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Oct 12 2013 Weekend Market Comment

Oct 12 2013 – OK Last week I was showing you how our indicators were heading down and it looked like we were completing another predictable cycle. As the U.S. government shut down loomed investors ran for the sidelines.  Well this week we were handed another lesson in “Fundamentals Trump Technicals” as the market rudely rallied while I was mostly in cash. 

The snap back has been very strong. But perhaps that is what is concerning. Look at this simple graph of the S & P 500 and how quick the market was to run back up, in a couple of days we have recovered most to the dip.

 (as always, click any graphic to enlarge)

Of course our indicators all look a lot better.

On the one hand you could say, hey with the government shut down out of the way for now there is little to hold the market back. Global economics are strengthening and there is little bad news. For the very short term I would agree, but with the US government facing the music on it spending craze and 2% growth predicted for the US economy there still is not a whole lot to cheer about. 

As you can see above, things look better but we don't have a green arrow yet AND look back about mid February you can see a similar bounce that fell apart. So if you get in here don't go nuts. Play conservative until the green arrow. 

Next I plotted this very long-term view of the markets, so this is RSP the equal weight version of SPY. I use RSP in place of SPY because Apple whips SPY around to much.  I would click and enlarge this graph to get a good look. Look on the bottom of the graph -- that is 200 day average slope. If you don't have/use slope MACD makes a fair substitute.  I took out my crayons and "painted" the up slope as green the down slope on the positive side yellow and the down slop in the negative grow zone as red. Notice this fall we are in a yellow zone – it is possible to make money in the yellow zone but harder and of course if yellow becomes red, there are few money making opportunities.  

So we don't have a green arrow yet and this quick run up could be a snap back head fake, I think on Monday I will buy some nice stable stuff like Canadian pipelines and DVY but I don't want to go to all in when we just had a rapid run up in a softening market. 

Gold Weak this Week
The price of gold appears to be on a path of starting a new down leg.  The SPDR Gold Trust ETF (GLD – 122.60) was down 3% on the week and the CBOE Gold ETF Volatility Index (GVZ – 25.83) jumped over 4%.  That move in GVZ is of interest, but the October future was up 5.5% which leads me to think that some traders think a gold drop is coming sooner rather than later.  This October future is basically at parity with the index with only two days remaining until expiration.

Bond Inversions
Think about bonds for a minute. Typically, the longer the time period of the bond, the more interest earned. After all, if you're lending and risking the money over a longer period of time, you want a bigger return, right?

But a sudden problem, like our recent congressional shenanigans, can get folks worrying about the immediate future. As a result the market wants higher rates for shorter duration bonds. This changes the typical curve of interest rates over time. Instead of starting low and going high, the curve inverts, with shorter-term rates going higher than longer-term ones.

Here's the key takeaway: An inverting yield curve is known to be a signal that a recession is ahead. So when one-month Treasury bill yields went higher than bills in the three- to six-month range, Wall Street got concerned.

I think this sets up well for a bounce in TBT that has been off a bit lately

So Bottom Line:
Have you ever met one of those guys that torments the family dog by pretending to throw a stick and then laughing when the dog runs off to find nothing? My real concern is the powers that be are going to go play fetch the stick with my money just in time for the party to end. I am always cautious in October. 


There was an interesting article in the Washington Post this week. Lust, power and corruption can make for an explosive mix. An unlikely whistle-blower for President Xi Jinping's much publicised crackdown on official corruption has emerged - the scorned mistress.

In recent weeks their public accounts have offered a rare glimpse of the extravagant lifestyles of the Communist Party elite, enraging the Chinese public.

The most high-profile case is that of Ji Yingnan - a mistress who shamed her former lover in the full glare of China's hundreds of millions of microblog users.

Sensationally, the 26-year-old identified him as Fan Yue, a deputy director at the State Administration of Archives.

This summer Ms Ji posted videos and pictures of the couple on the internet. There were pictures of the couple enjoying shopping sprees, splashing about in a private swimming pool, and at a party where the official asked his mistress to marry him.

According to Ms Ji's account, she exposed her boyfriend after discovering he was married with a teenage son.

"I had no idea he was such a liar," Ms Ji, the TV presenter, told the Global Times, a Chinese newspaper.

But what shocked the public were the staggering sums of cash involved. According to the mistress, her lover gave her more than a $1,000 (£600) a day in pocket money, a luxury car and promises of an apartment.

She told the Global Times that she initially reported Mr Fan to the authorities, believing he was involved in corruption. But she said she never received a reply and then decided to post her allegations online.

The details of her lavish lifestyle raised the obvious question: how could her lover afford all this on a modest government salary?

According to the state-run news agency, Xinhua, Mr Fan was sacked from his job in June and is now being investigated over the corruption allegations. The BBC could not reach Mr Fan for comment.

One of the main sites that posted the revelations is run by Zhu Ruifeng, an anti-corruption blogger. He shot to prominence last year after posting an explosive sex tape starring a government official, Lei Zhengfu, which triggered a corruption investigation, ultimately landing the official in jail.

With the growing power of the internet, details that would have once remained private are now leaking into the public domain.

Sex scandals, of course, happen in all countries. But the difference in China, says Mr Zhu, is that government officials are using public money to pay for their love lives.

"In China nothing is clear," he says, "The public don't know what officials are up to. But mistresses live with government officials, they spend their money, they know about everything that goes on.

"When a mistress stands up, the truth comes out."

A powerful energy official, Liu Tienan, was sacked from his post in May after his former mistress told a journalist that her lover had helped defraud banks of $200 million.

Mistresses have become the ultimate symbol of corruption in China. According to a government report in 2007, an astonishing 90% of top officials brought down by corruption scandals had kept a mistress - and in many cases they had more than one.

Former Railways Minister Liu Zhijun, jailed for corruption earlier this year, reportedly kept 18 mistresses.

Beibei district, who was involved in a sex tape scandal An explosive sex tape got Lei Zhengfu, centre, into trouble One lady age 26-year-old told the press she was once a mistress. The story said with her long, black hair and designer clothes, she looked like she had just stepped off a catwalk. She did not want to be identified, but told me her lover was a top company executive. She says that she witnessed corruption.

Mistresses are nothing new in China. Emperors were renowned for keeping concubines. But China's top sexologist, Li Yinghe, believes that many Chinese men believe they are still living in imperial times.

"I think many Chinese men have an emperor's complex," she says. "Being an emperor means you can have many women. This is something they are proud of. They see women as trophies of their success."

Little wonder then that the ruling Communist Party is now trying to stop its pillow talk becoming public.