Biderman- Stay Bullish Until

Dealing with a cold today, but I thought this was so worth sharing, as it should frame your investment decision making and help provide some road signs as for what to watch to indicate the direction of the markets. My thoughts, I am bullish in as much as equities continue to make new highs, knowing that record highs presage record highs, but also side with the bearish camp long-term, understanding that the market is manipulating vis-a-vis the Fed's money pump.

The Fed Thinks You are Hoarding Cash

The folks at the St. Louis are out with a research paper, as reported by CNBC, claiming that U.S. consumers are hoarding cash and that has made the Fed's QE efforts infective. I guess the economists at the Fed don't take a look at their own data.

The personal savings rate has remained largely flat over the last five years. So unless consumers are shoving cash under their mattresses. I guess the economists also forgot to look at the banks reserve holdings, which have exploded over the same time frame.

This is nothing to the fact that financial inter-mediation makes the whole argument (that is unless the cash is literally going into mattresses) of cash on the sidelines, savings as negative, reserves lockup, and hoarding cash a red herring. But great job trying to make the argument that consumers are hoarding cash.

China's Slow Crash with Michael Pettis

You have undoubtedly heard of or read a quote pertaining to Michael Pettis' view on the coming crash of the Chinese market. Mr. Pettis delves deeper in to that thesis and gives listeners a broader view on what he sees coming for China.

Low Rate Hallucination and the Fed End Game

This video is a must listen to at least once, if not twice.And just to save you some time, the first half is far more interesting and worth your time versus the back half, with the first half dealing with the machinations of the Fed and how they are manipulating the market. The back half dips more in to the conspiracy theory waters and probably can be skipped.

7 Rules To Beat The Market

Some good advice here.Rule 5 especially 

By Charles Rotblut and posted to economatters

Last week, I discussed how beating the market is hard to do. I wrote the commentary to provoke an awareness of the challenge that faces anyone pursuing an active strategy. Bluntly put, if you try to handpick investments without a disciplined, rational, well-thought-out plan for doing so, (barring really good luck) you will underperform.

A task that is hard is not one that is impossible. Individual investors can do better than the S&P 500. Today, I’m going to give guidance on how. It will be guidance that applies to a wide variety of specific approaches, including value, growth and technical analysis. I’m going to intentionally keep the guidance broad for an important reason: Regardless of the investing style you like to follow, the overarching rules for success don’t change.

Rule 1: The optimal strategy is not one that maximizes return, but rather one that helps you stick to your long-term investing plan and achieve your goals. Big returns always sound enticing. Pitched by someone with a charismatic personality, a high-return strategy sounds even better. But if you can’t stick to the strategy because of its complexity, the volatility it incurs, the time commitment it requires, the number of transactions associated with it, your interest level or any other reason, then it’s not an optimal strategy for you. If you are unwilling to or can’t stick with a strategy, don’t use it.

Rule 2: Set up procedures to keep your emotions in check. The biggest threat to most people’s portfolios is not the economy, the Federal Reserve, valuations, or high-frequency traders, it’s their brain. The human mind evolved to cope with very different hazards than Mr. Market’s ever-changing moods. So be cognizant of what your emotional tendencies are and set up procedures to keep them in check. These can include pre-written sell rules, limiting how often you check your portfolio, triggers to periodically adjust your portfolio or consulting with a financial adviser.

Rule 3: Think and invest different. Your biggest advantage as an individual investor is that you are not tied to an investment objective. Rather, you are allowed to invest in anything your wealth, your financial goals and the tax code allow you to. So why focus on the 300 largest U.S. stocks when there are nearly 5,000 listed on the U.S. exchanges and a large choice of funds that invest in international securities? Better yet, why use the same strategy everyone else is or focus on the stocks currently making headlines? If you want to beat the market, you have to invest in a different manner than most people.

Rule 4: Use the wisdom of the crowds to your advantage. While market efficiency is a big hurdle for active strategies to overcome, there are benefits to be gained from paying attention to the collective thoughts of market participants. We (AAII) use relative valuation rules for managing our portfolios, letting the market help guide our views about what is cheap and what isn’t. The trend in earnings estimate revisions can tell you if a company’s outlook is brightening or worsening. Momentum indicators such as the 26-week relative price strength rank pair well with low-valuation strategies.

Rule 5: Higher Valuations = Greater Expectations = More Room for Disappointment. The more favorably people view a company, the smaller its margin for error. Far more money is made from buying stocks that are undervalued than from buying stocks that are overvalued. Even if you are a growth investor, make sure the stock is undervalued relative to its prospects (after ensuring those prospects don’t assume an overly optimistic outlook).

Rule 6: Lower your costs. Every dollar you pay in investment expenses and transaction costs is a dollar you will never see again. In addition to trading with less frequency, take advantage of the tax law. Put your most tax-efficient investments in your traditional brokerage accounts, and use your tax-sheltered accounts (e.g., IRAs) for your least tax-efficient investments and strategies. Your goal should be to maximize the benefit from what you spend.

Rule 7: Develop a consistent, well-defined approach to investing and stick to it regardless of what the market is doing. Being a successful active investor requires having a plan based on factors and strategies proven to work over the long term.

Bond Risks

Too Keynesian for thinking as to the outlook of the economic environment but many aspects of present market outlook are interesting to note.Additionally, one should stand up and take notice when a bond manager starts touting equities as a better investment.

That aside, you have to admire any investment professional in asset management touting cash as the best investment. 

The ISM Rings The Bell?

Just a quick comment on the yesterday's release of the Purchasing Managers Index from the Institute of Supply Management. Although the PMI print of 59 was one of the strongest in recent memory, mainly on the back of production and new orders, the markets apparently were looking for more. This is as the equity markets traded relatively flat on the day. More so, look at the inventory survey results in the table below, as presented by the ISM.

MANUFACTURING AT A GLANCE AUGUST 2014
Index	Series Index Aug	Series Index Jul	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI®	59.0	57.1	+1.9	Growing	Faster	15
New Orders	66.7	63.4	+3.3	Growing	Faster	15
Production	64.5	61.2	+3.3	Growing	Faster	6
Employment	58.1	58.2	-0.1	Growing	Slower	14
Supplier Deliveries	53.9	54.1	-0.2	Slowing	Slower	15
Inventories	52.0	48.5	+3.5	Growing	From Contracting	1
Customers' Inventories	49.0	43.5	+5.5	Too Low	Slower	33
Prices	58.0	59.5	-1.5	Increasing	Slower	13
Backlog of Orders	52.5	49.5	+3.0	Growing	From Contracting	1
Exports	55.0	53.0	+2.0	Growing	Faster	21
Imports	56.0	52.0	+4.0	Growing	Faster	19
OVERALL ECONOMY				Growing	Faster	63
Manufacturing Sector				Growing	Faster	15

Manufacturing ISM^® Report On Business^® data is seasonally adjusted for New Orders, Production, Employment and Supplier Deliveries indexes.

Both inventory and customers' inventory levels increased by more than 3 points and 5 points, respectively. Generally, inventory survey results remain below the 50 demarcation, as manufacturers typically run lean production lines and a build up in inventory levels can indicate a problem. Of course, that depends on production and new order levels. I would not be so bold to predict an outright decline in either at this point, but the customers' inventory survey results are flashing a warning of a slow down in new orders. Throughout the survey's history, customer inventory survey results have averaged around 45 and lower(higher) than averaged have typically presaged a pickup(slowing) in new orders. We will have to see if the ISM results have rang the bell.