Weekly Bull/Bear Recap: October 21-25, 2013

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 confirmation, conservatism, and endowment biases as well as anchoring. Bull In the U.S.: Despite a weaker than expected Septembers payrolls report, the unemployment rate falls to a 5-year lowi. Furthermore, the Conference Boards Employment Trends index, a leading indicator, implies that job creation is set to continue into 2014, contrary to gloomy forecastsii. Meanwhile, jobless claims are already back on the mend, plunging to 350K from 362K. The housing recovery is simply consolidating. U.S. construction activityiii, suggests a sector contributing towards 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 has been resolved. In fact, little mentioned but important indicators such the American Trucking Associations Truck Tonnage Index and the American Institute of Architects billings indexv imply an economy [that is] stronger than many believevi. Psst. gas prices have fallen 11% since mid-October and 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 Spain . Santander Chief Emilio Botin said last week that there had been a drastic change in perceptions about Spain. Money is pouring in from all sides. Everybody wants to invest in Spain, he said, everyone, including Bill Gatesix.
viii

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

C.B.$Emp.$Trds$Ind..$3M$Avg$
1.40%$ 1.20%$ 1.00%$ 0.80%$ 0.60%$ 0.40%$ 0.20%$

Source: Conference Board

4.7$ 4.65$ 4.6$ 4.55$ 4.5$ 4.45$ 4.4$ 4.35$ 4.3$ 4.25$ 4.2$ 7/5/13$

Source: Bankrate.com

> Psst Gas prices have fallen 11% since October and are expected to continue their downtrend according to the Energy Information Administration (EIA).

8/1/09$ 11/1/09$ 2/1/10$ 5/1/10$ 8/1/10$ 11/1/10$ 2/1/11$ 5/1/11$ 8/1/11$ 11/1/11$ 2/1/12$ 5/1/12$ 8/1/12$ 11/1/12$ 2/1/13$ 5/1/13$ 8/1/13$
Chart: RCS Investments

0.00%$

Mortgage(Rates(

8/5/13$

9/5/13$

10/5/13$

Chart: RCS Investments

 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 to 50.9. This implies that China's growth recovery is becoming consolidated into the fourth quarter following the bottoming out in the third quarter. This momentum is likely to continue in the coming months, creating favorable conditions for speeding up structural reforms, says Hongbin Qu, chief economist for China and co-head of Asian economic research at HSBC. This economic meddle, comes even as Chinese officials continue to let the Yuan appreciate versus the dollar. A strengthening currency will subdue political tensions with the U.S. and reduce prospects for protectionism in addition to other benefits (increased consumption power, lower inflation, etc.). Since its unpegging in mid-2010, the renminbi has appreciated roughly 10.6%, an annualized rate of 3.06%. The Great Global Restructuring continues (ie South Koreaxi), which will set the stage for a global sustainable expansion. Singapores industrial production metric spikes 9.3% YoY in September versus expectations of a rise of 5.2%.xii This is another confirmation of better economic conditions 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-index falls into contraction territory for the first time since the dark era of 2009 and is a first taste of the fallout from the government shutdownxiii. Yuck! Furthermore, Core Durable Goods orders, a leading indicator 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 October to a 10-month low, showing the reopening of the federal government failed to reassure households.xv Meanwhile the University of Michigans indicator tumbles to its lowest level this year.

Yuan/Dollar*Exchange*Rate*
!6.80!! !6.70!! !6.60!! !6.50!! !6.40!! !6.30!! !6.20!! !6.10!! !6.00!! 3/31/10!

3/31/11!

3/31/12!

3/31/13!

Source: Bloomberg

Chart: RCS Investments

Disclaimer: Please first consult your financial advisor for all important investment related decisions

 The September payrolls reportxvi underperformsxvii. Private sector job creation, at 126K vs. expectations of 180K, brings the 3-month average to the lowest in 12 months. Meanwhile the household survey emphasizes the choppy (and slowing) nature of the labor market recovery. While the bulls tout that the unemployment rate has fallen to 7.2%, consider that the labor force participation rate remains near 35-yr lows. The unemployment rate measure is a statistical mirage; there is way more labor slack than the metric suggests.
Household$Survey$ 500$ 300$ 100$ !100$ !300$ !500$
4/1/06$ 7/1/06$ 1/1/07$ 4/1/07$ 7/1/07$ 1/1/08$ 4/1/08$ 7/1/08$ 1/1/09$ 4/1/09$ 7/1/09$ 1/1/10$ 4/1/10$ 7/1/10$ 1/1/11$ 4/1/11$ 7/1/11$ 1/1/12$ 4/1/12$ 7/1/12$ 1/1/13$ 4/1/13$ 10/1/07$ 10/1/08$ 10/1/09$ 10/1/06$ 10/1/10$ 10/1/11$ 10/1/12$ 7/1/13$

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

Household)Suvey)

!700$

Source: Bureau of Labor Statistics

Chart: RCS Investments

Chicago Fed President Charles Evans states the obvious, the Fed cant taper because it would cause interest rates to rise and choke off the recovery, the Feds trapped in a policy likely to bring long-term instabilityxviii. In Asia, Japanese September trade numbers disappoint all around. Export growth is already decelerating, falling to 11.5% YoY from 14.6% in August and vs. expectations of an increase of 15.6%. Meanwhile import growth barely rises to 16.5% from 16% vs. expectations of 20%. In Europe: Continued austerity is drowning whatever green shoots the bulls had hallucinated: The preliminary October PMI for the service sector dismays analysts expectations, skidding from 52.2 to 50.9. This result suggests that roughly 70% of euro area economyxix is now only a smidgen from contraction. YoY growth of Italian new industrial orders in August sinks from -2.2% to -6.8%, the metrics 10th consecutive negative readingxx. Meanwhile consumer confidence
Italy&New&Industrial&Orders&YoY&3&Nom.&
!30.00!! !20.00!! !10.00!! !)!!!! !(10.00)! !(20.00)!
4/1/06! 9/1/06! 2/1/07! 7/1/07! 5/1/08! 3/1/09! 8/1/09! 1/1/10! 6/1/10! 4/1/11! 9/1/11! 2/1/12! 7/1/12! 12/1/07! 10/1/08! 11/1/10! 12/1/12! 5/1/13!

!(30.00)!

Source: ISTAT

Chart: RCS Investments

Disclaimer: Please first consult your financial advisor for all important investment related decisions

 has carved a top, dipping in October to a 4-month lowxxi. Meanwhile, M1 Eurozone Money supply growth has clearly topped, insinuating that economic activity will begin to slow in the coming months as cash money is being used less. The M3 measure implies the same. Credit continues to dry upxxii. Meanwhile the metal with a PhD in economics, copper, has been rejected yet again at resistance. Sanguine forecasts of a rebound in global growth are wishful thinking. Yet more fall out from the NSA spying allegations. This time a report of the U.S. eavesdropping on Angela Merkelsxxiii cellphone leads to deteriorating trust. Word has it 35 world leaders phones were being monitoredxxiv, certainly embarrassing. * > Breaking news: A 7.1 earthquake strikes off the coast of Fukushima. Tepco orders evacuation of Fukushima power plant workersxxv.
Eurozone(M1(YoY(Growth(
12" 10" 8" 6" 4" 2"

1/1/05"

7/1/05"

1/1/07"

7/1/07"

1/1/08"

7/1/08"

1/1/09"

7/1/09"

1/1/11"

1/1/06"

7/1/06"

1/1/10"

7/1/10"

7/1/11"

1/1/12"

7/1/12"

1/1/13"

Source: ECB

Chart: RCS Investments

Disclaimer: Please first consult your financial advisor for all important investment related decisions

7/1/13"

0"

 i http://www.rigzone.com/news/oil_gas/a/129780/Unemployment_Rate_Drops_to_72_As_Mor e_Jobs_Come_Online ii http://www.conference-board.org/data/eti.cfm iii http://abcnews.go.com/Business/wireStory/us-construction-spending-06-percent-august20644645 iv http://newsok.com/manufacturing-activity-grew-in-region-despite-governmentshutdown/article/3897251 v http://www.calculatedriskblog.com/2013/10/aia-architecture-billings-index.html vi http://www.truckline.com/article.aspx?uid=fc82c4c0-8f3e-4086-b99c-479f20a83968 vii http://bronx.news12.com/news/word-on-the-street-aaa-says-national-gas-prices-expectedto-fall-by-christmas-1.6314092 viii http://www.euromoney.com/Article/3271220/Category/766/ChannelPage/0/Investors-pileinto-Spanish-recovery.html ix http://www.telegraph.co.uk/finance/financialcrisis/10397881/Bill-Gates-bets-early-onSpanish-recovery-with-FCC-stake.html x http://www.cnbc.com/id/101138536 xi http://online.wsj.com/news/articles/SB10001424052702304069604579156560502917746 xii http://www.channelnewsasia.com/news/business/singapore/singapore-smanufacturing/861280.html xiii http://www.reuters.com/article/2013/10/24/us-usa-economy-pmi-markitidUSBRE99N0MD20131024 xiv http://www.dailyfinance.com/2013/10/25/durable-goods-orders-drop-bad-sign-forinvestment-economy/ xv http://www.bloomberg.com/news/2013-10-25/consumer-sentiment-in-u-s-dropped-to-10month-low-in-october.html xvi http://www.bls.gov/news.release/pdf/empsit.pdf xvii http://www.jsonline.com/business/us-hiring-slows-in-september-to-126000-private-sectorjobs-b99125644z1-228786361.html xviii http://articles.economictimes.indiatimes.com/2013-10-21/news/43251923_1_dollar-indexusdinr-currency-trend-exp-dxy xix http://www.ecb.europa.eu/mopo/eaec/html/index.en.html xx http://www.adnkronos.com/IGN/Aki/English/Business/Italy-Industrial-orders-fall-fortenth-month-in-a-row_32760462556.html xxi http://www.rttnews.com/2208160/italy-consumer-confidence-falls-more-than-expected-inoctober.aspx xxii http://www.zerohedge.com/news/2013-10-25/mario-draghis-worst-monetary-zombieinfested-nightmare-just-got-worse-two-charts xxiii 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-worldleaders.html xxv http://www.zerohedge.com/news/2013-10-25/75-magnitude-earthquake-hits-japantsunami-warning-issued-fukushima

Disclaimer: Please first consult your financial advisor for all important investment related decisions