11/02/11   BRICS To The Rescue?

Editor’s Corner

Investor Heat Map: 11/2/11BRICS To The Rescue?

Ron Rowland

Economic policy arm-twisting is underway on both sides of the Atlantic. In Washington, previously-dissenting inflation hawks on the Federal Reserve’s Open Market Committee voted to continue the same policy they vigorously opposed just a few weeks ago. In Cannes, Greek Prime Minister George Papandreou was summoned before his Eurozone peers who are puzzled why anyone would care what voters and taxpayers think.

The FOMC meeting was not expected to produce any surprises. The announcement’s language was largely unchanged as was the conclusion. What did change were the votes of Richard Fisher, Narayana Kocherlakota, and Charles Plosser, who dissented at the last two meetings. Today’s decision was not unanimous; Chicago Fed President Charles Evans said he wanted the central bank to loosen policy even more.

Across the pond, the “plan” adopted at last week’s summit meeting ran into a roadblock when Papandreou went home and announced his desire for a referendum before imposing further austerity measures on his population. The very idea pushed the rest of the Continent into near-panic.

The overriding goal, as we said last week, is to avoid pushing Greece into a formal “credit default” that would set off a cascade of ill effects. We won’t be surprised if the next solution involves the BRICS nations. Leaders of Brazil, Russia, India, China, and South Africa are reportedly also meeting in Cannes tonight. The bankruptcy of brokerage firm MF Global (MF), following ill-considered investments in European sovereign debt, may be a sign that U.S. institutions are at risk as well. The stakes are getting higher and higher.


The U.S. sector lead is still being tossed between Technology and Consumer Discretionary, with the latter on top this week.  Neither seems capable of enticing other sectors into a broad rally.  The question for Consumer Discretionary is whether strength in the retailing segment can overcome a setback for the homebuilders.  Utilities held its #3 spot as investors crave lower volatility and higher dividend yield.  Materials and Financials improved enough to post mildly positive momentum scores though the continuing debt crisis in Europe makes us skeptical of bank stocks.  Telecom is in last place and is currently the only sector in an intermediate downtrend.


The Mega Cap and Large Cap categories were unable to build on last week’s rally, allowing Small Cap Growth to sneak into first place.  The significance of this is unclear, however, given the very tight range of relative strength.  Someone has to be #1 on the list, and this week it is Small Cap Growth by a razor-thin margin.  Micro Cap has a stronger grip on the last-place position and is somewhat isolated from other categories with the next closest style six points away while that same amount also separates the entire rest of the group.  The improvement to slightly positive momentum may not last long; Micro Cap had a 7% intraday pullback in the last few days.


Our Global rankings have a profile similar to last week: a near-linear momentum falloff, a majority of regions in negative territory, and downtrends of greater magnitude than uptrends.  The U.K. and U.S. stayed in first and second place.  Latin America jumped from #8 to #3 by somehow buffering itself from European turmoil, but the region’s chart still looks discouraging.  China climbed out of last place and is now in the middle of the pack.  Here, too, longer-term indicators are still dismal.  Europe slid back after a few weeks of improvement.  Another round of currency intervention pushed Japan down to last place.  The strengthening Yen is a major threat to Japan’s export-dependent economy.


The charts above depict both the relative strength and absolute strength of various market sectors, styles, and geographic locations on an intermediate-term basis. Each grouping is sorted (top to bottom) by relative strength. The magnitude of the displayed RSM value is a measure of absolute strength, which is our proprietary method of measuring and reporting the intermediate-term strength as an annualized value.

“Germany would welcome sensible behavior from Greece.”

German Chancellor Angela Merkel, November 2, 2011


© 2011 AllStarInvestor.com All Rights Reserved. Protected by copyright laws of the United States and international treaties. Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. All Star Investor employees, its affiliates, and clients may hold positions in the recommended securities.

Distribution is encouraged. Please do not alter content.