Decision Moose Global Financial News & Analysis

2018.07.20 through 2018.07.29

Moosecalls Executive Summary page 1 Weekly Market Table, Daily Recap page 2 Economy Fed & Inflation page 3 Commodities page 4 Gold page 5 US Dollar, Carry Trade page 6 US Treasury Bonds page 7 US Large-cap Stocks page 8 US Small-cap Stocks page 9 European Stocks page 10 Japanese Stocks page 11 Asia Pacific ex-Japan Stocks page 12 Latin American Stocks page 13 Moose-extras: Top 20, TSP page 14 Moospeak Editorial page 15

Moosecalls— week closing 07.20.2018

*On June 26, 2018, the model switched from US Small-cap equities (IWM) to cash after being stopped out. See newsletter for more details. Always familiarize yourself with any investment program and the assets involved before committing to it. Read the FAQs and The Art of the Switch, and get a prospectus online from the fund provider. Executive Summary— Summer Doldrums The model remains in cash this week after its #1 (US small-caps) was stopped out three weeks ago. US small caps (+0.6%) did recover last week’s dip this week, but has gone nowhere since rebounding 2.7% after the stop. Meanwhile, after a two solid weeks, US large caps (0.0%) took a breather. Offshore, equity assets in the model were mostly higher. Trade dependent and recently hard hit Asia-Pacific (-0.2%) was the only exception. Latin America (+2.7%) continued to recover from its 2018 wipeout, and hard hit Japan (+1.1%) managed a bounce as well. Europe (+0.3%) inched a bit higher for a second week. Meanwhile, a bullish US Dollar (-0.2%) slipped. Commodities (-1.2%), including crude oil (-2.2%) and gold (-0.9%) headed lower. The recent rally in very long US Treasury bonds (-2.7%) ended abruptly this week, dropping EDV to #3, and putting US large caps back at #2 in the model. The 10-year-T yield jumped to 2.90%. #1 US Small Caps (IWM) Make Third Run at 2018 High-- US small-cap stocks (IWM) are currently very bullish and rank #1 in the model-- more attractive than cash. US small-caps rose 0.6% this week, following last week's -0.5% loss. That leaves them up 8.3% for the quarter (13 weeks), and up 18.2% for the year (52 weeks). In early June, IWM moved higher, as global trade concerns mitigated against US and foreign large cap multinationals. Soon, however, it began to back off overbought levels, and in late June, it was stopped out to cash after a 2.4% loss. It bounced big (+2.7%) last week, stopping just short of previous highs before stalling out over the past two weeks. #2 Bull ish US Large-Caps (SPY) Take A Breather- US large-cap stocks (SPY) are currently very bullish and rank #2 in the model-- more attractive than cash. US large-caps were flat (0.0%) this week, following last week's 1.5% gain. That leaves them up 4.9% for the quarter (13 weeks), and up 13.3% for the year (52 weeks). In mid-June, the SPY rally failed to break above its March high, settling lower to test its 50-day. Last week, however, it finally broke above that high, setting its sights in January’s all time high. This week it took a breather on trade concerns #3 T-Bonds (EDV) Drop From 2018 High-- US Long-zeros 25y+ (EDV) are currently neutral and rank #3 in the model-- more attractive than cash. Long zero Treasuries fell -2.8% this week, following last week's 0.1% gain. That leaves them up 2.8% for the quarter (13 weeks), but down -4.3% for the year (52 weeks). In late June, T-bonds began to rally on concerns the latest Fed rate hike would dampen economic growth, breaking through 200-day resistance, putting it at the top of its four-month range. This week it pulled back, gaining steam on this Friday’s Presidential tweet criticizing Fed rate hike plans. NY Fed: Recession Chances Remain Low-- The NY Fed puts the chance of a US recession by June 2019 at 12.51%. That is higher than last month’s forecast, but low enough that a major bear market (down 20% plus) in US stocks is unlikely absent some unrelated exogenous shock. The Fed plan to (a) gradually phase out debt roll-over on their balance sheet and (b) hike rates two more times in 2018 (for a total of four) could change that, but for now, corrections pose the greater downside risk to stocks. Bull ish US Dollar Slips, But Holds Support— The US Dollar index is currently bullish. The US Dollar fell -0.2% this week, following last week's 0.7% gain. That leaves it up 5.2% for the quarter (13 weeks), and up 2.6% for the year (52 weeks). The June Fed rate hike, coupled with unfounded reports the US might pull out of the WTO put the greenback at another new high as Q2 closed. Clarification of that report backed the Dollar off, but June’s solid jobs number and new US tariff threats toward China fostered a rebound until this Friday’s Presidential tweet criticizing Fed rate hike plans wiped out weekly gains.

Weekly Close This Week's Signal End Date

07.20.2018 HOLD Cash 07.29.2018

Commodities ($CRB) Break Down Intermediate Term— Neutral commodities fell 1.2% this week, adding to last week’s -2.2% loss, as the ongoing retreat in oil sent the CRB lower. Bullish crude prices fell -2.2% this week, following last week's -3.3% loss. That leaves them up 2.9% for the quarter (13 weeks), and up 51.5% for the year (52 weeks). #5 Bearish Europe (IEV) Sees Resistance— European equities (IEV) are currently bearish and rank # 5 in the model-- less attractive than cash. European stocks rose 0.3% this week, following last week's 0.2% gain. That leaves them down -4.7% for the quarter (13 weeks), but up 1.0% for the year (52 weeks). IEV recovered a bit in early June, but an uneventful ECB meeting and additional tariff worries last week sent it to closing lows below 45 not seen in 10 months. This week, IEV bounced for a third week, but was unable to overcome near term resistance. #6 Gold (GLD) Continues to Fall With Oil, CRB— Gold Bullion (GLD) is currently very bearish and ranks #6 in the model-- less attractive than cash. Gold's price fell -0.9% this week, following last week's -1.1% loss. That leaves bullion down -8.0% for the quarter (13 weeks), and down -2.3% for the year (52 weeks). Gold logged a double-bottom breakdown below its 200-day in mid-May, where it has remained since. A steadily rising Dollar since April, along with waning fears of commodity inflation has fueled gold’s breakdown. Deeply oversold, it managed to bounce in late June, but a stronger Dollar since has sent it down with the rest of the commodity complex. #7 Japan Bounces Off 2018 Lows-- Japan's equities (EWJ) are currently very bearish and rank #7 in the model-- less attractive than cash. Japanese equities rose 1.1% this week, following last week's 0.6% gain. That leaves them down -4.1% for the quarter (13 weeks), but up 7.0% for the year (52 weeks). EWJ had held its 200-day since July 2016, but trade uncertainties and tighter monetary policy in the US and Europe eventually ended that run in mid-June, when EWJ slipped below that average. It has continued lower, but has managed a oversold bounce the past two weeks. #8 Asia-ex-Japan (AXJL) Pressured By Trade Worries-- Asia-Pacific ex-Japan equities (AXJL) are currently bearish and rank #8 in the model-- less attractive than cash. Asian stocks ex-Japan fell -0.2% this week, following last week's 0.9% gain. That leaves them down -4.9% for the quarter (13 weeks), and down -0.8% for the year (52 weeks). Since April 2018, like Japan, AXJL had generally held its 200-day, until early June when trade uncertainties and a stronger Dollar caused it to break down. Protectionist threats exacerbated AXJL’s weakness, and sent it to a new 2018 oversold low to end Q2. It has bounced around that bottom for the past three weeks. #9 Latin America (ILF) Overcomes Short-term Resistance-- Latin American equities (ILF) are currently slightly bearish and rank #9 in the model-- less attractive than cash. Latin equities rose 2.7% this week, following last week's 1.1% gain. That leaves them down -14.5% for the quarter (13 weeks), and down -1.7% for the year (52 weeks). With the Venezuelan democracy already dead and gone, a socialist takeover in Mexico, Nicaragua moving that way, and polls predicting a leftist take-over in Brazil, ILF hit new twelve-month lows in late June. For the last three weeks, however, after a four-month 26% swoon, it has bounced 14% off oversold levels, overcoming short-term resistance.

Weekly Market Table-- thru 07.29.2018

RANK CI ASSET TS Trend 1 100% US small-cap stocks (IWM) 81% very bullish 2 79% US large-cap stocks (SPY) 81% very bullish 3 75% US Long Treasuries (EDV) 18% neutral 4 -- CASH -- -- 5 46% European stocks (IEV) -51% bearish 6 29% Gold (GLD) -97% very bearish 7 25% Japanese stocks (EWJ) -79% very bearish 8 25% Pacific ex-JAPAN stocks (AXJL) -66% bearish 9 0% Latin American stocks (ILF) -37% slightly bearish

Ryan/CRB Indicator 99% neutral

ST Interest Rate Equity Indicator -6% neutral

Volatility Index -33% slightly bullish

US Dollar Index 68% bullish

Commodity inflation trend 0% neutral

Oil 62% bullish

CI is the "confidence index" measuring the model's overall confidence in the asset. It combines the relative strength (rank), and technical strength (TS). For more information, see the FAQs. Daily Recap— week closing 07.20.2018 Monday, Stocks Start Week Mixed. US equities finished mixed in a choppy session. A rally in financials was offset by weakness in energy after supply concerns caused crude to tumble. Europe and Asia were lower to kick off the week. Treasury yields rose following the fifth-straight monthly increase in retail sales. The US dollar lost ground, while gold was also lower. The S&P 500 Index decreased 3 points (-0.1%) to 2,798. Tuesday, Fed Chair Comments Help Calm Rate Fears. US equities rose following the first day of Congressional monetary policy testimony by Federal Reserve Chairman Jerome Powell that offered an upbeat economic outlook and appeared to cool concerns about accelerated rate hikes. Technology stocks led the way, and consumer discretionary issues were able to bounce back. Europe was mostly higher and Asia was mixed as Japan returned to action. Treasury yields were flat, and the US dollar was higher, while crude oil prices were little changed after Monday's tumble. Gold was sharply lower. The S&P 500 Index increased 11 points (+0.4%) to 2,810. Wednesday, Stocks Mixed. US equities finished mixed, boosted by the financial sector, but weakened by consumer staples and tech stocks. Energy issues also reversed to the upside, as crude oil stemmed its recent slide after an unexpected jump in oil inventories was countered by a much larger than forecasted drop in gasoline inventories. Europe was higher on eased Fed concerns, and Asia was mixed despite US gains Tuesday. Treasury yields were mixed, despite a large miss in housing construction. The US dollar continued its ascent, and gold dipped. The S&P 500 Index advanced 6 points (+0.2%) to 2,816. Thursday, Markets Pare Recent Advance. US equities finished lower on mixed earnings reports. Recent mixed economic data out of China added to the skittishness, and trade worries resurfaced to sap conviction. Europe and Asia were also lower on Chinese economic and trade concerns. Treasury yields fell following positive domestic economic data; gold was modestly lower; and crude oil prices added to their recent tumble. The US dollar extended its rally in the wake of upbeat economic comments from Fed Chairman Jerome Powell. The S&P 500 Index declined 11 points (-0.4%) to 2,804. Friday, Markets Close Out Week on Down Note. US equities failed to make it three-straight weekly gains, when stocks faded into the close and finished lower. Technology led stocks higher early on, but fizzled along with most other sectors, as President Trump threatened more tariffs on China and criticized the Fed's rate hike plans. That spiked Treasury yields, especially at the longer end of the yield curve. Europe was mostly lower; Asia mostly higher. Crude oil prices were up, but lower for a third week, while the US dollar was lower, and gold rose. The S&P 500 Index decreased 3 points (-0.1%) to 2,802.

Economy, Fed & Inflation-- thru 07.29.2018 Global Economy, Current Perceptions—The IMF’s global growth outlook is 3.6% and 3.7% for 2017 and 2018 respectively. In its October World Economic Outlook, before the US tax cut, the IMF cut its US GDP forecast for 2017 to 2.1% from its previous outlook of 2.3%, and for 2018 to 2.1% from 2.5%, “primarily reflecting the assumption that fiscal policy will be less expansionary going forward than previously anticipated.” Slowdowns in the US and UK were expected to be offset by an improved outlook for growth in most of the euro zone and Japan; China is still seen growing by 6.8% in 2017 and 6.5% in 2018. (Upward revisions to most of these projections are likely in April 2018.) The U.S. economic picture remains solid, but the synchronized global growth story is being tested by signs of softness in Europe and by the impact of the persistent run in the US dollar on emerging markets. An international shipping measure and proxy for current global trade, the Baltic Dry Index (1666) rose this week after opening 2018 at 1323. (It is still well below its 2010 peak (4640), retreating in 2014 and 2015, before rallying in 2016 and 2017.) Meanwhile, another proxy for world activity, WTI oil price ($71.01) fell. Oil is well off its 2011 peak ($113), though above its 2008 crisis lows ($37). Our proxy for global construction, copper ($2.78) fell. Domestically, 10Y US bond yields are up over the past 13 weeks, a positive bet on the largest world economy. On balance, then, indications for the global economy this week are balanced. US Economy, Current Perceptions— Overall Data Assessment This Week: Generally good with weakness in housing. The good: Weekly initial jobless claims (207K) nearing record lows. July Philly Fed (25.7) beat expectations. June industrial production (+0.6%) beat forecasts. June capacity utilization (78.0%) improved, but slightly less than expected. June retail sales (+0.5%) up in line. June leading indicators (+0.5%) beat consensus. The bad: Weekly continuing jobless claims (1751K) up from previous week. July Empire Manufacturing (22.6) down in line. July NAHB housing market index (68) unexpectedly flat. June housing starts (1173K) and June building permits (1273K) both weaker than anticipated. May business inventories (+0.4%) slightly stronger. The ugly: Nothing. The Fed, Current Perceptions: The Fed last met 6/13/2018 and raised its target FFR 25 basis points to 1.875%-- committing to a 1.75%-2.00% range. The latest rate hike is the seventh since December 2015, when the Fed ended seven years of zero interest rate policy (ZIRP) with its first rate hike in more than a decade. Under new Fed chair, Jerome Powell there has been little change in policy. The Fed has been raising a quarter point each quarter since late 2016 unless GDP or inflation weakness precluded it. Currently, their forecasts are improving. The Fed’s latest median 2018 US GDP growth estimate is up (+2.8%) and its core 2018 PCE inflation estimate is as well (+2.0%). Longer term, 2.4% GDP and 2.1% PCE inflation are expected in 2019. The Fed thus anticipates further rate hikes up to a median FFR yielding 2.4% in 2018, and 3.1% in 2019, an indication that two more rate hikes are planned in 2018 and three more in 2019. Meanwhile, the Fed will continue rolling Treasuries and mortgage-backed bonds off its $4.5 trillion balance sheet. It allowed $10 billion to roll off in Q417, $20 billion in Q118, $30 billion in Q218, and will continue increasing quarterly in $10 billion increments until the total hits $50 billion in October 2018. The Fed Check at 99% suggests Fed neutrality is warranted. Commodities are neutral. The yield curve steepened this week. Intermediate term, the curve is getting flatter, while median yields are rising leaving our interest rate signal for stocks bearish. 3-month LIBOR yield @2.34% is up this week, while the 3-month T-bill at 1.93% is also up. That puts the LIBOR/T-Bill spread at 41 basis points, above the midpoint (38 bpts) of its post-2008 range. A rising TED-spread suggests less confident banking system. Inflation, Current Perceptions— Annual inflation rates per the CPI and PPI inched above target levels in June. After a bullish run, commodity prices have begun to cool on a strengthening Dollar, implying reduced global inflation pressure ahead. The Fed’s favorite gauge, core PCE, is at their 2% target. June core CPI (+0.2%) cool. June CPI (+0.1%) cool. (CPI up 2.9% over 12 months.) June core PPI (+0.3%) warm. June PPI (+0.3%) warm. (PPI up 3.4% in the past year.) June export prices (+0.3%) warm. June import prices (-0.4%) very cool. May 12-mo. core PCE (+2.3%) above target. May 12-mo. PCE (+2.0%) at target. Q1 gross domestic product (+2.0%) revised lower. Q1 unit labor costs (2.9%) up and hot. Q1 GDP chain deflator (+2.2%) revised upward, still within range. Q1 employment cost index (+0.8%) slightly warmer than expected. Q1 productivity (+0.4%) revised lower.

Commodities ($CRB) Break Down Intermediate Term— Commodities, Perceptions thru 07.29.2018— Neutral commodities fell 1.2% this week, adding to last week’s -2.2% loss, as the ongoing retreat in oil sent the CRB lower. That leaves them down -5.2% for the quarter (13 weeks), but up 8.4% for the year (52 weeks). At 191, CRB is below its short-term (50-day) average at 198, and below its intermediate-term (200-day) average at 195. A weaker US Dollar this week improved returns for dollar investors in commodities. Longer term, the stronger dollar limits commodity prices. Meanwhile, oil prices (USO) are currently bullish. Crude prices fell -2.2% this week, following last week's -3.3% loss. That leaves them up 2.9% for the quarter (13 weeks), and

up 51.5% for the year (52 weeks). At 14, USO is above its short-term (50-day) average at 14, and above its intermediate-term (200-day) average at 13. A weaker US Dollar this week improved returns for dollar investors in oil. Longer term, a positive dollar is limiting oil. Commodities, Assumptions: JUL 1— Commodities last peaked in July 2014, when WTI oil hit $113. They ended 2015 (after the first Fed rate hike in ten years) down 48%, when oil dropped to $26 a barrel, due to falling global demand, a stronger Dollar, and a spike in US energy supply from fracking. Since then oil has risen to $73, thanks to global expansion, periodic sanctions on Russia and Iran, OPEC production limits, and a weak Dollar. The CRB has tracked oil throughout. Current outlook: bull ish. The bull ish case: The developed world is still engaged in relatively accommodative monetary policy, despite the Fed and the ECB beginning to reverse quantitative easing and increasing interest rates. The global economy is improving, boosted by a US economy expected to benefit this year from a huge corporate tax cut. Emerging markets are also growing at 5-7%, stoking demand for raw materials. The summer driving season is underway in the northern hemisphere. New US sanctions on Iran will raise oil prices when US allies join in cancelling the Iran nuclear deal. Elsewhere in the Mideast, rising tensions push oil higher. Through it all, OPEC is loathe to increase production by a substantial amount. The bearish case: Uneven growth and financial concerns in China and Europe will curb demand for commodities in 2018. Fed tightening removes the easy money floor under risk assets, reduces global liquidity, and slows demand for commodities. The US tax cut is strengthening the Dollar, cheapening commodities. On the supply side: OPEC is no longer in control. US fracking limits the price of oil, a key driver of the CRB.

#6 Gold (GLD) Continues to Fall With Oil, CRB— Gold Bull ion, Perceptions thru 07.29.2018-- Gold Bullion (GLD) is currently very bearish and ranks #6 in the model-- less attractive than cash. Gold's price fell -0.9% this week, following last week's -1.1% loss. That leaves bullion down -8.0% for the quarter (13 weeks), and down -2.3% for the year (52 weeks). At 117, GLD is below its short-term (50-day) average at 120, and below its intermediate-term (200-day) average at 123. A weaker US Dollar this week improved returns for dollar investors in gold. Longer term, a positive dollar is limiting GLD. GLD put in a 2017 high @128 in early September, but quickly retreated from that overbought level, bottoming in

early December on a strengthening dollar. At that point, the dollar reversed and by late January was making multi-year lows, while commodities, including gold rallied. After breaking to a new high above $129 in January, an overbought GLD pulled back as the Dollar strengthened and bond yields rose. GLD tends to rally with new trade or shooting-war fears and pull back when those fears lessen. It briefly spiked above 129 in April after the President announced the US would retaliate for the latest Syrian gas attack, but it has pulled back since. The cancellation of the US-Iran nuclear agreement had little effect, as North Korean nuclear and Chinese trade tensions eased, and the Dollar strengthened. Gold logged a double-bottom breakdown below its 200-day in mid-May, where it has remained since. A steadily rising Dollar since April, along with waning fears of commodity inflation has fueled gold’s breakdown. Deeply oversold, it managed to bounce in late June, but a stronger Dollar since has sent down with the rest of the commodity complex. With a 14-day RSI of 34, GLD is still close to oversold (30). Gold Bull ion, Assumptions: JUL 1— In August 2011, gold peaked above $1900 an ounce. In December 2015, it bottomed below $1050 (a six-year low at the time) after the Fed hiked interest rates for the first time in ten years. It has traded in the lower third of that range ($1125-$1367) since, following its traditional inverse relationship with the US Dollar. Gold has tested $1367 four times since August 2016, failing to break higher amid gradual, but regular Fed tightening. Current outlook: bearish The bearish case: Fed quantitative tightening and rate hikes are underway, removing the easy money floor under risk assets. The ECB is also scaling back its QE bond purchases. The US economy and the Dollar are strengthening with the 2017 US tax reform. New investment will improve productivity and hold down inflation. Repatriation of US offshore profits increases the demand for Dollars-- weakening the demand for gold. Gold’s two largest consumers— India and China—have been cutting back in recent years. The bull ish case: Despite the Fed and the ECB pulling back from quantitative easing and increasing interest rates, the developed world is still engaged in relatively accommodative monetary policy. Global monetary stimulus and deficit spending in the US, Europe, and Japan since 2009 have cheapened fiat currencies increasing global inflation and creating financial bubbles that threaten paper assets around the world. The US tax-cut repatriates from $3-5T from overseas corporate coffers, potentially over-heating the economy and exacerbating US inflation. The geopolitical fear-trade is also alive and well with Islamic terrorism; the North Korean and Iranian nuclear threats; politically-destabilizing migratory invasions of Europe and the US; and the prospect of a global trade war.

Bull ish US Dollar Slips, But Holds Support— US Dollar, Perceptions thru 07.29.2018-- The US Dollar index is currently bullish. The US Dollar fell -0.2% this week, following last week's 0.7% gain. That leaves it up 5.2% for the quarter (13 weeks), and up 2.6% for the year (52 weeks). At 25, UUP is above its short-term (50-day) average at 25, and above its intermediate-term (200-day) average at 24. In 2018, an oversold buck bounced off multi-year lows on the dollar index three times before tracking higher in late February. Tariff worries then stalled the Dollar’s recovery. In April, positive economic data, reduced US tariff uncertainties, and repatriated tax dollars helped the buck break above its intermediate trend. By mid-May, the Dollar had broken past

its December 2017 high, adding to its rally on European political concerns over Italy and Spain. The Dollar initially pulled back from May’s overbought condition, but the June Fed rate hike, coupled with unfounded reports the US might pull out of the WTO put the greenback at another new high as Q2 closed. Clarification of that report backed the Dollar off, but June’s solid jobs number and new US tariff threats toward China fostered a rebound until this Friday’s Presidential tweet criticizing Fed rate hike plans wiped out weekly gains. 14-day RSI drops to 51, neither oversold (30) nor overbought (70). Dollar Assumptions: JUL 1-- The Dollar Index traded between 91 and 104 from the end of 2014 until 2018 opened, when the range broke down, and the buck put in a new low at 88. The Dollar was last at the top of its range right before the Fed rate hike in December 2016. That and subsequent Fed rate hikes (in March, June and December 2017) coincided with lower highs, and lower lows in the Dollar throughout 2017. (Meanwhile, the Fed still has a more restrictive monetary policy than either BoJ or ECB in 2018.) In addition, a US special prosecutor and a Congress that put Trump’s pro-growth agenda at risk probably contributed to the weaker Dollar in 2017. Tax cuts in December 2017, however, led corporations to begin converting $3T-5T in offshore cash to Dollars, in order to repatriate it, and in doing so, strengthening the US economy. It was not until the US announced tariffs in March 2018, however, that the Dollar managed to get up off the floor and rally to 94 mid-year. Current Outlook: Bull ish Carry-trade thru 07.29.2018 Non-Dollar investors seeking to maximize profits using the Moose should incorporate a "carry-trade" currency strategy into the decision, making it a two-step process. First, decide if it makes sense to switch to US Dollars, then use the Moose to identify the best place to put those Dollars. (Generally, if one's currency is weakening (bearish) against the Dollar, non-Dollar investors in the Moose will outperform. If a currency is bullish vs. the Dollar, the Dollar investment will underperform.) As for the major currencies, the Euro is bearish and up 0.4% this week. The Yen is very bearish and up 0.7%. The British Pound is very bearish and down -0.8%. The Canadian Dollar is bearish and up 0.3%. The Aussie Dollar is bearish and up 0.2%.

Currency vs. Dollar TS Trend Medium Term Implications for non-Dollar investors Euro (FXE) -56% bearish Euro investors outperform the $ Moose Yen (FXY) -83% very bearish Yen investors outperform the $ Moose Australian $ (FXA -60% bearish Aussie $ investors outperform the $ Moose GB Pound (FXB) -76% very bearish Sterling investors outperform the $ Moose Canadian $ (FXC) -59% bearish Canadian $ investors outperform the $ Moose

#3 T-Bonds (EDV) Drop From 2018 High--

US Long Treasury Bonds, Perceptions thru 07.29.2018-- US Long-zeros 25y+ (EDV) are currently neutral and rank #3 in the model-- more attractive than cash. Long zero Treasuries fell -2.8% this week, following last week's 0.1% gain. That leaves them up 2.8% for the quarter (13 weeks), but down -4.3% for the year (52 weeks). At 113, EDV is below its short-term (50-day) average at 113, and below its intermediate-term (200-day) average at 115. A strengthening US Dollar this week made the carry trade in US equities more attractive to dollar investors, but less attractive to foreign investors. The 10-year Treasury bond yield rose to 2.90% this week, from 2.83% the week before. Longer term, the yield

curve is getting flatter, a bet on economic weakness. By February, an improving economy, including strong January job and wage growth; a more hawkish Fed statement accompanying a regional Fed forecast of 5% Q1 GDP; and deficit concerns had sent the 10-year yield to highs (and bond prices to lows) not seen since 2014. From late February, EDV traded in an 8% range between EDV 107 and EDV 115. In late June, T-bonds began to rally on concerns the latest Fed rate hike would dampen economic growth, breaking through 200-day resistance, putting it at the top of its four-month range. This week it pulled back, gaining steam on this Friday’s Presidential tweet criticizing Fed rate hike plans. EDV’s 14-day RSI of 45 leaves it verging on overbought (70). US Long Treasury Bonds, Assumptions: JUN 1— EDV put in a bottom (@104) with the December 2016 FOMC rate hike, and retested that bottom with the March 2017 rate hike. Bond prices rallied after that, however, mounting a choppy advance in 2017 that peaked after the December Fed rate hike, right before the tax bill passed. Bonds occasionally got a flight-to-quality boost in 2017 from ISIS terror attacks worldwide, hurricanes, and the North Korean nuclear threat. On the domestic front, quarterly FOMC rate hikes-- despite job growth averaging less than 200K per month and low inflation— not to mention a US special prosecutor; a stalled Trump growth agenda in Congress; initially helped bond prices in 2018, but growth and inflation began to heat up in Q2, sending bonds lower. Current outlook: Bearish. ` The bull ish case for long Treasury bonds primarily rests on four assumptions: (1) US and global growth will remain tepid and keep inflation at bay, assisted by global trade friction. (2) The new tax plan will increase wage inflation before it enhances productivity and allows the economy to overcome the lingering fiscal and regulatory drag imposed over the last decade. Tighter Fed monetary policy in the face of anemic GDP increases the chance of further GDP weakness. (3) Europe’s sovereign debt worries and weak economies have led to easier money out of the ECB and lower European bond yields. That, and Britain’s vote to exit the EU have led to a flight to quality in US Treasuries. (4) Japan’s constant effort to weaken the Yen also causes a flight into Dollars and US bonds. The bearish case (1) China, the US Treasury’s largest customer, continues to sell US bonds in order to depreciate the Yuan (which is tied to the Dollar) and boost its exports. It is now using Trump “fair trade” demands to do more of the same. (2) Central banks are underestimating the inflation dangers associated with two years of worldwide monetary easing. Now that US corporations could repatriate 3-5 trillion in offshore cash due to the new tax law, wage inflation is coming home to roost. (3) The doubling of US government debt under President Obama is continuing under Trump, increasing the supply of Treasury paper going to market dramatically. The Fed purchased much of it under QE and been rolling it over when it matures. Now they have begun to gradually stop roll-overs and “normalize” their balance sheet. Less Fed demand will push yields higher, and prices lower. (4) Brexit is not a problem. The European Union’s debt situation has stabilized. The ECB’s easy money policies are being cut back, but ever so slowly, and will still restore growth, lessening demand for US bonds.

#2 Bull ish US Large-Caps (SPY) Take A Breather-- US Large-Cap Stocks, Perceptions thru 07.29.2018-- US large-cap stocks (SPY) are currently very bullish and rank #2 in the model-- more attractive than cash. US large-caps were flat (0.0%) this week, following last week's 1.5% gain. That leaves them up 4.9% for the quarter (13 weeks), and up 13.3% for the year (52 weeks). At 280, SPY is above its short-term (50-day) average at 275, and above its intermediate-term (200-day) average at 269. A weaker US Dollar this week made the carry trade in US equities less attractive to dollar investors, but more attractive to foreign investors. Longer term, the stronger dollar is positive for SPY. In February, US large cap equities pulled back from

oversold levels, eventually correcting 10%+ for the first time in two years. After bottoming, SPY made higher highs and higher lows for four weeks thanks to strong job growth and rising consumer confidence. Subsequently, however, inflation concerns, rising bond yields, weak retail sales, a Fed rate hike, US tariffs, and a weak March jobs report sent SPY toward a retest of previous lows on April 1. SPY rallied off its 200-day twice after that, managing to recover its 50-day in May and holding since. In mid-June, the rally failed to break above its March high, settling lower to test its 50-day. Last week, however, it finally broke above that high, setting its sights in January’s all time high. This week it took a breather on trade concerns. SPY’s current 14-day RSI of 61, is neither oversold (30) nor overbought (70). US Large Cap Stocks, Assumptions: JUN 1— Dividend-producing US large cap stocks led both mid-caps and small-caps in 2014-15 and for most of 2016-17. In 2016, large caps were down in the three months prior to the election, foretelling a Trump victory. They then rallied on Trump’s election, consistently making new all time-highs without a 10% correction, even as the Fed finally began hiking rates (Dec’16, Mar’17, Jun’17, Dec’17) in earnest. From March 2017 on, SPY set new highs every month, ending 2017 20% higher. Passage of a major corporate tax cut before Christmas spiked investor enthusiasm at yearend and entering 2018. Current Outlook: bull ish. The bull ish case: Global monetary policy is still keeping a floor under risk. Fed interest rates are rising, and it is not rolling over every bond that matures-- but the tightening is ever so gradual. Against a back-drop of Brexit, Europe is scaling back slightly as well, but slowly enough to keep European bond yields down. Meanwhile, Japan’s massive monetary expansion continues unabated. All of that helps the Dollar, which favors US assets over others. In the US, corporate tax reform has boosted profits across the board. In addition, big corporations got a better deal from the latest US tax reform than small companies. US multinationals received most of the benefits of repatriating foreign income, but they are also more susceptible to the uncertainties implicit in a trade war. The bearish case: Large caps have led small for years and are now stepping aside. The two-year rally in stocks is due to easy money at the Fed and to investor elation that Obama-era pain is over. Neither remains true. “Affordable” healthcare became the biggest tax in US history in 2014, and a nightmare for the economy and the consumer, and it continues through 2018. Economic weakness remains, but the Fed is simultaneously tightening, worried that the Trump tax bill will overheat the economy, and generate inflation. The central bank has already expressed its intention to raise interest rates three times this year, while continuing to normalize its balance sheet. Higher bond yields hurt stocks in general, and compete directly with large-cap dividend stocks as income producers.

#1 US Small Caps (IWM) Make Third Run at 2018 High-- US Small-Cap Stocks, Perceptions thru 07.29.2018-- US small-cap stocks (IWM) are currently very bullish and rank #1 in the model-- more attractive than cash. US small-caps rose 0.6% this week, following last week's -0.5% loss. That leaves them up 8.3% for the quarter (13 weeks), and up 18.2% for the year (52 weeks). At 168 IWM is above its short-term (50-day) average at 166, and above its intermediate-term (200-day) average at 156. A strengthening US Dollar this week made the carry trade in US equities more attractive to dollar investors, but less attractive to foreign investors. Longer term, the stronger dollar is positive for IWM. Small caps lagged large caps when the 2018 tax cuts were seen helping large corporations more than small. In addition, rising interest rates after mid-December were a bigger drag on small firms than large. Now that tariffs are hurting US stocks in general, multinationals are faring worse than small firms, and small

Small caps are outperforming. IWM bottomed in February after correcting 10%+ for the first time in two years. It then made higher highs and higher lows into mid-March thanks to lower interest rates, strong job growth and rising consumer confidence. As April opened, inflation concerns, rising bond yields, weak retail sales, a Fed rate hike, and US tariffs took it back down to its 200-day. Since then, IWM has taken a volatile track higher, besting short-term resistance in early April, holding it throughout May and posting a triple-top breakout at 162. In early June, IWM moved higher, as global trade concerns mitigated against US and foreign large cap multinationals. Soon, however, it began to back off overbought levels, and in late June, it was stopped out to cash after a 2.4% loss. It bounced big (+2.7%) last week, stopping just short of previous highs before stalling out over the past two weeks. IWM’s current 14-day RSI of 58 is neither oversold (30) nor overbought (70). US Small Cap Stocks, Assumptions: JUN 1— US large cap stocks led both mid-caps and small-caps in 2014-15 and for most of 2016-17. Weakness from Fed tightening fears in 2016 gave way after the Trump win, and small caps rallied 20% in 20 days, making new all time-highs in the third and fourth quarters. They continued to rally in 2017 but were slowed by Fed rate hikes in March and June, and by the Senate’s inaction on Obamacare and tax reform. By September, however, corporate tax cut talk on the Hill had spiked investor optimism in small caps to severely overbought levels. That put IWM in a holding pattern until the US tax package was modified to help smaller (pass-through) companies and signed into law in December. A December Fed rate hike did slow small-caps progress, but it did not reverse their upward trend heading into 2018. IWM peaked in January, then suffered its first correction in two years, but by late May recovered to new highs (@162). Outlook: Bull ish The bull ish case: Small caps have lagged for years and are now playing catch-up. Global monetary policy is still keeping a floor under risk. Fed interest rates are rising, and it is not rolling over every bond that matures-- but the tightening is ever so gradual. Against a back-drop of Brexit, Europe is scaling back slightly as well, but slowly enough to keep European bond yields down. Meanwhile, Japan’s massive monetary expansion continues unabated. All of that helps the Dollar, which favors US assets over others. In the US, corporate tax reform has boosted profits across the board. Smaller US companies are less impacted than US multinationals when it comes to the benefits of repatriating foreign income, but they are also less susceptible to the income uncertainties implicit in a trade war. The bearish case: The two-year rally in stocks is due to easy money out of the Fed and to investor elation that Obama-era pain may be over. “Affordable” healthcare became the biggest tax in US history in 2014, and a nightmare for small companies and the consumer, and it continues through 2018. In addition, big corporations got a better deal from the latest tax reform than small companies. Economic weakness remains, but the Fed is simultaneously tightening, worried that the tax bill will overheat the economy, and generate inflation. It has already expressed its intention to raise interest rates three times this year, while continuing to normalize its balance sheet. Higher interest rates hurt stocks in general, but limit small caps’ access to capital disproportionately more than large caps’.

#5 Bearish Europe (IEV) Sees Resistance European Large-Cap Stocks, Perceptions thru 07.29.2018-- European equities (IEV) are currently bearish and rank # 5 in the model-- less attractive than cash. European stocks rose 0.3% this week, following last week's 0.2% gain. That leaves them down -4.7% for the quarter (13 weeks), but up 1.0% for the year (52 weeks). At 46, IEV is below its short-term (50-day) average at 46, and below its intermediate-term (200-day) average at 47. A strengthening Euro this week helped Dollar investors in European stocks, but hurt Europe's export prospects. Longer term, a positive dollar is limiting IEV. IEV posted a new 2017 closing high

in early October, at which point the ECB announced that it would follow the Fed and begin scaling back its QE purchases by half in 2018. That put a cap on IEV until the US tax reform passed in late December promising global stimulus. IEV followed US stocks higher, spending most of January overbought, before correcting 10%+ down to its 200-day in early February (@45). It retested and held 45 again in late March when plans to raise US steel and aluminum tariffs threatened US-European trade after President Trump specifically called out the EU as a major contributor to the US trade deficit. Tariff exemptions were granted, however, and rhetoric cooled, helping IEV to gradually reach 48 in late May-- but political concerns in Italy and Spain erased even those meager gains sending it back to 45. IEV recovered a bit in early June, but an uneventful ECB meeting and additional tariff worries last week sent it to closing lows below 45 not seen in 10 months. This week, IEV bounced for a third week, but was unable to overcome near term resistance. With a 14-day RSI of 54, IEV is neither overbought (70) nor oversold (30). European Large Cap Stocks, Assumptions: JUN 1-- European Union GDP grew a lethargic 1.6% in 2015, an even weaker 1.5% in 2016, but improved to 2.1% in 2017. It is expected to slow (1.9%) in 2018 as the ECB begins to tighten and Britain begins to separate. European stocks (IEV) peaked in mid-2014 (@$48). Slow global growth, a local refugee crisis and a European Central Bank perceived to be behind the curve kept IEV’s downward trend intact into 2016 when it bottomed-- and spent the rest of that year in a $34-$40 range. After the European Central Bank (ECB) extended its asset purchase program by nine months to start December 2016, IEV broke out of its range on encouraging US and global economic data. It headed steadily higher in 2017, and finally set a new high (@$51) to open 2018 before backing off. Current Outlook: bull ish. The bull ish case: European politicians have gotten their act together, and the ECB, the IMF, the Fed, and the EU will flood Europe with more liquidity as necessary. The US economy under Trump is strengthening and should help the Dollar. A cheaper Euro will help Europe’s exporters. Brexit is more onerous for Britain than the EU. Fears that France, Netherlands, Greece and Portugal could vote to follow Britain have proven baseless. The bearish case: EU economic growth is anemic and expected to get weaker. Rising oil prices could hurt the continent’s consumers. Flagging household and business confidence, deflation worries, and difficult relations with Russia now have been complicated by an influx of millions of refugees from Syria, Libya, and Albania. Now, the EU’s second strongest economy, Britain, is leaving the union, weakening both parties. Quantitative easing in the US that once quieted sovereign debt fears in Spain, Portugal, and Italy through the carry trade is basically over. US rates are headed up, removing the easy money floor under risk assets. That reduces global liquidity, and weakens banks and financials-- the predominant equity sector in Europe. Europe’s financial crisis is not over, then, just awaiting the bell to start the next round.

#7 Japan Bounces Off 2018 Lows-- Japanese Stocks, Perceptions thru 07.29.2018-- Japan's equities (EWJ) are currently very bearish and rank #7 in the model-- less attractive than cash. Japanese equities rose 1.1% this week, following last week's 0.6% gain. That leaves them down -4.1% for the quarter (13 weeks), but up 7.0% for the year (52 weeks). At 58, EWJ is below its short-term (50-day) average at 59, and below its intermediate-term (200-day) average at 60. A strengthening Yen this week helped Dollar investors in Japanese stocks, but hurt Japan's export prospects. Longer term, a positive dollar is limiting EWJ. Asian trade data and the prospect of

easier money in China and Japan have outweighed North Korean nuclear and missile threats for months as EWJ followed US stocks higher, and spent most of January overbought, before correcting 11%+. With the Bank of Japan now offering the easiest money in the world, however, EWJ didn’t even have to test intermediate support before rallying. Monetary ease and global economic strength have kept EWJ’s intermediate uptrend intact despite US tariff threats that could derail the export-driven nation’s equities. EWJ had held its 200-day since July 2016, but trade uncertainties and tighter monetary policy in the US and Europe eventually ended that run in mid-June, when EWJ slipped below that average. It has continued lower, but has managed a oversold bounce the past two weeks. With a 14-day RSI of 50, EWJ is approaching oversold (30) levels. Japanese Stocks, Assumptions: JUN 1— Japan’s economy has struggled for years. After no GDP growth (0.0%) in 2014, anemic growth followed in 2015 (+1.1%), 2016 (+1.0%), and 2017 (+1.5%). Japanese equities, meanwhile, broke out of a long-term downtrend in late 2012 with the advent of “Abenomics”-- a three-part program of (1) regulatory reform, (2) fiscal stimulus, and (3) massive BoJ quantitative easing. The Nikkei posted a 26% gain in 2013, a choppy +2% performance in 2014, a volatile +8% gain in 2015, a +7% improvement in 2016 and a 23% gain in 2017 after the BoJ announced Japan's publicly held pension funds would double their equity holdings. Current outlook: Bull ish The bull ish case: The BoJ’s massive quantitative easing program-- about 60-70 trillion yen per year in asset purchases-- has doubled the monetary base and will begin to work in time. In addition, the Japanese government has spent $200B in new stimulus spending to get the country going again. Lately, they are doubling the equity holdings in their pension funds. Elsewhere, the Europeans continue to ease along with the Chinese, Australians, and Koreans. With global growth returning, the weaker Yen will spur Japanese exports and revive its economy. The bearish case: The domestic Japanese economy is moribund due to an aging population, and a weak global economy. Chinese economic weakness and devaluation has set off an Asian currency war threatening Japan’s weak Yen policy. Abenomics has not worked. Conceptually, easy money and a weakening Yen is like pushing on a string— more likely to result in a carry trade than investment in Japan. Meanwhile, the prospect of additional Fed rate hikes also reduces global liquidity and weakens the floor under risk assets. Since the Fukishima nuclear crisis, nuclear power generation has been shut down, forcing Japan to import fossil fuels to make electricity. Rising oil prices going into 2018 hurt the energy importer.

#8 Asia-ex-Japan (AXJL) Pressured By Trade Worries-- Asia Pacific ex-Japan Stocks, Perceptions thru 07.29.2018-- Asia-Pacific ex-Japan equities (AXJL) are currently bearish and rank #8 in the model-- less attractive than cash. Asian stocks ex-Japan fell -0.2% this week, following last week's 0.9% gain. That leaves them down -4.9% for the quarter (13 weeks), and down -0.8% for the year (52 weeks). At 67, AXJL is below its short-term (50-day) average at 68, and below its intermediate-term (200-day) average at 70. A weaker US Dollar this week improved returns for dollar investors in Asia-Pacific. Longer term, a positive dollar is limiting AXJL. An overbought AXJL corrected 12%+ in February 2018, bouncing off intermediate support thanks to global

economic strength. US tariffs on China then sent AXJL back down to its 200-day in an April retest of the February lows. A conciliatory speech by Chinese President Xi, bi-lateral talks, and a US offer to reopen TPP negotiations cooled trade jitters, while a US-North Korean agreement to denuclearize the Korean peninsula lowered nuke fears. Since April 2018, like Japan, AXJL had generally held its 200-day, until early June when trade uncertainties and a stronger Dollar caused it to break down. Protectionist threats exacerbated AXJL’s weakness, and sent it to a new 2018 oversold low to end Q2. It has bounced around that bottom for the past three weeks. With a 14-day RSI of 48, AXJL neither overbought (70) nor oversold (30). Asia Pacific ex-Japan Stocks, Assumptions: JUN 1— GDP growth in Emerging and Developing Asia grew 6.8% in 2015, and slipped to 6.5% in 2016 and 2017. It is forecast to reach 6.6% in 2018, but the gradually taper off through 2020. China and India are expected to lead the Asian Tigers (ASEAN) higher. The region’s equities are heavily weighted in financials and materials, and its fortunes are closely tied to those of China, directly, and Japan, indirectly. A multi-year uptrend in AXJL ended in April 2015 (@$73). AXJL then dropped like a stone until January 2016 (@$46). It subsequently added about 14% in 2016, and 22% in 2017, despite dropping briefly with Trump’s election— a seeming death knell for the Trans-Pacific Partnership. It resumed its rally, managing to post a new high (@75) in January 2018, but has pulled back since. Current Outlook: Bull ish. The bull ish case: Asia Pacific has the advantages of untapped natural resources and an abundance of cheap skilled labor. The Fed may have begun gradual rate hikes, but US monetary policy remains very accommodating. Looser policies in Japan, China, and Europe should also continue to improve global growth prospects. Japan’s beggar-thy-neighbor policies no longer soak up trade demand at the expense of its Asian neighbors, as the Yen has strengthened and stabilized since early 2017. Asian inflation pressures are under control allowing interest rates to recede in the region—further stimulating growth. The Dollar has softened considerably since early 2017. That improves Dollar investors’ returns in Asia-Pacific and raises commodity prices paid to Asian resource producers. The bearish case: Asia Pacific is an export region and while the US economy is picking up, along with the rest of the global economy, the Trump administration has threatened to curb trade relations with low-wage emerging nations in Asia and elsewhere. China’s equities were up 33% in 2017, arguably over-valued in that its financial system is fragile. India, meanwhile, was up over 40%. The US elimination of quantitative easing and removal of ZIRP removed the easy money floor under risk assets, reduced global liquidity, and weakened Asian financials. Rising rates and the possibility of a more stimulative government under Trump have begun to strengthen the Dollar. A stronger Dollar increases Asian exports to the US in the longer term, but short-run, a rising Dollar erodes Dollar investors’ returns in Asia and reduces commodity prices paid to Asian resource producers. Geopolitical risks in the region remain a wild-card. They include Chinese militarization of the South China Sea, and North Korea’s nuclear aspirations.

#9 Latin America (ILF) Overcomes Short-term Resistance-- Latin American equities Perceptions thru 07.29.2018-- Latin American equities (ILF) are currently slightly bearish and rank #9 in the model-- less attractive than cash. Latin equities rose 2.7% this week, following last week's 1.1% gain. That leaves them down -14.5% for the quarter (13 weeks), and down -1.7% for the year (52 weeks). At 32, ILF is above its short-term (50-day) average at 31, but below its intermediate-term (200-day) average at 35. A weaker US Dollar this week improved returns for dollar investors in Latin equities. Longer term, a positive dollar is limiting ILF. After Mexico’s August 2017 earthquake, ILF dropped 18% to test

intermediate support and hold in December. A weak dollar and rebounds in copper and oil took Latin equities back up through year-end and to overbought levels in January. It’s been downhill since, however, with ILF off 26% in four months, and now well below support levels. A tighter Fed and rising US bond yields, tariff and NAFTA concerns, and falling oil prices have all threatened the region. ILF sank below its 200-day in early May, when polls began to indicate a likely resurgence of stupid government in the region this year, as several Latin countries choose their President. With the Venezuelan democracy already dead and gone, a socialist takeover in Mexico, Nicaragua moving that way, and polls predicting a leftist take-over in Brazil, ILF hit new twelve-month lows in late June. For the last three weeks, however, after a four-month 26% swoon, it has bounced 14% off oversold levels, overcoming short-term resistance. With a 14-day RSI of 62, ILF is no longer oversold (30). Latin American Stocks, Assumptions: JUN 1-- Latin American GDP was up 0.1% in 2015; down about 0.6% in 2016; and grew by 1.3% in 2017. It is forecasted to grow 2.0% in 2018 and 2.8% from 2019 on. Slow growth in the advanced economies and in China, and falling commodity prices, including oil, kept the Latin 40 mired in a highly volatile downtrend from March 2011 to January 2016. Latin American equities fell 32% in 2015, bottomed in January 2016, and rallied to finish 2016 an impressive 31% higher. In 2017, it finished 28% higher, but it was hardly a smooth ride. It looked strong going into 2018, but peaked in January and heading lower since. Current outlook: Bearish The bull ish case: Latin American countries are generally rich in natural resources. They also have positive demographics with a younger population and a rising middle class. That tends to attract foreign capital inflows. The region’s “inept government” phase, in which socialism replaced capitalism from 2011-16, is over, along with the increased outflows of both domestic and foreign capital it engendered. Easy US, European, and Asian monetary policy, improving global growth and rising commodity prices also help the region. The Dollar has softened considerably since early 2017. That improves Dollar investors’ returns in Latin America and raises commodity prices paid to Latin resource producers. Meanwhile, with some exceptions, Latin inflation is generally under control, keeping interest rates low. The bearish case: The Trump tariff renegotiation agenda threatens Latin exports— it products as well as its immigrants. Moreover, the Latin recovery is two years old. 2018 is an election year in several countries, and polls suggest “stupid government” is poised to make a comeback. The reversal of US quantitative easing and subsequent Fed rate hikes have removed the easy money floor under risk assets, reduced global liquidity, and weakened Latin financials. As tighter money slows growth in China, Europe, and the US, it will curb demand for Latin exports.

Moosextras— Outside the Box: —Top 21 thru 07.29.2018 The following represents the top of our diversified master list of 225 exchange-traded funds. ETFs are listed in order of most momentum at the close of the latest week. RSI is daily. The sector breakdown is: Technology (6), US Index (6), Health (4), Consumer (3), Energy (2). NOTE: In the interest of full disclosure, any ETF in which the author has a position is so marked.

TICK NAME RSI COMMENTS POS FDN Internet 68 Technology Own ARKK Innovation 69 Technology IGV Software Index 82* Technology XSW Software & Services 84* Technology XOP Oil & Gas Exploration 45 Energy Own IHF US Healthcare Providers 75* Health IBB Biotech 85* Health XRT Retail 66 Consumer IHI Medical Devices 75* Health IWO US Small-cap Growth Index 73* US Index QQQ Nasdaq 100 72* US Index XLY Consumer Discretionary 71* Consumer XLK Tech Sector 75* Technology IWC US Micro-cap Index 62 US Index USO US Oil 30 Energy IWM US Small-cap Index 68 US Index IVW US Large-cap Growth 76* US Index PEJ Leisure & Entertainment 73* Consumer IXN Global Tech 71* Technology IWN US Small-cap Value Index 64 US Index IYH US Healthcare 74* Health

* RSI overbought, **RSI oversold Outside the Box: —Thrift Savings Plan thru 07.29.2018 The Thrift Savings Plan, or TSP, is the government’s 401K-style retirement plan. Millions of federal employees are invested in it, including several life-long friends here in the capital region. The TSP does not provide all of the choices that the Moose does. Gold is notably absent, and foreign equities are all lumped into one choice, not broken out by region. As a result, TSP investors often have questions at switch time— especially when the Moose switches to a choice that TSP doesn’t offer. To clarify that situation, the following ranking table applying a Moose-like momentum model to the TSP has been added to the site. This week the 100% model holds the S Fund (Small-cap US). (1st April switch). Note: TSP choices can be highly correlated. That means the model can jump around a lot, giving false signals. Since TSP limits account holders to two switches per calendar month, diversifying the portfolio to give it more stability is an option. This week the diversified model holds equal percentages of Large and Small-cap US Stocks and Cash. US bonds are bearish and out as of 2/2/2018. International Equities are out as of 5/25/2018. RANK FUND ASSET TYPE COMMENTS DIV% 1 S Fund Small-cap US Equities US Small-caps bullish 33 2 C Fund Large-cap US Equities US Large-caps neutral 33 3 G Fund Short-term income Safe, but negative real return 34 4 I Fund International Equities Rising Dollar/ Tariff Risk 0 5 F Fund Fixed Income US Bonds bearish 0

Outside the Box: — Alternative Strategies thru 07.29.2018 ALLOCATIONS CASH EDV SPY IWM GLD IEV EWJ AXJL ILF Switch? 6040static 10% 30% 20% 15% 5% 5% 5% 5% 5% never 6040sma 65% 0% 20% 15% 0% 0% 0% 0% 0% 07/20 6040rs 65% 0% 20% 15% 0% 0% 0% 0% 0% 04/13 8020static 5% 15% 15% 15% 10% 10% 10% 10% 10% never 8020sma 70% 0% 15% 15% 0% 0% 0% 0% 0% 07/20 8020rs 70% 0% 15% 15% 0% 0% 0% 0% 0% 04/13 Six basic (and highly simplified) alternative strategies are monitored in addition to the momentum model on this site—three growth strategies and three aggressive growth strategies. The growth strategies are based on a 60-40 risk-asset-to-income-asset ratio. The aggressive growth strategies are based on an 80-20 ratio. The growth and aggressive growth strategies each include one static, and two dynamic models. Static models have a fixed asset allocation (60-40 or 80-20) that does not change. Dynamic models alter the basic allocation by adding a technical indicator into the mix. The indicators used here are the 40-week (200-day) moving average, and 26-week relative strength. If the weekly closing price of an individual ETF becomes bearish per its technical indicator, the dynamic model reduces its allocation to zero, and adds that allocation to cash. If a switch from the standard allocation is operative, the switch date is shown under “Switch?” The reduced allocation is listed in red, and the increased allocation is green. Performance of six alternative investment strategies are presented for free on the site.

CUMULATIVE GAIN

1 Yr 3 Yr 5Yr 10Yr 15Yr 3Y Sharpe

SPY 13% 34% 64% 123% 184% 4.10 6040static 5% 16% 31% 76% 193% 4.42 6040sma 3% 11% 21% 65% 118% 2.96 6040rs 4% 13% 26% 63% 129% 1.37 8020static 4% 16% 23% 54% 197% 2.99 8020sma 3% 12% 17% 57% 142% 1.37 8020rs 3% 15% 20% 52% 152% 2.98 Moose Weekly 9% -2% 0% 22% 294% -1.02

0% 2% 4% 6% 8% 10% 12% 14%

6040rs

6040sma

6040static

8020rs

8020sma

8020static

Momentum

SPY

AlternateStrategies:52-weekG/L*

Strategic Observations: All Standard investment strategies continue to under-perform the S&P benchmark. Central bank easy money encourages “financial engineering” in which companies borrow at extremely low rates and buy back their own stock, pushing stock prices higher. A S&P with few corrections and no bear markets since 2009 is tough to beat. Aggressive diversified strategies are outperforming moderate ones. Low interest rates also force investors to accept more risk. That the 80-20 group beats the 60-40 group over 1-3 years but not over 5-10, however, suggests that when corrections do occur, aggressive strategies may take disproportionate losses. Momentum has lagged the S&P since 2010 after heavily outperforming from ’92 to 2009. Since bottoming in mid-2016, however, it has been improving relative to diversified strategies, perhaps due to changes made in the Moose momentum model in the last five years. The addition of stop-loss levels in October 2017 has been particularly effective in improving relative performance in 2018. Diversified buy-and-hold strategies should outperform momentum until the next US bear market. The two circumstances that would lead to a bear market are (1) a US recession, or (2) a significant exogenous development that threatens the integrity of the global financial system. The Fed currently puts the chance of recession in the next twelve months at 11%. Exogenous developments are tougher to predict, but truly significant ones are historically few. At the moment, there is nothing on the horizon that would appear to qualify. Author’s Choice: 60-40 Static. Static strategies require less attention, and in a Fed-centric world over the past 3-10 years, their performance has proven less volatile. They have been a more predictable strategy with a better risk-reward ratio. The February ’18 correction was the first since early 2016. Should it mark the beginning of a more normalized market based on the business cycle, momentum may return to favor.

Opinion— week closing 07.20.2018 A Most Boring Editorial The media made Trump’s “illicit” bromance with Putin this week’s cause celeb. Next week’s will probably be Trump on tape denying a poor deserving former playmate her extortion money. They are the kind of stories that sell ad space and trend on the internet. Both are certainly far more titillating than Trump and the Fed, the Dollar, or tariffs. Economics, after all, can be about as boring (and unintelligible) as it gets. They don’t call it the dismal science for nothing. Unluckily for you, I don’t sell ad space, and this is a financial newsletter, so titillating is not exactly in my wheelhouse. You signed up to read the boring stuff, and I signed up to write about it. Presumably, you have other outlets to fulfill your need for salacious personal insights, and are content to take my occasional dose of dry policy insight (like castor oil) with a clothespin on your nose. Maybe what makes personalities and politics so interesting is that not only is there so much room for differing opinion, but you don’t need to be particularly well informed to have one. Today’s universities, with their safe spaces, politically correct lunch menus, inoffensive Halloween costumes, and controversial speaker bans may be trying to un-teach the need for differing opinions, well-founded or not. Let’s hope it fails. Eventually, whether children grow into tax-payers or vagrants, they must all come to realize that in a democracy, diversity of opinion is the only diversity that counts— not racial diversity, not religious diversity, not gender diversity. Those are mere subsets of diversity of opinion. Without diversity of opinion, democracy is over—it becomes totalitarianism. Economics, on the other hand, doesn’t allow for much diversity of opinion. Empirical observation over the centuries has pretty much solidified the economics playbook for anyone curious enough to read it. Do this and this is what will happen. (“Install communism, and your country will go broke”, for example. Economics 101.) Seeing the same thing happen repeatedly, and arguing it will be different this time, defines insanity. The other possibility, of course, is that the arguer is ill-informed, and doesn’t know what always happens. (Before picking your excuse, remember that while abject ignorance can be a temporary affliction, total insanity may make you a far more interesting person.) Earlier this week President Trump threatened tariffs on $500 billion in Chinese trade goods. Then on Friday, he accused China and the European Union of currency manipulation, complaining that the strong Dollar is blunting America’s “competitive edge.” Turning his attention to the Federal Reserve, he added that “tightening now hurts all that we have done. Debt coming due & we are raising rates --- Really?” Me thinks the President doth protest himself. A strong Dollar does make US exports more expensive, while making foreign imports cheaper. Most Presidents don’t complain about a strong Dollar, however, since currency values are a direct reflection of the underlying relative economic strength of the nations involved. A strong US economy, relatively speaking, begets a strong Dollar. The standard political mantra then, supports a strong Dollar. Few Presidents want to be heard saying “I wish the economy were weaker.” US fiscal and monetary policy contribute to the Dollar’s value, but as a global reserve currency, factors beyond US control play a substantial role as well. That’s one reason Presidents tend to leave discussion of the Dollar to the Treasury Secretary. Get too close and people might realize how powerless a President is with respect to the greenback. Trump’s fiscal policy (tax reform, deregulation and increased spending) has strengthened the US economy, leading to a stronger Dollar. It could also lead to a greater trade deficit, as additional spending stokes demand for foreign imports. Trump’s tariff policies also strengthen the Dollar. (Since US tariffs must be paid in dollars, a huge increase in US tariffs means more demand for the US currency raising its value.) As for the Fed, the pick-up in US economic activity from tax reform is generating the first whiff of inflation in close to a decade. The economy is near full employment. Piling on US tariffs, meanwhile, will be inflationary too, raising the price of foreign goods for American consumers and businesses, while simultaneously insulating high-

priced US producers from foreign competition. Given what’s been happening-- and what’s about to happen—as a result of Trump’s fiscal and tariff policies-- the Fed has been tightening short-term interest rates as required under its inflation mandate. Trump wants to reduce the $552-billion US trade deficit and rebuild the American manufacturing in the process. He sees a stronger Dollar and Fed rate hikes as impediments to that plan. In part, those impediments are due to Trump’s fiscal policy successes, and his confrontational tariff strategy. Blaming Chinese and European currency manipulation for the strong Dollar contradicts April’s Treasury report that found no US trading partners were gaming their currencies. (To be fair, that report was before the trade war escalated, and some manipulation may have developed since. This week, the Yuan tumbled to its lowest level in a year after the latest US threat to put tariffs on $500 billion in Chinese exports.) On Capitol Hill this week, Fed chair Powell sounded positive on the economy. Two more rate hikes in 2018 are still planned, but if things deteriorate unexpectedly, the Fed could hold off. The yield curve has been flattening lately. If it appears about to invert, that would signal that future rate hikes need to come off the table. Until then, however, the slow measured approach appears to be working.