Decision Moose Global Financial News & Analysis

2018.10.12 through 2018.10.21

Moosecalls Executive Summary page 1 Weekly Market Table, Daily Recap page 2 Economy Fed & Inflation page 3 Commodities page 4 Gold page 5 US Dollar, Carry Trade page 6 US Treasury Bonds page 7 US Large-cap Stocks page 8 US Small-cap Stocks page 9 European Stocks page 10 Japanese Stocks page 11 Asia Pacific ex-Japan Stocks page 12 Latin American Stocks page 13 Moose-extras: Top 20, TSP page 14 Moospeak Editorial page 15

Moosecalls— week closing 10.12.2018

*On October 10, 2018, the model was stopped out of US Large-cap equities (SPY @285.42) into cash. See newsletter for more details on re-entry. Always familiarize yourself with any investment program and the assets involved before committing to it. Read the FAQs and The Art of the Switch, and get a prospectus online from the fund provider. Executive Summary— Fall-Fast-Fall US large caps (-4.1%) and small-caps (-5.3%) got hammered this week, along with European (-4.0%) and Japanese (-4.1%) stocks. A worse disaster was averted by a Friday bounce. Asia-Pacific ex-Japan (-2.3%) was also hard hit, but Latin America (+2.8%), a major beneficiary of the US-China trade war, continued to rally off previous lows. Equities suffered at the hand of a surge in global bond yields led by the US. (The 10-year Treasury yield rose from 3.23% to 3.25% mid-week, before closing the week at 3.14%.) Lower yields on the week, helped long Treasury bonds (+2.0%) claw back some of their 5% loss a week ago. Lower yields also led to US Dollar (-0.3%) weakness, which—along with the fear trade-- added to gold’s (+1.3%) strength. Commodities (-0.4%) in general, however, were lower as oil (-3.6%) dropped on excess supplies. #1 US Large-Caps (SPY) Trigger Stop-Loss-- In July, SPY broke out, setting its sights on January’s all time high. It tested that high in early August, but fell back in the face of a currency crisis in Turkey. Large-caps finally broke the dam and managed new highs in late August and again in late September, pushing SPY into the model’s #1 slot. A spike in the 10-year Treasury yield tanked stocks this week, however, and SPY hit its stop-loss, putting the model in cash. SPY’s 14-day RSI of 29 is still oversold (30). SPY’s current 20-day stop-buy is 281.79. See Moospeak for more. NY Fed: Recession Chances Still Low-- The NY Fed puts the chance of a US recession by September 2019 at 14.50%. That is slightly lower than last month’s forecast, which was the highest probability since the last recession (2008-09), but still well below the 30-35% level that would portend a major bear market (down 20% plus) in US stocks. The Fed plan to (a) gradually phase out debt roll-over on their balance sheet and (b) hike rates one more time in 2018 (for a total of four) could change that, but for now, corrections pose the greater downside risk to stocks. Futures currently put the probability of a fourth 2018 Fed rate hike in December at 76.5% and of a first 2019 hike in March at 38.5%. US Dollar Rally Hangs On— In August, the currency crisis in Turkey boosted the Dollar to a sixth summer high, overbought and matching a level last seen in July 2017. It had retreated about 3% on an agreement with Mexico, and rumored talks with both Canada and China cooled tariff concerns. The latest Fed rate hike and the Fed chairman talking up the economy spiked yields and helped the Dollar this month, but this week, falling yields caused the greenback to slip. Commodities ($CRB) Take A Breather— A slightly bullish CRB fell 0.4% this week after last week’s 2.4% gain. That left commodity prices up 2.2% for the quarter (13 weeks), and up 7.1% for the year (52 weeks). #3 US Small Caps (IWM) Break Down, Test May Lows-- In April, after retesting its 200-day, IWM began tracking higher. It peaked at overbought levels ($169) in mid-June, after which it made higher lows, but no new highs until it revived in mid-August and hit $173 to start September. It wavered after, giving way to US large-caps as the model’s top choice, and subsequently hitting stop-loss levels at the end of the month, confirming the exit. A spike in interest rates tanked small caps this week, sending them into oversold territory very near their last major low in May. After a bounce Friday, IWM’s current 14-day RSI of 29 is still oversold (30). #4 Japan Stalls Out, Drops Amid Global Swoon-- EWJ’s intermediate uptrend was intact from July 2016 to June 2018. It broke down and bottomed (just above $56) in early July, again in mid-August, and finally in early September. The triple bottom has come despite the Bank of Japan offering the easiest money in the world, probably because US tariff threats this year have spooked the export-driven nation’s equities. EWJ has bounced at each of the triple lows with the latest bounce (September) being the most promising. After

Weekly Close This Week's Signal End Date

10.12.2018 HOLD Cash 10.21.2018

finishing above its 200-day for the first time in three months to end September, it ran out of gas, dropping 8% in the last two weeks as a global spike in yields hit equities. #5 Latin America (ILF) Ignores Equity Trails Elsewhere -- A July bounce, fueled in part by a US-Mexico pledge to work together on NAFTA, ended abruptly in August as emerging market currency and trade concerns met up with technical resistance and sent ILF plunging back to a September retest of the June lows. Those lows ($29) held, after the US Dollar surge slowed and eased Argentina’s currency crisis. Since then, Mexico and Canada have joined with the US in a new tri-partite North American trade agreement, and Brazil’s first round of elections have concluded successfully. The region is also viewed as one of China’s primary trading partners and a key beneficiary in any US/China trade disruption, particularly with respect to agriculture and materials. All of this has helped ILF regain its 200-day and hold it this week, despite plunging equities just about everywhere else. #6 Europe (IEV) Tanking After Four Failed Break-Outs-- US steel and aluminum tariffs, political and banking concerns in Italy and Spain, a surge in illegal immigration, and Brexit negotiations have pressured European stocks throughout this year. The August retreat picked up speed as investors in European banks began to worry about their exposure to a free-fall in the Turkish Lira that sent IEV below its six-month floor (43). It bounced 7% in late August, lost it, and bounced again in September. All four rebounds since June have failed at 200-day resistance. Italian financial concerns ended the latest bounce in late September and a global spike in interest rates sent it plunging to a 17 month low this week. With a 14-day RSI of 25, IEV is oversold (30). #7 Bearish Gold (GLD) Gets “Fear Pop”— Deeply oversold to start July, GLD managed a dead cat bounce, but an unrelenting Dollar and benign inflation sent it down to even deeper oversold levels in August (@111) The anemic recovery that took GLD off its August bottom, as investors looked ahead to the stronger half of the year for bullion, has stumbled along for seven weeks, inhibited by a strong Dollar and rising interest rates. This week, a plunge in equities reignited the fear-trade, giving bearish GLD a brief pop. #8 T-Bonds (EDV) Bounce on Equity Hell-- Q1 GDP, and fear that a tariff war could dampen the economy further, sent EDV to a new high at 119 in mid-July and a re-test in mid-August. Thereafter, solid US economic data, including strong Q2 GDP (4.1%), rumors of 5% Q3 GDP, and strong August jobs sent bond prices lower into September. September’s Fed rate hike-- the third this year—led to a bounce in bond prices, but Fed chairman Powell later noting a “remarkably positive set of economic circumstances” caused bonds to plunge to oversold levels. This week’s rebound relieved that condition. #9 Asia-ex-Japan (AAXJ) Ever Lower As US Drops-- The 2018 trend of lower highs and lower lows continues. A 5% bounce in July reversed -7% into a V-bottom in August below intermediate-term resistance. A low-level trade delegation from China in DC to discuss tariffs ahead of a possible Trump-Xi summit in November helped AAXJ briefly, but lack of progress, coupled with President Trump’s tweets, have kept up the pressure on Asian equities. After claims of Chinese interference in the US 2018 elections sent AAXJ sharply lower last week, a global spike in bond yields added to the misery this week.

INDEX MOOSE: Weekly Market Table— thru 10.21.2018

RANK CI ASSET TS Trend 1 96% US large-cap stocks (SPY) 62% bullish 2 79% CASH -- -- 3 67% US small-cap stocks (IWM) 15% neutral 4 67% Japanese stocks (EWJ) -4% neutral 5 58% Latin American stocks (ILF) -8% neutral 6 38% European stocks (IEV) -80% very bearish 7 25% Gold (GLD) -86% very bearish 8 17% US Long Treasuries (EDV) -98% very bearish 9 4% Pacific ex-JAPAN stocks (AXJL) -91% very bearish

Ryan/CRB Indicator 99% neutral

ST Interest Rate Equity Indicator 53% bullish

Volatility Index 19% neutral

US Dollar Index 85% very bullish

Commodity inflation trend 45% slightly bullish

Oil 95% very bullish

CI is the "confidence index" measuring the model's overall confidence in the asset. It combines the relative strength (rank), and technical strength (TS). For more information, see the FAQs. Daily Recap— week closing 10.12.2018 Monday, Markets Remain Uncertain. US equities were mixed in choppy action, with rising global bond yields adding to market nervousness, despite easing by China's central bank. Europe and Asia were lower amid yield concerns, while the US Treasury market was closed for Columbus Day. The US dollar moved higher, gold tumbled, and crude oil prices were little changed. The S&P 500 Index was down 1 point to 2,885. Tuesday, Markets Mixed, Anxiety Remains. US equities finished mixed in a roller-coaster session as the recent rally in Treasury yields slowed. Energy and technology stocks led to the upside, but financials dipped ahead of key bank earnings due Friday. Trade concerns pressured materials and industrials. Europe turned higher as technology recovered, but Asia was mostly lower. Elsewhere, the US dollar ticked lower, and gold was modestly higher, while crude oil prices were mixed. The S&P 500 Index was down 4 points (-0.1%) to 2,880. Wednesday, Markets Sell Off. US equities suffered solid losses as rising global bond yields and festering trade concerns threatened the unofficial start to Q3 earnings season later this week. Lingering political uncertainties across the pond added to the anxiety, sending Europe lower. Asia was mostly higher overnight, but closed by the time the western rout began. Treasuries were mixed, and the US dollar lost ground, even though producer prices rebounded. The recent crude oil rally stalled adding to global worries, and gold was modestly higher. The S&P 500 Index fell 95 points (-3.3%) to 2,786. Thursday, Stocks Post A Second Day of Solid Losses. US equities added to yesterday's rout. All sectors posted losses, as a recent surge in global bond yields and ongoing trade anxieties dampened sentiment heading toward Friday’s key bank earnings reports tomorrow. Europe and Asia remained under pressure as well. Treasury yields did pull back from highs, following cooler-than-expected consumer prices, and a sharp decline in crude oil prices after a much larger-than-expected rise in oil inventories. Meanwhile, the US dollar declined, and gold rallied. The S&P 500 Index declined 57 points (-2.1%) to 2,728. Friday, Stocks Rebound After Two-Day Rout. US equities posted solid gains in the final session of a tough week that included a two-day market rout on bond yield and trade concerns. Bank earnings were solid as Q3 earnings season kicked off. Treasuries reversed lower and the US dollar was higher, even as consumer sentiment surprisingly dipped and import prices rose. Europe turned lower, and Asian markets recovered. Meanwhile, gold backed off its recent rally a bit, and crude oil rose. The S&P 500 Index increased 39 points (+1.4%) to 2,767.

Economy, Fed & Inflation-- thru 10.21.2018 Global Economy, Current Perceptions—The IMF’s global growth outlook is 3.6% and 3.7% for 2017 and 2018 respectively. In its October World Economic Outlook, before the US tax cut, the IMF cut its US GDP forecast for 2017 to 2.1% from its previous outlook of 2.3%, and for 2018 to 2.1% from 2.5%, “primarily reflecting the assumption that fiscal policy will be less expansionary going forward than previously anticipated.” The U.S. economic picture is solid, but the synchronized global growth story is being tested by signs of softness in Europe and by the impact of the persistent run in the US dollar on emerging markets. China is still seen growing by 6.5% in 2018. Indications are positive for the global economy this week. An international shipping measure and proxy for current global trade, the Baltic Dry Index (1579) rose this week, but is still higher after 13 weeks, a positive. (After opening 2018 at 1323, BDI is still well below its 2010 peak @4640). Meanwhile, another proxy for world activity, WTI oil price ($71.34) fell this week, and is positive for the latest quarter. (Oil remains well off its 2011 peak @$113, but well above its 2008 crisis lows @$37.) Our proxy for global construction, copper ($2.80) rose this week, and is up this quarter, a positive. Domestically, 10Y US bond yields are up over the past 13 weeks, a positive bet on the largest world economy. US Economy, Current Perceptions— Overall Data Assessment This Week: Poor. The good: Inflation tame (see below). The bad: Weekly initial jobless claims (214K) and weekly continuing jobless claims (1660K) both up slightly. October Michigan Sentiment (99.0) down unexpectedly. September NFIB Small Business Optimism (107.9) down on the month. August wholesale inventories (+1.0%) up more than expected. The ugly: Nothing. The Fed, Current Perceptions: The Fed raised its target FFR 25 basis points to 2.125% this week-- committing to a 2.00%-2.25% range on 9/26/2018. The August meeting left rates unchanged. The latest rate hike was the eighth since December 2015, when the Fed ended seven years of zero interest rate policy (ZIRP) with its first rate hike in more than a decade. There’s been little change in policy under new Fed chair, Jerome Powell with quarter point hikes each quarter since late 2016-- unless GDP or inflation weakness precluded it. Fed forecasts are improving. The latest median 2018 US GDP growth estimate is up (+3.1%) and its core 2018 PCE inflation estimate is as well (+2.0%). Longer term, 2.5% GDP and 2.1% PCE inflation are expected in 2019, requiring further rate hikes up to a median FFR yielding 2.4% in 2018, and 3.1% in 2019, an indication that one more rate hike is planned in 2018 and three more in 2019. Meanwhile, the Fed continues rolling Treasuries and mortgage-backed bonds off its $4.5 trillion balance sheet. It allowed $10 billion to roll off in Q417, $20 billion in Q118, $30 billion in Q218, and has continued increasing quarterly in $10 billion increments until the total hits $50 billion in October 2018. Futures currently put the probability of a fourth 2018 Fed rate hike in December at 76.5% and of a first 2019 hike in March at 95.9%. The Fed Check at 100% suggests Fed neutrality is warranted, with commodity prices neutral and T-bond prices bearish. The yield curve steepened this week. Intermediate term, the curve is getting flatter, while median yields are rising, leaving our interest rate signal for stocks neutral. 3-month LIBOR yield @2.41% is up this week, while the 3 month T-bill at 2.17% is up. That puts the LIBOR/T-Bill (TED) spread at 24 basis points, below its median (38 bpts.) since 2008. A lower TED spread suggests a more confident banking system. Inflation, Current Perceptions— Annual inflation rates per the CPI and PPI inched lower again in September, and are now right around the Fed target of 2.5%. After a bullish run, commodity prices, apart from oil, have cooled implying reduced global inflation pressure ahead. September import prices were strong, but essentially offset a weak August showing. The Fed’s favorite gauge, core PCE, is below 2% target. September core CPI (+0.1%) and September CPI (+0.1%) both cool. (1 year CPI up 2.3%.) September core PPI (+0.2%) and September PPI (+0.2%) both in line. (1 year PPI up 2.6%.) September export prices (0.0%) cool. September import prices (+0.5%) offset August (-0.6%) August 12-mo. core PCE (+2.0%) at target. August 12-mo. PCE (+2.2%) above target. Q2 gross domestic product (+4.2%) strong. Q2 unit labor costs (-1.0%) revised even lower than earlier reports. Q2 GDP chain deflator (+3.0%) hotter than expected, above Fed range. Q2 employment cost index (+0.8%) slightly warmer than expected. Q2 productivity (+2.9%) much improved.

Commodities ($CRB) Take A Breather— Commodities, Perceptions thru 10.21.2018— A slightly bullish CRB fell 0.4% this week after last week’s 2.4% gain. That left commodity prices up 2.2% for the quarter (13 weeks), and up 7.1% for the year (52 weeks). At 198, CRB is above its short-term (50-day) average at 193, and above its intermediate-term (200-day) average at 196. Meanwhile, oil prices (USO) are currently very bullish. Crude prices fell 3.6% this week, following last week's 1.1% gain. That leaves US oil prices up 4.5% for the quarter (13 weeks), and up 45.8% for the year (52 weeks). At 15, USO is above its short-term (50-day) average at 15, and above its intermediate-term (200-day) average at 14. The Dollar weakened this week, improving return for dollar investors

in commodities. Longer term, the bullish Dollar is limiting return to Dollar investors in commodities. Commodities, Situation: SEP 15— Commodities last peaked in July 2014, when WTI oil hit $113. They ended 2015 (after the first Fed rate hike in ten years) down 48%, when oil dropped to $26 a barrel, due to falling global demand, a stronger Dollar, and a spike in US energy supply from fracking. Since then oil has made a comeback of sorts to $68. The CRB has tracked oil throughout. Current commodity outlook: bearish. Commodities: Bull ish Assumptions Commodities: Bearish Assumptions Global monetary policy still accommodative overall. Only the US is tightening. The Bank of Japan and European Central Bank are holding policy steady at interest rate levels near or below inflation rates.

The US has been tightening interest rates since 2016, and reversing QE since 2017. The Fed plans three more rates hikes in the next three quarters. Higher US interest rates reduce demand for commodities.

The US economy is the world’s growth engine and Trump’s fiscal policy has it taking off. If the 4%+ growth seen in Q2 is sustained, commodity prices will increase, spurred by renewed US demand.

Higher US interest rates are making US bonds more attractive, increasing the demand for Dollars. Commodities are traded in dollars, and all else equal, a stronger Dollar lowers commodity prices.

Mideast violence continues to disrupt supply and raise oil prices. The defeat of ISIS, and the winding down of the Syrian civil war will improve regional security, but Iranian terror funding, and the Saudi-Yemen conflict remain.

The threat of a trade war and new US tariffs also strengthens the dollar (a) because tariffs are inflationary requiring more Fed rate hikes and (b) because US tariffs are an additional import cost that must be paid in Dollars.

Oil comprises more than 60% of the commodity index. With oil sanctions against Iran and Russia, Venezuela’s oil industry having imploded, and OPEC discussing production cuts, less supply means higher oil prices.

Fracking has put the US back among the world’s top oil producers. Supply has increased more rapidly than it can be moved, refined, and shipped. More US supply means lower global oil prices.

#7 Bearish Gold (GLD) Gets “Fear Pop”— Gold Bull ion, Perceptions thru 10.21.2018-- Gold Bullion (GLD) is currently very bearish and ranks #7 in the model-- less attractive than cash. Gold's price rose 1.3% this week, following last week's 0.9% gain. That leaves GLD down 2.0% for the quarter (13 weeks), and down 6.9% for the year (52 weeks). At 115, GLD is above its short-term (50-day) average at 114, and below its intermediate-term (200-day) average at 121. The Dollar weakened this week, improving return for dollar investors in gold. Longer term, the bullish Dollar reduces return to Dollar investors in gold. GLD briefly spiked above 129 in April, but has fallen since, logging a double-bottom

breakdown below its 200-day in mid-May. The ongoing threat of US tariffs has strengthened the Dollar since, lessening fears of commodity inflation and fueling gold’s breakdown. Deeply oversold to start July, GLD managed a dead cat bounce, but an unrelenting Dollar and benign inflation sent it down to even deeper oversold levels in August (@111) The anemic recovery that took GLD off its August bottom, as investors looked ahead to the stronger half of the year for bullion, has stumbled along for seven weeks, inhibited by a strong Dollar and rising interest rates. This week, a plunge in equities reignited the fear-trade, giving bearish GLD a brief pop. GLD has 14-day RSI of 59, and is neither oversold (30) nor overbought (70). Gold Bull ion, Situation: SEP 15— In August 2011, gold peaked above $1900 an ounce. In December 2015, it bottomed below $1050 (a six-year low at the time) after the Fed hiked interest rates for the first time in ten years. It has traded in the lower third of that range ($1125-$1367) since, following its traditional inverse relationship with the US Dollar. Gold has tested $1367 four times since August 2016, failing to break higher amid gradual, but regular Fed tightening. Current outlook: bearish Gold: Bull ish Assumptions Gold: Bearish Assumptions Global monetary policy still accommodative overall. Only the US is tightening. The Bank of Japan and European Central Bank are holding policy steady at interest rate levels near or below inflation rates.

The US has been tightening interest rates since 2016, and reversing QE since 2017. The Fed plans three more rates hikes in the next three quarters. Higher US interest rates reduce demand for gold, a sterile asset.

The US economy is taking off under Trump’s fiscal policy, which includes additional spending as well as tax and regulatory cuts that will overheat the economy and exacerbate inflation, helping gold.

Higher US interest rates are making US bonds more attractive, increasing the demand for Dollars. Gold is traded in dollars, and all else being equal, a stronger Dollar lowers gold prices.

The fear-trade is alive and well with Islamic terrorism; the North Korean and Iranian nuclear threats; and politically-destabilizing migratory invasions of Europe. In addition, currency collapse in heavily indebted emerging markets could take down major banks, threatening global financial stability.

The threat of a trade war and new US tariffs also strengthens the dollar and hurts gold (a) because tariffs are inflationary requiring more Fed rate hikes and (b) because US tariffs are an additional import cost that must be paid in Dollars. Again, a stronger Dollar lowers gold prices.

Gold demand traditionally picks up from September through February.

Gold’s two largest consumers— India and China—continue to cut back on purchases.

US Dollar Rally Hangs On— US Dollar, Perceptions thru 10.21.2018-- The US Dollar index is currently very bullish. The US Dollar fell 0.3% this week, following last week's 0.6% gain. That leaves it up 1.3% for the quarter (13 weeks), and up 4.8% for the year (52 weeks). At 25, UUP is above its short-term (50-day) average at 25, and above its intermediate-term (200-day) average at 24. The Dollar weakened this week, favoring investment in foreign assets, commodities, and gold over investment in US assets. Longer term, the bullish Dollar favors investment in US assets, while reducing US trade prospects. An oversold buck bounced off multi-year lows three times before tracking higher in

late February. Tariff worries initially stalled the Dollar’s recovery, but eventually, tariff concerns and repatriated tax dollars helped the buck take off in April. It has gone higher since, helped by solid US economic numbers; two Fed rate hikes; political and financial worries in Europe and China; and additional US tariff threats— leading to easier money policies abroad that push foreign currencies lower. In August, the currency crisis in Turkey boosted the Dollar to a sixth summer high, overbought and matching a level last seen in July 2017. It had retreated about 3% on an agreement with Mexico, and rumored talks with both Canada and China cooled tariff concerns. The latest Fed rate hike and the Fed chairman talking up the economy spiked yields and helped the Dollar this month, but this week, falling yields caused the greenback to slip. 14-day RSI at 54, neither and overbought (70) nor oversold (30). Dollar Situation: SEP 15-- The Dollar Index traded between 91 and 104 from the end of 2014 until 2018 opened, when the range broke down, and the buck put in a new low at 88. The Dollar was last at the top of its range right before the Fed rate hike in December 2016. That, and subsequent Fed rate hikes (in March, June and December 2017) coincided with lower highs, and lower lows in the Dollar throughout 2017. The Fed has continued a more restrictive monetary policy than either BoJ or ECB into 2018, and the widening spread between US yields and those of Europe and Japan has boosted the Dollar. In addition, tax cuts in December 2017, led corporations to begin converting $3T-5T in offshore cash to Dollars, in order to repatriate it, also strengthening the currency. Not until the US announced tariffs in March 2018, however, did the Dollar get up off the floor and rally. Current Outlook: Bull ish Carry-trade thru 10.21.2018 Non-Dollar investors seeking to maximize profits using the Moose should incorporate a "carry-trade" currency strategy into the decision, making it a two-step process. First, decide if it makes sense to switch to US Dollars, 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. If a currency is bullish vs. the Dollar, the Dollar investment will underperform.) As for the major currencies, the Euro is very bearish, and up 0.3% this week. The Yen is very bearish, and up 1.3%. The British Pound is bearish, and up 0.3%. The Canadian Dollar is neutral, and down 0.7%. The Aussie Dollar is very bearish, and up 1.0%.

Currency vs. Dollar TS Trend Medium Term Implications for non-Dollar investors Euro -84% very bearish Euro investors outperform the $ Moose Yen -87% very bearish Yen investors outperform the $ Moose Australian $ -93% very bearish Aussie $ investors outperform the $ Moose British Pound -62% bearish Sterling investors outperform the $ Moose Canadian $ -24% neutral Canadian $ investors match the $ Moose

#8 T-Bonds (EDV) Bounce on Equity Hell-- US Long Treasury Bonds, Perceptions thru 10.21.2018-- US Long-zeros 25y+ (EDV) are currently very bearish and rank #8 in the model-- less attractive than cash. Long zero Treasuries rose 2.0% this week, following last week's 5.1% loss. That leaves 25-year T-bonds down 9.9% for the quarter (13 weeks), and down 11.5% for the year (52 weeks). At 105, EDV is below its short-term (50-day) average at 111, and below its intermediate-term (200-day) average at 112. The Dollar weakened this week, dampening return for dollar investors in US assets. The 10-year Treasury bond yield is at 3.14% this week, down from 3.23% the week before. The yield curve flattened this week. Longer term, the yield curve is steepening, a bet on economic recovery.

An improving economy, a more hawkish Fed, and deficit concerns sent the 10-year yield to highs (and bond prices to lows) not seen since 2014 in late February. EDV subsequently traded in an 8% range between 107 and 115 until May, before two Fed rate hikes, Dollar strength, mediocre (2.1%) Q1 GDP, and fear that a tariff war could dampen the economy further, sent EDV to a new high at 119 in mid-July and a re-test in mid-August. Thereafter, solid US economic data, including strong Q2 GDP (4.1%), rumors of 5% Q3 GDP, and strong August jobs sent bond prices lower into September. September’s Fed rate hike-- the third this year—led to a bounce in bond prices, but Fed chairman Powell later noting a “remarkably positive set of economic circumstances” caused bonds to plunge to oversold levels. This week’s rebound relieved that condition. EDV’s 14-day RSI of 37 is neither oversold (30) nor overbought (70). US Long Treasury Bonds, Situation: SEP 15— EDV put in a bottom (@104) with the December 2016 FOMC rate hike, and retested that bottom with the March 2017 rate hike. Bond prices rallied after that, mounting a choppy advance in 2017, helped by quarterly FOMC rate hikes despite below trend growth and low inflation. Bond prices peaked after the December Fed rate hike, but fell after the tax cuts— a short-lived bet that growth and inflation would heat up in 2018 that ended with an anemic bond rally in February that has left prices below year-ago levels as of Q4’s open. Current outlook: Neutral. ` Long US Treasury Bonds: Bull ish Assumptions Long US Treasury Bonds: Bearish Assumptions Global growth remains tepid, keeping inflation at bay, as evidenced by global monetary policy that is still accommodative overall, with Fed, BoJ, and ECB interest rate levels still near or below inflation rates.

The latest US tax and regulatory cuts, coupled with new spending and more Federal debt, will overheat the economy, exacerbate inflation, and increase the supply of paper going to market, hurting bonds.

The Fed, in its efforts to “normalize” interest rates will tighten too much too fast, threatening the recovery, inverting the yield curve, and sending bond prices higher.

US has been gradually tightening since 2016. The Fed plans three more rates hikes in the next three quarters. Rising US interest rates generally translate into falling bond prices.

A rising Dollar makes the carry-trade in US income assets more attractive on a relative basis. Dollar strength has come from the 2017 tax cuts, higher Fed interest rates, and the 2018 US tariff threats, all of which are expected to continue.

The Fed is backing out of QE, now reducing the bonds held on its $3T balance sheet by no longer rolling over $50 billion per quarter. Less Fed demand for bonds pushes bond yields higher, and prices lower.

The flight-to-safety-trade is intact: Islamic terrorism; North Korean and Iranian nuclear threats; politically-destabilizing migratory invasions of Europe, and the threat to global financial stability (again) from currency collapse in heavily indebted emerging markets.

China and Japan traditionally have large trade surpluses with the US and use those surplus Dollars to buy US bonds, making them the two largest investors in US Treasuries. Trade deals reducing those surpluses will also curb demand for Treasuries, causing bond prices to fall.

#1 US Large-Caps (SPY) Trigger Stop-Loss-- US Large-Cap Stocks, Perceptions thru 10.21.2018-- US large-cap stocks (SPY) are currently bullish and rank #1 in the model-- more attractive than cash. The S&P500 fell 4.1% this week, following last week's 1.0% loss. That leaves the index down 1.3% for the quarter (13 weeks), and up 8.2% for the year (52 weeks). At 276, SPY is below its short-term (50-day) average at 287, and below its intermediate-term (200-day) average at 276. The Dollar weakened this week, dampening return for dollar investors in US assets. Longer term, the bullish Dollar spurs investment in US assets, while reducing US trade prospects. In February, US large cap equities corrected 10% for the first time in two years. Solid

job growth and rising consumer confidence then helped it make higher highs and higher lows for a month before retesting its previous low on April 1. SPY rallied off its 200-day twice after that beginning a trend of higher highs and higher lows in early May. In July, SPY broke out, setting its sights on January’s all time high. It tested that high in early August, but fell back in the face of a currency crisis in Turkey. Large-caps finally broke the dam and managed new highs in late August and again in late September, pushing SPY into the model’s #1 slot. A spike in the 10-year Treasury yield tanked stocks this week, however, and SPY hit its stop-loss, putting the model in cash. SPY’s 14-day RSI of 29 is still oversold (30). See Moospeak for more. SPY’s current 20-day stop-buy is 281.79. US Large Cap Stocks, Situation: SEP 15— Dividend-producing US large cap stocks led both mid-caps and small-caps in 2014-15 and for most of 2016-17. In 2016, large caps were down in the three months prior to the election, foretelling a Trump victory. They rallied on Trump’s election, consistently making new all time-highs without correcting 10% until January 2018. They have since recovered and are 8% higher year-to-date. Current Outlook: bull ish. US Large-cap Stocks: Bull ish Assumptions US Large-cap Stocks: Bearish Assumptions The latest US tax and regulatory cuts, coupled with new spending and more Federal debt, will create an economic boom that will increase income, investment, and profits, especially boosting large-cap stocks.

Global growth remains tepid outside the US. Without economic help from abroad, the US cannot maximize its growth potential. While growth in the US is solid, the chance of recession has risen in 2018.

The Fed has the stock market’s back. It’s been tightening since 2016, but has been flexible. It plans three more rate hikes in the next three quarters. Fed rate hikes from low levels portend a stronger economy and rising stock prices.

This bull market is the longest ever and very long in the tooth. Stocks are overpriced. A recession or Black Swan event is overdue. The threat of war, terrorism, and/or financial collapse continually hangs over the markets.

A rising Dollar makes the carry-trade in US equities more attractive on a relative basis. Dollar strength has come from the 2017 tax cuts, higher Fed interest rates, and the 2018 US tariff threats, all of which are expected to continue.

The Fed, in its efforts to “normalize” interest rates will tighten too much too fast, stifling the recovery, and initiating a recession that sends stock prices lower. (Or it will be too easy, too long, creating a bubble that tanks stock prices.)

Repatriation of $3-$5 trillion in foreign income under the new tax law allows US multinationals to invest in new plant, equipment, and jobs, increase dividends and launch stock buybacks.

US tariffs are a tax on US consumers and businesses that will reduce economic wellbeing and corporate profitability. Large multinational firms in particular lose in a trade war, and their stocks suffer.

Relatively easy monetary policy in Japan and Europe is keeping a floor under global risk, even if the US is tightening. That minimizes the impact exogenous political and financial events have on US stocks.

“Affordable” healthcare, the biggest tax in US history in 2014, and a nightmare for the economy and the middle class, continues to weigh on US job and wage growth, consumption, and savings in 2018.

#3 US Small Caps (IWM) Break Down, Test May Lows-- US Small-Cap Stocks, Perceptions thru 10.21.2018-- US small-cap stocks (IWM) are currently neutral and rank #3 in the model-- less attractive than cash. The Russell 2000 fell 5.3% this week, following last week's 3.8% loss. That leaves the index down 8.3% for the quarter (13 weeks), and up 2.8% for the year (52 weeks). At 154, IWM is below its short-term (50-day) average at 168, and below its intermediate-term (200-day) average at 161. The Dollar weakened this week, dampening return for dollar investors in US assets. Longer term, the bullish Dollar spurs investment in US assets, while reducing US trade prospects. The Trump tax cuts and rising interest rates initially favored large corporations over

small. Beginning in March, however, tariff worries hit large multinationals and small caps began to outperform. After correcting 10%+ for the first time in two years, IWM made higher highs and higher lows into mid-March thanks to lower interest rates, strong job growth and rising consumer confidence. In April, after retesting its 200-day, IWM began tracking higher. It peaked at overbought levels ($169) in mid-June, after which it made higher lows, but no new highs until it revived in mid-August and hit $173 to start September. It wavered after, giving way to US large-caps as the model’s top choice, and subsequently hitting stop-loss levels at the end of the month, confirming the exit. A spike in interest rates tanked small caps this week, sending them into oversold territory very near their last major low in May. After a bounce Friday, IWM’s current 14-day RSI of 29 is still oversold (30).

US Small Cap Stocks, Situation: SEP 15— US large cap stocks led both mid-caps and small-caps in 2014-15 and for most of 2016-17. Weakness from Fed tightening fears in 2016 gave way after the Trump win, and small caps rallied 20% in 20 days, making new all time-highs in the fourth quarter. They continued to rally in 2017, despite Fed rate hikes in March, June, and December. A US tax package benefitting smaller companies became law in December, and small-caps continued to rally into January 2018 before suffering their first correction in two years. They’ve since resumed their advance making several new highs. Outlook: Bull ish US Small-cap Stocks: Bull ish Assumptions US Small-cap Stocks: Bearish Assumptions The latest US tax and regulatory cuts, coupled with new spending and more Federal debt, will create an economic boom that will increase income, investment, and profits, boosting all stocks.

Global growth remains tepid outside the US. Without economic help from abroad, the US cannot maximize its growth potential. While growth in the US is solid, the chance of recession has risen in 2018.

The Fed has the stock market’s back. It’s been tightening since 2016, but has been flexible. It plans three more rate hikes in the next three quarters. Fed rate hikes from low levels portend a stronger economy and rising stock prices.

This bull market is the longest ever and very long in the tooth. Stocks are overpriced. A recession or Black Swan event is overdue. The threat of war, terrorism, and/or financial collapse continually hangs over the markets.

A rising Dollar makes the carry-trade in US equities more attractive on a relative basis. Dollar strength has come from the 2017 tax cuts, higher Fed interest rates, and the 2018 US tariff threats, all of which are expected to continue.

The Fed, in its efforts to “normalize” interest rates will tighten too much too fast, stifling the recovery, and initiating a recession that sends stock prices lower. (Or it will be too easy, too long, creating a bubble that tanks stock prices.)

Repatriation of $3-$5 trillion in foreign income under the new tax law allows US multinationals to invest in new plant, equipment, and jobs, sourcing small US businesses for their needs.

US tariffs are a tax on US consumers and businesses that will reduce economic wellbeing and corporate profitability. Small firms are less affected by a trade war than multinationals, but their stocks still suffer.

Relatively easy monetary policy in Japan and Europe is keeping a floor under global risk, even if the US is tightening. That minimizes the impact exogenous political and financial events have on US stocks.

“Affordable” healthcare, the biggest tax in US history, and a nightmare for the economy and the middle class, continues to weigh on US job and wage growth, consumption, and savings in 2018.

#6 Europe (IEV) Tanking After Four Failed Break-Outs-- European Large-Cap Stocks, Perceptions thru 10.21.2018-- European equities (IEV) are currently very bearish and ranked #6 in the model-- less attractive than cash. The Europe 350 fell 4.0% this week, following last week's 2.2% loss. That leaves the index down 7.1% for the quarter (13 weeks), and down 10.6% for the year (52 weeks). At 42, IEV is below its short-term (50-day) average at 44, and below its intermediate-term (200-day) average at 46. The Euro strengthened this week, improving return for dollar investors in European stocks. Longer term, a bearish Euro reduces return to Dollar investors, but improves Europe's trade prospects.

IEV rallied from Trump’s election in late 2016 (@35) into January 2018 (@49) when the ECB began modest tightening by scaling back its QE purchases. Since then the 2018 trend has been down. IEV initially corrected 10%+ in early February (@44-45), a level subsequently retested in March, May, June, August, and September, giving way a little each time. US steel and aluminum tariffs, political and banking concerns in Italy and Spain, a surge in illegal immigration, and Brexit negotiations have pressured European stocks throughout this year. The August retreat picked up speed as investors in European banks began to worry about their exposure to a free-fall in the Turkish Lira that sent IEV below its six-month floor (43). It bounced 7% in late August, lost it, and bounced again in September. All four rebounds since June have failed at 200-day resistance. Italian financial concerns ended the latest bounce in late September and a global spike in interest rates sent it plunging to a 17 month low this week. With a 14-day RSI of 25, IEV is oversold (30). European Large Cap Stocks, Situation: SEP 15-- European Union GDP improved from 1.5% in 2016 to to 2.1% in 2017, but is expected to slow (1.9%) in 2018, as the ECB tightens and Britain separates. After peaking in mid-2014 (@$48), slow global growth, a local refugee crisis, and an ECB behind the curve led IEV to bottom in 2016. It spent the rest of that year in a $34-$40 range until the ECB extended its asset purchase program by nine months in December 2016. That, and encouraging US and global economic data sent IEV steadily higher in 2017, posting a new high (@$51) to open 2018, before the modest ECB tightening and US tariff threats sent it into a swoon. Current Outlook: bearish. European Stocks: Bull ish Assumptions European Stocks: Bearish Assumptions The latest US tax and regulatory cuts, coupled with new spending and more Federal debt, are creating a US economic boom that will spread the wealth, spurring European income, investment, and profits, boosting stocks.

Growth remains tepid in Europe and Asia. Flagging household and business confidence, deflation worries, and difficult relations with Russia have been complicated by an influx of millions of refugees from Syria, Libya, and Albania.

Financial stability on Europe’s periphery (Portugal, Ireland, Italy, Greece and Spain) is greatly improved in the past five years. It also appears that Brexit will be resolved on terms favorable to the EU. Fears that France, Netherlands, Sweden, Greece and Portugal would follow Britain are unfounded.

A weaker Euro makes the carry-trade in European equities less attractive to foreign investors on a relative basis. Euro weakness is more a function of Dollar strength, which has come from the 2017 US tax cuts, higher Fed interest rates, and the 2018 US tariff threats, which will probably continue.

The European Central Bank has the stock market’s back. It’s been reducing its balance sheet since December 2017, but has been doing so slowly and with flexibility. It is still accommodating, and no rate hikes are expected near term.

The ECB, in its efforts to “normalize” interest rates will tighten too much too fast, stifling the recovery, and initiating a recession that sends stock prices lower. (Or it will be too easy, too long, creating financial bubbles that tank stocks.)

A weak Euro makes Europe’s exports less expensive to US buyers and improves Europe’s trade competitiveness in the long run, boosting corporate profits and stock prices.

Repatriation of $3-$5 trillion in US foreign income under the new tax law reduces US investment in new plant, equipment, and jobs in Europe.

Easy monetary policy in Japan is helping to keep a floor under global risk, even if the US is tightening. That minimizes the impact exogenous political and financial events have on European stocks.

A tariff-war with the US will tax US consumers and businesses, reducing economic wellbeing and corporate profitability in both regions. Europe, has a large trade surplus with the US and much to lose. iIs stocks will suffer.

#4 Japan Stalls Out, Drops Amid Global Swoon-- Japanese Stocks, Perceptions thru 10.21.2018-- Japan's equities (EWJ) are currently neutral and rank #4 in the model-- less attractive than cash. Japanese equities fell 4.1% this week, following last week's 1.8% loss. That leaves them down 1.4% for the quarter (13 weeks), and down 1.1% for the year (52 weeks). At 57, EWJ is below its short-term (50-day) average at 58, and below its intermediate-term (200-day) average at 60. The Yen strengthened this week, improving return for dollar investors in Japanese stocks. Longer term, a bearish Yen reduces return to Dollar investors, but improves Japan's trade prospects. EWJ’s intermediate uptrend was intact from July 2016 to June 2018. It broke down and

bottomed (just above $56) in early July, again in mid-August, and finally in early September. The triple bottom has come despite the Bank of Japan offering the easiest money in the world, probably because US tariff threats this year have spooked the export-driven nation’s equities. EWJ has bounced at each of the triple lows with the latest bounce (September) being the most promising. After finishing above its 200-day for the first time in three months to end September, it ran out of gas, dropping 8% in the last two weeks as a global spike in yields hit equities. With a 14-day RSI of 32, EWJ is neither overbought (70) nor oversold (30). Japanese Stocks, Situation: SEP 15— Japan’s economy has struggled for years. After no GDP growth (0.0%) in 2014, anemic growth of (+1.1%), (+1.0%), (+1.5%) followed in 2015-17. 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 Nikkei jumped 26% in 2013, added a choppy +2% in 2014, advanced a volatile +8% in 2015, and added +7% in 2016. It jumped 23% in 2017 after the BoJ announced Japan's publicly held pension funds would double their equity holdings, but EWJ is down year-to-date in 2018 on trade fears. Current outlook: Bearish Japanese Stocks: Bull ish Assumptions Japanese Stocks: Bearish Assumptions The latest US tax and regulatory cuts, coupled with new spending and more Federal debt, are creating a US economic boom that will spread the wealth, spurring Japanese export income and profits, boosting stocks.

Abenomics has not worked. 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. Growth remains tepid.

The Japanese carry trade is alive and well. Low interest rates and a weakening Yen facilitate borrowing in Japan, investing in higher yielding assets overseas, and allowing Japanese financials to make money on both ends over time.

A weakening Yen makes Japanese equities less attractive to US investors on a relative basis. It also makes oil (traded in dollars) more expensive now that Japan’s nuclear energy experience has prompted a switch back to fossil fuels.

The BoJ has had the Nikkei’s back since 2014, and it still does. It offers the easiest money in the world, includes equities in its QE program, and no tightening is expected any time soon.

The BoJ, in its efforts to revive growth will keep rates too low for too long, finally creating a massive debt-infused financial bubble that will tank Japanese stocks and the rest of the world’s markets along with them.

A weak Yen makes Japan’s exports cheaper for US buyers and improving its trade competitiveness in the long run-- boosting corporate profits and stock prices.

Repatriation of $3-$5 trillion in US foreign income under the new tax law reduces US investment in new plant, equipment, and jobs in Japan.

Global monetary policy is still accommodating and still helping to keep a floor under global risk. That minimizes the impact exogenous political and financial events have on Japanese stocks.

A tariff-war with the US will tax consumers and businesses, reducing economic wellbeing and corporate profitability in both regions. Japan, has a large trade surplus with the US and much to lose. Its stocks will suffer.

An aging population, deflation worries, and difficult relations with China have been exacerbated by North Korean nuclear ambitions, and trade challenges from emerging Asia.

#9 Asia-ex-Japan (AAXJ) Ever Lower As US Drops-- Asia Pacific ex-Japan Stocks, Perceptions thru 10.21.2018-- Asia-Pacific ex-Japan equities (AAXJ) are currently very bearish and rank #9 in the model-- less attractive than cash. Asian stocks ex-Japan fell 2.3% this week, following last week's 5.8% loss. That leaves them down 9.7% for the quarter (13 weeks), and down 13.6% for the year (52 weeks). At 65, AAXJ is below its short-term (50-day) average at 70, and below its intermediate-term (200-day) average at 75. The Dollar weakened this week, improving return for dollar investors in Asian stocks. Longer term, the bullish Dollar reduces return to Dollar investors in Asian stocks, but improves the region's trade prospects.

An overbought AAXJ corrected 12%+ in February 2018, bouncing off intermediate support thanks to global economic strength. US tariffs on China then sent AAXJ back down to its 200-day in an April retest of the February lows. On again-off again trade discussions and a US-North Korean agreement to denuclearize the Korean peninsula that seemed to lower nuke fears helped AAXJ hold its 200-day until early June. Trade uncertainties, Chinese economic weakness and a stronger Dollar then caused AAXJ to break down, sending it to a new 2018 oversold low to end Q2. The 2018 trend of lower highs and lower lows continues. A 5% bounce in July reversed -7% into a V-bottom in August below intermediate-term resistance. A low-level trade delegation from China in DC to discuss tariffs ahead of a possible Trump-Xi summit in November helped AAXJ briefly, but lack of progress, coupled with President Trump’s tweets, have kept up the pressure on Asian equities. After claims of Chinese interference in the US 2018 elections sent AAXJ sharply lower last week, a global spike in bond yields added to the misery this week. With a 14-day RSI of 34, AAXJ is close to oversold (30). Asia Pacific ex-Japan Stocks, Situation: SEP 15— GDP growth in Emerging and Developing Asia grew 6.8% in 2015, abut slipped to 6.5% in 2016 and 2017. 6.6% is expected in 2018, gradually tapering off through 2020. China and India are expected to lead. 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. A multi-year uptrend in Asia-Pacific stocks ended in April 2015, as it dropped 35% by January 2016. It subsequently added about 14% in 2016, and 22% in 2017, despite dropping briefly when Trump’s election sounded a death knell for the Trans-Pacific Partnership. It resumed its rally in 2018, managing to post a new high in January, but has pulled back on tariff worries since. Current Outlook: Bearish. Asia-Pacific Stocks: Bull ish Assumptions Asia-Pacific Stocks: Bearish Assumptions The latest US tax and regulatory cuts, along with new spending and more Federal debt, are creating a US economic boom that will spread the wealth, spurring Asian export income and profits, and boosting their stocks.

China’s attempt to balance state control and private markets will eventually create financial imbalances. The Bank of China, in its effort to maintain growth will keeps rates too low for too long, creating a massive debt-infused financial bubble that eventually takes down its shadow banking system.

The BoJ offers the easiest money in the world, and no tightening is expected any time soon. Japan’s policy of cheap money and a weak currency promotes investment and growth abroad, particularly in the Asia-Pacific region.

A tariff-war with the US will tax consumers and businesses, reducing economic wellbeing and corporate profitability in both regions. Asia has a massive trade surplus with the US and much to lose. Its stocks will suffer.

A strong Dollar makes Asia’s exports cheaper for US buyers, improving Asia’s trade competitiveness in the long run-- boosting profits and stock prices in Asia

A strengthening Dollar makes Asian equities less attractive to US investors. It also makes oil more expensive for Asian countries, many of which are net importers of crude.

Global monetary policy is still relatively easy and still keeping a floor under global risk. That minimizes the impact exogenous political and financial events have on Asian stocks.

Repatriation of $3-$5 trillion in US foreign income under the new tax law reduces US investment in new plant, equipment, and jobs in Asia.

Asia-Pacific is an emerging region with expanding trade ties that also has the advantages of untapped natural resources and an abundance of cheap skilled labor.

A weakening Yen (since March) favors Japanese export growth over that of its Asian neighbors, many of which have currencies tied to the US Dollar.

#5 Latin America (ILF) Ignores Equity Trails Elsewhere -- Latin American equities Perceptions thru 10.21.2018-- Latin American equities (ILF) are currently slightly bearish and rank #5 in the model-- less attractive than cash. The Latin American 40 rose 3.8% this week, following last week's 0.1% gain. That leaves the index up 5.8% for the quarter (13 weeks), and down 8.3% for the year (52 weeks). At 33, ILF is above its short-term (50-day) average at 31, and below its intermediate-term (200-day) average at 34. The Dollar strengthened this week, reducing return for dollar investors in Latin stocks. Longer term, the bullish Dollar reduces return to Dollar investors in Latin stocks, but improves the region's trade prospects.

A weak dollar and rebounds in copper and oil took Latin equities to overbought levels in January. A tighter Fed, rising US bond yields, tariff and NAFTA concerns, falling oil prices, and election concerns then dropped ILF 26% to new one-year oversold lows @$29 by mid-June. A July bounce, fueled in part by a US-Mexico pledge to work together on NAFTA, ended abruptly in August as emerging market currency and trade concerns met up with technical resistance and sent ILF plunging back to a September retest of the June low. That low held, after the US Dollar surge slowed and eased Argentina’s currency crisis. Since then, Mexico and Canada have joined with the US in a new tri-partite North American trade agreement, and Brazil’s first round of elections have concluded successfully. The region is also viewed as one of China’s primary trading partners and a key beneficiary in any US/China trade disruption, particularly with respect to agriculture and materials. All of this has helped ILF regain its 200-day and hold it this week, despite plunging equities just about everywhere else. With a 14-day RSI of 62, ILF is neither overbought (70) nor oversold (30). Latin American Stocks, Situation: SEP 15-- Latin American GDP rose 0.1% in 2015; fell 0.6% in 2016; and grew by 1.3% in 2017. It’s expected to grow 2.0% in 2018 and 2.8% from 2019 on. Slow global growth and falling commodity prices, including oil, put the Latin 40 in a highly volatile downtrend from March 2011 to January 2016. Latin equities fell 32% in 2015 before bottoming in January 2016 and rallying to finish 2016 31% higher. In 2017, ILF finished 28% higher. It looked strong going into 2018, but peaked in January and has headed lower since, on trade and political concerns. Current outlook: Bearish Latin American Stocks: Bull ish Assumptions Latin American Stocks: Bearish Assumptions Latin America is an emerging region with expanding trade ties, particularly in raw materials. It has the advantages of untapped natural resources and positive demographics with a younger population and a rising middle class.

Latin American politicians regularly subject their countries to stupid government, corrupt government, and/or stupid, corrupt government. Without rule of law and respect for private property, equity ownership invariably suffers.

China represents a massive market for Latin America’s basic materials, commodities, and primary manufactures. It is growing at 6-7% a year and will be for years to come.

The region’s “inept government” phase, in which socialism replaced capitalism from 2011-16, is returning in 2018, along with the increased outflows of both domestic and foreign capital it engenders.

A strong Dollar makes Latin manufactures cheaper for US buyers, improving Latin America’s trade competitiveness in the long run— while boosting profits and stock prices in the region.

A strengthening Dollar makes Latin equities less attractive to US investors; drives down the price of commodities, a primary source of Latin American export income; and raises the cost of servicing Dollar-denominated debt for Latin borrowers.

Global monetary policy is still relatively easy and still keeping a floor under global risk. That minimizes the impact exogenous political and financial events have on Latin stocks.

Repatriation of $3-$5 trillion in US foreign income under the new tax law reduces US investment in new plant, equipment, and jobs in Latin America.

The latest US tax and regulatory cuts, along with new spending and more Federal debt, are creating a US economic boom that will spread the wealth, spurring Latin American export income and profits, and boosting their stocks.

A tariff-war with the US will tax consumers and businesses, reducing economic wellbeing and corporate profitability in both regions. Latin America has a trade surplus with the US and much to lose. Its stocks will suffer.

Moosextras— Outside the Box: —Top 25 thru 10.21.2018 The following represents the top of our diversified master list of 250 exchange-traded funds. ETFs are listed in order of most momentum at the close of the latest week. RSI is daily. Sector breakdown: Health (8), Energy (5), Utilities (4), Materials (3), US Index Short (2), Consumer (1), Currencies (1), Foreign Index (1). NOTE: In the interest of full disclosure, any ETF in which the author has a position is so marked.

TICK NAME RSI COMMENTS POS UNG Natural Gas US Brent Oil 57 Energy PALL Palladium 54 Materials x BNO US Brent Oil 50 Energy DBE Energy 49 Energy USO US Oil 55 Energy IHF DJ US Healthcare 32 Health RWM Short Russell 2000 88* US Index XLV Select Healthcare 32 Health IYH US Healthcare Providers 29** Health PUI Dynamic Utilities 46 Utilities MYY Short Mid-cap 400 93** US Index VHT Healthcare 28** Health EWZ Equities: Brazil 74* Foreign Index GSG GSCI Commodities 51 Materials IDU US Utilities 49 Utilities RTH Retail 33 Consumer XLU Select Utilities 53 Utilities VPU Utilities 52 Utilities IXJ Global Healthcare 28** Health DBC DB Commodities 53 Materials NLR Nuclear Energy 40 Energy UUP US Dollar 72* Currencies IHI US Medical Devices 26** Health PPH Pharmaceuticals 26** Health PJP Dynamic Pharmaceuticals 23** Health

* RSI overbought, **RSI oversold Outside the Box: —Thrift Savings Plan thru 10.21.2018 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. This week the 100% model holds the C Fund (Large-cap US). (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 equal percentages of Large and Small-cap US Stocks and Cash. US bonds are out as of 2/2/2018. International Equities are out as of 5/25/2018. RANK FUND ASSET TYPE COMMENTS DIV% 1 S Fund Small-cap US Equities US Small-caps bullish 33 2 C Fund Large-cap US Equities US Large-caps neutral 33 3 G Fund Short-term income Safe, but negative real return 34 4 I Fund International Equities Rising Dollar/ Tariff Risk 0 5 F Fund Fixed Income US Bonds bearish 0

Outside the Box: — Alternative Strategies thru 10.21.2018 ALLOCATIONS CASH EDV SPY IWM GLD IEV EWJ AXJL ILF Switch? 6040static 10% 30% 20% 15% 5% 5% 5% 5% 5% never 6040sma 100% 0% 0% 0% 0% 0% 0% 0% 0% 08/24 6040rs 65% 0% 20% 15% 0% 0% 0% 0% 0% 09/21 8020static 5% 15% 15% 15% 10% 10% 10% 10% 10% never 8020sma 100% 0% 0% 0% 0% 0% 0% 0% 0% 08/24 8020rs 70% 0% 15% 15% 0% 0% 0% 0% 0% 09/21 Six basic (and highly simplified) alternative strategies are monitored in addition to the momentum model on this site—three growth strategies and three aggressive growth strategies. The growth strategies are based on a 60-40 risk-asset-to-income-asset ratio. The aggressive growth strategies are based on an 80-20 ratio. The growth and aggressive growth strategies each include one static, and two dynamic models. Static models have a fixed asset allocation (60-40 or 80-20) that does not change. Dynamic models alter the basic allocation by adding a technical indicator into the mix. The indicators used here are the 40-week (200-day) moving average, and 26-week relative strength. If the weekly closing price of an individual ETF becomes bearish per its technical indicator, the dynamic model reduces its allocation to zero, and adds that allocation to cash. If a switch from the standard allocation is operative, the switch date is shown under “Switch?” The reduced allocation is listed in red, and the increased allocation is green. Performance of six alternative investment strategies are presented for free on the site.

CUMULATIVE GAIN

1 Yr 3 Yr 5Yr 10Yr 15Yr 3Y Sharpe

SPY 8% 36% 57% 196% 166% 5.06 6040static -3% 12% 20% 96% 160% 2.25 6040sma 0% 13% 17% 60% 103% 2.26 6040rs -2% 12% 20% 64% 111% 1.31 8020static -2% 15% 13% 91% 164% 2.88 8020sma -1% 14% 13% 55% 120% 1.11 8020rs -3% 15% 14% 56% 127% 3.07 Moose Weekly -1% 7% -7% 20% 210% 0.42

-4%-2%0%2%4%6%8%

10%12%14%16%

AlternativeStrategiesOver52Weeks

Strategic Observations: Global investment strategies continue to under-perform the US S&P benchmark. Central bank easy money encourages “financial engineering” in which companies borrow at extremely low rates and buy back their own stock, pushing stock prices higher. With few corrections and no bear markets since 2009, the S&P is tough to beat. Moderate global diversified strategies are outperforming aggressive ones. The 60-40 global allocation is outperforming 80-20 over 5,10, and 15 years. Performance is similar over 1-3 years, a period of few US corrections, but considerable offshore volatility. Global Momentum (Index Moose) has lagged the S&P since 2010 after heavily outperforming from ’92 to 2009. Since bottoming in mid-2016, however, it has become competitive with diversified global strategies, perhaps due to changes made in the Moose momentum model in the last five years. The addition of stop-loss levels in October 2017 has been particularly effective in improving relative performance in 2018. The S&P should outperform global strategies (diversified and momentum) until the next US bear market. The two circumstances that would lead to a bear market are (1) a US recession, or (2) a significant exogenous development that threatens the integrity of the global financial system. The Fed currently puts the chance of recession in the next twelve months at 13%. Exogenous developments are tougher to predict, but truly significant ones are historically rare. At the moment, there is nothing on the horizon that would appear to qualify. *Beta Moose compares diverse equity strategies by modeling a group of top-rated smart-beta ETFs. Growth, income, value, momentum, volatility, technical, fundamental, and hedging strategies, among others, are ranked in our relative strength/technical framework. Beta Moose is in the development stages (fall-2018) and shows promise. Performance data is preliminary until the model is finalized. Author’s Choice: 60-40 Static. Static strategies require less attention, and in a Fed-centric world over the past 3-10 years, their performance has proven less volatile. They have been a more predictable strategy with a better risk-reward ratio. The February ’18 correction was the first since early 2016. Should it mark the beginning of a more normalized market based on the business cycle, momentum may return to favor.

Opinion— week closing 10.12.2018 The Fall-Fall Between the recent spike in interest rates, a devastating hurricane, and an 1500-point two-day drop in the DOW, it was not a pretty week here in the US. The “Fall-Fall” I alluded to as a possibility last week came to pass, and with some luck, you exited SPY at the stop-loss this week. If so, congrats: you saved yourself 3.3%. If not, just call yourself a long-term investor who refuses to be spooked by every little correction. As noted previously, September on average is the worst month of the year for equities, but this was one of the best Septembers in quite awhile. Of course, when that happens, October usually makes up for it in bearish ways and at times (’29, ’87, ’89, ’08) can be truly ugly. A Fall-Fall of some sort, then, is to be expected. It’s just a matter of when and how bad. This year’s “when?” was hinted at last week and confirmed this week. The Fall-Fall has begun. The “how bad?” is still an open question. SPY’s 1% loss last week presaged a 4.1% plunge this week. As far as SPY goes, we’re a little over 6% off all time highs and haven’t even reached the -10% correction threshold yet. Small-caps, on the other hand, are almost 12% off their all time highs. So where do we go from here? And why? It would be great if I was a prognosticator, but I’m not. I’m better at paying attention, throwing in my two cents, and letting you make a personal decision based on your own risk profile. That’s particularly true of sharp drops in the market amid signs of panic. Everyone has his or her own comfort zone. Here’s my two cents. The Fed Is Loco President Trump made this point earlier in the week. He thinks the Fed is tightening too fast and stocks are down this week because of it. Thing is, the Fed only controls the short end of the yield curve. The market controls the long end. When the Fed raises rates too fast (on the short end), the market starts thinking recession, and it sends long rates lower, flattening the yield curve. Sometimes the market goes overboard and takes long rates lower than short rates (an “inverted” yield curve), at which point, a recession follows. It’s true the curve has flattened (from 254 basis points to 96) throughout the quantitative tightening and all eight rate hikes since Trump took office, but it has not inverted. Fact is, it stopped flattening six weeks ago (at 76 basis points) and has been steepening since. That was about the time the 2019 Federal budget, with a deficit 18% greater than last year’s, was sneaking through Congress, wending its way to the President’s desk, and beginning to threaten the US credit rating. Last week, as the 2019 fiscal year began (perhaps coincidentally, perhaps not), interest rates on the long end jumped— from 3.06% to 3.23% on the 10-year Treasury. It was a big rate move that suggests the market thinks the economy is every bit as good as the President has been claiming. (Yes, the rate spike came after Fed Chairman Powell commented on the exceptionally good US economy, but he was merely seconding the President’s own take on the situation.) No one really knows whether the Fed is loco in this particular instance, or any other for that matter— not the President, not the bond market, not the Fed itself, and certainly not me. These are uncharted Fed waters. We’ve never hiked interest rates, simultaneously taking $50 billion a quarter in US bonds off the Fed balance sheet and putting it back into the market, while also adding $250 billion a quarter in new debt. Something spiked rates and took stocks down this week. It doesn’t appear to be inflation. Consumer prices are still behaving, and commodities are flat since January. Maybe it was an overheating economy. Maybe it was another $985 billion in deficits being tacked onto a national debt now three times what it was in 2007. Maybe it was the Fed being loco. Maybe it was all three. Or maybe it was something elsewhere. The World’s in a Tizzy The US markets have been the only equity game in town since last spring. Going into this week, stocks in Japan (-5%), Europe (-9%), Latin America (-10%), and Asia-Pacific (-16%), had been on the fade for nine months, while US stocks, though unspectacular, were each up 5%. It would be much easier for the US market if the rest of the world were awash in liquidity and tracking higher as well, but it’s not.

Most of the US/offshore disparity has been due to a surging US Dollar in 2018 that, after the tax cuts passed, has recovered about half its 2017 decline. A stronger dollar puts stress on emerging market countries, many of which find it necessary to borrow from banks in Dollars because the cost of borrowing in their own (less stable) currencies is prohibitive. A rising Dollar makes dollar debt more expensive to carry and to pay back. Too strong a Dollar can throw debtors into bankruptcy, which in turn can threaten the solvency of the lending banks. That causes a “flight to quality” in US bonds, which depresses rates. Dollar strength, however, has coincided with the ebbs and flows of the 2018 US trade “negotiations”. It took off from April to June after the first salvo of tariff threats, peaked in August (@97) when free trade appeared lost forever, and then dipped when Mexico was solved, and dipped again when Canada came on board. It’s now 95 on the Dollar Index, or about where it was in June. A more stable greenback means Dollar debt default fears are down for the moment, then, which is good, but that allows interest rates to go up. The gorilla in the room has always been US/China trade. The difficulty is that China is a controlled economy, not particularly transparent, and that it sees its own prosperity as little more than a means to its true end— global dominance. It has gotten addicted to the US propensity to import foreign goods produced by cheap Asian labor in exchange for US dollars, which the Asians then use to buy US government debt (a premium product produced by expensive US politicians and bureaucrats.) Therein lies the rub. If we reduce China’s ability to export to us through higher tariffs, we reduce their ability to buy US bonds. Less demand for bonds means higher US interest rates. Additionally, China may have little room to retaliate with higher tariffs of its own, but it does have other means. The central bank, for example, could slowly begin swapping out some of the $1.2 trillion in US bonds in its capital reserves in favor of gold. Again, less Chinese demand for bonds means higher US interest rates. (It’s worth noting that gold demand has been strong among central banks of late, as Treasury prices have dropped, suggesting the global trade tiff may be a factor in central bank decisions and higher US interest rates.) The US Equity Market Is What It Is There are many possible explanations for the interest rate spike that occurred concurrent with the latest equity downdraft. Good news is, the 10-year is at 3.14% as this week closes, down from a high of 3.25% and equities bounced off 200-day support on Friday. Just as we can’t blame this equity swoon entirely on higher rates, however, we shouldn’t automatically expect relief from lower rates. In the end, equities get priced on expectations-- expectations of fundamentals six to nine months out. With profits up 20% or more in 2018, it is hard to imagine stocks finishing this year flat or down (where we are now) unless forward guidance suddenly drops off a cliff next week. True, year-to-year comparisons won’t look so hot in 2019, but no recession appears likely. This year’s profit jumpstart from the corporate tax cuts should insure decent enough follow-through in 2019. My take: At this point, I’d stay-the-course if you’re in SPY, and eventually buy-the-dip if you aren’t. Either way, take it day-by-day. The model hit its stop-loss and is in cash, waiting to make sure 200-day support (274.17*) holds before buying the dip. If it holds, and SPY also closes above the mid-point of its 20-day price channel (281.79*), the model will buy the dip. (*Price levels change daily. See stockcharts.com for constant updates.) If you’re still in SPY, a close below the 200-day (like we got Thursday) is a caution light. If it comes when WRSI14 is oversold (<30), hang on and wait for a bounce (like Friday’s). If not, do a gut-check, determine if it’s a head-fake, and decide what to do-- remembering that math tends to make selling too early less painful than holding too long.