27 November 2013 Zeb’s VUE

General Information and Analysis

• As stated, Zeb’s Hitchiker’s VUE is finished.  I was going to set up a new blog, but I have not had the time.  The focus now will be on investing, not currencies as previously.  That means less coverage of world economies and currencies, and more focus on businesses.  For the reader, then, pick your favorite web site for financial information; yahoo, google, MSN, etc.  When I cover a specific business or ETF you can start your own evaluation at your favorite site.

US

• NASDAQ broke 4,000 yesterday. Apple, Facebook, and Amazon are trading at their highest level in 13 years (since the dot com bubble in 2000).  One has to wonder when a major stock market correction must take place.
• I find it hard to argue that the Stock Market (all exchanges) in the US are going up.  One should not invest against the trend (agree), but one should also protect profits. Why worry about that while the market seemingly has no worries?   The investor hedges against unpredictable occurrences.  She liquidates assets that have a high probability of going down in value.  With the Federal Reserve in the USA providing liquidity at an unprecedented level, the investor cannot say with any certainty the market will go down.  Therefore, the investor (at these heady heights) should take out insurance by hedging. 
• VIX is a measure of fear in the USA stock market.  Historically, any reading above 30, the stock market’s have high volatility, and traders and investors are fearful the market is going to have a major downturn.  The VIX is designed to measure the expected 30-day volatility for the S&P 500.  The VIX usually has an inverse relationship to the S&P 500; when stocks rise, the VIX falls, and when Stocks fall, the VIX rise (which gives insight into why it is considered the FEAR index).  

1. The current reading of $VIX is between 12 and 13 (12.81 on yesterday’s close). 
2. There is no “fear” in the market according the common knowledge.  Investors are not hedging against a fall.
3. Does that mean you should not hedge?  It does not mean that.  The markets are in a precarious position until the next debt ceiling fight is resolved.  Taking insurance out is a good strategy. 
4. However, it also means (at this point) that liquidating one’s stock market position is not the best strategy, as there is no guaranteed income asset that will beat inflation. 
5. Bottom-line – Hedge in case we have a correction, but it is not time to go to cash yet.

• The job market continues to improve.  Instead of using BLS statistics, one can look at the number of employees that ADP (Automatic Data Processing) is processing.  The number continues to rise.  ADP’s revenue and earnings is dependent on its customers hiring.  Over the last 2-3 years the number of employees ADP handles has grown at a steady 3%.  The result is a steady growth in the value of ADP.  Overall, this is a good indication of medium term growth (meaning 6 to 8 months) in the US economy.  

o   US Jobless claims fell unexpectedly last week, suggesting improvement in the labor market.  As usual, however, the signals in the report were mixed.  Hiring in manufacturing was down.  Much of the hiring appears to be in part-time jobs where consumer based business is making seasonal adjustments.

o   The reports last week are still be affected by the USA government shutdown, as data was not collected accurately during that time frame.

o   Conclusion: The US economy is chugging along – I think I can I think I can I think I can…  The big engine that could J