The Lorintine SITREP for the week ending 1/23/2015

SITREP: n. a report on the current situation; a military abbreviation; from "situation report".

In the markets:

Despite a weak close on Friday with the Dow down -141 to close at 17672, the overall major market indexes

finished the week with solid gains. The Dow Jones Industrial Average gained +0.92% for the week. The Nasdaq

bounced solidly from a support line that appears to be at about the 4550 level and ended the week up +2.66% to

close at 4757. The large cap S&P 500 index showing a similar bounce closed the week at 2051 up +1.60%. The

small cap Russell 2000 rounded out the strong showing with a +1.04% gain for the week.

In the United States, Housing Starts came in at 1.089 Million beating consensus expectations of 1.041 Million.

New jobless claims were 307,000 exceeding consensus of 300,000. Next week’s reports will include Durable

Goods orders on Tuesday, the Federal Reserve Open Market Committee (FOMC) meeting on Wednesday, and

Gross Domestic Product (GDP) report Friday—consensus expectations are growth of 3.2% for the quarter.

In Canada, the TSX vaulted +3.28% for the week, regaining it’s 10 week moving average and closing at 14779. The

central bank of Canada unexpectedly cut its trend-setting interest rate Wednesday to 0.75% in response to the oil

price collapse. While other economies will get a boost from lower energy prices that may stimulate consumers to

spend more, the slump will be “unambiguously negative” for Canada, according to the Bank of Canada. Energy

activity makes up 11% of Canada’s economy. Finance Minister Joe Oliver stated in an interview with the television

program The West Block that a contingency fund set aside for unexpected events could be used to offset the blow

from recent slide in oil prices. This appears to contradict comments made by Employment Minister Jason Kenney

who was quoted in the same program just last week saying that the government would not be using the

contingency fund because it’s designed for events such as natural disasters.

Early in the week, the International Monetary Fund downgraded its outlook for more than a dozen of the world’s

largest economies. In Europe, the European Central Bank announced plans to pump about 1 trillion euros to

revive the euro zone economy. This launched the Euro Stoxx 600 index 5.1% for the week, its best performance

since 2011. European Central Bank President Mario Draghi announced a 60 billion euro per month asset-buying

program that will commence in March. While the move was largely expected, the open-ended nature and overall

size of the program surprised the markets. 10-year bond yields across the continent all finished Friday at or near

all-time lows. In wider economic news, Euro-area manufacturing and services expanded at the fastest rate in 5

months according to Markit Economics’ Purchasing Managers Index (“PMI”) flash reading of activity in January.

In Asia, China’s economic growth slowed to 7.4% in 2014, downshifting to a level not seen in a quarter century.

GDP had grown at a rate of 7.7% in both 2012 and 2013. The slowing momentum has resonated through the

global economy and has sent commodity prices tumbling. While 7% would be the envy of most economies,

Beijing says this level of growth is needed to create enough jobs for its huge population. On Monday, the

Shanghai main index fell 7.7%, its worst day since 2008, as regulators sought to rein in record margin lending and

deflate the bubble that had been developing. By the end of the week the index had almost completely recovered.

This chart shows that the current low-7% growth in China is indeed a low level compared with prior years. It can

be seen that the four quarters of 2014 represent the continuation of a significant slowing in growth.

(sources: Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com,

markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com,

wantchinatimes.com, BBC, 361capital.com, pensionpartners.com; Figs 3-5 source W E Sherman & Co, LLC)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors ("S"=Staples [a.k.a. consumer non-

cyclical], "H"=Healthcare, "U"=Utilities and "T"=Telecom) and the offensive DIME sectors ("D"=Discretionary

[a.k.a. Consumer Cyclical], "I"=Industrial, "M"=Materials, "E"=Energy), is one way to gauge institutional investor

sentiment in the market.

The average ranking of Defensive SHUT sectors rose to 6.5 from the prior week’s 7.8, while the average ranking of

Offensive DIME sectors rose slightly to 18.5 from the prior week’s 18.8. Institutional investors remain cautious,

and the Defensive SHUT group has again extended its ranking lead over the Offensive DIME group ranking.

Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

Summary:

The US has led the worldwide recovery, and continues to be among the strongest of global markets. However,

the over-arching Secular Bear Market may remain in place globally even as new highs are reached in the US.

Because the world may still be in a Secular Bear, we have no expectations of runs of multiple double-digit

consecutive years, and we expect poor market conditions to be a frequent occurrence. Nonetheless, we remain

completely open to any eventuality that the market brings, and our strategies, tactics and tools will help us to

successfully navigate whatever happens.

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