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Weekly Bull/Bear Recap: Nov. 11-15, 2013

Happy Veterans Day!!! This objective report concisely summarizes important macro events 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 anchoring as well as confirmation, conservatism, and endowment biases. Bull OECD leading indicators signal a global rebound in the offing. Chinese and European economies, including France and Italy, are set to firm over the coming months, underpinning the global recovery into 2014.i In US news: ! The Chicago Fed National Activity Index (CFNAI), a timely aggregate measure of economic activity, indicates a firming of business conditions. The indicators 3month average implies near trend growth (at 0 on chart). There is no slowdown, despite what the bears declare.ii! ! This is affirmed by a better than expected growth reading in the manufacturing sub-index within this weeks industrial production report.iii ! Meanwhile, national gas prices continue their descent, down roughly 7.5% from last year. This occurring just before the holiday season is music to the bulls earsiv. Consumer spending is set to surprise to the upside. ! Finally, two papers released by the Fed imply that monetary stimulus is set to continuev. In fact, the increasing possibility of adjusting the policy target for unemployment from 6.5% to 6.0% would allow the Fed! to maintain dovish policy for a prolonged period. The epigram, Dont fight the Fed, stands or better yet, o Dont fight central banks worldwide.vi In European news: ! The Greek government survives a no-confidence vote, validating that political determination remains credible and will see the country through the crisis. Antonis !

| Rodrigo C. Serrano, CFA | SIPA | Columbia University Master of International Affairs 14 Candidate | New York City, NY | 01-305-510-0181 | rcs2164@columbia.edu !

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! ! ! Samaras, current Prime Minister and leader of the New Democracy party, proclaims that there would be no more horizontal measures and that The sacrifices of the Greek people are beginning to pay off. vii ! Ireland announces that it will exit its financial bailout program without requiring a precautionary credit facility. Successfully exiting the program is an endorsement that global financial conditions have improved (investor confidence is on the rise) and that the program and its stipulations were the right medicine.viii ! Meantime, economic conditions are set to improve further in Spain. The Conference Boards leading indicator increases for the 6th consecutive month.ix In Asia: ! While bears were quick to pounce on yesterdays initial disappointing result of Chinas highly anticipated plenum, a leaked document today reveals more detail into how the markets will play a decisive role. Equity markets surge on heavy volume in response. Also disseminated is an official change to the one-child policy as well as the eradication of education through labor camps.x Chinas leaders are committed to restructuring the economy.xi ! Simultaneously, the Chinese consumer is showing resilience. Singles Day blows by last years revenue metrics. The applause roared as revenues topped 10 billion yuan at 6 a.m., when more than 100 million consumers had placed orders via the online portal. On the same day last year, it took 13 hours for the company's sales to top the 10-billion RMB benchmark.xii Meanwhile car sales in October shine, besting estimates by more than 7%. The pace is the fastest in 9 months.xiii Talks between the US and EU on the Transatlantic Trade and Investment Partnership (TTIP) take place throughout the week. They are focused on diminishing non-tariff barriers in industries such as: investment, energy, services, and raw materials. Creating a massive free trade area will result in job creation on both sides of the Atlanticxiv. !

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! ! ! Bear In the US: ! Hiring plans for small businesses tank. From the NFIB: It is very hard to identify any current developments that would make owners more optimistic. The new budget deadline of January 15, 2014 is approaching quickly and Congress continues to wrangle over the healthcare law and little else.xv ! Concurrently, another headwind is set to hit the already fragile consumer. More than 2 million are at risk of losing unemployment benefits by the end of Q1 2014xvi, in addition to 47 million who have already lost food aid. In Europe: ! Non-economic news features budding bearish catalysts. o Rifts are emerging within the ECB, which may hamper its efforts should market pressures recurxvii. o Meanwhile, the political environment is becoming dicier as Brussels targets Germanys current account surplus. Good luck dealing with that Mr. Barrosoxviii. o Meanwhile, coalition talks between the CDU/CSU and SPD are turning into a roadblock towards European integration. Rejection of any common fiscal backdrop for euro zone banks for the foreseeable futuremeans each member state will be liable for cleaning up its own banks. Financial aid would also be subject to strict conditionality (ie more austerity) and would add to the applicant countrys national debt.xix o Absent from media coverage is the possibility that a disastrous nay ruling from Germanys Constitutional Court on OMT may be around the corner.xx ! Meanwhile, Eurozone Q3 GDP growth rejects the bulls thesis that momentum is building, falling from +0.3% in Q2 to +0.1% on QoQ basis. A lost-decade is upon the worlds largest economic bloc.xxi o Italys economic growth disappoints, shrinking by 1.9% from the same quarter the prior year. This marks 8 consecutive quarters of contraction, 9 on a quarter-by-quarter basis. !

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! ! ! o More importantly, the French economy falls back into contraction from the prior quarter while deflation is creeping into the republic. All across the country, the prefects described the same picture of a society that is angry, exasperated and on edge. xxii Social attrition continues. How much more can the citizenry take? Extraordinary bullish sentiment is a hallmark of an oncoming major market top. Investors now embrace monetary easing as a panacea. Herding is becoming prevalent: ! Long-only funds in the hedge fund industry are a hot commodity these days. When hedge funds business plans count on rising equity prices, you know trouble lies ahead.xxiii ! Sentiment indicators, such as the AAIIs and the NAAIMs show that most investors are positioned for further gains. A negative surprise would spark a substantial correction.xxiv ! Investors are even more levered than at the 2007 market top as per the NYSEs measure of margin balances.
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In Asian news: ! Japanese household confidence plunges in October to the lowest level of the year. Stagnant incomes coupled with rising prices are destroying real wages. Is this supposed to be part of the plan Abe?xxv Israels Netanyahu warns that if an inefficient deal is struck with Iran by Western powers, there may be war.xxvi -----------------------------------------------------------------------------

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! ! ! Prayers go out to the victims of Typhoon Haiyan. One of the most powerful storms in history slammed into the Philippines on November 8th causing mass destruction. Check out beforeand-after photos here.xxvii !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! i http://online.wsj.com/news/articles/SB10001424052702303914304579193321312439190 ii http://www.chicagofed.org/digital_assets/publications/cfnai/2013/cfnai_october2013.pdf iii http://www.bloomberg.com/news/2013-11-15/factory-production-in-u-s-rose-more-thanforecast-in-october.html iv http://blogs.wsj.com/economics/2013/11/11/about-1-in-4-u-s-pumps-selling-gas-below-3/ v http://www.reuters.com/article/2013/11/05/usa-fed-guidance-idUSL2N0IQ1X820131105 vi http://www.bloomberg.com/news/2013-11-08/central-banks-renew-reflation-push-as-pricesweaken.html vii http://www.nytimes.com/2013/11/12/world/europe/greek-government-survives-noconfidence-vote.html viii http://www.telegraph.co.uk/finance/economics/10449360/Ireland-to-exit-bailout-withoutbackstop.html ix http://www.rttnews.com/2225002/spain-s-leading-index-increases-for-sixth-monthconference-board.aspx x http://online.wsj.com/news/articles/SB10001424052702303289904579199431427590394 xi http://www.businessinsider.com/chinese-reform-plan-leaks-and-the-stock-market-surges2013-11 xii http://www.businessinsider.com/china-singles-day-sales-2013-11 xiii http://www.bloomberg.com/news/2013-11-11/china-s-october-auto-sales-gain-24-oneconomy-japanese-rebound.html xiv http://abcnews.go.com/Business/wireStory/us-europe-resuming-talks-trade-pact-20848148 xv http://www.nfib.com/Portals/0/PDF/sbet/sbet201311.pdf xvi http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/07/unemployment-benefitsfor-2-million-workers-are-set-to-expire-in-the-next-few-months/ xvii http://www.ft.com/intl/cms/s/0/6f0206f8-4a1f-11e3-b84c00144feabdc0.html#axzz2kgAAVZhC xviii http://www.ft.com/intl/cms/s/0/28a9e368-4c60-11e3-923d00144feabdc0.html#axzz2katm5ntx xix http://www.reuters.com/article/2013/11/13/us-germany-europe-referendums-analysisidUSBRE9AC0FU20131113 xx http://blogs.wsj.com/moneybeat/2013/10/18/fx-math-german-court-decision-looms-as-nextpotential-global-crisis/ xxi http://online.wsj.com/news/articles/SB10001424052702304243904579197001087968652 xxii http://www.telegraph.co.uk/finance/financialcrisis/10450889/French-officials-warn-ofsocial-tinderbox-as-economy-contracts-again.html xxiii http://online.wsj.com/news/articles/SB10001424052702304672404579186384097828204 xxiv http://online.wsj.com/news/articles/SB10001424052702304672404579186243514840598 xxv http://www.esri.cao.go.jp/en/stat/shouhi/2013shouhi2-e.xls
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! ! ! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! xxvi http://www.reuters.com/article/2013/11/13/us-iran-sanctions-israelidUSBRE9AC0YL20131113 xxvii http://online.wsj.com/news/articles/SB10001424052702303914304579193971305978200?m od=trending_now_4! !

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