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MARKET TIMING with DECISION MOOSE

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LATEST SIGNAL (06/26/2009): HOLD cash through 07/05/2009.

Index Moose provides deeper insights into the current state of global financial markets than simply the best place to put your money.

RANK	CI	ASSET	Medium Trend	Short Trend
1	--	Cash (3 month T-Bill or money market fund)	POS	pos
2	49%	Pacific ex-Japan Equity Index (EPP)	NEU	pos
3	45%	Latin America 40 Equities (ILF)	NEU	pos
4	24%	Europe 350 Equity Index (IEV)	NEU	pos
5	36%	Japan Equity Index (EWJ)	NEU	pos
6	27%	Gold Bullion (GLD)	POS	pos
7	20%	US Small-cap Equity Index (IWM)	NEU	pos
8	10%	US Large-cap Equity Index (SPY)	NEG	pos
9	0%	Long Zero-Coupon Treasury Bonds (BTTRX)	NEU	neu
		Other considerations
		Fed Check (what the Fed ought to do)	HIKE	hike
		Impact of US Dollar on Foreign Equities and Gold	NEU	pos
		Commodity Inflation Trend	NEG	pos

The Week in Review ((updated Sunday 06/28/09, 10:45 PM)

JUN 26— As July 4th approaches, is it my imagination, or somewhere along the way did “life, liberty, and the pursuit of happiness” turn into “choice, big brother, and a free lunch”?

As Bob Dylan says, “The times they are a changin’”. And how.

By next year’s mid-term elections, gross public debt will reach 10 trillion or 70% of GDP. It is projected to double ten years out. Gross public debt plus unfunded obligations, however, will reach 56 trillion— or about $480,000 of debt per taxpayer.

And you thought your personal credit card was over-extended.

Obviously, your average American can’t pay off 480-large without help, so we increasingly rely on foreigners to feed our habit. Fortunately for us, it appears that (so far) there is indeed a sucker born every minute… at least somewhere in the world. (It is probably faster than that in China.)

Lest any offshore reader be tempted to protest my insensitivity, let me clarify that my personal patriotic view is that Americans are far and away the world’s biggest suckers for allowing our political class to take us down this road since 1965. Like anyone who’s deep into a Ponzi scheme, however, I have to believe in the Bigger Sucker Theory, or I will despair for my own future. After decades of suckerhood, Americans are tapped out, so come to mama, foreign capital.

Our best hope is that foreign politicians continue to be as dumb as ours, so comparatively speaking, they can minimize our self-inflicted damage. True, our debt is three times what it was when Reagan took office, but relative to other countries, that’s about average, and in some cases much better. This is how every U.S. Treasury Department since Nixon dropped the gold standard has been able to say it supports a strong Dollar while seeming to do nothing to support it. If we wait, some foreign politician invariably does something stupider than we have, and makes the Dollar look good. (The British are very skilled at this.)

The Moose, if you look closely, began to despair for America’s future in 1999, which was the last time the model was invested in the S&P. Since then, it has invested in long bonds, a bet against the U.S. economy, ten times. So much for painting the Moose red, white, and blue.

This week’s big market event was initially expected to be the Fed announcement on Wednesday. Perhaps in preparation, U.S. equities tanked 200 Dow points on Monday, and then wandered around until the announcement. In the PM after the announcement, they wandered around some more. The market was not happy that the Fed had not extended the multiple “facilities” they’re using to enhance liquidity past their October deadlines. There was fear the central bank might be dialing back on its balance sheet.

On Thursday, however, (coincidentally the 133rd anniversary of the Battle of Little Big Horn) the Fed did charge into the unknown, extending its facilities until February 2010. The market rallied 140 Dow points, but once the initial relief subsided, had second thoughts on Friday. That the future might actually be as dim as the Fed intimated in its statement weighed on investors’ minds. Stocks (-0.2%) meandered lower for the week as the quarter’s end nears.

The subdued outlook may have been reinforced by the news out of Washington that cap and trade would pass the House this week and that a trillion dollar health package is near completion as well. The markets never take private sector destruction particularly well. Investor fear is that these two programs will make health care and energy far more expensive in the United States-- reducing domestic capital formation, domestic job creation, individual consumption, and global competitiveness, all of which will weaken the U.S. economy.

Not coincidentally, the Fed Check, since turning negative two weeks ago, has been improving ever so gradually, as economic optimism fades. Bond prices (+4.6%) are up and commodity prices (-0.6%), including oil (-1.2%) are lower again this week, reflecting a less ebullient outlook and fewer inflation fears. This means the Fed has slightly more leeway in keeping the punchbowl on the table… for the moment. The central bank did vow to keep the punch flowing this week, as predicted, even though our market-powered breathalyzer (the Fed Check) suggests that, if not totally inebriated, we may be legally impaired.

Position-squaring-- and June is end-of-month, end-of-quarter, and half-year-- is a consideration in every market. Waiting, then, until Q3 begins next week to attempt a more definitive assessment of the Fed Check signal is not unreasonable.

It’s also worth reiterating that the markets aren’t always right, and that this is an unusual case. A financial sector collapse has constrained lending and dampened the banks’ multiplier effect to some extent since last September. How exactly that plays out a year later this fall and winter is anyone’s guess. Best case, those expecting the normal bounce we’d get from such an immense amount of liquidity will be disappointed. Worst case, we get a double dip-recession late in the year as commercial real estate and consumer credit tank, threatening the banks again.

Even if the economy is already off to the races and the Fed is, per the Fed Check, underestimating the inflation threat, even if they keep the pedal to the metal and forget to brake going into the turn, we probably wouldn’t start to skid off the road inflation-wise for a year or more due to the lag. Meanwhile, a lot of non-monetary things (domestic and foreign) can happen to mitigate or exacerbate inflation before next summer, not the least of which is a fiscal policy that raises interest rates while retarding growth.

The second quarter closes next week, and it shapes up to be the best quarter in equities since Q4 1998, in which the S&P posted a 20.9% gain. It will break a string of four consecutive down-quarters in stocks, certainly a dispiriting run in what has become one of the most dispiriting decades in equity investment history. With six months left in 2009, stock performance during the decade from December 31, 1999 has been almost as bad (-39%) as the decade of the 30’s (-41%) during the Great Depression. (Looking at rolling decades and inflation-adjusted returns, however, makes this the worst.)

Hopeful news for the long term investor is that a good decade usually follows a bad one. As government spending goes parabolic, however, dual headwinds-- tax increases and interest rate hikes-- make the way out far more difficult. Snapping out of a bad decade has been known to take a world war, in fact. It is by no means automatic. Just ask the Japanese. They still haven’t recovered from the 90’s, despite a dozen or more massive “economic stimulus packages”.

Ten years out is always a guess, though. This is a week-to-week exercise, and the Moose remains in cash for another week. The markets have been uneventful-- biding their time for a month or more, but a new quarter can bring a different perspective rather suddenly. Things could break either way, so in the absence of a trend, why flip a coin? Patience.

See below for the week’s detail.

Shared Assumptions vs. This Week's Perceptions

Individual components within the global market do not interact in a set, immutable way in every context, but certain relationships do exist more times than not. Those relationships form the basis for investors' shared assumptions. Market trends are reinforced when investors’ shared assumptions are borne out by their perceptions. Market trends reverse themselves only after perception begins to alter shared assumptions. By understanding the market’s assumptions, and current perceptions, we can better forecast a potential change in trend.

Shared Assumption: Global Economy		This Week
(Update: 04/14/09) The global economy in a severe recession inflicted by a massive financial crisis and acute loss of confidence. According to the IMF, it is a downturn that “represents by far the deepest global recession since the Great Depression”. World GDP is expected to fall by an unprecedented 1.3% in 2009, led lower by the developed or industrial nations, which are forecast to contract 3.8%. The April report is the fifth downgrade of the IMF's global growth forecast in just over six months, illustrating how rapidly the global economy has deteriorated. Deep recessions are forecast for all major advanced economies. The United States is expected to contract by 2.8% in 2009, the Euro-zone by 4.2%, the UK by 4.1% and Japan by 6.2%. The IMF expects every advanced economy except Cyprus to contract in 2009. An average unemployment rate of 9.2% for advanced economies as a whole is also forecast, with unemployment rates in many advanced economies expected to reach double-digits. The IMF now predicts financial market stabilization will take longer than previously expected and cautions that even once the crisis is over, probably in 2010, growth may take some time to recover.		Global growth prospects got bleaker as the World Bank lowered it’s 2009 world GDP forecast to –2.9% from an over-optimistic –1.7% a couple of months back.
Shared Assumption: U.S. Economy		This Week
(Update: 05/17/09) U.S. economic growth is expected to contract by 2.9% in 2009, according to the latest IMF estimates. Fed rate cuts, and other emergency actions since September, have improved liquidity and credit availability, but the financial system remains weak. Commercial credit and credit card debt are becoming areas of concern. Massive government deficit spending legislated in early 2009, but inefficiently applied, could take two years or more to materialize. Unemployment is currently 8.9%, up from 4.8% at the end of 2007. It is expected to reach double digits this year as growth remains anemic. Job weakness will weigh on consumption. On a positive note, after topping out at $147 a barrel in summer 2008, oil is below $60. This removes inflationary pressures and leaves consumers with extra discretionary income. Q1 2009 GDP contracted 6.1% annualized. Q2 is expected to contract about 2%, while the economy should gain traction in Q3 and become slightly positive.		The good: May durable orders (+1.8%) way stronger than expected, actually positive. Personal income (+1.4%) strong and spending (+0.3%) positive though weak. The bad: May existing home (4.77M) and new home (0.34M) sales weaker than expected. Q1 GDP revised upward to –5.5% from –5.7%, merely terrible, instead of horrific. The ugly: Initial jobless claims (627K) way worse than expected.
Shared Assumption: Inflation		This Week
(Update: 05/17/09) Inflation fears faded quickly as the credit crisis deepened and recession began to loom in the second half of 2008, both domestically and globally. Prior to that, the inflation numbers were hot. A consumer price increase of 4.1% in 2007 was the biggest since 1990's. Then the CPI surged another 4% by July 2008, before falling off a shelf and finishing 2008 up a mere 0.1%. After bottoming last December, the CPI has risen 1% in the first four months of 2009, or at a 3% annual rate. That is a little hotter than the Fed would like, but much of it has been due to increases in gasoline and in food prices. Oil prices in particular have surged in 2009, even though supply appears to be ample. China’s new stimulus program is expected to increase demand, and speculators have amplified on that. Moreover, the Dollar began to weaken in 2009, making imported goods more expensive, and increasing inflation pressures. Add massive global liquidity injections in ‘09 and you get inflation fears, once recovery kicks in, perhaps in 2010.		May PCE (0.1%) in line with expectations and within the Fed target range.
Shared Assumption: U.S. Dollar		This Week
(Update: 05/28/09) The Dollar has been an anti-equity play in 2009. That relationship is expected to continue. The greenback rose almost 12% from mid-December through early March as equities plunged toward new lows. As equities rallied off those lows, the Dollar then retreated. It’s now within 2% of where it started and roughly flat year-to-date. The Dollar’s weakness this spring corresponds to the U.S. Treasury’s problems, which are perceived to be worsening, as tax revenues decline amid recession and government spending explodes amid bailout fever. The only way to pay for the trillions in new programs will be to print Dollars, and when one increases the supply of anything, its price falls. A weaker Dollar tends to exacerbate inflation (a) by raising commodity prices (which are traded in Dollars), (b) by raising the price of U.S. imports, and (c) by providing pricing cover to U.S. producers that compete with imports. It also provides additional return to U.S. investors in foreign assets, while reducing the attractiveness of U.S. assets to non-Dollar investors. The combination of inflation fear and falling currency-weighted returns on U.S. investments has offshore investors selling U.S. bonds-- and further lessening the demand for Dollars.		The Dollar (-0.6%) was down this week, but hovers near support levels set last December. The week still saw weaker commodities (–0.6%), including oil (-1.2%). It remains to be seen whether the Dollar is about to make a new move up, or taking a momentary time out in its 2009 downtrend. The Dollar has been an anti-equity trade of sorts, rising when stocks fall and vice versa. Short term, the trend in the Dollar is down, and its price is down slightly over the last 13 weeks (-6%). Medium term, the trend in the Dollar is also down, but the price is up over 52 weeks (+10%).
Shared Assumption: The Fed		This Week
(Update: 05/28/09) The Fed has maintained an overnight rate of 0.00%-0.25% for most of 2009. In addition, special programs to force liquidity through the financial system have increased its balance sheet to three trillion dollars. Much of this has been in a coordinated effort with foreign central banks, most of whom have been making broad systemic changes to increase credit availability. It appears to be working. The Fed Check, which peaked at an astounding 1.82 on 12/19, has fallen to a more normal 1.06 this week. LIBOR, the rate at which banks lend to one another short term, has also come down to 0.66%, reflecting increased confidence within the financial system. Finally, the yield curve has also begun to steepen, which is good news for bank profits. The fly in the ointment however, is the current speed with which commodity prices are rising, an early warning sign of inflation, and a signal that the Fed’s task of rescuing the system may have to give way to the inflation fight before year-end.		The Fed Check (0.94) went into rate hike mode two weeks ago and stays there this week, even as commodities slipped and bonds rallied for a second week in row. The Fed stood pat at this week’s meeting, though the markets suggest they should begin to back off on the liquidity injections. The signal could change, however. 3-month LIBOR (0.60%) fell, and T-Bill yields (0.18%) were up. That lowered the 3-month LIBOR/T-Bill spread (42) slightly implying easier bank-to-bank credit.
Shared Assumption: Commodities		This Week
(Update: 05/28/09) Commodity prices remain bearish intermediate term. The CRB bottomed in February 2009 after a staggering 57% plunge that began in July 2008 and was led by an 81% fall in oil prices. Prices have been improving since, as financial systems have begun to stabilize, and as governments have begun to print money in order to allocate “stimulus” funds. In the bottoming process, commodity prices show a reverse-head-and-shoulders pattern similar to that of U.S. equities (see note below), but unlike U.S. equities, which have met strong resistance for a month, the CRB appears poised to break out to the upside. The difference could be that while both are traded in dollars, hard assets like commodities are perceived to provide more inflation protection than paper assets. Much of the latest move in the CRB is oil related, however, and appears to have little to do with fundamentals. Crude supplies are up 30% year-over-year and global demand is down considerably. Speculators clearly are back in the market, making oil and the CRB a potentially bumpy ride.		Commodity prices (-0.6%) fell slightly this week, despite a weaker Dollar (-0.6%). Oil (-1.2%) again led the way although lately the way had been higher. Short term, the trend in the CRB is up, as is its price over the last 13 weeks (+13%). Medium term, the trend in commodities is down, and the price has fallen sharply over 52 weeks (-46%). As for oil, the short-term trend is also up, as is its price over the last 13 weeks (+22%). Medium term, the trend in oil is very negative, and the price has fallen sharply over 52 weeks (-67%).
Shared Assumption: Gold Bullion		This Week
Update: 06/08/09) Gold bullion was bullish from 2005 into 2008, peaking in March ’08. It mirrored a decline in the U.S. Dollar, and a rise in commodity prices generally. As commodities lost steam and the Dollar began to strengthen, gold reversed. A brief flight to quality during the credit crisis last Fall aside, bullion bottomed in November on Depression fears. It then rallied quickly toward earlier highs, but fell short this spring as abject fear in equities in March gave way to optimism. Gold is range-bound in 2009 with considerable support at the 850-875 level and resistance around 975-1000. It remains both an anti-Dollar and a fear trade, but there are cross-currents. Both systemic fear and inflation fear are bullish for bullion. The prospect of a prolonged global recession, with its disinflationary implications is not, nor is the prospect of a fully functional financial system. This spring, however, the new administration unveiled a fiscal plan calling for massive budget deficits a decade into the future, which bodes well for gold as an anti-Dollar play. In addition to the need to print more Dollars, a larger government footprint is expected to reduce productivity and thus contribute to inflation. Longer term, then, gold’s prospects would appear to be excellent.		Gold (+0.4%) rose gingerly this week. The Dollar (-0.6%) did more than its share of the lifting. Bullion had backed off for several weeks. Short term, the trend in Gold remains positive, barely, as is its price over the last 13 weeks (+2%). Medium term, the trend in Gold also up, but the price is flat over 52 weeks (+1%). No that the Fed has committed to being easy, gold should do well near term. Should tightening start, however, bullion could be at risk. Longer term, with global monetary expansion, prospects for bullion remain excellent once the recession ends.
Shared Assumption: U.S. Long Treasury Bond		This Week
(Update: 06/09/09 ) U.S. long Treasury bonds (25+ years) were range-bound in 2008, but that isn’t to imply uneventful. Volatility and trendlessness in the normally staid asset class were off the charts. By Fall, with the Lehman collapse threatening commercial credit on a global scale, even Treasuries appeared risky and prices plunged. A string of government interventions by the Fed, Treasury, and the Congress, however, did restore systemic confidence in time for Treasuries to sky-rocket on Depression fears at year-end. Since then, Treasury prices have been all downhill in 2009. A U.S. fiscal plan calling for massive budget deficits a decade into the future with greater government ownership of the means of production, has weighed heavily on U.S. bonds and the Dollar. Prospects for a weaker Dollar have caused offshore bond-holders to search for alternatives. With most governments in similar dire fiscal straits, however, investors are dumping all income instruments for hard assets (commodities and gold), further exacerbating inflation fears. Currently, though on the verge, long bonds have yet to break down intermediate term. They are oversold and have strong support at their 200-day average. This week’s $65B Treasury refunding, including 10’s and 30’s, should clarify the near term trend. Longer term, two to three years out, however, the outlook for U.S. bonds remains bearish.		U.S. 25yr+ Long Bond prices (+4.6%) had a third good week. The recent surge in commodity prices that raised inflation fear and weakened bonds for a couple of months has been backing off—after the bond vigilantes took the 10-year year as high as 4%. Short term, the trend in Long Treasuries is up, but its price is down over the last 13 weeks (-9%). Medium term, the trend Long Treasuries is negative, but the price is slightly up over 52-weeks (+3%). The 10-year yield dropped from 3.79 to 3.51% this week. Cash yields crept up to 0.18%. That flattened the 3M-10Y-yield curve to 333 basis points, but the longer-term steepening trend continues.
Shared Assumption: U.S. Large Cap Equtiies		This Week
(Update: 05/28/09) U.S. large cap stocks remain bearish medium term, but are at an inflection point. After rising from 2003 through most of 2007, the S&P rolled over in November 2007. Decline turned into a panic in the fall of 2008 as forced liquidations by hedge funds spooked retail investors. The November ’08 low (S&P 741-752) was followed by a rally (to S&P 934-941) into January before a new lower low (S&P 666-676) in March 2009. A subsequent rally this spring now has large caps testing resistance at the January highs. If it breaks above that level, a new leg up is possible. If not, a reversal to the November lows could complete a classic reverse-head-and-shoulders pattern. Last fall, I wrote, “Assuming that economic recovery only takes a year to materialize, and if stocks get a six-month head start on GDP, we could see a new bull market by Spring 2009.” We have seen the beginnings of that rally, but its sustainability is now in question. Bank lending remained very weak into March 2009, putting the previously expected Q3 economic recovery at risk, possibly pushing it back six months. That would make a sustainable bull rally in stocks more plausible in fall 2009. Meantime, as the economy struggles, larger companies should do better than smaller ones. They have more resources and are better able to weather a recession. They are also more prone to be multinational, making them more competitive globally, especially as the Dollar weakens.		U.S. large caps (-0.2%) got smacked on Monday, but recovered on Thursday when the Fed extended it special liquidity facilities. Resistance at the neckline (S&P 934) of a reverse head-and-shoulders pattern has been strong. Another 5-7% is possible, but the Fed Check is flashing a bearish warning. Short term, the trend in the S&P is up, and so is its price over the last 13 weeks (+13%). Medium term, the trend in the S&P is down, as is the price over 52 weeks (-28%).
Shared Assumption: U.S. Small Cap Equities		This Week
(Update: 05/22/09) U.S. small-cap stocks remain bearish intermediate term after bottoming in March 2009. They have been improving since, however, as financial systems have begun to stabilize. They are at a similar inflection point with U.S. large caps, however. (See above note.) Small caps tend to under-perform as their access to credit dries up and as the economic outlook weakens. Smaller firms have fewer resources and less access to low cost capital, and thus are less able to weather a recession or a credit crunch. They are also less apt to be multinational. As the Dollar weakens, however, making imports cheaper, they can gain pricing power, improving margins.		U.S. small caps (-0.2%) remain below their neckline and their 200-day moving average. Short term, the trend in the Russell 2000 is up, as is its price over the last 13 weeks (+19%). Medium term, the trend in small caps is now neutral, and the price is off over 52 weeks (-26%).
Shared Assumption: European 350 Equities
(Update: 05/22/09) European stocks remain bearish intermediate term after bottoming in March 2009. They have been improving since, however, as financial systems have begun to stabilize. They are at a similar inflection point with U.S. large caps, however. (See above note.) Euro-zone GDP suffered its sharpest slump on record in the first quarter of 2009, falling by 2.5% in the period from January to March, compared with the fourth quarter of 2008. In other words, Europe was contracting at an annualized rate of nearly 10% in the first quarter. Germany, Europe's biggest economy, had it’s worst quarter since 1970 -- contracting 3.8%, or down an annualized 14.4%. More recent monthly indicators for business activity, however, suggest the pace of Europe's recession has slowed sharply and that the euro-zone economy could stabilize by this fall and return to growth around the end of the year.		European stocks (-2.7%) had the worst week in the model as Germany’s visiting chancellor essentially lectured the U.S.President and Fed Chairman on being easy-money political whores. While they may be just that; European equity traders find it more distressing that Europe might not be joining them on the street corner. The Eurozone has remained committed to the inflation fight, despite slowing growth, an ongoing credit crisis, and double-digit annualized declines in GDP in the first quarter. Short term, the trend in European stocks is down, but its price is up over the last 13 weeks (+21%). Medium term, the trend in European stocks is still down, as is the price over 52 weeks (-36%).
Shared Assumption: Japanese Equities		This Week
(Update: 06/09/08) Japanese equities followed global equities and rolled over in mid-2008. They remain bearish intermediate term, but bottomed in March 2009, and have been improving since. They are at a similar inflection point with U.S. large caps, however, (see above note), about to break above their 200-day average for the first time in a year. Moreover, the Asian region, particularly China, has been leading the global recovery. Despite those bullish signs, the Japanese consumer remains weak, the government is still in some disarray, and demand for their exports is down amid global recession. The carry trade’s unwinding has slowed, however. (The carry trade borrows Yen at very low interest rates in Japan, converting those Yen into a foreign currency, and investing that currency, often on the margin, in offshore assets that have a much higher expected return than the original borrowing cost. Success depends on (1) low Japanese interest rates, (2) a weakening Yen, and (3) rising asset values abroad.) Rates are down in Japan in 2009, the Yen is weak, and there as been an equity and commodity rally abroad.		Japanese stocks (+0.7%) finished positive this week. Slower growth in both Europe and the U.S., and the unwinding carry trade have hurt the Japanese economy and led stocks in export-driven Japan lower over the past year. Short term, the trend in Japanese equities is up, however, as is the price over the last 13 weeks (+16%). Medium term, the trend in Japanese equities is neutral, as is the price over the last 52 weeks (-23%).
Shared Assumption: Latin American Equities		This Week
(Update: 06/09/09) Latin American stocks rolled over in mid-2008, turning bearish with commodities’ collapse in July. They bottomed in November 2008, having lost 65% of their value in less than five months. This week, after gaining over 60% in thirteen weeks, ILF turns bullish intermediate term, breaking above its 200-day average for the first time in almost a year. Latin America typically trades as a multiple of the price of its main export, crude oil. Copper and other materials basic to economic development play a role as well. Asia, particularly China, has been leading the global recovery, and its demand for oil and metals to fuel industrialization has benefited the resource rich region. Oil has risen 81% off its lows last winter, and ILF has ridden that wave higher. Currently, ILF is overbought and approaching resistance, but longer term, two to three years out, a weaker Dollar bodes well for commodities and the economies that supply them.		Latin American equities (+0.9%) rose despite falling commodities (-0.6%), including oil (-1.2%). Emerging equities have excelled in this rally, but are vulnerable should the rally end. They can get hit hard and fast as happened last week. Short term, the trend in Latin equities is up strong, as is the price over the last 13 weeks (+32%). Medium term, the trend in Latin equities is neutral, although the price over 52 weeks (-36%) remains down.
Shared Assumption: Asia ex-Japan Equities		This Week
(Update: 06/09/08) Pacific ex-Japan stocks rolled over in mid-2008, turning bearish with other equity markets in June. Similar to the emerging markets, however, the region (Australia, New Zealand, Singapore and Hong Kong, i.e., China for non-Chinese investors) bottomed in November 2008, after shedding 60% of its value in less than five months. After a 60% gain in thirteen weeks, EPP remains bearish intermediate term, but approaching its 200-day average for the first time in almost a year. Asia, particularly China, has been leading the global recovery, and its demand for oil and metals to fuel industrialization has benefited a regional index that is overweight in financial and resource companies. Currently, EPP is overbought and approaching resistance, but longer term, two to three years out, a weaker Dollar and Chinese industrialization bodes well for basic materials and the economies, like Australia, that supply them. Ultimately, however, Asia consists of differentiated markets that rely on global growth and on western consumers. (Hong Kong, for example, is mainly a play on regional commercial real estate, whereas Taiwan is a tech-oriented market. Singapore is financials.) Global recovery will eventually be required to complete regional success.		Pacific ex-Japan (-0.6%) fell slightly this week. The index is heavily weighted in banking, and Australian mining. Both sectors had a flat week. The credit crisis and commodity collapse have taken its toll in the past year, but the region has been clawing its way back. Emerging equities were excelling in this rally, but are vulnerable should the rally end. Short term, the trend in Asian equities is up, as is the price over the last 13 weeks (+27%). Medium term, the trend in Asian equities is neutral, as is the price over 52 weeks (-30%).

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