you love, but you seek to defeat the system.

- The Greek language, as I’ve said so often before, is very powerful at this point. It comes to our aid beautifully in giving us the real meaning and depth of the whole philosophy of love. And I think it is quite apropos at this point, for you see the Greek language has three words for love, interestingly enough. It talks about love as eros. That’s one word for love. Eros is a sort of, aesthetic love. Plato talks about it a great deal in his dialogues, a sort of yearning of the soul for the realm of the gods. And it’s come to us to be a sort of romantic love, though it’s a beautiful love. Everybody has experienced eros in all of its beauty when you find some individual that is attractive to you and that you pour out all of your like and your love on that individual. That is eros, you see, and it’s a powerful, beautiful love that is given to us through all of the beauty of literature; we read about it.

- Then the Greek language talks about philia, and that’s another type of love that’s also beautiful. It is a sort of intimate affection between personal friends. And this is the type of love that you have for those persons that you’re friendly with, your intimate friends, or people that you call on the telephone and you go by to have dinner with, and your roommate in college and that type of thing. It’s a sort of reciprocal love. On this level, you like a person because that person likes you. You love on this level, because you are loved. You love on this level, because there’s something about the person you love that is likeable to you. This too is a beautiful love. You can communicate with a person; you have certain things in common; you like to do things together. This is philia.

- The Greek language comes out with another word for love. It is the word agape. And agape is more than eros; agape is more than philia; agape is something of the understanding, creative, redemptive goodwill for all men. It is a love that seeks nothing in return. It is an overflowing love; it’s what theologians would call the love of God working in the lives of men. And when you rise to love on this level, you begin to love men, not because they are likeable, but because God loves them. You look at every man, and you love him because you know God loves him. And he might be the worst person you’ve ever seen.

- And this is what Jesus means, I think, in this very passage when he says, “Love your enemy.” And it’s significant that he does not say, “Like your enemy.” Like is a sentimental something, an affectionate something. There are a lot of people that I find it difficult to like. I don’t like what they do to me. I don’t like what they say about me and other people. I don’t like their attitudes. I don’t like some of the things they’re doing. I don’t like them. But Jesus says love them. And love is greater than like. Love is understanding, redemptive goodwill for all men, so that you love everybody, because God loves them. You refuse to do anything that will defeat an individual, because you have agape in your soul. And here you come to the point that you love the individual who does the evil deed, while hating the deed that the person does. This is what Jesus means when he says, “Love your enemy.” This is the way to do it. When the opportunity presents itself when you can defeat your enemy, you must not do it.

- Now for the few moments left, let us move from the practical how to the theoretical why. It’s not only necessary to know how to go about loving your enemies, but also to go down into the question of why we should love our enemies. I think the first reason that we should love our enemies, and I think this was at the very center of Jesus’ thinking, is this: that hate for hate only intensifies the existence of hate and evil in the universe. If I hit you and you hit me and I hit you back and you hit me back and go on, you see, that goes on ad infinitum. It just never ends. Somewhere somebody must have a little sense, and that’s the strong person. The strong person is the person who can cut off the chain of hate, the chain of evil. And that is the tragedy of hate – that it doesn’t cut it off. It only intensifies the existence of hate and evil in the universe. Somebody must have religion enough and morality enough to cut it off and inject within the very structure of the universe that strong and powerful element of love.

- I think I mentioned before that some time ago my brother and I were driving one evening to Chattanooga, Tennessee, from Atlanta. He was driving the car. And for some reason the drivers were very discourteous that night. They didn’t dim their lights; hardly any driver that passed by dimmed his lights. And I remember very vividly, my brother A. D. looked over and in a tone of anger said: “I know what I’m going to do. The next car that comes along here and refuses to dim the lights, I’m going to fail to dim mine and pour them on in all of their power.” And I looked at him right quick and said: “Oh no, don’t do that. There’d be too much light on this highway, and it will end up in mutual destruction for all. Somebody got to have some sense on this highway.”

- Somebody must have sense enough to dim the lights, and that is the trouble, isn’t it? That as all of the civilizations of the world move up the highway of history, so many civilizations, having looked at other civilizations that refused to dim the lights, and they decided to refuse to dim theirs. And Toynbee tells that out of the twenty-two civilizations that have risen up, all but about seven have found themselves in the junk heap of destruction. It is because civilizations fail to have sense enough to dim the lights. And if somebody doesn’t have sense enough to turn on the dim and beautiful and powerful lights of love in this world, the whole of our civilization will be plunged into the abyss of destruction. And we will all end up destroyed because nobody had any sense on the highway of history.

“Somewhere somebody must have some sense. Men must see that force begets force, hate begets hate, toughness begets toughness. And it is all a descending spiral, ultimately ending in destruction for all and everybody. Somebody must have sense enough and morality enough to cut off the chain of hate and the chain of evil in the universe. And you do that by love.

- There’s another reason why you should love your enemies, and that is because hate distorts the personality of the hater. We usually think of what hate does for the individual hated or the individuals hated or the groups hated. But it is even more tragic, it is even more ruinous and injurious to the individual who hates. You just begin hating somebody, and you will begin to do irrational things. You can’t see straight when you hate. You can’t walk straight when you hate. You can’t stand upright. Your vision is distorted. There is nothing more tragic than to see an individual whose heart is filled with hate. He comes to the point that he becomes a pathological case. For the person who hates, you can stand up and see a person and that person can be beautiful, and you will call them ugly. For the person who hates, the beautiful becomes ugly and the ugly becomes beautiful. For the person who hates, the good becomes bad and the bad becomes good. For the person who hates, the true becomes false and the false becomes true. That’s what hate does. You can’t see right. The symbol of objectivity is lost. Hate destroys the very structure of the personality of the hater.

- The way to be integrated with yourself is be sure that you meet every situation of life with an abounding love. Never hate, because it ends up in tragic, neurotic responses. Psychologists and psychiatrists are telling us today that the more we hate, the more we develop guilt feelings and we begin to subconsciously repress or consciously suppress certain emotions, and they all stack up in our subconscious selves and make for tragic, neurotic responses. And may this not be the neuroses of many individuals as they confront life that that is an element of hate there. And modern psychology is calling on us now to love. But long before modern psychology came into being, the world’s greatest psychologist who walked around the hills of Galilee told us to love. He looked at men and said: “Love your enemies; don’t hate anybody.” It’s not enough for us to hate your friends because- to to love your friends- because when you start hating anybody, it destroys the very center of your creative response to life and the universe; so love everybody. Hate at any point is a cancer that gnaws away at the very vital center of your life and your existence. It is like eroding acid that eats away the best and the objective center of your life. So Jesus says love, because hate destroys the hater as well as the hated.

- Now there is a final reason I think that Jesus says, “Love your enemies.” It is this: that love has within it a redemptive power. And there is a power there that eventually transforms individuals. That’s why Jesus says, “Love your enemies.” Because if you hate your enemies, you have no way to redeem and to transform your enemies. But if you love your enemies, you will discover that at the very root of love is the power of redemption. You just keep loving people and keep loving them, even though they’re mistreating you. Here’s the person who is a neighbor, and this person is doing something wrong to you and all of that. Just keep being friendly to that person. Keep loving them. Don’t do anything to embarrass them. Just keep loving them, and they can’t stand it too long. Oh, they react in many ways in the beginning. They react with bitterness because they’re mad because you love them like that. They react with guilt feelings, and sometimes they’ll hate you a little more at that transition period, but just keep loving them. And by the power of your love they will break down under the load. That’s love, you see. It is redemptive, and this is why Jesus says love. There’s something about love that builds up and is creative. There is something about hate that tears down and is destructive. So love your enemies.

- There is a power in love that our world has not discovered yet. Jesus discovered it centuries ago. Mahatma Gandhi of India discovered it a few years ago, but most men and most women never discover it. For they believe in hitting for hitting; they believe in an eye for an eye and a tooth for a tooth; they believe in hating for hating; but Jesus comes to us and says, “This isn’t the way.”

- As we look out across the years and across the generations, let us develop and move right here. We must discover the power of love, the power, the redemptive power of love. And when we discover that we will be able to make of this old world a new world. We will be able to make men better. Love is the only way. Jesus discovered that.

- And our civilization must discover that. Individuals must discover that as they deal with other individuals. There is a little tree planted on a little hill and on that tree hangs the most influential character that ever came in this world. But never feel that that tree is a meaningless drama that took place on the stages of history. Oh no, it is a telescope through which we look out into the long vista of eternity, and see the love of God breaking forth into time. It is an eternal reminder to a power-drunk generation that love is the only way. It is an eternal reminder to a generation depending on nuclear and atomic energy, a generation depending on physical violence, that love is the only creative, redemptive, transforming power in the universe.

- So this morning, as I look into your eyes, and into the eyes of all of my brothers in Alabama and all over America and over the world, I say to you, “I love you. I would rather die than hate you.” And I’m foolish enough to believe that through the power of this love somewhere, men of the most recalcitrant bent will be transformed. And then we will be in God’s kingdom.-

—

Some of Dr. King’s many memorable words:

“Injustice anywhere is a threat to justice everywhere.

“The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.

“He who passively accepts evil is as much involved in it as he who helps to perpetrate it. He who accepts evil without protesting against it is really cooperating with it.

“An individual has not started living until he can rise above the narrow confines of his individualistic concerns to the broader concerns of all humanity.

“Life’s most persistent and urgent question is, ‘What are you doing for others?’

“Whatever affects one directly, affects all indirectly. I can never be what I ought to be until you are what you ought to be. This is the interrelated structure of reality.

“Philanthropy is commendable, but it must not cause the philanthropist to overlook the circumstances of economic injustice which make philanthropy necessary.

“True compassion is more than flinging a coin to a beggar; it comes to see that an edifice which produces beggars needs restructuring.

“It is not enough to say we must not wage war. It is necessary to love peace and sacrifice for it.

“Peace is not merely a distant goal that we seek, but a means by which we arrive at that goal.

“Nonviolence means avoiding not only external physical violence but also internal violence of spirit. You not only refuse to shoot a man, but you refuse to hate him.

“I have decided to stick with love. Hate is too great a burden to bear.

“I refuse to accept the view that mankind is so tragically bound to the starless midnight of racism and war that the bright daybreak of peace and brotherhood can never become a reality… I believe that unarmed truth and unconditional love will have the final word.”

—

Finally, I want to share one of my Christmas presents with you. My wife Terri asked a remarkable artist – John Kachik – to create a portrait of the three peacemakers that I admire most – Dr. Martin Luther King, Jr., Jimmy Carter, and Thich Nhat Hanh. I am blessed to know two of them as friends. Decades ago, Dr. King and Thay also became friends. That friendship was born of a common understanding of the interconnectedness of humanity – in Dr. King’s words, “we are caught in an inescapable network of mutuality, tied in a single garment of destiny, and what affects one directly affects all indirectly.” In 1967, Dr. King nominated Thay for the Nobel Peace Prize, and gave the speech Beyond Vietnam, saying “We are called to speak for the weak, for the voiceless, for the victims of our nation and for those it calls ‘enemy,’ for no document from human hands can make these humans any less our brothers.” Happy Birthday Dr. King.

—

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The Economy and Bond Market Radar (January 9, 2012)

Sunday, January 8th, 2012

The Economy and Bond Market Radar (January 9, 2012)

Long-term treasuries sold off this week sending yields higher as; once again, the schizophrenic market gyrates up one week, down the next, for over a month.

The sell off in treasuries this week could best be attributed to better than expected economic data. While there remains concern surrounding the ultimate outcome of the current European financial crisis, the market was able to put that anxiety to the side this week. The chart below depicts the JP Morgan Global PMI index which hooked up in December and is back into expansion territory. This is an interesting development as sentiment remains sour but the economic data is giving reason for optimism.

Strengths

• The unemployment rate fell to 8.5 percent as nonfarm payrolls expanded by 200,000 in December.
• The ISM manufacturing index increased more than expected and posted a solid gain in December. One particularly encouraging sign is the new orders sub-component hit the highest level since April.
• Factory orders in November rose 1.8 percent and is another factor confirming the strength in the manufacturing sector.

Weaknesses

• Overnight deposits with the European Central Bank hit a record high as banks are still unwilling to lend to each other in the overnight interbank market. This indicates significant lack of confidence in the European banking sector.
• The euro fell to the lowest level in more than a year as investors concerns build regarding the ultimate outcome in Europe.
• France plans on increasing its value-added tax (VAT) in the next few months even as a rate increase just took effect January 1.

Opportunities

• After surprisingly good economic news recently, next week’s December retail sales data will be the key economic data point to watch for continued confirmation.

Threats

• The situation in Europe remains extremely fluid and negative news is almost expected at this point, unfortunately it is politically driven and difficult to predict outcomes and ramifications.

Tags: Banking Sector, Bond Market, Economic Data, Economic News, Europe France, European Banking, Financial Crisis, Interbank Market, Ism Manufacturing Index, Jp Morgan, Lack Of Confidence, Manufacturing Sector, Market Radar, Negative News, Nonfarm Payrolls, Rate Increase, Retail Sales Data, Schizophrenic Market, Treasuries, Unemployment Rate
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The Economy and Bond Market Radar (December 28, 2011)

Tuesday, December 27th, 2011

The Economy and Bond Market Radar  (December 28, 2011)

Long-term Treasury yields ended the week sharply higher reversing last week’s rally and leaving us almost exactly where we were two weeks ago.

The sell-off in Treasuries this week could be attributed to a three-year lending program from the European Central Bank (ECB) which helps European banks secure long-term funding and is also potentially a form of quantitative easing. This induced a “risk off” trade this week as stocks rallied and bonds sold off. Economic news was also generally supportive as the Leading Indicators (LEI) chart shows below. Leading indicators have remained relatively stable and the absolute level implies economic growth in the next six months.

Strengths

• The ECB’s three-year loan program that kicked off this week reduces some of the tail risk of a significantly bad outcome for European financials.
• For the second week in a row, initial jobless claims fell to the lowest level since May 2008.
• Housing starts rose 9.3 percent in November which was much better than expected as multi-family home starts hit a three-year high.

Weaknesses

• After revisions, third quarter GDP rose a modest 1.8 percent and was revised down from the initial 2.5 percent that was originally reported in late October.
• Personal income and spending experienced disappointing growth, both rising just 0.1 percent in November.
• Economic weakness has been showing up around the world with various disappointments in Japan, India and Brazil.

Opportunities

• Economic news is expected to be relatively light next week. With the recent week-to-week volatility, the market could rally on a modest sentiment change.

Threats

• The situation in Europe remains extremely fluid and negative news is almost expected at this point. Unfortunately, the situation is politically driven, making it difficult to predict outcomes and ramifications.

Tags: Absolute Level, Bond Market, Disappointments, ECB, Economic News, Economic Weakness, European Banks, Housing Starts, Initial Jobless Claims, Leading Indicators, Loan Program, Market Radar, Negative News, Personal Income, Quarter Gdp, Ramifications, Stocks Bonds, Treasuries, Treasury Yields, Volatility
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The Economy and Bond Market Radar (December 19, 2011)

Sunday, December 18th, 2011

The Economy and Bond Market Radar (December 19, 2011)

Long-term Treasury yields ended the week sharply lower as the reprieve from the euro crisis was short lived. Ten-year Treasury yields fell decidedly below 2 percent and are at the lowest levels since early October.

Recent economic data has been mixed and global economic news flow has generally been weak. One positive outlier worth mentioning is initial jobless claims which have declined to the lowest level since 2008. Historically, initial jobless claims have been a good indicator on the overall economy, so the economy may be in better shape than many currently believe.

Strengths

• Initial jobless claims fell to the lowest level since May 2008.
• Several inflation measures were reported this week for November (Consumer Price Index, Producer Price Index and import prices) and all signaled flat to declining inflation trends.
• The National Federation of Independent Business’ November small business optimism index hit a 9-month high as strength was seen in many areas.

Weaknesses

• November Industrial production fell 0.2 percent.
• November retail sales were disappointing, rising a modest 0.2 percent.
• The excitement over the European Union (EU) accord that was reached last Friday barely lasted the weekend and sentiment turned sour this week.

Opportunities

• There is quite a bit of economic data due out next week with numerous housing measures, durable goods orders and leading indicators.

Threats

• The situation in Europe remains extremely fluid and negative news is almost expected at this point. Unfortunately it is politically driven and difficult to predict outcomes and ramifications.

Tags: Bond Market, Business Optimism, Consumer Price Index, Durable Goods Orders, Economic Data, Economic News, Federation Of Independent Business, Import Prices, Inflation Measures, Initial Jobless Claims, Last Friday, Leading Indicators, Market Radar, National Federation Of Independent Business, Negative News, Producer Price Index, Ramifications, Reprieve, Retail Sales, Treasury Yields
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The Economy and Bond Market Cheat Sheet (November 7, 2011)

Sunday, November 6th, 2011

The Economy and Bond Market Cheat Sheet (November 7, 2011)

Treasury yields were sharply lower this week as Greece introduced new uncertainty in how the Greek debt/fiscal situation will evolve going forward. Last week, European leaders reached an agreement in principle to recapitalize the region’s banks, address the Greek debt situation and expand the European Financial Stability Facility (EFSF). This week, it appeared the Greeks were prepared to let the populace vote on the matter, which would almost certainly not pass, and the current government may not last through the weekend. It was believed that last week’s agreement largely removed the threat of another full-blown financial crisis but now that can’t be ruled out.

With all the negative noise coming out of Europe there has also been a surprising amount of good economic news. The chart below is the JP Morgan Global Purchasing Managers Index (PMI) which sits right on the breakeven line for economic growth. The encouraging aspects of this chart are the flattening out of the recent decline and an uptick from the prior month. This pattern is more consistent with a slowdown, not outright recession. Globally central banks are cutting interest rates, highlighted by a somewhat surprising cut from the European Central Bank (ECB) this week. Employment data in the U.S. was constructive, and combined with strong auto sales in October, indicates that the economy is likely growing at a measured pace.

Strengths

• The ECB cut interest rates by 25 basis points this week and indicated more cuts may be on the way.
• In the October jobs report, nonfarm payrolls grew a modest 80,000 but revisions to the past two months increased by 102,000. Together these indicate better underlying strength than most forecasters expected.
• October auto sales were stronger than expected on apparent pent-up demand.

Weaknesses

• Greek leaders added a significant amount of uncertainty by calling for a voter referendum on staying in the eurozone and then backtracking a few days later.
• Data out of Europe points to at least a mild recession.
• Eurozone inflation hit was 3 percent and hit a three year high.

Opportunities

• Barring surprising news out of Europe, investors will likely focus on earnings releases next week, which have generally been pretty good.

Threats

• While the current European plan to deal with the crisis is a positive step forward, many details still need to be worked out and the plan does not deal with potential problems in other European countries such as Portugal, Spain and Italy.

Tags: Auto Sales, Basis Points, Bond Market, Central Banks, Cheat Sheet, Debt Situation, Economic News, Employment Data, European Leaders, Financial Stability, Fiscal Situation, Forecasters, Greek Leaders, Jp Morgan, Nonfarm Payrolls, Populace, Purchasing Managers Index, Treasury Yields, Uptick, Voter Referendum
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