Download MOOSPEAK-- thru 10.11.2015

MOOSPEAK-- thru 10.11.2015
Welcome to Moospeak, the weekly commentary. Club members who, despite a secret interest in growing
their own investments, are annoyed by the actual economic, political, and financial realities implicit in that
endeavor may choose to avoid the pro-investor opinions expressed on this page.
God-Like?... or Google-Like?
Google's director of engineering, Ray Kurzweil, predicts that brain implants among Ivy League wannabes
will one day be as popular as breast implants are among Hollywood wannabes today. And that day isn’t far
off. He's predicted that humans will be hybrid robots by 2030, once nanobots, connecting us to the internet,
are implanted in our brains.
Kurzweil believes we'll be a far better species when we're part robot. He insists that this is the next natural
phase of our existence, the next stage of human evolution.
"Evolution creates structures and patterns that over time are more complicated, more knowledgeable, more
intelligent, more creative, more capable of expressing higher sentiments like being loving," he said. "So it's
moving in the direction that God has been described as having -- these qualities without limit."
In short, according to Kurzweil, we are about to become God-like… in a robotic sort of way.
I’ll admit: being God-like sounds kind of cool… from a purely existential point of view, of course. Practically
speaking, however, I’ll be over 80 in 2030. Who am I going to impress with my god-like implants? Chicks?
Don’t bet on it.
And brain implants, no less! A brilliant octogenarian. Ever noticed how nobody listens to smart 80-year
olds, unless they’re a Pope, a Fed Chairman, or your mother-in-law? (Let me confess on the record right
now that I have a far better chance of becoming your mother-in-law than Pope or Fed chairman… and that’s
without any plans whatsoever for a sex change.)
Kurzweil says, "We're going to add additional levels of abstraction, and create more-profound means of
expression. We're going to be more musical. We're going to be funnier. We're going to be better at
expressing loving sentiment." He assures me that my brain will develop in the same way that my
smartphone has.
That all sounds very promising. I do love my smartphone after all, but… god-like?
Not to slow down the entirety of human evolution with a few personal concerns, but I do worry about people
looking at me at 80 and wondering, “Do you think those are real?” Referring to my ideas, my funniness, my
musicality, my expressions of love.
Fair or not, many people ask that of folks who have implants. They may enjoy and even lust after such
implants themselves, but they denigrate them all the same as “falsies”. I don’t want to be known as the
geezer with the falsies.
Then there’s always the possibility that the implants improve me so much that family and life-long friends
don’t even recognize the new me. Once I let on, they suddenly realize what a dull, dour, insensitive, lout the
old me was by comparison; feel bad about all the time they wasted on me; and want nothing more to do with
either of me.
As a personal lifestyle choice, then, there are the two things about implants. First, you have to realize and
accept that there is room for improvement. Second, you have to believe that the improvement will have a
meaningful impact on your life going forward. I figure that by the time I’m 80, I’ll be so stuck in my ways that
I’ll be convinced that there is absolutely, positively no room for personal improvement. I know this because I
am almost there already.
Apart from the purely personal, I have serious socio-political concerns as well. What if nanobots create
millions of brilliant baby-boomer 80-year-olds, who, despite the best efforts of the Obamacare Death Panel,
figure out a way to live joyfully past a hundred. That, of course, bankrupts the United States, destroys the
global economy and causes bread riots among the impoverished, radical, ignorant who have been unable to
afford nanobot-enhanced intellect. While I am merrily celebrating my new musicality, funniness and
sensitivity, the rioting masses hold the “implant aristocracy” accountable for their condition, and roll out
Madam Guillotine to lop off my nanobots.
In short, it’s no mortal lock that implants will make mankind more god-like. In fact, I’d even take issue with
Kurzweil's basic premise that "Evolution is a spiritual process and makes us more godlike." Technically,
evolution is a biological process that improves our chances of survival as a species. Survival is about
maintaining a physical and intellectual presence in a material world. Survival is never an issue on the
spiritual plane, as gods are, generally speaking, always immortal.
I do think we can evolve spiritually, just as we can evolve intellectually and physically. It doesn’t necessarily
follow, however, that evolving in one area means we evolve in another. Being linked to the internet may help
our intellectual evolution by providing us with access to more information than we could ever hope to
remember. It doesn’t necessarily mean we’ll evolve spiritually, however, especially to god-like status. It is not
the quantity or quality of intellect, but how we use that intellect, which defines how spiritually evolved we are.
Fascinating that nanobots should harken me back to my first day of second-grade. That’s when Sister
Teresa told us the story of Adam and Eve and how they got tossed out of the Garden of Eden. Eve gets
drawn into a conversation with a snake (always a mistake) over God's prohibition against eating fruit from
the Tree of Knowledge. The serpent assures Eve that God will not let her die if she eats the fruit, and,
furthermore, that if she eats it, her "eyes would be opened" and she would "be like God…"
This eventually led to the phrase “That lying snake.” And the rest is history.
The Author's Take on the Latest Signal
"This thing, what is it in itself, in its own constitution? What is its substance and material? And what its
causal nature (or form)? And what is it doing in the world? And how long does it subsist?" --Marcus
Aurelius, 167 AD
Weekly Close
10/02/2015
Latest Signal
HOLD CASH
End Date
10/11/2015
(In this section of the Moose Calls newsletter, the author discusses his thinking on the validity and duration
of the current signal. This may be a good thing or a bad thing, as the signal is more aggressive and has
often proven itself a better predictor of the future than its somewhat skittish author with his more moderate
risk profile.)
Weekly market review— close 10.02.2015
Monday, Stocks Slump. US equities finished the session with solid losses. China growth concerns sapped
sentiment and thrashed commodity prices, including gold and crude oil. A potential government shutdown
next week and nagging uncertainty over the next Fed rate hike did not help. Treasuries finished higher, while
the US dollar was lower. The S&P 500 Index lost 50 points (-2.6%) to 1,882.
Tuesday, Stocks Mixed. After an upbeat start, US equities closed mixed in choppy action, stabilizing after
yesterday's steep declines. Global growth concerns, Fed uncertainty, and a potential government shutdown
continued to dampen sentiment. Europe and Asia finished lower. Treasuries were higher, despite an
unexpected improvement in domestic Consumer Confidence. Gold and the US dollar were lower and crude
oil prices were higher. The S&P 500 Index added 2 points (+0.1%) to 1,884.
Wednesday, Stocks Rebound. US equities closed the final session of 3Q with solid gains, part of a broadbased global advance. Soft data out of Japan and the Eurozone boosted the chances of additional stimulus
in those regions, leaving Europe and Asia broadly higher. Treasuries were mixed as an upbeat ADP
employment report was met with an unexpected decline in Midwest manufacturing activity. Gold was lower,
crude oil prices were mixed, and the US dollar was higher. The S&P 500 Index increased 36 points (+1.9%)
to 1,920.
Thursday, Volatility Carries Into Q4. US equities pared steep early losses and closed mixed as crude oil
prices reversed from early gains and as global and domestic economic data did little to allay growth
concerns and Fed uncertainty ahead of Friday's September jobs report. Europe was mixed, while Asia rose
on the strong US lead. Treasuries were mostly flat following an increase in construction spending and
jobless claims and tepid domestic manufacturing activity. Gold and the US dollar were lower. The S&P 500
Index increased 4 points (+0.2%) to 1,924.
Friday, Lousy Jobs Report Sparks Equities. A way-softer-than-expected September US labor report
initially caused heavy equity losses, but the eventual realization that a Fed tightening was less imminent as
a result, boosted stocks well into the black by day’s end. Meanwhile, Europe pared its advance on the US
jobs data, while Asia had finished mixed before the release. Treasury yields plunged, the US dollar
continued to see pressure, while gold rallied, and crude oil prices were mixed. The S&P 500 Index gained 28
points (+1.4%) to 1,951.
Summary: US long T-bonds (+3.7%) outperformed US equities, thanks to a very weak jobs report. US
large caps were down all week until noon Friday, when they rallied from down 2% on the week to up 1.1%.
Small caps (-0.7%) did not fare as well. Mid-caps were flat. Offshore equities fared considerably better
overall, led by battered Latin America (+4.3%). Europe (+2.3%) and Asia Pacific ex-Japan (+1.7%) also
posted nice gains. Only Japan (+0.3%) lagged. Commodities were mixed. The CRB (-0.8%) was down,
along with gold (-0.7%), while oil (+0.3%) worked higher. The dollar (-0.2%) was slightly weaker.
Weekly Market Table-- thru 10.11.2015
RANK
1
2
3
4
5
6
7
8
9
CI
--88
75
60
52
35
27
13
0
ASSET
Cash-- MMF or three-month T-bills
Gold Bullion (GLD)
Long Zero-Coupon Treasury Bonds (EDV)
US Large-cap Equity Index (SPY)
US Small-cap Equity Index (IWM)
Japan Equity Index (EWJ)
European Equity Index (IEV)
Asia-Pacific ex-Japan Equity Index (AXJL)
Latin American stocks (ILF)
Other Considerations
Fed Check (what the Fed ought to do)
Impact of interest rates on US Equities
Impact of Volatility on US Equities
Impact of the US $ on Foreign Equities and Gold
Commodity Inflation Trend
Crude Oil Price Trend
Technical Trend
--bearish
neutral
very bearish
very bearish
very bearish
very bearish
very bearish
very bearish
ease policy
slightly bearish
bearish
slightly bearish
very bearish
very bearish
TS
---65
-2
-89
-86
-86
-90
-87
-92
1.16
-32
+57
-30
-91
-82
*CI is the "confidence index" measuring the model's overall confidence in the asset. It combines the relative
strength (rank), the technical strength (TS), and the Fed Check. For more information, see the FAQs.
Bad Economy + Good Stocks = Cash
The model remains in cash. Volatility rules. This week saw one of the biggest intraday Dow swings in four
and a half years. And in the end, the Fed is still yanking the market’s chain, as bad economic news turned
out to be good market news.
A truly lousy September employment report on Friday initially sent stocks plunging, but then it gradually
dawned on folks that weak job growth equates to no immediate Fed rate hike, and stocks did a 180. Friday
morning the S&P was down 2% on the week, and a few hours later it finished the week up 1%. Suddenly
financial engineering was back in play for a little longer.
Thing is US long bonds (+3.7%) were up even more than stocks. Normally, a surge in bond prices is a bet
that the economy is in trouble. Higher stock prices are the opposite-- a bet that the economy is improving.
When stock and bond prices don’t head in opposite directions, like they’re supposed to, the rule of thumb is
that somebody is wrong. So who’s wrong this week? Stock investors or bond investors?
At the moment, everything in the model is at some stage of bearishness, with the exception of long bonds.
The entire equity complex is very bearish. So are commodities, including gold and oil. Long bonds
meanwhile, bulled their way up into neutral this week, but not by much. Once again, nothing clearly beats
cash, though bonds look like they may want to at some point.
The ten-year Treasury yield dropped from 2.17% to 1.99% this week. That’s a big move for one week. Big
moves usually lead to big opposite reactions after, so it’s hard to get comfortable jumping into bonds this
week. As for the model, EDV popped above its 200-day @ $120 on Friday. That’s a positive development,
but the next resistance point is the August high @ 125-- only 4% away. So there isn’t a great deal of upside
right now. We’re in technical Never-Never Land. Point and figure analysis puts the next breakout at $128.
Part of the recent uncertainty with Treasuries is that China has been selling them in order to weaken its
Yuan, which is tied to the Dollar. (Less demand for US Treasuries equates to less demand for Dollars to buy
them, lowering the Dollar’s price. A cheaper Dollar means currencies tied to it become cheaper too.) This
week, the US jobs numbers called US economic health into question and that weighed on the Dollar (-0.2%)
without the Chinese necessarily having to sell bonds.
Gold (-0.7%) is still #2 in the model, but Fed zero interest rate policy (ZIRP) probably isn’t enough to propel
gold to #1 anytime soon or to push oil to new highs. The technicals just aren’t there for either of them yet.
True, the traditional Indian wedding season is beginning, but that annual spike in gold demand has become
unreliable. Taxes and regulations intended to curb gold hording in India have had an impact. China is now
the largest buyer, and it has just devalued, making gold more expensive and reducing demand in China.
If ZIRP works and revives the US economy, it should be good for gold and bad for bonds. Problem is, ZIRP
doesn’t seem to work that well. (This week’s jobs report was a case in point.) ZIRP hasn’t failed miserably. It
just seems to sit there, not doing much of anything noteworthy, one way or another. It contributes to the
sense that monetary policy won’t get the job done alone. We need a government that not only provides progrowth fiscal policies, but one that reverses the severely anti-growth agenda of the last six years.
Unfortunately, that is at least eighteen months away.
Until then, central bank financial engineering will continue to drive the markets. There is no momentum
either way in any of the model’s asset classes. There is little global growth, but little likelihood of a US
recession as well-- and no indication whatsoever that today’s politicians have a clue of where to go from
here. Cash may provide a net negative real after tax return, but at the moment, that’s less risky than riding
out the volatility in the global marketplace.
Weekly Perception— thru 10.11.2015
Global Economy, Current Perceptions-- Recently, the World Bank forecasted world economic growth of
3.0% this year and 3.3% in 2016, down from its earlier forecast of 3.4% and 3.5%, respectively. Emerging
economies should still lead the way, but are becoming more sluggish. The Baltic Dry Index (889), an
international shipping measure and proxy for current global growth, fell this week-- it was down in 2014, and
just managed to turn positive for 2015 in July. It is still well below its 2010 peak (4640). WTI oil price
($45.54)-- another proxy for world activity— fell this week, rallying off a 6 1/2 year low below $40 in August.
Oil is well off its 2011 peak ($113), and close to 2008 crisis lows ($37). Copper ($2.32) rose, recovering 2
cents after dropping 7 cents a week ago. Meanwhile, US bond prices also rose, assisted by a very weak US
jobs report
US Economy, Current Perceptions—
Overall: Data mixed to poor.
The good: Weekly continuing jobless claims (2191K) lower than anticipated. September consumer
confidence (103.0) stronger than anticipated. September ADP employment change (200 K) better than
expected. September unemployment rate (5.1%) unchanged. August construction spending (+0.7%) beat
forecasts. August personal spending (+0.4%) slightly better than expected. August core PCE prices (+0.1%)
in line. July Case Schiller 20 city index (+5.0%) up in line.
The bad: Weekly initial jobless claims (277K) up more than expected. September nonfarm payrolls (142K)
below expectations. September hourly earnings (0.0%) unexpectedly flat. September average workweek
(34.5 hours) unexpectedly lower. September Chicago PMI (48.7) below forecast. September ISM
manufacturing index (50.2) below forecast. September Challenger job cuts (+93.2%) up considerably.
August factory orders (-1.7%) much weaker than anticipated. August personal income (+0.3%) weaker than
expected. August pending home sales (-1.4%) unexpectedly down. The ugly: September labor participation
rate (62.4) declined approaching all time low. Jobs-population ratio (59.2) also down and near record low
(58.5).
The Fed, Current Perceptions: The Fed stopped buying bonds in October 2014. ZIRP remains in effect,
however, as the Fed again stood pat at September’s FOMC meeting. Various Fed governors have been
giving mixed signals on the timing of the first Fed rate hike in a decade, and the Fed meeting and press
conference did little to allay the confusion. September was declared too early for a hike due to global
weakness, but October remained a possibility. Meanwhile, the IMF’s recommendation is that it be delayed
until 2016. This week, an ugly US September jobs report made delay more likely, as did tame core PCE
(+1.3%), which held well below the 2% inflation target. The Fed Check (1.16) still suggests deflation. The
yield curve has begun flattening. 3-month LIBOR (0.33%) was flat, while the 3-month T-Bill yield (0.01%) fell,
putting the 3-month LIBOR/T-Bill spread at 32 basis points, up 1 tick, still closer to the bottom of its longterm, post-2008 15-57 basis point range. (A lower spread suggests easier bank-to-bank credit, and a more
confident banking system.)
Inflation, Current Perceptions-- Consumer inflation cooled down in August, as did producer prices. Import
and export prices are cool. The Fed's favorite inflation gauge (core PCE) is still within the 1-2% target range
(August all). Commodity prices, meanwhile, have turned very bearish, implying waning global inflation
pressures– especially from oil.
August CPI (-0.1%) very cool. August Core CPI (+0.1%) cool.
August export prices (-1.3%) very cool. August import prices (-0.4%) very cool.
August 12-month PCE (+0.3%) cool. July 12-month core PCE (+1.3%) ok.
Q2 employment cost index (+0.2%) cool.
Q2 GDP chain deflator (+2.1%) hotter than expected, but within range.
Q2 unit labor costs (-1.4%) revised lower.
Q2 productivity (+3.3%) revised upward, cutting inflation threat.
The U.S. Dollar Index, Current Perceptions: Technically: slightly bullish. Latest Year (52 weeks): +11%.
Latest Quarter (13 weeks): 0%. This week: The dollar index (-0.2%) was relatively flat despite an ugly
September jobs report at the end of the week. The buck rallied strong from August 2014 to March 2015 on
rate hike expectations. After that, it began making a classically indecisive pennant formation. The indecision
has been due to uneven US economic data, uncertainty over a 2015 Fed rate hike, and volatile currency
markets. At 96, however, the greenback is now testing both its 50-day (96), and its 200-day (96), and only
about 4% off its mid-March high (100). 14-day RSI (50) has it is neither oversold (30) nor overbought (70).
This week, the major currencies were almost will are all up vs. the Dollar. The Canadian dollar (+1.2%), the
Swiss Franc (+0.8%), the Yen (+0.4%), the Aussie Dollar (+0.2%), and the British Pound (+0.1%) gained.
Only the euro (0.0%) remained flat.
Commodities, Current Perceptions-- Technically: very bearish. Latest Year (52 weeks): -30%. Latest
Quarter (13 weeks): -14%. This week: The commodity index (-0.8%) continues to fade, giving back all of
last week's gain. Oil prices (+0.3%) continued to move off a six-and-a half-year low below $40 in late
August. Monetary easing over the past month in China has helped stem the collapse in commodities, but
has driven the dollar (-0.2%) higher as well. That is rare. The CRB index peaked @313 in June 2014, before
plunging to 209 in March. It bounced to 233 by mid-May, but plunged to a new year-to-date low at 185 in
August before recovering to 194 this week. It is below its 50-day (197), and well below its 200-day (216). Oil
prices initially led the CRB lower, plunging from $95 in October to $43 in mid-March. After rebounding to
$60 to start the summer driving season, WTI oil was back below $40 to end it, rebounding to $46 this week.
That is still well off its 2014 high ($107), and bearish— having dropped below its 200-day ($51). It is,
however, testing its 50-day ($45). Per 14-day RSI (52), oil is neither oversold (30) nor overbought (70). Oil
prices are down over the last 13 weeks (-22%), and over 52 weeks (-56%).
Gold Bullion, Current Perceptions-- Technically: bearish. Model Rank: #2. Latest Year (52 weeks): 5%. Latest Quarter (13 weeks): -2%. This week: Gold (-0.7%) faded along with a weaker, but still slightly
bullish US dollar (-0.2%). Fed zero interest policy (ZIRP) remains intact, propelling gold ($1138), through its
short-term moving average ($1119), but leaving it well below its 200-day ($1178). It is also well below its
2015 high around $1300. Spring and summer are traditionally the seasonal low point in gold, while the fall
usually brings improvement with September through January the strongest. We're starting to see that now.
The dollar has been range-bound (93-100) in 2015. At the moment, it is near the bottom of that range (96),
which theoretically, is good for gold. The recent Chinese devaluation, however, lowers demand for gold by
making it more expensive for the world’s number one buyer, though it also set off a wave of safe-haven
buying elsewhere. Global inflation pressures meanwhile, remain muted. 14-day RSI (55) has gold neither
oversold (30) nor overbought (70).
US Long Treasury Bonds, Current Perceptions-- Technically: neutral. Model Rank: #3. Latest Year (52
weeks): +11%. Latest Quarter (13 weeks): +8%. This week: US long T-bond prices (+3.7%) had blown
past their 50-day ($117) and 200-day ($120) averages by Friday, in a knee-jerk reaction to a lousy US jobs
report. The 10-year yield dropped from 2.17% to 1.99%. From March through June, EDV made a series of
lower highs and lower lows, plunging from $132 down to $107. It turned up in late June, retook it’s 200-day
($120) in August before peaking ($128). It dropped back to $112, but at $120 is now making a new run at its
August high. The idea of a premature Fed rate hike appears to have helped EDV solidify that bottom near
107 in June, and begin a new bull run. September’s Fed meeting saw no change in ZIRP, but kept
speculation of a 2015 Fed rate hike in play. When the chances of a premature rate hike lessen— as they did
this week, when the jobs report slapped the Fed upside the head with a shovel-- we have to re-evaluate
bonds’ prospects. Another round of QE won’t work for bonds. Bonds want premature Fed tightening. For
now, 14-day RSI (60) makes EDV neither oversold (30) nor overbought (70).
US Large Cap Stocks, Current Perceptions-- Technically: very bearish. Model Rank: #4. Latest Year
(52 weeks): -1%. Latest Quarter (13 weeks): -6%. This week: US large cap stocks (+1.1%) continued to
dance on the edge of correction territory, about 9% off their highs. The Fed is in charge of stocks’ destinies,
and Friday’s seriously weak employment report was a double-edged sword. Recession fears initially tanked
US equities, until the expectation of more financial engineering asserted its pre-eminence. These days, a
weak US economy is good for stocks if it postpones a rate hike-- the Chinese market collapse blamed for
the plunge in Asia, Europe, and the United States in late August only add to the pain. Equities have bounced
since, but weak global growth, and previous uncertainty over a Fed rate hike in 2015, has been pressuring
risk assets. This week, large-cap US investors bought big into the notion that the Fed will keep the FFR at
zero. SPY’s 14-day RSI (50) is neither oversold (30) nor overbought (70). The S&P500 index @1951 is
below both its 200-day average (2063), and its 50-day (2002) this week.
US Small Cap Stocks, Current Perceptions-- Technically: very bearish. Model Rank: #5. Latest Year
(52 weeks): +1%. Latest Quarter (13 weeks): -11%. This week: US small cap stocks (-0.7%) continued to
erode, keeping the Russell 2000 in correction territory, down about 14% from its highs. The Chinese market
collapse has been blamed for the plunge in Asia, Europe, and the United States in late August. Equities
have bounced since, but weak global growth, and continuing uncertainty over a Fed rate hike in 2015, is still
pressuring risk assets. Small-caps lagged large-caps this week, fading to #5 in the model. IWM has a 14day RSI of 42, neither oversold (30) nor overbought (70). It worked higher until June 2015, posting a new
high at $129, but then bottomed near $108 in August. Working back up to its 50-day ($116) this month, it
failed, and at $111 remains well below its 200-day ($120) as well.
European Large Cap Stocks, Current Perceptions-- Technically: very bearish. Model Rank: #7. Latest
Year (52 weeks): -7%. Latest Quarter (13 weeks): -8%. This week: IEV (+2.3%) held its double bottom
low and rallied. The China worries, disappointing US and German data, and local refugee crisis that have
dampened Europe’s sentiment faded a bit, as stocks neared oversold territory. Moreover, the threat of a Fed
rate hike by year-end lessened with this week’s poor US jobs report. Meanwhile, the third Greek bailout is
still up in the air until several European parliaments approve the $95B package previously approved by both
Greece and Eurozone officials. After forming a double bottom at $40 in early January, IEV rallied to $47 in
May, but last week, was back at $40, where it held and rallied. At $41 now, it is about 10% off its May high,
and below both its 200-day ($44) and 50-day ($42). IEV is showing a 14-day RSI of 48, neither oversold (30)
nor overbought (70).
Japanese Stocks, Current Perceptions-- Technically: very bearish. Model Rank: #6. Latest Year (52
weeks): +1%. Latest Quarter (13 weeks): -6%. This week: Japan per EWJ (+0.3%) crept higher again, but
not before testing and bouncing off its August low for a second straight week. (The Chinese market collapse
has been blamed for the plunge in Japan and elsewhere in late August. Most equities had bounced since,
but Japan had not.) China worries and the currency wars that have resulted from them had boosted the Yen
by over 8% since August, threatening the export economy underlying Japan’s equities. This week, the Yen
(+0.4%) rose some more, adding to Japanese stock investors’ pessimism. So far, China’s devaluation and
equity collapse has sent EWJ ($11.65) plunging below both its 50-day ($12.15) and its 200-day ($12.34). It
tested the 200-day a few weeks back and failed. EWJ has a 14-day RSI of 48, and is neither oversold (30)
nor overbought (70).
Latin American Stocks, Current Perceptions-- Technically: very bearish. Model Rank: #9. Latest Year
(52 weeks): -36%. Latest Quarter (13 weeks): -22%. This week: ILF (+4.3%) bounced off a seven-year
low at $21.50 last week, before recovering nicely this week. Latin stocks appear ready to test their financial
crisis low ($19.64). A collapse in the Chinese market has impacted the world, but especially Latin America.
Weak global growth, depressed commodity prices, and the possibility of a Fed rate hike later this year are
also pressuring the region. Bearish commodity (-0.8%) and oil prices (+0.3%) have kept ILF’s 10-month bear
trend intact. At $23, it well below both its 50-day ($25) and its 200-day ($29). The Leftist governments have
the economies of Brazil, Uruguay, Venezuela and Argentina on the brink of collapse. Weak copper prices
have killed Chile. It was thought China might ride to the rescue, but recent events have proven that not to be
the case. ILF has a 14-day RSI of 49, and is neither oversold (30) nor overbought (70).
Asia Pacific ex-Japan Stocks, Current Perceptions-- Technically: very bearish. Model Rank: #8. Latest
Year (52 weeks): -17%. Latest Quarter (13 weeks): -17%. This week: Asia Pacific ex-Japan (+1.7%) got
a bounce. After setting a new high in late April ($73), AXJL has dropped like a stone. Bottoming in late
August ($51) after China impacted the entire Asian region, AXJL @ $55 remains below both its 50-day ($57)
and its 200-day ($64) and only about 8% off its multi-year lows set in August. Bearish commodity (-0.8%)
and oil prices (+0.3%), recession in Japan, and an ongoing currency war continue to pressure AJXL. This
week, the Dollar (-0.2%) faded, helping returns for dollar investors. Meanwhile, a stronger Japanese Yen
(+0.4%) also helped the export outlook for Asia ex-Japan. AXJL currently has a 14-day RSI of 48, not quite
oversold (30) nor overbought (70).
Assumptions -- Q3 2015
Global Economy, Assumptions: JUL 1-- The IMF expects global GDP to improve, driven by recovery in
the United States. Global growth improved to 3.4% in 2014, and in 2015–16 is projected at 3.5% and 3.8%.
Recent reassessments of prospects in China, Russia, the euro area, and Japan as well as weaker activity in
some major oil exporters because of the sharp drop in oil prices have led to a reduction in growth estimates.
Stagnation and low inflation are still concerns in the euro area and in Japan. The United States is the only
major economy for which growth projections have been raised. Accommodative monetary policy and lower
oil prices will boost advanced economies, but this boost is projected to be offset by negative factors,
including investment weakness. Emerging market and developing economies, meanwhile, depend on
stronger external demand from advanced economies and from China to lift growth. China began to ease
monetary policy this spring, and higher commodity prices in Q2 may induce the IMF to raise its growth
forecasts for emerging markets and developing economies from 4.3% in 2015 and 4.7% in 2016.
US Economy, Assumptions: JUL 1— The IMF estimates that the United States grew 2.4% in 2014 and
will expand 3.1% in both 2015 and 2016. (That’s compared to 2.2% in 2013 and 2.8% in 2012.) Two
unseasonably cold winters in a row sent first quarter GDP in 2014 (-2.1%) and 2015 (-0.2%) into negative
territory. Once adverse conditions ended in spring 2014, second and third quarter 2014 GDP bounced back
+4.6% and +5.0% respectively before the Q4 disappointed at 2.2%. A similar mid-year bounce is expected
in 2015, and according to the Fed, a moderate US economic expansion is underway. The pace of job gains
picked up while the unemployment rate remained steady. On balance, a range of labor market indicators
suggests that underutilization of labor resources diminished somewhat. Growth in household spending has
been moderate and the housing sector has shown some improvement; however, business fixed investment
and net exports stayed soft.
The Fed, Assumptions: JUL 1— Federal Reserve policy remains accommodative. The target range for the
federal funds rate (known as “zero-interest-rate policy” or ZIRP) is steady at 0 to 1/4 percent, and expected
to remain there into the second half of 2015. The Fed began tapering new monthly Quantitative Easing
purchases from $85B per month in December 2013, taking them to zero in October 2014. They continue to
roll-over existing securities on the balance sheet as they mature, however.
Inflation, Assumptions: JUL 1— Global inflation is generally projected to remain subdued (2-4%) in 2015
with continued sizable negative output gaps in advanced economies, weaker domestic demand in several
emerging market economies, and falling commodity prices. In some advanced economies, including the
euro area and Japan, headline inflation (1-2%) is low and deflation is becoming a worry. The developing
economies expect 4-6% inflation in 2014-15. US inflation has been running below the Fed’s longer-run
objective (2%-2.5%), partly reflecting earlier declines in energy prices and decreasing prices of non-energy
imports. Moreover, energy prices appear to have stabilized. Market-based measures of inflation
compensation remain low; and survey-based measures of longer-term inflation expectations have remained
stable. The latest 12-month price index change for all urban consumers (CPI) is -0.3% (May).
The U.S. Dollar, Assumptions: JUL 1-- The Dollar index was narrowly range-bound (79-81) for almost a
year, and then went parabolic in July 2014, as the end of QE drew near. Most of the Dollar gains were at the
expense of the euro and the Swiss franc, after the ECB began its own QE program. After making an 8-year
high in early 2015, the Dollar peaked in March, and has faded about 5% since. Most major currencies,
however, are still either neutral or bearish vs. the Dollar. Current outlook: Neutral.
The bullish case for the Dollar primarily rests on five assumptions: (1) that QE Infinity has restored the US
economy (2) that Europe’s sovereign debt problems, slow economy, and QE program will continue to
pressure the Euro (3) that easier Japanese monetary and fiscal policies will continue to weaken the Yen; (4)
that slow Chinese growth will continue to dampen commodity prices, and (5) that possible geopolitical strife
(Ukraine, Sea of Japan, Middle East) could promote a flight to quality, strengthening the greenback. The
bearish case for the Dollar is (1) rising longer term interest rates in the second quarter in anticipation of a
Fed rate hike later in 2015 will weigh on the economy going forward, depressing the Dollar. (2) Energy
expansion was responsible for most US growth in 2014. Oil prices collapsed, contracting energy sector
growth, and weakening the Dollar. Oil came back halfway and stalled, limiting growth and Dollar upside. (3)
A $4.0 Fed balance sheet, and trillion-dollar-plus Federal deficits for another decade reflect US politicians’
decision to monetize US debt and inflate their way past fiscal problems. US government policies over the
last five years–from the stimulus that wasn’t, to unaffordable healthcare, to financial regulation, to blocking
domestic energy production – are all expected to raise the cost of US labor and capital, making US
investment less attractive and job creation and growth less likely-- inducing less and less faith in the Dollar.
Commodities, Assumptions: JUL 1— Commodities bottomed, down 30% in Q1 2015, but have bounced
in Q2. The 2014-15 swoon in commodities was led by the collapse in oil prices, which have since recovered
from WTI $38 to $60, still well below their previous high ($113). Falling global demand and a spike in US
energy supply from fracking are generally credited with the move in oil. Current outlook: bearish.
The bearish case: Slow growth and financial concerns in China, a stagnant Europe distracted by Greek
insolvency, and an only recently improving US has curbed demand for commodities. In addition, the US has
eliminated quantitative easing and is discussing higher interest rates later this year. All of that removes the
easy Dollar floor under risk assets, reducing global liquidity, and demand for commodities. It also
strengthens the Dollar, which cheapens commodities. The bullish case: With most of the developed world
now engaged in quantitative easing, a weakening global economy is only transitory. Emerging markets are
still growing at 5-7%. The Fed continues to see an improving US economy and greater demand for
commodities. Greek debt concerns are being managed, as the ECB will do anything and everything to avoid
sovereign default.
Gold Bullion, Assumptions: JUL 1— Gold is down 12% in the past twelve months, but only down 2%
year-to-date in 2015. It has been making lower lows and lower highs since it peaked above $1900 an ounce
in August 23011. It eventually collapsed below $1200 in the summer of 2013 as the Fed announced
tapering. It hit a recent low in late March 2015, as the Fed began discussing hiking interest rates later this
year. That and the absence of anything resembling global inflation has left gold drifting in 2015. Current
outlook: bearish
The bearish case: Fed quantitative easing is over and rate hikes are on the way, removing the easy money
floor under all risk assets. The US economy is still the best of a sickly lot and the Dollar can be expected to
continue strengthening, even as global deflation fears pick up. Any debt or financial crisis could strengthen
the Dollar and US bonds and weaken the demand for gold. India-- once the world’s largest gold consumer-has placed an import tax on the metal curbing demand. Meanwhile, China, now the largest buyer, has cut
inflation and slowed economically. The bullish case: Massive monetary stimulus and deficit spending in the
US, Europe, and Japan over the past five years have cheapened fiat currencies, increasing global inflation
pressures. As the world economy begins to improve inflation will finally kick in. Easy money will not only
stoke monetary-demand for gold but induce central banks to diversify their reserves with gold as well.
US Long Treasury Bonds, Assumptions: JUL 1-- Long Treasury bonds fell 20% in 2013 after Congress
made most of the Bush tax cuts permanent, and delayed sequester, rejecting austerity to open 2013. In
addition, the Fed expanded quantitative easing in 2013, upping its monthly purchases to $85B, and the
European debt crisis receded, limiting the flight to quality in US bonds. Bonds then rallied 42% in 2014,
thanks initially to drastic winter weather that slowed the US economy in early 2014. Various political crises
(in Ukraine, Syria, Iraq, Gaza) and financial worries in China and Greece induced a flight to quality in US
bonds. All that helped keep bond prices bullish in 2014. As the Fed ended QE3 in October 2014, however,
investors began discussing rate hikes in 2015. Q1 (+7%) was better for bonds than equities (+1%), as the
10-year yield fell below 2%, but Q2 was wicked, leaving bonds down 20% in the first half of 2015. Current
outlook: Bearish.
The bearish case: rests on three assumptions. (1) The Fed underestimates the inflation danger of an
improving global economy created by its quantitative easing (2) Massive U.S. government expenditure in
Obama's first five years-- most of it financed by new debt-- has increased the supply of Treasury paper
going to market. The Fed had been purchasing up to 90% of that paper. Now that Fed demand is gone,
yields will shoot higher, and prices will plunge. (3) The European Union’s debt situation has stabilized, and
the ECB’s easy money policies will restore growth, lessening demand for US bonds. The bullish case for
long Treasury bonds primarily rests on four assumptions: (1) US and global growth are anemic and inflation
is not a problem. (2) Europe’s sovereign debt crisis and weak economy have led to easier money out of the
ECB and lower European bond yields. That and geopolitical flare-ups, have led to a flight to quality in US
Treasuries. (3) Japan’s effort to weaken the Yen also causes a flight into Dollars and US bonds. (4) So far,
even an extremely accommodative Fed monetary policy has not overcome the fiscal and regulatory drag
created by the administration, and may not until 2016.
US Large Cap Stocks, Assumptions: JUL 1— US stocks finished 2014 in the black after a strong fourthquarter. Large caps (+12%) led both mid-cap stocks (+9%) and small-cap stocks (+4%) higher during the
calendar year. The rally has stalled in the first half of 2015 (+1%), however, as the Fed has begun hinting at
higher interest rates amid a spate of weak to mixed economic data. Fears that investors might “walk away in
May” ahead of a 2015 rate hike may have begun to be realized. Current Outlook: bullish.
The bullish case: US quantitative easing has ended and ZIRP still puts a floor under risk. Japan’s massive
monetary expansion isn’t over, and much of that capital is still flowing into the US. Europe has also begun
easing its monetary policy in the face of a weak economy and deflation fears. That too is redirecting
investment capital out of the euro and into the US Dollar. With cash and bonds still yielding a negative real
return, large or dividend paying stocks are filling investors’ income needs. The bearish case: The US
economy is limping along below trend, corporate profits are expected to be weak, and valuations are pricey.
We are overdue for a correction. The Fed intends to raise interest rates in 2015. European sovereign debt
problems still remain, particularly in Greece. Lastly, mismanaged US fiscal and regulatory policies have
failed to provide economic stimulus. “Affordable” healthcare became the biggest tax in US history in 2014
and has expanded in 2015.
US Small Cap Stocks, Assumptions: JUL 1— US stocks finished 2014 in the black after a strong fourthquarter. Large caps (+12%) led both mid-cap stocks (+9%) and small-cap stocks (+4%) higher during the
calendar year. The rally has stalled in the first half of 2015 (+1%), however, as the Fed has begun hinting at
higher interest rates amid a spate of weak to mixed economic data. Fears that investors might “walk away in
May” ahead of a 2015 rate hike may have begun to be realized. Current Outlook: bullish.
The bullish case: US quantitative easing has ended and ZIRP still puts a floor under risk. Japan’s massive
monetary expansion isn’t over, and much of that capital is still flowing into the US. Europe has also begun
easing its monetary policy in the face of a weak economy and deflation fears. That too is redirecting
investment capital out of the euro and into the US Dollar. With cash and bonds still yielding a negative real
return, large or dividend paying stocks are filling investors’ income needs. The bearish case: The US
economy is limping along below trend, corporate profits are expected to be weak, and valuations are pricey.
We are overdue for a correction. The Fed intends to raise interest rates in 2015. European sovereign debt
problems still remain, particularly in Greece. Lastly, mismanaged US fiscal and regulatory policies have
failed to provide economic stimulus. “Affordable” healthcare became the biggest tax in US history in 2014
and has expanded in 2015.
European Large Cap Stocks, Assumptions: JUL 1— According to the IMF’s most recent world economic
outlook, European Union GDP is expected to add a lethargic 1.5% in 2015, and rise to 1.6% in 2016,
hindered largely by weak investment. Lower oil prices; quantitative; a more neutral fiscal policy stance; and
the recent euro depreciation have helped Europe. Inflation and inflation expectations continue to decline.
These positives will be offset by weaker investment prospects, however, partly reflecting the impact of
weaker growth in emerging market economies on the export sector. European stocks are down 11% over
the last 12 months, having fallen 3% in the second quarter of 2015. Though the ECB has begun quantitative
easing, Greece is a major cloud on Europe’s horizon, a situation that will probably not be resolved until later
this summer. If Greece and the EU can agree to a reform program that addresses Greek debt, the EU will
extend further credit, allowing Greece to remain in the euro zone. If no agreement is reached, Greece will be
forced into bankruptcy and out of the euro zone. That could have broader implications for the entire
community. Current outlook: Neutral
The bullish case: European politicians have gotten their act together, and the ECB, the IMF, the Fed, and
the EU will flood Europe with more liquidity as necessary. Lower oil prices will help the continent’s
consumers this summer and fall. A weaker euro will help European exporters. The bearish case:
Quantitative easing in Japan and the US quieted sovereign debt fears in Spain, Portugal, and Italy through
the carry trade. US QE is over, however, removing the easy money floor under risk assets, reducing global
liquidity, and weakening banks and financials-- the predominant equity sector in Europe. Europe’s financial
crisis is not over, then, just on sabbatical. Greece may exit the euro zone this year, prompting future leftists
in Spain to follow, threatening the continent’s financial system. Meanwhile, EU economic growth is anemic.
Flagging household and business confidence, deflation worries, and conflict between Russia and Ukraine
comprise Europe’s wall-of-worry.
Japanese Stocks, Assumptions: JUL 1— Japan’s economy fell into technical recession in Q3 2014.
Private domestic demand did not accelerate as expected after a sales tax increase, despite increased
infrastructure spending. Additional quantitative and qualitative monetary easing, and a delay in the second
consumption tax rate increase should support a gradual rebound in activity. Along with cheaper oil and yen
depreciation, growth should modestly strengthen in 2015–16, to 0.6% and 0.8% respectively. Japanese
equities, meanwhile, broke out of a long-term downtrend in late 2012 with the advent of “Abenomics”-- a
three-part program of (1) regulatory reform, (2) fiscal stimulus, and (3) massive BoJ quantitative easing. The
goal was to reach a 2% inflation target and to weaken the Yen, thereby improving Japan's trade
competitiveness. As a result, the Nikkei posted a 26% gain in 2013. It followed with a choppy performance in
2014 (+2%), but has surged in the first quarter of 2015 (+16%), as the BoJ announced Japan's publicly held
pension funds would double their equity holdings. Note: due to the weak yen policy, dollar investors have
only matched the gains posted by the Nikkei in hedged ETFs. Current outlook: Bullish
The bullish case: The BoJ’s massive quantitative easing program-- about 60-70 trillion yen per year in
asset purchases-- will double the monetary base and begin to work in time. In addition, the Japanese
government has spent $200B in new stimulus spending to get the country going again. Lately, they are
doubling the equity holdings in their pension funds. Elsewhere, the Europeans are now easing along with the
Chinese, Australians, and Koreans. Falling oil prices help the energy importer, and once global growth
returns, the weaker Yen will spur Japanese exports and revive its economy. The bearish case: The
domestic Japanese economy is moribund due to an aging population, and a weak global economy. Since
the Fukishima nuclear crisis, nuclear power generation has been shut down, forcing Japan to import fossil
fuels to make electricity. The nation’s already high debt-to-GDP ratio required a 10% consumption tax to go
into effect in April 2014. Conceptually, easy money and a weakening Yen is like pushing on a string— more
likely to result in a carry trade than investment in Japan. Meanwhile, the possibility of Fed rate hikes also
reduces global liquidity and weakens the floor under risk assets.
Latin American Stocks, Assumptions: JUL 1-- According to the IMF’s most recent world economic
outlook, Latin American GDP is projected to be +0.9% in 2015 and +2.0% in 2016. Latin American equities
fell 23% in the last 12 months, including a 3% loss in the second quarter of 2015. Entering Q3, then, Latin
American equities are weak. A slowing recovery in the advanced economies and in China, has kept the
Latin 40 mired in a highly volatile downtrend since March 2011, and it still hasn’t broken out. It touched mid2009 financial crisis lows in early 2014, and has gone even lower since. Current outlook: Bearish
The bearish case: The region is currently mired in one of its “inept government” phases. That tends to
increase both domestic and foreign capital outflows. Capitalism has been on the fade since 2011 in Latin
America, and the equity markets have reflected that. Below trend growth in China, Europe, and the US adds
to the problem by curbing demand for Latin exports. In addition, the end of US quantitative easing last fall
removes the easy money floor under risk assets, reduces global liquidity, and weakens Latin financials. It
has also strengthened the Dollar. A stronger Dollar cheapens commodities, including oil, among Latin
America’s primary exports. While that should increase commodity exports in the long term, short-run, it not
only cuts Latin revenues, but erodes Dollar investors’ returns in Latin equities. The bullish case: Latin
American countries are generally rich in natural resources. They also have positive demographics with a
younger population and a rising middle class. That tends to attract foreign capital inflows. Ongoing central
bank easing in the US and Japan and looser policies in Europe and China increase those inflows, promote
growth, and lift commodity prices, improving profitability for Latin exporters. Meanwhile, slower global growth
in 2013 reduced Latin inflation pressures and allowed interest rates to recede.
Asia Pacific ex-Japan Stocks, Assumptions: JUL 1-- According to the IMF’s most recent world economic
outlook, growth in Emerging and Developing Asia is only projected to reach +4.3% in 2015 and +4.7% in
2016. China and India are expected to lead the Asian Tigers (ASEAN) higher. Asia Pacific ex-Japan
equities, meanwhile are down about 5% in the last 12 months. Most of that decline occurred in the past two
months. The region’s equities are heavily weighted in financials and materials, and its fortunes are closely
tied to those of China, directly, and Japan, indirectly. Current Outlook: Bearish.
The bearish case: Asia Pacific is an export region and the global economy is still slow, including China,
Europe, and Japan. China’s stock market, in particular, is at a crisis point. After a sharp run-up, prices have
dropped 30% in Q2. In addition, Japan’s beggar-thy-neighbor policies soak up what trade demand remains
at the expense of its Asian neighbors. In addition, the US elimination of quantitative easing and possible
removal of ZIRP, removes the easy money floor under risk assets, reduces global liquidity, and weakens
Asian financials. That also strengthens the Dollar, which is already bullish versus the Yen. A strong Dollar
increases Asian exports to the US in the longer term, but short-run, a rising Dollar erodes Dollar investors’
returns in Asia. The bullish case: the Fed is talking rate hikes, but US monetary policy remains very easy
along with Japan’s and Europe’s. The Fed has ended QE, but ZIRP remains into 2015. Looser policies in
Europe and China should also improve global growth prospects. Europe has gotten the institutions in place
to deal with its debt crisis. Asian inflation pressures are under control allowing interest rates to recede in the
region—further stimulating growth in 2015.
Moosextras—
Outside the Box: —Top Bullish Sectors thru 10.11.2015
Bonds (9), Currencies (3), Equity Shorts (3), Industrial Metals (1)
TICK NAME
RWM Short US Small-caps
MYY
Short US Mid-cap 400
SH
Short US S&P 500
TLH
10-20 Y Treasuries
IEF
7-10 Y Treasuries
FXY
Japanese Yen
IEI
3-7 Y Treasuries
TLT
20+ Y Treasuries
EDV
25+ Y Long Zero T’s
PALL Palladium
FXS
Swedish Krona
MUB
Munibonds
MBB
Mortgage-backed bonds
FXE
Euro
SHY
1-3 Y Treasuries
AGG
Aggregate Bond Index
* overbought, **oversold
RSI
61
56
49
65
65
50
66
60
57
82*
14**
69
60
42
66
61
COMMENTS
Sudden equity collapse boosts shorts
Sudden equity collapse boosts shorts
Sudden equity collapse boosts shorts
Flight to quality, global growth worries help bonds
Flight to quality, global growth worries help bonds
Asian currency war boosts Yen
Flight to quality, global growth worries help bonds
Flight to quality, global growth worries help bonds
Flight to quality, global growth worries help bonds
Bet against diesel (platinum) catalytic converters
Currency wars weaken Dollar
Flight to quality, global growth worries help bonds
Flight to quality, global growth worries help bonds
Currency wars weaken Dollar
Flight to quality, global growth worries help bonds
Flight to quality, global growth worries help bonds
Outside the Box: —Thrift Savings Plan thru 10.11.2015
The Thrift Savings Plan, or TSP, is the government’s 401K style retirement plan. Millions of federal
employees are invested in it, including several life-long friends here in the capital region. The TSP does not
provide all of the choices that the Moose does. Gold is notably absent, and foreign equities are all lumped
into one choice, not broken out by region. As a result, TSP investors often have questions at switch time—
especially when the Moose switches to a choice that TSP doesn’t offer. To clarify that situation, the following
ranking table applying a Moose-like momentum model to the TSP has been added to the site.
This week the 100% model switches to F (Fixed Income) Fund (1st September switch).
Note: TSP choices can be highly correlated. That means the model can jump around a lot, giving false
signals. Since TSP limits account holders to two switches per calendar month, diversifying the portfolio to
give it more stability is an option.
This week the diversified model holds at 75% cash, and a 25% position, in bonds.
RANK
1
2
3
4
5
FUND
G Fund
F Fund
C Fund
I Fund
S Fund
ASSET TYPE
Short-term income
Fixed Income
Large-cap US Equities
International Equities
Small-cap US Equities
COMMENTS
Safe, but negative real return
Bonds improvng
Stocks fading
Only Japan positive
US Small-caps bearish
DIV%
75
25
0
0
0
Outside the Box: — Carry-trade thru 10.11.2015
Currency vs. Dollar
Euro (FXE)
Yen (FXY)
Australian $ (FXA
GB Pound (FXB)
Canadian $ (FXC)
Trend
neutral
neutral
very bearish
slightly bearish
very bearish
TS
+1
+1
-84
-49
-88
Medium Term Implications for non-Dollar investors
Euro investors match the $ Moose
Yen investors match the $ Moose
Aussie $ investors outperform the $ Moose
Sterling investors outperform the $ Moose
Canadian $ investors outperform the $ Moose
Non-Dollar investors who want to maximize their profits using the Moose should incorporate a "carry-trade"
currency strategy into the decision, making it a two-step process. First, decide whether it's a good time to
switch to US Dollars, and then use the Moose to identify the best place to put those Dollars. (Generally, if
one's currency is weakening (Bearish) against the Dollar, non-Dollar investors in the Moose will outperform.)
This table is intended to give non-Dollar investors an additional clue as to whether following the Moose
might work for them. It may not be right every time-- as the currency markets can be volatile, and
government intervention can make them even more so-- but more information is probably better than less.
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