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Weekly Bull/Bear Recap: Nov. 18-22, 2013

Weekly Bull/Bear Recap: Nov. 18-22, 2013

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Published by Rodrigo C. Serrano
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as anchoring as well as confirmation, conservatism, and endowment biases.
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as anchoring as well as confirmation, conservatism, and endowment biases.

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Categories:Business/Law
Published by: Rodrigo C. Serrano on Nov 23, 2013
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12/30/2013

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| Rodrigo C. Serrano, CFA | SIPA | Columbia University Master of International Affairs ’14 Candidate | New York City, NY | 01-305-510-0181 | rcs2164@columbia.edu
>
“If you look at traditional valuations measures…you would not see stock prices in territory that suggests bubble-like conditions
.” – Dr. Janet Yellen
 Weekly Bull/Bear Recap: Nov. 18-22, 2013
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps,  which all investors are prone to, such as anchoring as well as confirmation, conservatism, and endowment biases. Bull >) In U.S. news… On the Fed front:
!
 
The Senate Banking Committee has endorsed Dr. Janet Yellen by a 14-8 vote
i
. The final step is a  plebiscite result of simple majority
ii
 by the Senate to confirm her nomination. Note that Dr. Yellen has stated that she will continue monetary easing to aid the recovery = powerful bullish tailwind.
!
 
Chicago Fed President Charles Evans states, “I am not in a hurry myself to reduce the flow of purchases. I’d rather wait just a little bit longer and have more confidence. The benefits of Fed stimulus far outweigh  the risks, with unemployment above the long-term  trend and inflation below the Fed’s 2 percent target”
iii
 
!
 
New York Fed President William Dudley becomes more optimistic on the U.S. economy. He cites an improving labor market and accelerating economic growth as constructive indications of an economy close  to achieving “escape velocity.” Furthermore, he stresses  that monetary policy will remain accommodative given  that there are few signs of asset bubbles developing.
iv
 
!
 
 Atlanta Fed President Dennis Lockhart says that monetary policy will remain very accommodative and  that tapering will not occur until financial markets and  the economy are ready.
 v
 
!
 
 While prospects of tapering as suggested by the FOMC minutes this week may be nourishment for a bearish catalyst
 vi
, the Fed will make sure that it will use other  tools to prevent this event from being perceived as monetary tightening…
 
 
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Chart: RCS Investments Source: AAA
o
 
…One such tool that received considerable attention was lowering the interest rate on excess reserves (IOER) that banks keep at the Fed. Lower interest rates would encourage  banks to make more loans into the economy.
 vii
 The aim of the game here is to use “forward-guidance” as a tool to help replace asset  purchases. Economic headlines:
!
 
Consumer spending will surprise to the upside.
o
 
Despite falling consumer confidence and uncertainty created by the government shutdown, retail sales for October suggest a more resilient consumer than expected by the  bears.
 viii
 The economy is gaining momentum.
o
 
Even better, after dropping a good bit, the Gallup’s poll of consumer confidence is in the midst of a rebound, just in time for the holiday shopping season. (Source: Gallup Poll
ix
).
o
 
The national price of petrol continues its decent and is now at its lowest level in more than 2.5  years, freeing up disposable income.
!
 
Meanwhile in housing, despite the headwinds of fiscal uncertainty and rising mortgage rates, the NAHB’s sentiment index has remained above 50 since May and has stabilized after two months of declines.
 x
 
!
 
“Government shutdown? No sweat!” says the manufacturing sector. A solid preliminary Markit PMI of 54.3 from a final reading of 51.8 in October demonstrates dissipating uncertainty as a solution was reached
 xi
.
!
 
Furthermore, tumbling jobless claims signal little disruption from the temporary Federal closure.
 xii
 
 
 
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   '   (   "   (   "   !    '   (   '   (   "   !    '   (   "   #   (   "   !    '   (   %   %   (   "   !    '   (   %   )   (   "   !    )   (   #   (   "   !    )   (   "   %   (   "   !    )   (   "   )   (   "   !    )   (   %   *   (   "   !    "   &   (   !   (   "   !    "   &   (   "   &   (   "   !    "   &   (   "   +   (   "   !    "   &   (   %   ,   (   "   !    "   &   (   !   "   (   "   !    "   "   (   +   (   "   !    "   "   (   "   ,   (   "   !    "   "   (   %   "   (   "   ! 
!"##$% '%()$*
Chart: RCS Investments Source: Bloomberg
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   *   +   (   +   $   ,    (   $   +   (   +   $   ,    #   +   (   +   $   -    .   +   (   +   $   -    (   +   (   +   $   .    ,   +   (   +   $   .    (   (   +   (   +   $   .    /   +   (   +   $   0    0   +   (   +   $   0    '   +   (   +   (   $    -   +   (   +   (   $    (   '   +   (   +   (   $    *   +   (   +   (   (    (   $   +   (   +   (   (    #   +   (   +   (   '    .   +   (   +   (   '    (   +   (   +   (   #    ,   +   (   +   (   # 
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Chart: RCS Investments Source: ISTAT
>) In Europe financial risk has decreased, courtesy of a nascent rebound:
!
 
Italian industrial orders, a leading indicator for business activity, for September surges into positive territory on a YoY basis. A result of 7.3% marks the first positive  print in 11 months and the strongest reading in more  than 2 years.
 xiii
 Strength exuding from foreign orders implies that global flows are firming.
!
 
Meanwhile in Spain, Catalonia tempers its earlier demands for independence.
 xiv
 Spanish 10-yr yields are at their lowest in 3 years. >) Asia:
!
 
 Another sign of increasing international trade flows appears in Japan, where the strongest YoY pace of export growth in 3 years is indicative of improving economic prospects for the world’s 3
rd
 largest economy.
 xv
 
!
 
Meanwhile, Chinese home prices for October emphasize broad gains with 69 of 70 markets posting  YoY increases. The average price of new homes in all cities rises to a record high and underscores continued strong demand for housing.
 xvi
 Bear >) Global economic growth continues to disappoint despite sanguine expectations:
!
 
The OECD cuts its global growth forecast, this time by roughly 15% in 2013 and 11% in 2014
 xvii
. The Parisian organization cites the end of monetary stimulus in the U.S. as the reason for a slowdown in emerging market economies, a dynamic covered by a prior Weekly Bull/Bear Recap report
 xviii
.
!
 
Meanwhile in China, November’s preliminary reading for the HSBC manufacturing PMI index falls more  than expected to a two-month low of 50.4 (hardly in expansion territory) from
 
a final October reading of 50.9
 xix
. Interestingly, new export orders within the report imply that global trade flows are NOT rebounding as the bulls suggest…
!
 
…This development is further confirmed by a recent  breakdown in bullish copper price action as well as a rising stock of inventory
 xx
.

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