A number of subscribers have asked why I have been slack about writing the newsletter this summer.

The answer is simple, there really isn’t much new and fresh to talk about. The problems that stand before us are unchanged from the beginning of the year. That realization hit home when I watched a good presentation on the web which was recommended to me recently. The presentation was done in late January but could have just as easily aired yesterday.

While I try to be an optimist and remember that recessions are very good times for innovation and new leading companies to emerge, I cannot help but pay attention to the doomsayers who are correct in pointing out that the developed world is still in a long term, debt-laden situation that will only deteriorate as the demographics continue to shift toward older voters who expect to be taken care of in their old age.

Perhaps that is why two of the bright spots in the Global ETF Portfolio are the Biotech ETF – XBI and the Pharmaceuticals ETF – XPH.

So, as a result, the Fund King System is throwing up some perfectly dreary numbers and telling us that there is nothing terribly compelling for your risk capital at the moment.

If you want to see a market snapshot, we have broken down the Fund King rankings of the ETF market by market capitalization on this page. The 100th largest ETF this week, for example, is ACWI at $1.9bn. The 250th largest is PDP at $523m and the 500th largest is HHH at $131m. As you can see, the only ETFs showing any decent ratings are the leveraged ones. Overall, that does not fill us with tremendous confidence for the medium term outlook.

For me, the only bright spot is that the market is starting to pay close attention to unemployment. Not only is this a perennial lagging indicator but it is a very poorly constructed data series at the best of times and almost always wrong at turning points. Therefore, I find it highly amusing that investors are trying to catch a turnaround in underlying economic growth using a statistic which has failed so spectacularly in the very recent past.

Why is that a bright spot? Because it means that a large number of “smart money investors” are once again focused on the wrong thing. The current high level of reported (and underreported) unemployment is unfortunate but it is the wagging tail of the economic dog. A more sensible leading indicator to follow would be retail sales in the US. And on that score, it looks like some of the negative numbers could turn a bit more positive if you look at the work being done by the Consumer Metrics Institute. Nothing to “bet the farm” on this week but it is encouraging to see the line of their main indicator making a move for the Growth side of the chart.

What should an investor do?

Sometimes it is hard to do nothing but that is what the Fund King ratings suggest (as they have since April). There should be opportunities in the autumn and perhaps one of the catalysts to kick start a fresh round of investment will be the end of the faux crisis gripping Washington DC with regards to the debt ceiling.
The Euro Crisis should quiet down as Europeans take the traditional August holiday. The crisis will still be there when everyone gets back in September.

Continue to build up cash and wait for opportunities to emerge in the coming months.


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