Lighthouse Investment Management

Weekly Chart Window

January 13, 2014

13, 2014 Weekly Chart Window - January 13

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Contents
Bank Loans and Leases.................................................................................................................................. 3 Nominal Bond Yields ..................................................................................................................................... 4 Real Bond Yields ............................................................................................................................................ 5 TIPS-derived Inflation Expectations .............................................................................................................. 6 Treasury Securities: Foreign Buying / Selling ................................................................................................ 7 Corporate Bond Spreads ............................................................................................................................... 8 Currencies: Major Markets ........................................................................................................................... 9 Currencies: Secondary Markets .................................................................................................................. 10 Currencies: Emerging Markets .................................................................................................................... 11 Currencies: Scandinavia and Switzerland ................................................................................................... 12 Stock Market: Moving Averages ................................................................................................................. 13 Stock Market: MACD................................................................................................................................... 14 Stock Market: Stocks Above 50-Day MAVG ................................................................................................ 15 Stock Market: Stocks Above 200-Day MAVG .............................................................................................. 16 Stock Market: Net New Highs ..................................................................................................................... 17 Stock Market: New Highs/Lows Ratio ......................................................................................................... 18 Stock Market: Advance-Decline Line .......................................................................................................... 19 Lighthouse Timing Index ............................................................................................................................. 20

Weekly Chart Window - January 13, 2014

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Bank Loans and Leases

Observations:

CONCLUSION: Despite record-low interest rates, bank lending is growing very slowly. If current trends continue, the year-over-year growth rate could soon approach zero. In a credit-based economy, this is a warning sign.

Weekly Chart Window - January 13, 2014

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Nominal Bond Yields

Observations:

Nominal yields are rising due to an increase in real yields (see next page). However, the Fed wants to depress real yields (to make investors chase riskier assets) while boosting inflation expectations (to force consumers to borrow and spend). 2-year yields are pricing in interest rate hikes in 2015, questioning the credibility of the Fed's 'forward guidance'. As unemployment (6.7%) nears the Fed's threshold (6.5%), shifting the goal posts (to 6%) or continued QE would further dampen the Fed's credibility. Weekly Chart Window - January 13, 2014 Page 4

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Real Bond Yields

Observations:

Accepting negative real returns only made sense if investors were expecting severe and long-lasting deflation (TIPS principle amounts are adjusted by inflation, hence reduced in case of deflation, but always paid back at par [100%], and therefore have a 'free' deflation protection embedded). Central bankers want to depress real yields, but increase inflation expectations. These two goals are, in free markets, not compatible. It seems that even $1 trillion in annual asset purchases are not enough to enforce the Fed's will. The appointment of Mrs. Yellen didn't stop the rise in real yields.

Weekly Chart Window - January 13, 2014

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TIPS-derived Inflation Expectations

Observations:

Inflation expectations are calculated by subtracting real (TIPS) yields from nominal yields. The Fed wants to boost inflation expectations (to motivate consumers to spend). A slowing velocity of money counters its efforts. The Fed's plan to 'taper' bond purchases undermines its commitment towards NGDPtargeting (adopted in late 2012). The Fed's credibility is waning, which might ultimately hurt the dollar's value.

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Treasury Securities: Foreign Buying / Selling

41% of all marketable Treasury securities outstanding ($11.5trn) are held by foreigners, with China (1.3trn) and Japan (1.1trn) accounting for more than half (52%) of all foreign holdings. The Fed (2trn) and other central banks (3.5trn) together own 48% of marketable Treasury paper. Central banks are not price-sensitive (politically motivated). Private investors should be wary of a market where the main players' actions are politically motivated.

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Corporate Bond Spreads

Observations:

A "spread" is the premium, in percentage points, over the US Treasury bond yield of comparable maturity. Corporate bond spreads are depressed by historic standards. Continued bond buying by the Fed sends investors scrambling for yield, and into riskier assets. This leads to "subsidized" borrowing for otherwise credit-unworthy borrowers, covenant-light issuance of high-yield bonds and misallocation of capital. Weekly Chart Window - January 13, 2014 Page 8

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Currencies: Major Markets

Observations:

The Japanese Yen commenced another round of weakness, especially approaching the end of the fiscal year (March 31st).

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Currencies: Secondary Markets

Observations:

Currency pairs are quoted in price per 1 quantity of base currency. The base currency is whichever comes first from the following list: EUR-GBP-AUD-NZD-USD-others. Among others, the base currency was chosen so that the price quote exceeded 1. The Canadian Dollar is expressed in price per one US Dollar, but the Australian Dollar is quoted in US Dollar per one Australian Dollar. When the CAD weakens, the quoted price increases. When the AUD weakens, the quoted price decreases. Weekly Chart Window - January 13, 2014 Page 10

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Currencies: Emerging Markets

Observations:

Most EM currencies (except S. Korean Won and Indian Rupee) weaker, especially the Brazilian Real. Weekly Chart Window - January 13, 2014 Page 11

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Currencies: Scandinavia and Switzerland

Observations:

The Norwegian Krone lost 12% over the past 13 months.

Weekly Chart Window - January 13, 2014

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Stock Market: Moving Averages

Observations:

CONCLUSION: The uptrend is still intact

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Stock Market: MACD

Observations:

CONCLUSION: The US stock market shows mostly strengthening momentum.

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Stock Market: Stocks Above 50-Day MAVG

Observations:

CONCLUSION: This is indicator, while falling, still suggests more than half of all stocks are in an uptrend. While this is bullish, both the indicator and its moving average are falling. An early warning sign.

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Stock Market: Stocks Above 200-Day MAVG

Observations:

CONCLUSION: Most stocks are still in a long-term uptrend.

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Stock Market: Net New Highs

Observations:

CONCLUSION: No divergence detected, no warning signs.

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Stock Market: New Highs/Lows Ratio

Observations:

CONCLUSION: This indicator currently does not give a warning sign, but the falling trend of its 50-day moving average needs to be watched.

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Stock Market: Advance-Decline Line

Observations:

CONCLUSION: The A/D line is rising, and it is above its 30-day mavg. No warning signs.

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Lighthouse Timing Index

Observations:

Sorry - the LIMTI is currently being overhauled for better performance.

Any questions or feedback welcome. Alex.Gloy@LighthouseInvestmentManagement.com

Disclaimer: It should be self-evident this is for informational and educational purposes only and shall not be taken as investment advice. Nothing posted here shall constitute a solicitation, recommendation or endorsement to buy or sell any security or other financial instrument. You shouldn't be surprised that accounts managed by Lighthouse Investment Management or the author may have financial interests in any instruments mentioned in these posts. We may buy or sell at any time, might not disclose those actions and we might not necessarily disclose updated information should we discover a fault with our analysis. The author has no obligation to update any information posted here. We reserve the right to make investment decisions inconsistent with the views expressed here. We can't make any representations or warranties as to the accuracy, completeness or timeliness of the information posted. All liability for errors, omissions, misinterpretation or misuse of any information posted is excluded. +++++++++++++++++++++++++++++++++++++++ All clients have their own individual accounts held at an independent, well-known brokerage company (US) or bank (Europe). This institution executes trades, sends confirms and statements. Lighthouse Investment Management does not take custody of any client assets.

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