rcs investments weekly bull/bear recap: october 21-25, 2013

7/27/2019 RCS Investments Weekly Bull/Bear Recap: October 21-25, 2013

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| Rodrigo C. Serrano, CFA| SIPA | Columbia University

Master of InternationalAffairs 14 Candidate

| New York City, NY| 01-305-510-0181| [email protected]

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C.B.$Emp.$Trds$Ind.$3M$Avg$

Chart: RCS InvestmentsSource: Conference Board

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Chart: RCS InvestmentsSource: Bankrate.com

Weekly Bull/Bear Recap: October 21-25, 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 as well as anchoring.

Bull

In the U.S.:

Despite a weaker than expected Septembers payrollsreport, the unemployment rate falls to a 5-year lowi.Furthermore, the Conference Boards EmploymentTrends index, a leading indicator, implies that jobcreation is set to continue into 2014, contrary to gloomyforecastsii. Meanwhile, jobless claims are already backon the mend, plunging to 350K from 362K.

The housing recovery is simply consolidating. U.S.construction activityiii, suggests a sector contributingtowards job creation for the foreseeable future.Meanwhile, mortgage rates have been on a downtrend;

they are now at their lowest level since June. The slowdown in manufacturing is not widespreadiv and

will become reenergized now that the shutdown hasbeen resolved.

In fact, little mentioned but important indicators suchthe American Trucking Associations Truck TonnageIndex and the American Institute of Architects billingsindexv imply an economy [that is] stronger than manybelievevi.

Psst. gas prices have fallen 11% since mid-Octoberand are expected to continue their downtrend according

to the EIA. This is a de facto tax break for consumervii

.Meanwhile in Europe, a recovery is in the offing in Spainviii.Santander Chief Emilio Botin said last week that there hadbeen a drastic change in perceptions about Spain. Money ispouring in from all sides. Everybody wants to invest in Spain,he said, everyone, including Bill Gatesix.

> Psst Gas prices have fallen11% since October and are

expected to continue their

downtrend according to the

Energy Information Administration

(EIA).


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Disclaimer:Pleasefirstconsultyourfinancialadvisorforallimportantinvestmentrelateddecisions 2

!6.00!!

!6.10!!

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!6.40!!!6.50!!

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3/31/10! 3/31/11! 3/31/12! 3/31/13!

Yuan/Dollar*Exchange*Rate*

Chart: RCS InvestmentsSource: Bloomberg

In Asia: HSBC reports in its preliminary October PMI for

China that new business is coming down the pipelinex.The metrics new orders sub-index rises to its highest

level in 7 months (51.6), while the overall index rises to50.9. This implies that China's growth recovery isbecoming consolidated into the fourth quarter followingthe bottoming out in the third quarter. This momentumis likely to continue in the coming months, creatingfavorable conditions for speeding up structuralreforms, says Hongbin Qu, chief economist for Chinaand co-head of Asian economic research at HSBC.

This economic meddle, comes even as Chinese officialscontinue to let the Yuan appreciate versus the dollar. Astrengthening currency will subdue political tensions

with the U.S. and reduce prospects for protectionism inaddition to other benefits (increased consumptionpower, lower inflation, etc.). Since its unpegging inmid-2010, the renminbi has appreciated roughly 10.6%,an annualized rate of 3.06%. The Great GlobalRestructuring continues (ie South Koreaxi), which willset the stage for a global sustainable expansion.

Singapores industrial production metric spikes 9.3%YoY in September versus expectations of a rise of5.2%.xii This is another confirmation of better economicconditions in the region.

Bear

The U.S. recovery has effectively stalled: Markits manufacturing PMI indicator stumbles almost

2 points in October to 51.1 from 52.8 and vs.expectations of 52.5. Even worse, the output sub-indexfalls into contraction territory for the first time since thedark era of 2009 and is a first taste of the fallout fromthe government shutdownxiii. Yuck!

Furthermore, Core Durable Goods orders, a leadingindicator of business spending, falls 0.1%xiv.

Meanwhile, consumer confidence has been battered.Bloombergs survey falls to a 10-month low.Consumer confidence in the U.S. dropped in Octoberto a 10-month low, showing the reopening of the federalgovernment failed to reassure households.xvMeanwhile the University of Michigans indicatortumbles to its lowest level this year.


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Italy&New&Industrial&Orders&YoY&3&Nom.&

Chart: RCS InvestmentsSource: ISTAT

The September payrolls reportxvi underperformsxvii.Private sector job creation, at 126K vs. expectations of180K, brings the 3-month average to the lowest in 12months. Meanwhile the household survey emphasizes

the choppy (and slowing) nature of the labor marketrecovery. While the bulls tout that the unemploymentrate has fallen to 7.2%, consider that the labor forceparticipation rate remains near 35-yr lows. Theunemployment rate measure is a statistical mirage; thereis way more labor slack than the metric suggests.

Chicago Fed President Charles Evans states theobvious, the Fed cant taper because it would causeinterest rates to rise and choke off the recovery, theFeds trapped in a policy likely to bring long-terminstabilityxviii.

In Asia, Japanese September trade numbers disappoint allaround. Export growth is already decelerating, falling to11.5% YoY from 14.6% in August and vs. expectations of anincrease of 15.6%. Meanwhile import growth barely rises to16.5% from 16% vs. expectations of 20%.

In Europe: Continued austerity is drowning whatever greenshoots the bulls had hallucinated:

The preliminary October PMI for the service sectordismays analysts expectations, skidding from 52.2 to50.9. This result suggests that roughly 70% of euroarea economyxix is now only a smidgen fromcontraction.

YoY growth of Italian new industrial orders in Augustsinks from -2.2% to -6.8%, the metrics 10th consecutivenegative readingxx. Meanwhile consumer confidence

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Household)Suvey)Household$Survey$ 6$per.$Mov.$Avg.$(Household$Survey)$

Chart: RCS InvestmentsSource: Bureau of Labor Statistics


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Eurozone(M1(YoY(Growth(

Chart: RCS InvestmentsSource: ECB

has carved a top, dipping in October to a 4-monthlowxxi.

Meanwhile, M1 Eurozone Money supply growth hasclearly topped, insinuating that economic activity will

begin to slow in the coming months as cash money isbeing used less. The M3 measure implies the same.Credit continues to dry upxxii.

Meanwhile the metal with a PhD in economics, copper, hasbeen rejected yet again at resistance. Sanguine forecasts of arebound in global growth are wishful thinking.

Yet more fall out from the NSA spying allegations. This time areport of the U.S. eavesdropping on Angela Merkelsxxiiicellphone leads to deteriorating trust. Word has it 35 world

leaders phones were being monitoredxxiv

, certainlyembarrassing.

* > Breaking news: A 7.1 earthquake strikes off the coast ofFukushima. Tepco orders evacuation of Fukushima powerplant workersxxv.


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ihttp://www.rigzone.com/news/oil_gas/a/129780/Unemployment_Rate_Drops_to_72_As_More_Jobs_Come_Online

ii http://www.conference-board.org/data/eti.cfmiii http://abcnews.go.com/Business/wireStory/us-construction-spending-06-percent-august-20644645iv http://newsok.com/manufacturing-activity-grew-in-region-despite-government-shutdown/article/3897251

v http://www.calculatedriskblog.com/2013/10/aia-architecture-billings-index.htmlvi http://www.truckline.com/article.aspx?uid=fc82c4c0-8f3e-4086-b99c-479f20a83968vii http://bronx.news12.com/news/word-on-the-street-aaa-says-national-gas-prices-expected-to-fall-by-christmas-1.6314092viiihttp://www.euromoney.com/Article/3271220/Category/766/ChannelPage/0/Investors-pile-into-Spanish-recovery.htmlix

http://www.telegraph.co.uk/finance/financialcrisis/10397881/Bill-Gates-bets-early-on-Spanish-recovery-with-FCC-stake.html

x http://www.cnbc.com/id/101138536xihttp://online.wsj.com/news/articles/SB10001424052702304069604579156560502917746xii http://www.channelnewsasia.com/news/business/singapore/singapore-s-manufacturing/861280.html

xiii http://www.reuters.com/article/2013/10/24/us-usa-economy-pmi-markit-idUSBRE99N0MD20131024

xiv http://www.dailyfinance.com/2013/10/25/durable-goods-orders-drop-bad-sign-for-investment-economy/

xv http://www.bloomberg.com/news/2013-10-25/consumer-sentiment-in-u-s-dropped-to-10-

month-low-in-october.htmlxvi http://www.bls.gov/news.release/pdf/empsit.pdfxvii http://www.jsonline.com/business/us-hiring-slows-in-september-to-126000-private-sector-jobs-b99125644z1-228786361.htmlxviii http://articles.economictimes.indiatimes.com/2013-10-21/news/43251923_1_dollar-index-usdinr-currency-trend-exp-dxy

xix http://www.ecb.europa.eu/mopo/eaec/html/index.en.htmlxx http://www.adnkronos.com/IGN/Aki/English/Business/Italy-Industrial-orders-fall-for-tenth-month-in-a-row_32760462556.htmlxxi http://www.rttnews.com/2208160/italy-consumer-confidence-falls-more-than-expected-in-october.aspx

xxii

http://www.zerohedge.com/news/2013-10-25/mario-draghis-worst-monetary-zombie-infested-nightmare-just-got-worse-two-chartsxxiii http://www.cnn.com/2013/10/24/world/europe/europe-summit-nsa-surveillance/xxiv http://globaleconomicanalysis.blogspot.com/2013/10/nsa-monitored-calls-of-35-world-leaders.htmlxxv http://www.zerohedge.com/news/2013-10-25/75-magnitude-earthquake-hits-japan-tsunami-warning-issued-fukushima

rcs investments weekly bull/bear recap: october 21-25, 2013

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