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Chart: RCS InvestmentsSource: Federal Reserve

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S&P$500$and$Dow$Industrials$

Chart: RCS InvestmentsSource: Bloomberg; Indexed at 100 on 10/07

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Weekly Bull/Bear Recap: Sept. 16-20, 2013

This objective report concisely summarizes important macroevents 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 confirmation,conservatism, and endowment biases.Bull

Ø

Risk markets receive two large unexpected tailwinds, propelling many bellwether indices to all-time highs

i

.First, Lawrence Summers, seen by investors as morehawkish

ii

, removes his hat from contention as the nextFed chairman

iii

, leaving Janet Yellen (more dovish) as the frontrunner for the position

iv

. Second, current Fedchairman Ben Bernanke shocks markets by announcingno change to monetary policy instead of beginning the tapering process as expected

v

. Both events imply thateasy monetary policy will remain in place until theeconomic recovery gathers steam. The maxim stands,“Don’t fight the Fed.”

o

As Bespoke observes, “The market has gottenoff to a rip-roaring start to September. With amonth-to-date gain of 5.48%, this is the 7th beststart to the month (through 14 trading days) for the S&P 500 since 1928.”

vi

Ø

The U.S. economy is slated to pick up over the rest of the year.

o

The Conference Board’s Leading Index risesmore than expected. “The latest reading points to more pep in the pace of economic activity in the near term”, said Ken Goldstein, an economistat the organization

vii

.

o

The manufacturing sector in the U.S. is gainingstrength, expanding by the most this year. Thisresult confirms both a recent improvement inISM indices in early September as well as astrong Philly Fed index result this week

viii

.These data points spur confidence that the sector



Disclaimer:Pleasefirstconsultyourfinancialadvisorforallimportantinvestmentrelateddecisions

2

!60$!40$!20$0$20$40$60$80$

1 / 1 / 0 6$ 6 / 1 / 0 6$ 1 1 / 1 / 0 6$ 4 / 1 / 0 7$ 9 / 1 / 0 7$ 2 / 1 / 0 8$ 7 / 1 / 0 8$ 1 2 / 1 / 0 8$ 5 / 1 / 0 9$ 1 0 / 1 / 0 9$ 3 / 1 / 1 0$ 8 / 1 / 1 0$ 1 / 1 / 1 1$ 6 / 1 / 1 1$ 1 1 / 1 / 1 1$ 4 / 1 / 1 2$ 9 / 1 / 1 2$ 2 / 1 / 1 3$ 7 / 1 / 1 3$

ZEW$Eurozone$Exp.$Of$Eco$Growth$

Chart: RCS InvestmentsSource: ZEW

will spark a pickup in growth over the secondhalf of the year. Total U.S. industrial production rises 0.4%, led by a 5.2% jump inauto production. Overall the gains were broad based

ix

.

o

An improving economy is the reason for risinginterest rates as per Scott Grannis at CalafiaBeach Pundit. Among improvements in theeconomy are the low level of weeklyunemployment claims, the strong rate of growthin vehicle sales, and ISM and Markit surveysindicating a strengthening service sector both in the U.S. and Europe.

x

Ø

Speaking of Europe, the region experiences a decreasein political risk and continues its string of publishing better than expected economic data.

o

Berlusconi backs down from his threat to derailItaly’s coalition. Even he knows not to disrupt the healing process taking place throughout theEurozone.

xi

o

ZEW economic sentiment, gauging the 6-monthoutlook for the 17-nation Eurozone, surged from 44 to 58.6, smoking analyst’s projections of a rise to 46

xii

.

§

Stabilizing global demand and animproved outlook for the Eurozone are buoying confidence in Germany’srecovery as well

xiii

.

o

In Spain Industrial Orders, a leading indicatorof manufacturing activity, surprises to theupside, posting a year over year (YoY) gain of 1.8% in July vs. -8.1% the prior month and is better than the -3.3% expected by analysts

xiv

.

o

In the UK, the Bank of England raises itsgrowth forecast after receiving better thanexpected economic figures from themanufacturing and business sectors

xv

,strengthening the standing of the Conservative party vs. its opponent, the Labour party

xvi

.

Ø

Get ready for some handsome gains in emerging marketcurrencies and fixed-income paper according to SocieteGenerale’s Kit Juckes. “The next phase is that we willsee huge inflows into EM assets as investors takeadvantage of better yields and less expensivecurrencies.”

xvii



Disclaimer:Pleasefirstconsultyourfinancialadvisorforallimportantinvestmentrelateddecisions

3

Bear

Ø

The bullish ebullience is deafening

xviii

due to the Fed not tapering vs. expectations of a taper. A prudent investorhowever will take a step back and see the forest for the trees. Here are a few thoughts to ponder:

o

What does the Fed’s inaction tell us about the true state of the economy

xix

(all the while mainU.S. equity indices are at all-time highs)?

o

When will investors realize that QE has been agargantuan failure with the now addedenormous risk of executing an exit policy

xx

?Consider:

§

National gas prices notched their 1000

th

day above $3.00 this week for the first time in history

xxi

.

§

The recovery has clearly benefitted therich at the expense of Main Street

xxii

.

§

Furthermore, despite one of BenBernanke’s primary reasons to undertakeQE (to lower long-term interest rates thereby stimulating economic activity),interest rates have nearly doubled from their lowest point (1.39%) in mid-2012.

o

By 2015, the fed funds rate should be at 3%according to 3 officials. But another 3 believe the rate should be at 0.25-0.50%, with the other13 somewhere in between

xxiii

. Is this disparitysupposed to inspire confidence in that they know what they’re doing? (Source: Federal Reserve)