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Morning Market Briefing – 08/19/2013

Fundamentally, very little has changed with the markets in the last few months.  This morning, the futures are pointing slightly lower.  Days like today, when the market is in standby and confused in wait and see mode, it is best to just stay out until a good opportunity presents itself.  The equity market themselves have been overvalued for over two years, but with interest rates as low as they have been, the stretching for yields continue.  The fear of raising rates makes fixed assets an undesirable investment.

A storm appears to be forming at the horizon and caution is needed.  The stock market has rebounded 80% from 2008 lows, all driven by government manipulation.  The US balance sheet has expanded to support an equity rebound. Without TARP, QE1, QE2, and QEinfinity, the market would have had a near total collapse.  However, nothing lasts forever and the slight whisper in the reduction of quantitative easing causes market panic. Just imagine when the actual unwinding of quantitative easing takes place!

An additional concern investors have is the unpleasant moral hazard left from government policies to save the bankers.  The financial criminals who committed/sponsored the mortgage fraud have become millionaires and billionaires.   At the same time, the poor and middle class are buried in debt with no hope of ever paying it back.

Last week, the 10 year note went from 2.58% to 2.84%. It is our opinion that the increase resulted in the Dow, S&P 500, S&P 400 and Russell 2000 all declining more than 2.0%. The basis for the jump in long-term rates was attributed to fear that the Federal Reserve is going to announce at its September FOMC meeting a decision to taper (not stop or undo) its asset purchases. In todays (bull****) bull market, good news is bad news and bad news is good news. Therefore, stronger-than-expected reports for retail sales and weekly initial claims resulted in fear of increasing rates, which is perceived to be bad for markets.

On the upside, last week investors verified one of the few “sure thing” investment strategies for present day.  Set up a twitter account following all the big time investors such as Carl Icahn, Warren Buffet, Curtis James Jackson III, etc. When one of the fat cats tweet a position, jump in ASAP, ride the momentum, and jump out before the news gets old!  Example, on a week when market was down over 2%, shares of AAPL surged 10.7% on the news that activist investor Carl Icahn disclosed a large position in the company as well as the fact that he recommended to Apple CEO Tim Cook that the company should do a large share buyback.

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