What do you do now, genius?
Steve Cook on Disciplined Investing

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Economics

   This Week’s Data
   
    The November New York Fed index of general business conditions was reported at 23.51 versus expectations of 28.65 and the October reading of 34.57. (anything over 0 connotes growth).

    November business inventories fell 0.4% versus estimates of an increase of 0.3%; business sales declined 0.3%--the first time sales haven’t dropped faster than inventories in many months, suggesting inventory liquidation may be coming to an end.
    http://econompicdata.blogspot.com/2009/11/no-inventory-correction-in-september.html

    Bernanke made a speech yesterday and basically said that there were no signs of any asset bubbles (has he been watching gold?).

    The Asia-Pacific Economic Cooperation (APEC) issued a statement over the weekend basically saying that (their) governmental economic stimulus would just keep on coming (which means they are going to continue to absorb dollars).

    The October producer price index rose 0.3% versus forecasts of a 0.5% increase; core PPI was down 0.6% versus expectations of up 0.1%.

    The International Council of Shopping Centers reported weekly sales of major retailers declined 0.1% versus the prior week but rose 2.4% on a year over year basis; Redbook Research reported month to date retail chain store sales increased 2.0% versus the comparable period a year ago. 
   
   Other

    Another somewhat positive look at the jobs market (chart):
    http://www.businessinsider.com/chart-hires-and-separation-rates-since-2006-2009-11?utm_source=Triggermail&utm_medium=email&utm_campaign=Clusterstock%20Chart%20of%20the%20Day%2C%20Monday%2C%2011%2F16%2F09
   
    More on the magnitude of the coming commercial real estate problem (short):
    http://www.ritholtz.com/blog/2009/11/who-is-to-blame-for-the-commercial-real-estate-disaster/

    Aside from the commercial real estate problems that we have yet to face, here are a couple of additional issues on which to ruminate (China’s investment bubble and Europe’s banks) (medium):
    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6575883/China-has-now-become-the-biggest-risk-to-the-world-economy.html

Politics

  Domestic

The latest government agency to dispel the myth that the House passed healthcare bill will not increase costs (medium):
http://www.politico.com/livepulse/1109/CMS_House_bill_increases_health_care_costs_.html#

  International War Against Radical Islam

    One last thought on Major Hasan (long):
    http://article.nationalreview.com/?q=NGYzZTExZWU0NjZhYTM2ODdiNmU2NDMyNzUzMTk5NzY=

The Market
    
    Technical

    With yesterday’s strong pin action, the S&P (1109) successfully challenged its prior high (1102).  While both volume and breadth improved, I thought that they were somewhat light for a break to new highs.  If the S&P holds above 1102, it will have re-set the up trend off the March lows which would be defined at the close last night at 1054-1333.  The DJIA (10406) remains in its up trend (9908-11811).

    The dollar plunged, trading below its prior low.  If that holds, it will re-set its down trend off its March high.  The VIX fell but did not penetrate its prior low; hence, it stays in a trading range.

    The uninspiring volume and breadth notwithstanding, the S&P’s performance yesterday still seemed impressive enough that it is highly probable that I will be proven wrong about the lack of upside.  I am not going to cry uncle quite yet.  As you know by discipline, I am going to insist on additional time or distance before biting the bullet.  Nonetheless, it sure looks like the up trend has been re-set.
   
    The latest from Trader Mike:
    http://tradermike.net/2009/11/november_16_2009_stock_market_recap

    A different look at breadth (chart):
    http://bespokeinvest.typepad.com/bespoke/2009/11/large-caps-lead-the-way.html

   Fundamental
   
      Headlines

    Improved retail sales got the Market off to a good start; but the APEC and Bernanke statements worked their magic on the dollar which in turn impacted gold, commodities and stock prices.

    Clearly the on-again, off-again inverse dollar/stock-gold-commodities trade is on-again; and as I suggest above, it looks like I got this latest call wrong.  I can sit here and rationalize all I want about valuations, inept monetary/fiscal policy, etc; but the cold hard facts are there are more buyers than sellers.  So genius, what do you do now?

    If we get some follow through today, our Portfolios will likely put some money back to work; but not in US stocks.  Rather they are going to Add to their foreign ETF holdings.  My plan is that if the S&P confirms its breakout, then tomorrow morning, they will begin a gradual move from 18.5% to 15% cash over the rest of the week. 

    My reasoning for favoring foreign ETF’s over US stocks is:

(1)    the DJIA and S&P are at their highs, most of the ETF’s are lagging; so relatively they are cheaper,

(2)    the US economy faces more fiscal hurdles (healthcare, cap and trade, taxes) than most other economies,

(3)    if the weak dollar trade holds, it will drive all asset prices up--foreign as well as US stock prices,

(4)    but I can’t ditch my continuing concern that at some point, investors are going to start penalizing US stocks because of poor monetary/fiscal policies.  I have no clue when that will happen; but when it does, it probably won’t carry over to foreign stocks or if it does not to the same extent.

So our Portfolios will be Adding to the ishares Australian ETF (EWA) and beginning a new holding in the ishares Global Growth shares (EFG).  This will bring the gold/foreign ETF portion of each Portfolio to 18% from 15% (with a goal of 20%).

    But I repeat I am doing nothing today, waiting for the a little time and distance to this break.  Purchases start tomorrow depending on today’s pin action.
   





Posted 11-17-2009 8:17 AM by Steve Cook