The combined assets of the nation’s mutual funds decreased by $219.2 billion, or 1.8 percent, to $12.009 trillion in July, according to the Investment Company Institute’s official survey of the mutual fund industry.
$1.2 Trillion Is Not Enough
Budget experts from both political parties warned at a Business Roundtable forum on Tuesday that the congressional Super Committee preparing for its first meeting later this week needs a long-term vision that goes beyond cutting $1.2 trillion from the federal deficit over the next decade.
“These guys have only a 10-year window. They can get $1.2 trillion fairly easily. But don’t think that’s success,” said Alice Rivlin, founding director of the Congressional Budget Office and a senior fellow at the Brookings Institution. “Success is putting in place longer-term reforms that are going to stabilize the debt… it means a lot more than $1.2 trillion, and it means ultimately what would come out of this would be more like $4 trillion or $5 trillion.”
Denial is not a river in Egypt
Dow Jones Industrial Average rallied, suggesting a second higher low above primary support at 10600/10800. Expect a test of 11900/12000, but this does not mean the bear market is about to reverse. We are still in the early “denial stage” of the bear market, identified by sporadic bargain-hunting, high volatility and a general lack of direction. Declining volume indicates a lack of enthusiasm from buyers and sellers. Failure of primary support would change that, leading to a sharp fall to 10000*.
* Target calculation: 11000 – ( 12000 – 11000 ) = 10000
Number for the day is 45.0%
The percentage of containers that were shipped empty from the Port of Los Angeles during the 2011 financial year was 48.42% (or 1.8 million twenty-foot units). Incoming containers received empty were a mere 3.42%. Our number for the day is the net 45.0% of incoming containers that are returned empty to their port of destination.
Shippers attempt to fill containers on their return journey, even at super-low rates, in order to offset the cost of completing the round-trip. Empty containers indicate failure to locate manufactured goods that can compete in these export markets. This affects not only the shipper, but the entire economy. You see, those containers leaving the West Coast are not really empty. They contain something far more valuable than the goods being imported. They contain manufacturing jobs — and the infrastructure, skills and know-how to support them.
In 2012, if you need an independent gauge of how successful the President’s jobs program has been, check this number.
Flight to safety
10-Year Treasury yields fell to a new low on Friday, warning of further falls in the stock market as investors seek save havens in Treasurys and precious metals.
TSX60
TSX 60 Index is testing resistance at 725/735. 13-Week Twiggs Money Flow oscillating around zero indicates hesitancy. Resistance is likely to hold and reversal below the week’s low at 700 would warn of another test of support at 650/660. In the medium term, failure of support would offer a target of 580*.
* Target calculation: 650 – ( 720 – 650 ) = 580
Dow runs out of buyers
Dow Jones Industrial Average failed to reach resistance at 11900/12000. Low volumes indicate a lack of interest from buyers rather than large numbers of sellers. Expect a test of support at 10600 to 10800. A strong surge in volume would indicate buying support, but failure is more likely and would offer a target of 9600*.
* Target calculation: 10800 – ( 12000 – 10800 ) = 9600
The S&P 500 Index is similarly headed for a test of support at 1100/1120. 21-Day Twiggs Money Flow peaking below the zero line [bear] warns of strong selling pressure. Failure of support would offer a target of 1000*.
* Target calculation: 1120 – ( 1260 – 1120 ) = 980
The Nasdaq 100 Index fared better over the last few weeks, but a failed breakout above 2200 warns of another test of 2000. 13-Week Twiggs Money Flow reversal below zero would further strengthen the bear signal.
* Target calculation: 2000 – ( 2200 – 2000 ) = 1800
Jobs Paralysis Raises Odds of Fed Action – Real Time Economics – WSJ
Job market paralysis in August increases the chance the Federal Reserve will do something new to help the economy……. The current environment is pushing the Fed towards action. A week ago, Chairman Ben Bernanke told a gathering of the world’s top economic officials he was expanding the length of the upcoming September Federal Open Market Committee to give policy makers additional time to talk about what the Fed can do, which by itself increased the odds something was going to happen.
via Jobs Paralysis Raises Odds of Fed Action – Real Time Economics – WSJ.
Traders Don’t Care About Long-Term Problems, But You Should | Chris Ciovacco | Safehaven.com
We believe the psyche of investors is on the verge of reaching a tipping point, which could cause a very rapid decline in asset prices. It is next to impossible to know if and when they will reach for the sell button in unison, but the risk for such an event is elevated and must be considered in all portfolio management decisions. Stocks dropped 34% in twelve trading sessions in 1987. High volatility occurred before that drop, indicating an increased willingness to run for the exits. If you have not noticed, the markets have been volatile recently. An “Oh, my God” type event is difficult to predict, but the conditions are in place to make for an interesting next few months.
via Traders Don’t Care About Long-Term Problems, But You Should | Chris Ciovacco | Safehaven.com.
On High Correlations – Seeking Alpha
If the time horizons of investors are predominantly long, correlations on assets should be low in the short-run, because investors don’t make decisions to trade off of short-term macro factors. But when a large part of the investor base is skittish and is always running to or from the latest bit/byte/bite of data – that leads to high correlations.
ETFs aren’t necessary for high correlations, but they seem to help the process by creating easy ways for people to implement decisions that are a simple idea. “I want financials, I don’t want energy, buy the long bond, sell gold.”
Thus high short-term correlations indicate a momentum mindset in the investor base.