THE CATCHER AND THE UMPIRE WHILE YOU WAIT WHO ARE THE TWO GUYS ?  A GIRL LEAVES HOME AND TURNS LEFT THREE TIMES, ONLY TO FACE TWO GUYS WEARING MASKS THE CATCHER AND THE UMPIRE

TIPS FOR LIVING

BIGFOOT INVESTMENTS - OPEN FORUM Sep 6, 2018 WELCOME! Volume #344

AGENDA WELCOME! ADMIN NOTES QUOTE OF THE DAY SWAPS AND SPREADS OPTIMISM GAUGE DIAGNOSTICS GAGE FED TRACKER SEP GROWTH PORTFOLIO SUM AND SUBSTANCE WEEKLY INTELLIGENCE GLOBAL PERSPECTIVE DAVID’S CORNER ADVISOR INPUT QUESTIONS/COMMENTS

NOWEB

The key to successful managing is to…… “QUOTE” OF THE DAY: The key to successful managing is to…… …....keep the five guys who hate you away from the four guys who haven’t made up their minds! Casey Stengel

Optimism Gauge As of: 9/6/2018

Measuring Our Economy Indicator Current Value Prior/Metric Value Change Measuring Our Economy Last Update: 9/6/2018 Weekly Updates New Monthly Updates Indicator Current Value Prior/Metric Value St Louis Fed Financial Stress Index -1.302 - 1.238 (Rev) +1.0 Chicago Fed National Act Index (3 Mon M/A) 0.05 (Jul) +0.20 Jun (Rev) -.50 Unemployment 3.9% (Jul) 4.0% (Jun) +2.00 Weekly Jobless Claims (4Wk Mov Av) 209,500 212,250 +.50 ECRI Weekly Index (Against 52 Wk Av) 147.3 Conf Board Leading Indicators (NEW) 110.7 (Ju7/1/2018) 110.0 (Jun) University of Michigan Sentiment – Final 96.2 (Final – Jul 2018) 97.9 (Final – Jun 2018) Monthly Retail Sales – ex Autos (Adjusted) 404,441 (Jul) 402,058 (Jun) Rev (402,883) NFIB Small Business Sentiment 107.9 (Jul) 107.2 (Jun) ISM Manufacturing 63.1 (Aug) Expansion >50 58.1 (Jul) Economic Capacity Utilization 78.05% (Jul) 78.11% (Jun) (Rev) Stock Market Moving Averages Weekly Data Points N/A S&P Case-Shiller 20 City Comp Index (YoY) 6.3% (Jun) 6.5% (May) Rev

Economic Optimism Index Measuring our Economy 10 20 30 40 50 60 70 80 90 100 Economic Optimism Index Current: Prior: 91.86% READING AS OF: 9/6/2018 Current Reading: 91.86% Trend: Positive Prior Reading: 89.69% (Rev) Bias: Positive

NON CONFRONTATIONAL MQ index Source: BigFoot Investments 01/26/2016: -0.162 MQ index Current: -1.226 Last: - 1.196 Aver over period: -1.146 Source: BigFoot Investments

Week of: Sep 3rd, 2018 BigFoot Investments Market Diagnostics Week of: Sep 3rd, 2018 BigFoot Investments

SENTIMENT INDICATORS 1. AAII Investor Survey 2. TSP Sentiment Survey 3. NAAIM Survey of Manager Sentiment 4. CBOE Volatility Index INTERNAL INDICATORS 5. S&P500 - 50D MA and 200D MA AND 2/10 MA 6. NYSE Bullish % 7. S&P 500 Bullish % ($BPSPX) 8. Percent of NYSE stocks above 200DMA 9. Percent of NYSE stocks above 10WMA or 50DMA ($NYA50R) 10. NYSE 52-Week New Highs and New Lows 11. Percent of S&P500 stocks above 200DMA 12. Percent of S&P500 stocks above 50DMA ADDED INDICATORS 13. Option Sentiment 14. Option Buyers Sentiment Gauge (OBSG) 15. Consumer Sentiment Index 16. Nasdaq Sentiment Index 17. Rydex Nova/Ursa Sentiment Indicator

11.76% Prior: 17.64%

Powell Chair Evans Chicago Bullard St Louis Williams New York Kashkari MEMBER DISTRICT TOPIC LINK TO SOURCE Powell Chair See notes https://www.federalreserve.gov/newsevents/speech/files/powell20180824a.pdf Evans Chicago NOT AVAILABLE Bullard St Louis Continuing to raise the policy rate in such an environment could cause the FOMC to go too far, raising recession risk unnecessarily. https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/2018/Bullard_Real_Return_XII_NYC_5_Sept_2018.pdf?la=en Williams New York Kashkari Minneapolis Bostic Atlanta Friday

THOUGHTS FROM THE TOP Good reason to expect that this strong performance {the economy} will continue Gradual process of normalization is appropriate There are risk factors, but “today I will step back from these.” Issues beyond the reach of the Fed: real wages; economic mobility; budget deficit; and low productivity Two counterbalancing issues: why are we not tightening faster; why are we tightening so fast as to cut off the expansion In the run-up to the past two recessions, destabilizing excesses appeared mainly in financial markets rather than in inflation No single, simple approach to monetary policy is likely to be appropriate across a broad range of plausible scenarios Brainard principle, which recommends that when you are uncertain about the effects of your actions, you should move conservatively – but this has limits when doing too little comes with higher costs than doing too much; i.e. the financial crisis – then it’s “whatever it takes.” I “see the current path of gradually raising interest rates as the FOMC’s approach to taking seriously both of these risks” (moving too fast or slow) Source: Federal Reserve: Chair Remarks

THE VOTERS

NOW 3.5 4.0 Next: Dec: 69.7% % (67%) New: 100% Prior: 96.0% http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html Source: CME; Federal Reserve

September 2018 Stock Picks TOP 25 STOCKS September-18 RANK TICKER NAME   RANK TICKER NAME SECTOR INDUSTRY 1 NVDA NVIDIA Corporation 10 - Technology 1033 - Semiconductors 2 AMZN Amazon.com, Inc. 09 - Services 0948 - Retail (Catalog & Mail Order) 3 V Visa Inc 0909 - Business Services 4 LNG Cheniere Energy, Inc. 06 - Energy 0609 - Oil & Gas Operations 5 ISRG Intuitive Surgical, Inc. 08 - Health Care 0812 - Medical Equipment & Supplies 6 FANG Diamondback Energy Inc 7 COST Costco Wholesale Corporation 0963 - Retail (Specialty Non-Apparel) 8 PYPL Paypal Holdings Inc 07 - Financial 0703 - Consumer Financial Services 9 WLK Westlake Chemical Corporation 01 - Basic Materials 0106 - Chemicals - Plastics and Rubbers 10 FB Facebook Inc 1018 - Computer Services 11 HD Home Depot Inc 0960 - Retail (Home Improvement) 12 AAPL Apple Inc. 1003 - Communications Equipment 13 GOOGL Alphabet Inc 14 BABA Alibaba Group Holding Ltd 15 URI United Rentals, Inc. 0939 - Rental & Leasing 16 KEY KeyCorp 0727 - Regional Banks 17 GD General Dynamics Corporation 02 - Capital Goods 0203 - Aerospace and Defense 18 BAC Bank of America Corp 19 FDX FedEx Corporation 11 - Transportation 1103 - Air Courier 20 DEO Diageo plc (ADR) 05 - Consumer Non-Cyclical 0503 - Beverages (Alcoholic) 21 ATVI Activision Blizzard, Inc. 1036 - Software & Programming 22 SYK Stryker Corporation 23 GS Goldman Sachs Group Inc 0718 - Investment Services 24 DWDP DowDuPont Inc 0103 - Chemical Manufacturing 25 C Citigroup Inc CONVICTION As of August 31st, 2018- Subject to change.

Credit Anticipates-Equity Confirms Rate Prior Current Status* Libor/OIS 0.41 0.40   Euribor/Eonia -0.042 -0.034 Markit CDX NA - IG Spread 59.90 60.64 Markit CDX NA- HY Index 106.90 106.77 DTCC Repo - MBS 1.995 2.035 DTCC Repo – Treasury 1.981 2.028 High Yield 3.52 3.46 Fed Reserve Currency Swaps-Short 105 (ECB) 1 (BOJ) 90 (ECB) 2 (BOJ) Fed Reserve Currency Swaps-Long 2-Year Swap Spread 0.212 0.193 TED Spread 0.241 0.175 Bond Equity Earnings Yield Ratio .698 .7278 Stocks Undervalued As of: 9/5/2018 COB *Note: Status = No major impact Status = Moving Worse Status = Negative Impact

BREAKING DOWN 'Bond Equity Earnings Yield Ratio - BEER' VALUING THE MARKET “BEER” RATIO Bond Equity Earnings Yield Ratio 𝐵𝑜𝑛𝑑 𝑌𝑖𝑒𝑙𝑑 10 𝑦𝑟 E/Y S&P 500 2.904/3.99=.7278 BREAKING DOWN 'Bond Equity Earnings Yield Ratio - BEER' A BEER of 1 would indicate equal levels of perceived risk in the bond market and the stock market. Analysts often feel that BEER ratios greater than 1 imply that equity markets are overvalued, while numbers less than 1 mean they are undervalued, or that prevailing bond yields are not adequately pricing risk. Source: Investopedia

WEEKLY MACRO DATA LONG AND WINDING ROAD

SUM SUBSTANCE

MARKET CYCLE MARKET EVENTS TRADE FEED BACK LOOP TECHNICALS FUNDAMENTALS FEED BACK LOOP TECHNICALS TRADE DOLLAR EMERGING MARKETS INFLATION

OUR “FRIENDS” THE VOLATILE BEASTS Source: Investing.com

INCREASING INTEREST RATES OK TRENDING NEGATIVE PARSING RECESSION JUMP IN GROWTH INCREASING BANK LOANS INCREASING Y/Y INCREASING INTEREST RATES INCREASING JUMP IN LENDING OF EXCESS RESERVES RESERVES DECREASING GROWTH OF MONEY SUPPLY FALLING GROWTH IN VELOCITY OF MONEY SUPPLY SLIGHTLY QUICK CHANGES IN INFLATION INDICATIONS BUT SLOWLY SIGNIFICANT CHANGE/TREND IN LEADING INDICATORS MAJOR CHANGES IN CONSUMER SENTIMENT DECREASE IN 10-YEAR/2-YEAR TREASURY SPREAD VERY LOW (0.24) But slight increase

COMPARING INFLATION DATA* THE INFLATION PICTURE – YOU BE THE JUDGE COMPARING INFLATION DATA* TYPE RATE (Prior) SOURCE CPI 2.9 (2.9) BLS CORE CPI 2.4 (2.3) STICKY CPI 2.5 (2.6) Atlanta Fed CORE STICKY CPI 2.5 (2.4) FLEXIBLE CPI 4.1 (3.7) CORE FLEXIBLE CPI 1.1 (0.3) 16% TRIMMED MEAN CPI 2.2 (2.2) Cleveland Fed PPI 3.3 (3.4) CORE PPI 2.8 (2.7) PCE 2.3 (2.2) BEA CORE PCE 2.0 (1.9) TRIMMED MEAN PCE (Core) Dallas Fed 10-YEAR TIPS 0.78 (0.79) Treasury Dept UNDERLYING INFLATION GAUGE 3.33 (3.28) New York Fed AS OF: 9/5/2018 Note: All data annualized INCREASE DECREASE Source: New York Fed; Cleveland Fed; Atlanta Fed; BLS; BEA; Dallas Fed

A NEW KERFUFFLE Source: CNBC

BULLARD INFLATION ARGUMENT

Third decline in past 4 months KERPLUNK – BUT… Third decline in past 4 months OTHER NOTES: Inventories up 1.3% most since 2011 Book-to-Bill ratio up to 101.4% -8 mon high (Both indicate improving business conditions) Source: Census Bureau

NON-DURABLE GOODS LOWER ALSO Source: Census Bureau

PRODUCTION AND HOUSING THE CULPRITS Source: Chicago Fed

INDEX POINTS TO A MODERATION IN ECONOMIC GROWTH IN JULY Source: Chicago Fed

DOWN TO 96.2 FROM 97.9 – LOWEST SINCE JAN 2018 Source: University of Michigan; dShort

CONSUMER CONFIDENCE SOARS – UP 5.5% (Consensus was a 0.9% decline) NOTES Indicates above trend expansion Expectations index up 5.2 pts 12-month inflation outlook eased Consumer purchasing plans up Source: Conference Board; dShort

SOME MODERATION IN PRICE GROWTH

DOWN IN THREE OF THE PAST FOUR MONTHS NOTE: For 2018, the NAR expects existing home sales to contract 1.0% to 5.46 million units, and prices to increase about 5.0%. Source: NAR

SIGNS OF A TURN? Source: FHFA

Q2 GDP REVISED UP, PROFITS STRENGTHEN NOTES: Average for first half of year 3.2% - fastest in 3 yrs Corp profits from production up 3.3% - most in 3 yrs GDI much softer than GDP so aver GDP/GDI at 3.0% Surge due to temp factors: Rebound in consumer spending after bad wx Delay in tax refunds Business purchases were also pulled forward for tariffs Next quarter closer to trend – 3% Source: BEA

NO CHANGES IN JULY PERCENTAGES – MAY/JUN UPDATED Source: BEA

SHORT-TERM LAGGING Source: Dallas Fed

GROWTH DESPITE NINE-MONTH LOW – OUTPUT AT 1 YEAR LOW NOTES Production growth slowing – estimated a 0.2% in 3Q Exports the key source of weakness ($) Slowdown reflects shortages of inputs Order books are starting to increase (a positive) Tariffs and “trade wars” cited as common factors in companies building safety stocks – exacerbating shortages Source: IHS Markit

WEAKER RISE IN BUSINESS ACTIVITY Third quarter is unlikely to see the pace of economic growth seen in the second quarter Third quarter signal annualized GDP growth of just under 3.0%. Aug: 54.7 Jul: 55.7

BIGGEST MONTHLY GAIN SINCE MARCH 2010 - HIGHEST LEVEL SINCE MAY 2004 NOTES Current level consistent with above trend growth 16 of 18 industries reporting indicated broad-based expansion All index components advanced Backlogs recovered to trend Price index slipped 1.1 pts Source: ISM

STRONG REPORT The ISM Non-Manufacturing PMI index for the United States rose to 58.5 in August of 2018 from 55.7 in July, beating market expectations of 56.8. Out of 17 industries 16 reported growth while 1 declined Source: ISM

A MISS BUT ECONOMY IS STRONG AND EXPANDING 1 year aver 192K Source: ADP

SOME IMPROVEMENT Source: BLS

WEEKLY

OIL – OIL – OIL : THE PRICES ARE ROILED 2018 EST: BRENT – AVER: $73.65 WTI – AVER: $68.00 2019 EST: (LOWERED) BRENT – AVER: $74.55 WTI – AVER: $69.75 Source: WSJ

NO WONDER OPEC IS WORRIED

NO SIGNS OF STRESS Source: Chicago Fed

ANOTHER VIEW Aug: 99.06 Jul: 99.11 Jun 99.1 Source: Goldman Sachs

OVERALL: MAJOR MARKET IMPACTS STATUS COMMENTS Trade Goods trade deficit shot up $4.3 billion in July to $72.2 billion, a five-month high Housing Prices weaken – Building and sales data ebb Sentiment Good but: Michigan down – CB up GDP Solid data for now - some weakening in output data Manufacturing Holding in expansion range Solid for now Inflation Not moving much – markets are not pricing Employment Strong but skills lacking Auto Sales Still good but dropping below 17M Income & Spending Income Output Durable goods orders decline – Non durable

GLOBAL OUTLOOK China Eurozone Emerging Markets

GLOBAL MANUFACTURING PMI AT 21-MONTH LOW IN AUGUST Source:

PMIs SLIP FURTHER IN AUG BUT GDP GROWTH HOLDING UP REASONABLY WELL

ON THE “RISE” Source: Goldman Sachs

EM OUTLOOK OK EMXCAT EM growth appears to have dipped toward its 2015-16 trough in the middle quarters of this year. To be sure, this dip has been concentrated in Turkey and Argentina, which appear to have entered recession as a result of a sharp tightening in financial conditions related to deep imbalances and policy credibility concerns. Outside China, the slowdown across the rest of EM has been more modest and we forecast growth to bounce back beginning next quarter

ONE SIDE OF THE ARGUMENT? The Official NBS Manufacturing PMI in China unexpectedly edged up to 51.3 in August of 2018 from 51.2 in the previous month and beating market consensus of 51. Output (53.3 vs 53 in July) and buying activity (51.8 vs 51.5) rose faster while new orders continued to grow (52.2 vs 52.3) amid strengthening sentiment (57 vs 56.6). Source: Trading Economics; NBS - China

THE OTHER SIDE The Caixin China General Manufacturing PMI fell to a 14-month low of 50.6 in August of 2018 from 50.8 in the previous month and matching market consensus. New orders grew the least since May 2017; new export orders shrank for the fifth month in a row; and employment remained on a downward trend, which, in turn, contributed to an increase in outstanding workloads. Also, confidence remained stuck near June's six-month low, affected by the ongoing China-US trade war and relatively subdued market conditions. Source: Caixen; Trading Economics

BROADLY STEADY IN AUGUST BUT EXPECTATIONS WEAKEN The Eurozone PMI shows the recent run of robust growth of business activity, new orders and employment extending into August. However, the expansion is looking increasingly uneven and the business mood has become more unsettled during the summer….. area is on course to at least match the 0.4% expansion of GDP seen in the second quarter, yet the downturn in optimism raises questions over whether this pace of growth can be sustained into the fourth quarter. Source: IHS Markit; Eurostat

NOT GOOD – EMERGING MARKETS IN TURMOIL Lingering downtrends upend futures and options contracts, forcing traders to take losses. They also lock up investors’ collateral in the form of enhanced margin calls, leaving them little room to make other trading decisions. Source: Bloomberg

ON THE “RISE” Source: JPM

0.225 U.S. Macro 0.10 Last New

DAVID’S CORNER

ADVISOR INPUTS

QUESTIONS & COMMENTS THANKS FOR JOINING US!

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Clarida (Vice Chair-Nom) NOTE: One BOG seat open with no nominees DOVES AND HAWKS DOVE DOVISH CENTERIST HAWKISH HAWK BRAINARD POWELL (Chair) WILLIAMS EVANS KAPLAN Rosengren George KASHKARI HARKER Mester BULLARD QUARLES BARKIN Brainard BOSTIC Goodfriend (Nom) Clarida (Vice Chair-Nom) Bowman (Nom) NOTE: One BOG seat open with no nominees BOG MEMBER DISTRICT VOTE Nominations approved in committee now to full Senate

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Politics/Geopolitical ImPACT Financial Stress Output/Production Inflation Politics/Geopolitical Dollar Oil Interest Rates Sentiment Employment Central Bank Trade