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IBD MEETUP/NORTHRIDGE

IBD MEETUP/NORTHRIDGE. LET’S MEETUP AND DISCUSS STRATEGY FOR Q2-2014 AND REVISE OUR WATCHLIST. 06/14/2014. DISCLAIMER. During the course of this meeting we will review stocks that should be considered as additions to your watch list.

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IBD MEETUP/NORTHRIDGE

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  1. IBD MEETUP/NORTHRIDGE LET’S MEETUP AND DISCUSS STRATEGY FOR Q2-2014 AND REVISE OUR WATCHLIST 06/14/2014

  2. DISCLAIMER • During the course of this meeting we will review stocks that should be considered as additions to your watch list. • These are not trade recommendations. These are candidate trades.   Do your own research, keep position sizes modest, and stay diversified. • Also past performance is no indication of future stock trends.

  3. FED VIEW OF ECONOMY – 6/4/14 • The U.S. economy expanded in all 12 Federal Reserve bank districts in the past six weeks as consumers and businesses continued to shake off the harsh winter. • The Fed's Beige Book marked an improvement over the previous edition, which had 10 regions expanding. • In April and May, growth was moderate in Boston, New York, Richmond, Chicago, Minneapolis, Dallas and San Francisco regions, with modest growth in Philadelphia, Kansas City, Cleveland, St. Louis and Atlanta regions. • Manufacturing picked up smartly across much of the country, consumer spending and housing were mixed as the remnants of the adverse weather effected Northeast.

  4. FED KEY HIGHLIGHTS • EMPLOYMENT: Businesses add 179,000 jobs in May • ECONOMY: Service firms grow at fastest pace since August • New car sales were "robust" across much of the nation, other types of retail activity amounted to a mixed bag. • Weather was cited as somewhat of a negative factor in the northeast districts suggesting the economy still could benefit from good weather in coming months. Tourism saw activity picking up in the Boston, New York, Richmond, Atlanta and Minneapolis regions.

  5. FED NOTES • Manufacturing accelerated-industry picked up robustly in the Boston, New York, Atlanta and Kansas City districts • Factories that churn out cars, aerospace parts and metals were busy, with construction-related production tempered. • Housing recovery continued its spotty performance. Home building gained some steam in the New York, Richmond, Atlanta, Chicago, Kansas City and Dallas areas but weakened in Philadelphia, St. Louis and Minneapolis.

  6. MORE FED NOTES • Multifamily construction continued to lead the gains. • WORKFORCE: Productivity fell sharply in first quarter • TRADE: April trade deficit widens to $47.2 billion • "Employment levels were flat to up modestly" across most districts, the Fed said. • Payroll processor ADP's survey Wednesday indicated that businesses added 179,000 jobs in May, down from an average 200,000-plus additions the previous three months.

  7. PBR CPFL BBD GE EXPANDED MAP OF MARKET

  8. ‘BUBBLE’ WARNING •  But the argument that the market is overinflated, that it’s a bubble, it’s too expensive, it’s been going on too long is wrong. • If you look at the historical data. And especially bull markets, modern bull markets, since the end of World War II -we’ve had seven of them - three of them have gone up less than 100%. • The other three have gone up 319%, 414% - I’m sorry, 391%, 414% and 516%. • Our current bull market is up 185%.

  9. P/E RATIO • P/E ratios, everybody says, “The market’s expensive.” • It’s true. The S&P’s trading at about 17 times earnings, a little bit over. A little bit higher than the historical average. • But again, looking at the bull markets, historical bull markets - now this is going all the way back to 1871 - the top P/E, the P/E at the top of the bull market historically is over 21.

  10. CENTRAL BANKS • Credibility. The first lesson in investment school is: “Don’t fight the Fed.” or today “Don’t fight the central banks.” • Since late 2008, they’ve committed to providing ultra-easy monetary policy to avert another Lehman-style financial crisis. • They’ve also been hoping that their policies would boost global economic growth.   • They’ve succeeded in A but have been less successful in B - reviving self-sustaining economic growth, which remains subpar almost everywhere. • That’s especially obvious in the Eurozone. Real GDP growth has been weak in the region since the start of the current expansion. • Japan is struggling to end deflationary stagnation. • China’s growth rate is slowing. • The same can be said for Brazil and India.   • Yesterday, the World Bank predicted that the world economy would grow 2.8% this year, below its prior forecast of 3.2% made in January, but it expressed confidence that activity already was shifting to more solid footing.

  11. MSCI Global Equity Indexes • The MSCI Global Equity Indexes are widely tracked global equity benchmarks and serve as the basis for over 650 exchanged traded funds* throughout the world. The indexes provide exhaustive equity market coverage for over 75 countries in the Developed, Emerging and Frontier Markets, applying a consistent index construction and maintenance methodology. This methodology allows for meaningful global views and cross regional comparisons across all market capitalization size, sector and style segments and combinations. • *Indexes

  12. MSCI WORLD INDEX(US$) 06/11/14, the World MSCI matched its previous record high (10/31/07) rising 147% since its (02/27/09) low. Achieved via a 40% increase in its forward P/E since mid-2011. The World ex-US MSCI isn’t as exuberant, rising 117% since its March 2009 low. It is still 18.0% below its 2007 record high, with the forward P/E up about 30% since mid-2011.

  13. BIGGEST RISKS TO THE GLOBAL BULL MARKET • One is that central banks lose their credibility. • Rising stock prices haven’t had a positive wealth effect on incomes. • Wealth inequality has certainly increased. • CB’s ultra-easy policies may be losing their effectiveness. Their Bazookas may be turning into Pea Shooters. • (1) 06/05/14, the ECB lowered its official interest rate by 10bps to 0.15%. The rate paid on bank reserves was lowered to minus 0.1%. • There isn’t much firepower in these lame actions. • ECB announced that cheap loans, possibly worth up to €400 billion, to banks under a program of “Targeted Long-Term Refinancing Operations” for credit to small businesses. • The 6/9 FTnotes that it will take some time for this program to “provide an economic stimulus to those parts of the EuroZonemost at risk of falling into a dangerous deflationary spiral.”

  14. ECB • Of course, the ECB also hoped that its new policy package would lower the foreign exchange value of the euro. The euro is down from a recent high of $1.39 to $1.35 • On July 26, 2012, ECB President Mario Draghi pledged to do whatever it takes to defend the euro. He succeeded all too well because now he is struggling to weaken it.   • He also succeeded in stabilizing the banks. His 2012 pledge gave the banks the confidence to load up on sovereign bonds, especially those of the peripheral Eurozone countries. • As a result, bond yields plunged, with the Spanish 10-year yield now equal to the 10-year US Treasury yield. • Unfortunately, while the banks have been loading up on bonds, they’ve reduced their loan portfolios. That’s because they are subjected to regular stress tests that make government bonds more attractive than loans.

  15. PBOC • (2) PBOC, 06/09/14, announced a cut in the reserve requirement ratio by 50bps for banks that have sizeable loans to the farming sector and small- and medium-sized firms; also to financial firms that provide consumer or auto credit. • This targeted approach is aimed at boosting China’s flagging economic growth rate without creating more excess capacity and without sparking more debt-fueled speculation.   • The Chinese stock market is not enthusiastic. • The Shanghai-Shenzhen 300, which is down 7.3% YTD, has been flat-lining for the past six weeks. • The China MSCI share price index (in Yuan) is down only 2.3% YTD, and has risen 7.9% only since its recent low.   • China’s May trade data. Imports are down 1.6% y/y, while exports are up a relatively low 7.0%. • China’s May PPI data shows PPI still fell 1.4% Y/Y, better than the 2.0% and 2.3% declines the prior 2 months, but is the 27th consecutive month of deflation in the PPI (lots of excess capacity in China’s manufacturing sector.)

  16. BOJ • (3) BOJ. The jury is still out on Abenomics (ShinzōAbe’s “3 arrows" of fiscal stimulus, monetary easing and structural reforms.) • Led by the Bank of Japan QQE program aimed at increasing the monetary base significantly. • Devalued the foreign exchange value of the yen, which boosted import prices enough to stop deflation. • The weak yen also lifted the forward earnings of Japanese companies, especially the exporters. That triggered a huge rally in the Nikkei. That all happened in late 2012 and through mid-2013. The yen is up 3.0% ytd, and the Nikkei is down 5.2% ytd.   • Fearing that QQE is already losing its effectiveness, the government is planning to purchase stocks. • The 6/10 WSJreported, “Japan's $1.26 trillion public pension fund will likely announce a boost to stock and foreign-bond investments in early autumn, the head of its investment committee said Tuesday, potentially sending tens of billions of dollars into new markets.”

  17. THE FED • (4) Fed. Debate is all about inflation, whether there is too much or too little slack in the US labor market. In the 6/9 WSJ, Martin Feldstein warned, “Inflation is rising in the United States and could become a serious problem sooner than the Federal Reserve and many others now recognize.”   • This will undoubtedly be a big issue for discussion at the next meeting of the FOMC on June 17 and 18. Indeed, it was discussed at length during the previous meeting on April 29-30. • According to the minutes of that meeting: “Participants discussed a range of research and analysis bearing on the amount of available slack remaining in the labor market.”

  18. WORLD EMOTIONS • Emotion is ever present in the stock market. Feelings do not discriminate among amateur and professional investors. • Positive and negative feelings do creep into the stock market and have an effect on stock market performance triggering irrational decision-making. • Current Examples: • Major conflicts in Afghanistan, Somali, Nigeria, Pakistan, Mexican Drug War, Egypt, Syria, Iraq Central African Republic, Sudan all 1000+ deaths/Y • Eric Cantor’s primary loss can lead to Congress deadlock

  19. STRATEGY • Why did stock prices recently? They were overdue for a bit of profit-taking. • The S&P 500 rose to new record highs almost every day since the start of June and recently falling 0.35%. • Here are the major events that might have unnerved the market: • (1) Global growth. As noted above, the World Bank lowered its growth forecast for this year. However, the overall report had an optimistic spin, especially on the outlook for the US. The Eurozone’s recovery remains “hesitant.” The near-term outlook for Japan is “challenging,” while the structural reform agenda “has begun to advance.” There are signs of “modest strengthening” among developing countries.

  20. (2) Gridlock. Bloomberg reported yesterday that “the primary election loss of U.S. House Majority Leader Eric Cantor, who helped broker deals to end standoffs on the federal debt ceiling in October and February, has investors concerned that policy makers may find future agreements more difficult to reach.”   (3) Terrorism. Iraq is going rogue. Now that the US has left a power vacuum there, Islamic terrorists are pouring into the country. The big shock happened on Tuesday when Mosul, Iraq's second-largest city, fell to the Islamic State of Iraq and al-Sham, an al Qaeda offshoot. According to the WSJreport, “It was the most significant territorial conquest for the radical group, which has also taken control of parts of Syria during the civil war.” The Obama administration has been claiming that al Qaeda is on the run. That’s true if they mean the terrorists are running toward every vacuum left by departing American troops in the Middle East.

  21. (4) Sentiment.Bull/Bear Ratio edged higher again this week to 3.64 from 3.57 the week before. The percentage of bulls rose to 62.6% from 62.2%. There simply may be too many bulls. The IBD charts for 6/12/14 confirmed the Bulls vs. Bears is at 62.6% Bullish which is a 5 year high.  NYSE Short Interest Ratio is at 4.84 which is also a 5 year high.  The AAII Bull Ratio advanced for the second week last week from 53.5% to a 14-week high of 64.0% over the period. Bullish sentiment rose from 30.4% to 39.5% over the two-week span; bearish sentiment fell from 26.4% to 22.2%.

  22. US ECONOMIC INDICATORS • Federal Budget: • The federal government ran a $130.0 billion deficit in May, $8.7 billion lower than last May’s $138.7 billion gap. • Through the first eight months of the current fiscal year, the deficit totaled $436.4 billion (the smallest since 2008) versus $626.3 billion over the comparable period a year ago. • Over this period, revenues increased 7.5% y/y (with corporate income-tax receipts up 15.6% and individual receipts up 3.3%); outlays fell 1.7%. • In April, the CBO projected that the federal deficit will decline to a six-year low of $492 billion this fiscal year, down from $680 billion in FY 2013 and just one third of FY 2009’s record $1.4 trillion shortfall.

  23. RICHARD’S VIEW •  I see the market overall as being in a slightly overvalued area, that's what's the bottom-up product of our analysts' fair value estimates indicate for the U.S. market. • I think it's also consistent with a lot of other types of metrics. If you look at longer-term P/E ratios, they are kind of in the middle of the range of the last couple of decades. • Perhaps there is going to be an upsurge in growth, and the stock market can take off on that basis. • But we've had a lot of expansion in the P/E multiple of the market. That's what's really driven the bulk of the gains from the S&P 500 over the last two years. • I think that that has probably run most of its course, so really what you're looking at from here is a combination of dividend yield and growth in earnings and dividends per share to drive long-term total return.

  24. ONE STRATEGY • Focus on rapidly growing companies that already are popular—and often expensive by conventional measures. • Amazon.com, AMZN  • Google, GOOGL  • Apple, AAPL  • Facebook, FB • Salesforce.com, CRM • Tesla Motors, TSLALinkedInLNKD • Baidu,BIDU • TencentHoldingsTCEHY • Alibaba Group Holding [Soon to IPO] • Clearly, the broad market has been in a non-trending mode, but it is still possible to find and buy stocks that are trending.

  25. CONSUMER WATCHABLES • There has been some notable sector improvement but the next month or two will be critical, as in addition to further improvement in the outlook for housing, we need to see an increase in consumer spending. • Select SPDR Consumer Discretionary (XLY) • Expedia, Inc. (EXPE) • Lennar Corp. (LEN) • Leggett & Platt (LEG)

  26. ECB ACTED ON JUNE 5,2014 The ECB took bold steps cutting interest rates and offering to pump more money into the financial system. Economists generally praised the moves designed to raise dangerously low inflation in the 18 Euro countries making exporters more competitive by reducing the euro's value and thereby making Europe's goods less expensive abroad. But they say Europe's economy won't return to health until it receives long-term fixes that the ECB can't provide on its own.

  27. EFFECT OF HIGH OIL PRICES • Food Prices increase because oil is used in growing and transporting food, as well as biofuels effect on land price. • Salaries don’t increase despite increase in cost. • Consumers cutback on discretionary spending. • Housing prices drop because more dollars go into oil and food. • Discretionary sector businesses cutback or fail. • Airlines and other transportation companies are immediately impacted by fuel cost. • Industry and Retail are highly impacted • Government spending rises to offset debt defaults

  28. A WATCH LIST FOR JUNE Here are 40 stocks for your watch list. This is a list for your Technical Analysis. I watch these using a chart that has: Price using Candlesticks because Candlesticks are a great gauge of emotions Volume with 50MA ADX/DI as an indicator of trend change and strength Bollinger Bands see overbought and oversold conditions RSI to confirm overbought and oversold conditions of an asset. 

  29. STATUS OF OUR WATCHLIST As of Close 6/12/14 ----------------- Plus six new stocks added as of 6/14/14 HOLI LNG DNOW ATHL GRFS BITA

  30. SUMMARY • This is an exciting time for Investors • The Market is in transition • You have to be diligent and disciplined in your investing • Avoid emotions, develop a trading plan and stick to it • Plan your exit on entry

  31. REMINDER • THERE IS NO MEETING IN THE MONTH OF JULY • ENJOY THE TIME AWAY AND INVEST WISELY • NOW WE GO ONLINE TO LOOK AT STOCKS ON THE MOVE

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