KNOW YOUR EXITS

We recently wrote a brief--Have An Escape Route--about following the news but make sure you know where the exits are.

Following the news is akin to following the money and until recently, for nearly the last four years, that money was flowing into emerging markets. According to a piece in today's WSJ between 2009 and 2012 private money flowing into emerging markets totaled $4.2 trillion, "more than all the money invested in the Tokyo Stock Exchange."

A nice piece of change anyway one chooses to count it. Troubles in Emerging Market Land seem to be spreading. From Brazil to China to India and Turkey it appears that the prospects of slower growth and rising interest rates are taking their toll.

End result: investors are fleeing as they yank their capital from bond and equity funds. Like rigor mortis, reality has a way of setting in. Toss in political unrest and the slowing of the global locomotive most know as China and it looks more and more like another round of investor hand-wringing time.

A quick scan of some currencies tells much of the tale. Brazil's real is down more than 20% this year. The South African rand has lost a similar amount against the US dollar as gold prices tanked and to the north the Canadian loonie is, well, looking a bit loonie owing to a high level of household debt, a looming real estate bubble and weak energy prices.

Recall back in 2009 when the EU turmoil erupted many investing soothsayers like Bill Gross and others touted EMs, especially their debt instruments. Have they called you recently and warned you where the exits were located?

Much of this could be summarized by one word--growth. Investors flock to it. But they get their hats over non-growth. How much non-growth? Probably a lot more than MSM is predicting.
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JUST OUR OPINION

There's an old saw about the more attractive the reward, the more reluctant people are to go after it.

The rule certainly applies to beautiful women. Most guys are too shy or intimidated to approach them. But the same rule applies to investing.

Following a big sell-off like the one that happen recently when Bernanke spooked the markets, many equities and bonds suddenly became more attractive while gobs of investors instead of buying headed for the nearest exit.

To be sure, there's some risk here, just as there can be in approaching a beautiful lady. So it raises the age-old, classic question: does the reward outweigh the risk?  The answer is really quite simple. You have to learn to decide.

If you're afraid to approach beautiful ladies, spare yourself the angst of going around claiming you really want one because under those conditions your chances are at best remote.  And the same pretty much holds true for making serious money in the market.

Some time soon we'll talk about another old saw: never let an opinion get in the way of making money.

IRS OCTOPUS

It's tentacles ever grow. The Washington spy agency benignly known as the IRS was birthed in 1913, the same year another octopus was born, the Federal Reserve Bank. The two have probably done more to crimp the freedom of American ingenuity than all the mindless politicos together.

http://www.bloomberg.com/news/2013-07-01/simons-strategy-to-shield-profit-from-taxes-draws-irs-ire.html

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GOLD MAKES TRIPLE BOTTOM

Few items have had more ink spilled over them the past several months than gold.

People seem to love or hate it, deride or praise it, buy or short it. We won't get into the particulars other than to say we don't trust bureaucrats, central bankers and politicos any farther than we can toss them. 

And these are the people with their foot to the pedal over most of the globe. Frightening, we know.

In the eyes of some that will most likely makes us quality material for some epithet category, take your pick: fear-mongering, conspiracy freak or whatever. We say thank you very much and we accept the challenge.

In the meantime here is a read you might find of interest.

http://www.resourceinvestor.com/2013/07/01/roger-wiegand-predicts-a-brand-new-world-for-gold?t=mining-investments&page=2

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POSITIVE SPIN

Federal Reserve Governor Jerome Powell in a speech last week oiled up the old spin machine.

Here's an example from today's WSJ.

Fed Governor Jerome Powell said in a speech Thursday that, though growth has been middling so far this year, he has been surprised at how well the economy has performed in the face of tighter fiscal policy.

What tighter fiscal policy? They didn't cut anything, just didn't add any new spending. If they made any real cuts, most likely the market reaction would've been even better, as hard as that is to imagine.

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THE SECOND HALF

If you think the Fed's talk about taking the punch bowl away from the QE party is real--meaning the economy is ready to stand on its own in the near future--then look at cyclicals. 

Energy, materials and what has been a lagging technology sector might deserve some of your investment capital.
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THINGS TO LOOK FOR NEXT WEEK

Here from Mark to Market is a list of 10 things to look for next week.

Though the Market's closed for Fourth of July and Friday will most likely be somewhat abbreviated, we will be going into what many consider the critical second half.

http://www.marctomarket.com/2013/06/ten-things-to-watch-in-week-ahead.html#more

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One of the big items coming next week is the June jobs report. As we recently pointed out in posting an article by Johns Hopkins economist Steven Hanke, the Fed's zero interest rate policy has hurt not helped small and medium-sized businesses trying to create jobs.

It caused a credit crunch.  Here a link to what may happen next week when the report airs.

http://www.marketwatch.com/story/us-economy-hiring-far-from-top-speed-2013-06-30

LEVITY AND TRUTH

Keats said beauty is truth and truth is beauty. And that brings us to the truth in levity.

http://www.dailyspeculations.com/wordpress/?p=8471

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WEEKEND BRIEFS

It's everywhere. Can it be stopped? Should it be stopped? Is it just another form of Big Brother?

The WSJ recently ran a piece about companies tracking kid apps. When children use their parents' phone to play games or go to some innocent-sounding site like "How to Draw," there are companies that track and collect and share data. 

http://online.wsj.com/article/SB10001424127887324520904578553662943430052.html?KEYWORDS=Apps+for+kids

Here's one more example.
http://www.testosteronepit.com/home/2013/6/29/surveillance-society-if-you-drive-you-get-tracked.html

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The US might be seen by investors as a safe haven for investing or as a beacon of hope in a much-needed global economic recovery, but given the recent revelations about its spying activities, it now surely one of the most hated countries on the planet.

Here's the latest from a Google story.

http://www.guardian.co.uk/world/2013/jun/30/nsa-leaks-us-bugging-european-allies
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What a difference a fortnight makes.

Now it's one big happy Federal Reserve family after Big Ben ruffled investor psyches 10 days ago and the market went semi-ballistic. Fed members mysteriously seemed to circle their monetary policy wagons.

All's well that ends in agreement. And the latest from those boys and girls implies that they all said one thing and we investors heard another. They were misunderstood. Some of them weren't calling for an end to QE. Or higher interest rates for that matter.

Despite claims that Fed member comments this past week were not coordinated, the denial speaks for itself. It was coordinated. Jittery markets and blame are bureaucratic nightmares.

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                                Have An Escape Route

Follow the news. Just make sure you have an escape route marked off when you need it.

Bond investors are panicking. Big mutual funds and other institutional bond runners are being inundated with calls and redemptions from investors. As one fund manger put it: "It's uncharted territory for a lot of people."

And that's the point. Wall Street preens investors for stability not the unexpected. Putting specific numbers on things may be welcome and praised by some, but it also leaves one wide open. In boxing it's the one you didn't see that does the damage.

That's what happened to more than one big-time bond fund manager from Bill Gross to Jeff Gundlach in the recent interest rate-QE turmoil.  Most spent the last week wiping scrambled bond prices off their faces.

"I am wrong 30% of the time and right 70% of the the time, and this was one that was wrong," Gundlach was quoted in Friday's WSJ.

Big egos are to big fund managers as salt is to pepper. When you see one you'll most likely find the other.

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                        The Heroin Ain't Free

The clarion call by central bankers that they ain't going to take away the monetary heroin anytime soon reminds one of all those historic examples of various governments claiming they weren't going to devaluate their currencies or default on their bonds.

And they did.

Some pundits say falling bond prices will trigger the long anticipated rush of money from bonds to equities. Could happen. But that puppy's been in the market for longer than it takes a friend to grow a chest-length beard.

And if it doesn't? Historically, the Fed has less wiggle room than ever. Times have changed and historical comparisons to 1994 are off base. Back then stocks held up while bonds went south. Bach then the Fed was trying to cut off inflation at the pass.

This time, if one believes the official numbers, there isn't any inflation, Just an unraveling of an unprecedented monetary stimulus package that's longer in the tooth than a pack ancient tigers.

Addiction to the heroin is not any different from global governments' addiction to fiscal irresponsibility. Once it gets going it's hard to give it up.

In either case, like fiscal irresponsibility, this heroin comes with a price.
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NELSON PELTZ

Nelson Peltz is a well-known billionaire investor.
Recently, his firm, Trian Fund Management, took a huge position in Mondelez, a company we've written about before. Mondelez (MDLZ),  the big snack food company Peltz was at least partly responsible for getting Kraft to spin off, is as we've noted a decent way to play the BRICs.

But the story gets more intriguing. Pepsi is also a giant in the snack food business, a company Peltz is also quite active in, building his ownership to 12 million shares, according to the latest issue of Fortune. Around the same time Peltz doubled his holdings in MDLZ.

Put these two behemoths together, something many speculate Peltz wants to do, and you're talking huge. You're also talking some money being made. Activist Peltz held more than 5% of Heinz stock when that deal went down at a nice premium.
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                              CREDIT CRUNCH

Most of us realize that jobs are created by small and medium-sized businesses. So has near zero interest rates helped these SMEs?

Here's one view.
http://www.financialsense.com/contributors/steve-hanke/federal-reserve-vs-small-business 

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