According to the recent TIM (Trade Ideas Monitor) report, the TIM Sentiment Index (TSI) increased 2.1% week over week to 50.90 on August 6th, compared to 49.84 on July 30th (see last post, and previous post and the youDevise website for additional information on the TIM report). For the last few weeks, the index has been fluctuating just above and below the critical 50 mark, differentiating bullishness from bearishness. The TIM report list the daily change in the TSI as being statistically correlated to market movement 1-3 days forward. Total new short ideas as a percentage of all new ideas sent to investment managers by way of the TIM increased slightly to 33.21% on August 6th from 33.19% on July 30th. Shorts represent 34.96% of broker ideas in August, compared to 40.69% year to date.

As for individual securities in the U.S. and North America, Hartford Financial Services Group (HIG), Novellus Systems (NVLS), and DaVita (DVA) were the stocks most recommended as longs by institutional brokers, while Cablevision Systems (CVC), Hewlett-Packard (HPQ), and Altera (ALTR) were recommended as shorts. The consumer discretionary, materials, and financial sectors had the biggest week over week change in long broker sentiment, while the telecommunication services, consumer staples, and information technology sectors had the largest weekly change in short sentiment.

Tobias Levkovich, chief U.S. equity strategist at Citigroup, presented his bullish perspective on CNBC Thursday (see CNBC article).

Source: CNBC Video
Some points from the Levkovich interview include:

• Production rates have to pick-up, and not because final demand is picking-up, but because inventory levels are so low.
• Earnings are a function of production. Top-line growth will pick-up. This will cause the second half GDP to be higher.
  
• Cost controls were not a one quarter phenomenon, but will provide even more operating leverage to the upside going forward.
• Worries of lower consumer spending hurting GDP are overblown. Over the last 30 years nearly all of the growth of consumer spending as a percent of GDP has come from health care expenditures. It is an illusion that we have always had isolated increased spending. When spending did increase, so did wealth. Debt increased $6 trillion, but assets increase $24 trillion over the same time frame.
• While we will see sales growth this year (which is counter to conventional wisdom), 2010 estimates that are calling for a 22% gain in earnings might be a little high.
• Finally, while there is a possibility of a market correction later in the year, an overshoot to 1,100 on the S&P 500 is very plausible. Positive moves in the market will be supported by the strength of Q2 earnings and the probability of second half earnings power.

Mark Axelowitz, director of wealth management at Morgan Stanley Smith Barney, and adviser to very high net worth individuals, was recently on CNBC's Fast Money program discussing trends that he has noticed among ultra high net worth individuals (see CNBC article).

Source: CNBC Video
Just as many investors are jumping back into stocks, essentially afraid that they may have missed the recent rising market, ultra high new worth individuals are more cautious, and appear to be worried about inflation, the dollar, and of course, taxes. This macro-economic perspective has kept the rich from chasing the recent rally, and instead has them investing heavily in fixed income instead of equities as they shy away from diving into the market with both feet. The rich stay rich for a reason. Maybe it is time to pay attention.

According to the recent TIM (Trade Ideas Monitor) report, the TIM Sentiment Index (TSI) fell into bearish territory as it decreased 2.4% week over week to 49.84 on July 30th, from 51.06 on July 23rd (see last week's post, and previous post and the youDevise website for additional information on the TIM report). Nonetheless, the index increased 9.3% on Thursday. New short ideas as a percentage of all new ideas sent to investment managers increased from 28.26% a week ago to 46.92% on Tuesday, then back to 33.19%. Shorts are 36.72% of ideas in July and 40.95% for the year. As result, the index is indicating that while brokers are generally bullish with their new ideas, they have increased their profit taking as the market continues to rise.

As for individual securities in the U.S. and North America, Viacom (VIAb), GSI Commerce (GSIC), and Adtran (ADTN) were stocks recommended as longs by institutional brokers, while Cymer (CYMI), Saks (SKS), and Priceline (PCLN) were recommended as shorts. The industrials, financials, and consumer staples sectors had long broker sentiment for the week, while the utility, energy, and information technology sectors had short sentiment.

There was a great interview with Mohamed El-Erian this morning on CNBC. El-Erian always presents a well though-out, articulate, and accessible perspective on various financial issues. This morning's interview was no different as he discussed the recent market rally and whether the economy is beginning to recover. As for the recent moves in the stock market, El-Erian believes that the run-up in prices, especially the July portion of the equity market rally, is part of a "sugar high," implying a correction is in order. As for the economy, El-Erian believes the current optimism is based on some false assumptions, including:

• Corporate profitability can be maintained with additional cost-cutting. Not true. You need revenue growth.
• The stimulus spending will have a permanent effect. Not true. Just look what happen in China on Wednesday when they decided to cut-back stimulus spending.
• The stabilization of housing is sufficient to get the economy growing again. Not true. A housing recover is necessary, but is not sufficient by itself.

El-Erian goes on to say that what we need is final demand, producing longer-term and sustainable demand sources. We also need to know that deleveraging in the private sector has completed its course. People need to feel comfortable to once again to engage in consumption and investment. Furthermore, the recovery is no longer just about the financial sector. It is about the real economy, in particular wages and employment. Until those recover, we can only have tepid growth, but not the level of growth necessary to turn the economy around. Finally, El-Erian mentions how the helium in the growth balloon is being driven mainly by public debt. For the balloon and growth to stay afloat, you need the private sector to kick-in and take over, as well as have the public sector begin dealing with its debt issues. Simple, to the point common sense. Good stuff as always.


Source: CNBC Video

Below are some links of interest, just in case you missed them. Some may have already been posted to Twitter.

• Economic calendar for Wednesday, July 29th (Briefing.com Economic); Durable Orders at 8:30 AM EST, Crude Inventories at 10:30 AM EST, and Fed's Beige Book at 2:00 PM EST.
  
• Earnings calendar for Wednesday, July 29th (Briefing.com Earnings)

• Small investors in the UK are turning to absolute return funds as they attempt to protect themselves against another downturn (UK Daily Mail).
• Betting on positive GDP. Intrade odds for positive Q3 GDP growth are at 73% (Carpe Diem). On the other hand, even though some are optimistic on positive GDP, those betting on whether a Government run health care plan with a public option will be signed into law by the end of the year is down to 25% (Bespoke Investment Group).
• The recession may be close to being "technically" over, but does that matter? (The Pragmatic Capitalist)
• Don't fool yourself, earnings are in their worst decline in history (Trader's Narrative).
• This seems to be an interesting "recovery" given that all the usual economic/sector suspects are missing in action (Financial Armageddon).
  
• Sam Zell gives his thoughts on real estate (Calculated Risk). CNBC interview with Sam Zell below (CNBC Video).
  
  
• The Nasdaq vs S&P 500 trend-following strategy (MarketSci Blog).
• PIMCO takes its bond prowess into active management with the PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ). (ETF Trends)
• Microsoft and Yahoo! may be near a new search deal (WSJ). Does anyone care anymore?
  
• Alpha/beta separation does not actually require separating anything (AllAboutAlpha.com).
  
• A negative divergence between energy stocks and the S&P 500 (The Financial Ninja). Energy stocks take a slide on lower consumer confidence numbers (WSJ).
  
• Don't over think light volume rallies (The Big Picture).
• How are SPXU and UPRO being traded? Bill Luby at VIX and More provides some insight.
• SEC issues new rules on short-selling (WSJ).
• CFTC Chairman Gensler considers enacting limits on traders who place bets on energy contracts (WSJ). In other CFTC news, previous reports which had the CFTC blaming speculators instead of supply and demand for the crude oil run-up in 2008 may have been premature.
• Wilber Ross sounds off on FDIC regulations and Tier 1 capital rule requirements, and whether anyone will buy banks again (CNBC Video).
  

Below are some links of interest, just in case you missed them. A few have already been posted to Twitter.

• Economic calendar for Tuesday, July 28th (Briefing.com Economic); S&P/Case-Shiller Home Price Index at 9:00 AM EST, and Consumer Confidence at 10:00 AM EST.
  
• Earnings calendar for Tuesday, July 28th (Briefing.com Earnings)
  

• Hedge funds investing in Asia now appear to be a popular asset class among the wealthy in the region, with AUM expected to rise from $14 billion in 2001 to $160 billion by the end of the year (HFMWeek).
• Jeremy Grantham's quarterly letter (GMO, The Pragmatic Capitalist). Always insightful. This one is no different given his views on China and emerging markets.
• Even with the relatively positive housing news Monday, U.S. efforts to modify mortgages has faltered (WSJ).
• Are there two housing bottoms, one for activity, and another for price? If so, the price bottom may not have been reached yet, even if housing activity is picking up (Calculated Risk, Clusterstock).
• Potential problems with commercial real estate rears its ugly head again (Fortune). As it turns out, banks in the U.S. hold $1.8 trillion of commercial loans, with regional banks set to take the biggest hits. Some large regional banks with exposure include PNC of Pittsburgh, KeyCorp of Cleveland, and BB&T of Richmond, Va., each with more than half their loan books in commercial loans. Ouch.
• Bank failures appear to be accelerating (The Big Picture).
  
• Bank of America plans to cut 10% of its branches (WSJ).
• Lending continues to slow as bankers and borrowers refrain from taking risk (Financial Armageddon).
• There has been a 585% year-over-year change in CMBS delinquencies (Zero Hedge).
  
• The next financial crisis is on its way and will be triggered by commercial real estate, credit cards, and student loans, says Kirby Daley, fromNewedge Group ( The Pragmatic Capitalist).
• The truck tonnage index declined 2.4% in June (Calculated Risk). What does this mean for the recovery?
• "The End Of The End Of The Recession" (Zero Hedge). A pretty detailed macroeconomic presentation from Zero Hedge in collaboration with David Rosenberg, Chief Economist & Strategist at Gluskin Sheff and Associates. The link is a few days old, but worth a look if you have not seen it.
  
• The SEC issued new rules on short-selling that will require more transparency, albeit delayed (WSJ, Financial Times). This comes as the CFCF pins the blame for the 2008 crude oil spike on commodity speculators (WSJ).
• The VIX was up on a quiet day (The Financial Ninja), and looking oversold as equities appear stretched.
  
• Looking at the individual sectors, everything except energy seems overbought (Bespoke Investment Group).
  
• Apparently the FX market is slowing down as Forex trading volume shrinks (Kathy Lien).
• When breaking the S&P 500 into 10 deciles (10 groups of 50 stocks), the two deciles with the most institutional ownership are up the most, while the two with the lowest institutional ownership are up the least (Bespoke Investment Group). Is this institutions standing behind their bets and adding more, simply staying strong during a short squeeze, or something else? Or nothing else?
• The AirShares EU Carbon Allowances ETF (ASO), which gave investors a way to play the cap-and-trade market, is calling it quits and liquidating (ETF Trends).
  
• Traders are not happy with plans to limit natural-gas trades (WSJ), with some market makers considering pulling out of the market.
• Is it dispersion time - the idea being to go long options gamma in individual names or sector specific ETF's, and go short gamma in index ETF's or index options (The Daily Options Report).
• Hedge fund replication for all (Bull Bear Trader, greenfaucet). MIT Professor Andrew Lo discusses hedge fund replication and his SG Global Alternatives A (GAFAX) fund that is available to average investors.
  

Dr. Andrew Lo , MIT Professor and founder of Alpha Simplex, was recently on CNBC's Fast Money program discussing hedge fund replication using a combination of exchange traded futures and currency forwards.

Source: CNBC Video
In essence, hedge fund replication attempts to mimic the betas and returns of either individual hedge fund strategies, or the entire hedge fund industry, using common and liquid exchange traded assets, such as futures, forwards, swaps, and even ETFs. In using such assets to replicate returns, is it hoped that one can not only replicate betas and returns, but do so with comparable or less risk, and of course, less cost that a traditional hedge fund.

The specific fund that Dr. Lo helps manage, along with Jeremiah Chafkin and Robert Rickard, is a long/short replication mutual fund named the Natixis ASG Global Alternatives A (GAFAX) fund. The fund is relatively new, with an inception date of September 30, 2008, and has an expense ratio of 1.64% and an initial sales fee of 5.75% - not cheap, but less than your typical 2/20 hedge fund fee structure for longer holding periods. Year to date the GAFAX fund is up only 4.86% compared to a positive 8.74% return for the S&P 500. Nonetheless, the diversification effects of the fund have helped its returns be relatively flat since inception, compared to roughly a 20% loss in the S&P 500 over the same period. Given that the fund is less than one year old, extensive risk-return data is not yet available.

While replication strategies can attempt to replicate either single or multiple strategies, the GAFAX fund is broad-based in that it does not try to mimic one specific type of hedge fund strategy, but instead tries to get the beta and return of the diversified exposure of the entire hedge fund industry. Therefore, such a fund will not report returns that match the top outperforming funds each year, but will also hopefully avoid significant exposure to strategies that may have recently blow-up due to current market or macroeconmic factors. Furthermore, even though the fund is using reported past return data to develop its replication, the lag in performance is not expected to be as dramatic since the fund is modeling more broad-based returns, and once again is not subject to the investment changes of one hedge fund or strategy.

Hedge fund replication has been an active area of research for a number of years, both in academia and industry. It will certainly be interesting to see how such techniques perform outside the labs of academia and closed doors of industry, and whether or not such investment strategies catch on with the retail investing public. If you are looking to learn more about the field of hedge fund replication, there are a number of places to start. First, check out Dr. Lo's MIT homepage and Laboratory for Financial Engineering website were you can download some recent abstracts, publications, and working papers on hedge funds. Second, check out the wonderful blog AllAboutAlpha.com and its various articles on alternative beta and hedge fund replication strategies. The following academic papers - available on the Internet (there are others as well) - will also given you an idea of a few hedge fund replication research approaches and modeling techniques.

Can Hedge-Fund Returns Be Replicated?: The Linear Case, Hasanhodzic and Lo
Alternative Routes to Hedge Fund Return Replication: Extended Version, Harry Kat

A few books on the subject include the following:

Hedge Funds: An Analytic Perspective, Andrew Lo (includes a chapter on replication, content from his papers)
Alternative Beta Stategies and Hedge Fund Replication, Lars Jaeger

Once again, these are just a few resources available on the Internet or at your local bookstore. As mentioned, the field has been active over the last few years, and subsequently has produced a number of good articles, books, and online resources. Enjoy.

Below are some links of interest (at least to me), just in case you missed them. A few have already been posted to Twitter.

• Economic calendar for Monday, July 27th (Briefing.com Economic). New Home Sales at 10 AM EST.
  
• Earnings calendar for Monday, July 27th (Briefing.com Earnings).
  
• Investors await data on GDP and housing this week (Financial Times). Consensus forecast project a 1.5% fall in GDP for Q2, with falling inventory levels and lower production dragging the number down (WSJ). Anything much worse could stall and reverse the recent rally. Calculated Risk finds a little sunshine in some of the recent economic numbers. Nonetheless, even government meddling in the housing market may have its limits (Bearishnews). In somewhat related news, Barry Ritholtz also covers some issues with National Association of Realtors and the use of appraisers (The Big Picture).
• The total amount of loans held by the 15 largest U.S. banks fell by 2.8% in Q2 (WSJ), with more than half of the loans in April and May coming from refinancing and renewing existing business credit, and not from making new loans.
  
• More news about how investors are continuing to move their money into emerging market ETFs (ETF Trends).
• Looking for an ETF with global exposure? Now there are two to choose from, but they are not exactly the same, even though they appear so (ETF Trends).
• Demand for emerging market debt has risen to record levels, offering an encouraging sign for the world economy (Financial Times).
• Are unemployment statistics meaningless? Are spillover effects zero? Econbrowser tackles the questions.
  
• A look on how the "cash for clunkers" is going to work (The Big Picture).
  
• U.S. Pay Czar begins looking to rework / renegotiate contracts deemed excessive. Seven banks and companies, including Citigroup, Bank of America, American International Group, General Motors, Chrysler, Chrysler Financial, and GMAC Financial Services must submit proposals for their compensation packages (WSJ).
• Information Arbitrage takes on the wall street trader compensation model - arguing that the issue is inextricably tied to risk-taking, where the "heads I win; tails you lose" payout paradigm rewards risks taking and places little premium on risk management.
• In an attempt to get its pension back to a solid footing, CalPERS is looking to double down on recent bets as it is considering pouring "billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure. That’s right, he [CalPERS fund manager, Joesph A. Dear] wants to load up on many of the very assets that have been responsible for the fund’s recent plunge." (Fundmastery Blog)
  
• Content is still king. Apple working with record labels to boost digital sales of entire albums by bundling interactive booklets, sleeve notes, etc., with music (Financial Times). Also, the company is planning to offer a tablet-sized computer by Christmas.
• Even videogame makers are now starting to feel the recession, with sales down a record 29% year over year (WSJ). Xbox 360 and Nintendo's Wii sales are down 38%.
• Stocks and corporate bonds are benefiting from the upbeat market mood, with yields on higher-quality company bonds lower - with prices higher (WSJ), as some investors who are not on-board for the "V-shared" recovery are choosing to hedge their bets with corporate bonds over stocks.
• The Relative Strength Index (RSI) has traded 9 days in a row at an extreme RSI(2) reading over 90 (MarketSci). So is this an obvious bearish signal? Maybe not, given the non-normal forces that may be driving the market.
• Has the long awaited Dow Theory bull market signal finally arrived? Apparently so (Investment Postcards).
• Constructing a portfolio wisely and safely by building a macro view (The Pragmatic Capitalist).
• Exactly what are the forces acting on the VIX? VIX and More elaborates.
• A nice summary of links on portable alpha and alpha/beta separation is available at AllAboutAlpha.com.
  
• Finally, Nouriel Roubini believes Ben Bernanke deserves reappointment (Economist's View). Nonetheless, he is still bearish ........ I think. As for Bernanke, it appears that most of the motivation for his moves came from not wanting to be the Fed Chairman presiding over the second great depression, even though it made him angry to bailout the very bankers that made the mess in the first place (WSJ). Yes, it made us angry too. The Pragmatic Capitalist also chimes in on whether or not Bernanke should be reappointed - let us say that the PG is not quite on the same page as Roubini (The Pragmatic Capitalist). Michael Panzner believes that the moves show that we did not learn enough much over the last two years (Financial Armageddon).
  

According to the recent TIM (Trade Ideas Monitor) report, the TIM Sentiment Index (TSI) decreased 0.3% week over week to 51.06, after decreasing 5.3% from 54.03 to 51.19 one week earlier (see last week's post, and previous post and the youDevise website for additional information on the TIM report). The TSI remained close to the neutral 50 value all week. Nonetheless, for the five trading days ending July 23rd, the number of new long ideas as a percentage of new ideas sent to investment managers did increase to 71.74% from 61.37% one week earlier. To date, longs represent 64.23% of ideas in July and 58.98% this year.

As for individual securities in the U.S. and North America, Phillips-Van Heusen (PVH), Darden Restaurants (DRI), and Potash (POT) were stocks recommended as longs by institutional brokers, while Qualcomm (QCOM), Perrigo (PRGO), and Williams-Sonoma (WSM) were recommended as shorts. The consumer discretionary, consumer staples, and energy sectors had long broker sentiment for the week, while information technology, health care, and utilities had short sentiment.

Tadas Viskanta, editor of the excellent blog Abnormal Returns, has put together a nice summary post (Closing the loop) on the new Covestor Investment Management (CVIM) model introduced by Covestor.com. In addition to providing his uniques perspective, additional comments from myself, Erick Schonfeld at TechCrunch, Zack Miller at New Rules of Investing, and Mebane Faber at World Beta are also provided. Check out the post if you are still interested in learning more about the model (Closing the loop).

Below are some links of interest (at least to me), just in case you missed them. A few have already been posted to Twitter.

• Economic calendar for Friday, July 24th (Briefing.com Economic).
• Earnings calendar for Friday, July 24th (Briefing.com Earnings).

• Wake up, we are in a depression, whether we want to admit it or not. So says bears Eric Sprott and and David Franklin (Infectious Greed).
• A little moderation in emerging market indexes, or anything for that matter, might be in order (Random Roger).
• As a trader, sometimes you just need time to recover from a loss (TraderPsyches).
• Some questions and answers on using Bollinger Bands (VIX and More).
• Ten myths regarding the subprime crisis (Clusterstock).
  
• America runs on small business (Carpe Diem).
• 229 billion reasons to squeeze the market (Zero Hedge) - there is a big supply of Treasuries coming to market next week.
  
• No business pickup for UPS in July (Clusterstock). Profit fell 49% to $445 million (WSJ). The company then forecast Q3 earnings below analyst's views. It would seem that the transportation companies would have to show some real pickup in demand before the economy can finally begin recovering, but the recent UPS guidance was not too encouraging. More in the "lower declines" and "some stabilizing" camp as opposed to "new demand" camp. Of course, that did not stop the market rally on Thursday. The job of halting the market was left to Microsoft.
• Bill Miller's Leg Mason Value Trust fund (LMVTX) is up 20% this year through July 21, with 55% of the fund in technology and financial services, both of which he sees as leaders in the next bull market (WSJ). Impressed? Actually, some are getting tired of hearing about Miller's comeback (Clusterstock).
  
• Warren Buffett's option to buy shares of Goldman Sachs has earned Berkshire about $2 billion on paper, or about a 40% return (Bloomberg). Maybe Buffett is not washed up just yet.
  
• Even with the rally, the AAII weekly sentiment survey still has the bears outnumbering the bulls (42.4% to 37.6%) (Bespoke Investment Group).
• On Thursday, someone made an options transaction involving 720,000 options contracts on the SPDR Trust Series 1 (SPY). The options transaction is one of the largest, and represents half the volume traded on the SPDR fund on a daily basis. The investor appears to have entered a one-by-two put spread using December options with strikes of $95 (bought) and $82 (sold twice). Wow. See post, and original WSJ article.
• Did Matt Taibbi cost Goldman Shareholders $800 million by making it a PR nightmare if they were to cancel half of their warrants? (Clusterstock)
• Breadth at an extreme as the 10-day advance/decline lines for the S&P 500 is well into overbought territory (Bespoke Investment Group).
• New correlation index being offered - CBOE S&P 500 Implied Correlation Index (VIX and More, Daily Options Report). The index uses a tracking basket of the 50 largest components of the SPX as measured by market cap.
• Does the semiconductor leader / laggard strategy have a flaw in logic? (MarketSci Blog)
• The deflation story/case told in pictures (Traders Narrative).

Twenty minutes after the opening bell on Thursday, an investor unwound a bearish spread in August options and entered a similar position in December options (WSJ article). Not really that newsworthy until you find out that the trade involved 720,000 options contracts on the SPDR Trust Series 1 (SPY), representing about half of the volume traded on the SPDR fund on a daily basis. As mentioned by the WSJ:

The investor who pulled the trigger on this trade appears to have set up a bearish "one-by-two put spread" in December options -- buying December $95 "puts," which convey the right to sell the fund, and selling twice as many December $82 puts.

Apparently someone else is also not too impressed with recent revenue and earnings numbers, or at least wants to protect recent gains. See the following links for more information on the bear put spread here, and bear ratio spreads, such as the one-by-two, here. It will be interesting to see how quickly the trades pays off, if at all. Microsoft certainly helped the bears after the bell Thursday.

The graph below illustrates four bad bear markets over the last 80 years (from Doug Short, dshort.com, article), including the great depression (based on the Dow), as well as the 1973 oil crisis, 2000 technology crash, and the current 2008 credit/housing sell-off (each based on the S&P). Note: You should be able to click on each image to make them bigger.

Source: dshort.com

The second graph provides more specific return data for the current market, including the various rallies and sell-offs.

Source: dshort.com

When looking over the graphs and comparing to the current downturn to the 1973 and 2000 crashes, some may conclude that we are approaching the end game of the correction. If on the other hand they were to compare to the 1929 crash (graph below), it might be speculated that we may have another correction in the cards before entering into the long climb back from the abyss. Either way, the market certainly seems to be at an interesting point.

Source: dshort.com

Of course, this type of analysis often assumes some correlation/relation between the bear markets. Where it goes from here, and whether it follows the pattern of one of the other larger bear markets is just about any one's guess (even for most of those who claim to know otherwise). Yet, even without history being a perfect guide, it is interesting to see and learn about how things played out in the past. Regardless of their predictive nature, I recommend that you check out the dshort.com site if you have not already done so. There is a lot of good visual data of historical moves, each of which is easy to understand, interesting to look at, and of course fun to speculate about - even if you are not a technician, or someone who trades on past patterns. Most of the charts are updated daily and weekly.

Below are some links of interest (at least to me), just in case you missed them. Some have already been posted to Twitter. Not sure if I will keep this up daily, or update throughout the day as often.

• Economic calendar for Thursday, July 23rd (Briefing.com Economic).
• Earnings calendar for Thursday, July 23rd (Briefing.com Earnings).

• S&P 1500 most volatile stocks (Bespoke Investment Group).
• President Obama is proposing a new transaction fee for "far-out transactions," also known as derivatives, no doubt (WSJ). Of course, I guess this also includes any other thing that financial engineers can come up with. Less resulting risk, maybe. Less innovation, probably.
  
• Foreclosure activity by region (The Big Picture). California, Florida, and Nevada account for half of all foreclosure activity, with California roughly twice Florida's foreclosure level. And we wonder why the Terminator and his state are having problems.
• Speaking of California, Occidental Petroleum (OXY) discovered 150-250 million barrels of oil and gas in California (WSJ). Lawmakers are already looking for new ways to tax and regulate it - seriously.
  
• The (sorry) state of the M&A Markets (The Pragmatic Capitalist).
• Standard & Poor's adjustments in the way it accounts for certain loss and recovery assumptions is proving unsettling to the Commercial MBS market (WSJ). Some securities were re-rated as AAA days after sharp downgrades (Financial Times). Apparently, the Fed will only finance triple A securities. Whoops.
  
• Is the market exhausted? Check out the Divergence Index, and then you decide (Zero Hedge).
• AIG holds off on planned bonuses ...... for now, avoids pitchforks ...... for now (WSJ).
• That did not stop Morgan Stanley. MS's compensation soars to 72% of revenues (Clusterstock).
• Boeing has found a solution to the technical problem with the Dreamliner that has caused so many delays (WSJ). But you have to wait some more, as the company will provided updates a little later in Q3. Amazing. All kidding aside, the problem may be more serious than originally thought (Seattle Times Newspaper).
• A recent survey finds that investment advisers are predicting that clients will move more assets out of conventional mutual funds into ETFs (WSJ). The moves are being driven by concerns regarding both return performance and transparency. Past revenue-sharing-kick-back concerns probably did not help either.
  
• Edward Jones says no to offering leveraged ETFs (ETF Trends). They must not have been part of the previous survey.
• Some historical returns of the Harvard and Yale endowments, compared to other popular benchmarks, are provided over at World Beta. A bad year for the endowments, but diversification still helped over the long-term.
• Bottom line earnings beat rates are near highs, while top line revenue beat rates not so much (Bespoke Investment Group). How long can you cut costs, and jobs? Eventually the consumer is going to have to step up and buy stuff ... after they get a new job, or feel safe about their current job - may be a long time with a jobless recovery. Unfortunately, we cannot all help out by buying a new Camaro, even if we wanted to (Carpe Diem).
• Is Covestor Investment Management (A VC) the next big thing (Bull Bear Trader)? Basically, the system is designed such that you would have your own account, but could then choose from a number of investment managers that you want to follow. The investment managers could be in the financial industry, or more likely just an average investor like you. If you choose to follow the investment manager, funds in your account are used to mimic the trades of the manager. Check it out (Covestor). It sounds interesting (but there are concerns and questions).
  

There is an interesting post at the A VC blog on a new type of investment approach, called Covestor Investment Management (CV.IM). [Hat tip to all the Twitter tweets that pointed to the link]. The post describes the CV.IM as:

"The world’s first retail Multi Managed account or MMA. With an MMA you can invest directly alongside professional and retail investors, managing their own money in their own account. It is a new category of Investment product that gives you access to expert managers like a hedge fund with the security and transparency of a managed account."

Basically, the system is designed such that you would have your own account, but could then choose from a number of investment managers that you want to follow. The investment managers could be in the financial industry, or more likely just an average investor like you, but possibly with more experience, and with a track record or strategy to your liking. If you choose to follow the investment manager, funds in your account are used to mimic the trades of the manager. In return, the investment manager could get some compensation for sharing his/her data, although they can also continue to share their investment ideas for free.

It seems that such a structure could have some advantages. First, the fee structure is certainly less than a mutual fund or hedge fund for following the free managers, and also much less for even those charging a following fee (listed as $120 per person per manager). The system could also end up offering a number of investment options and strategy choices for free. For aspiring investment managers, there is also the opportunity to "prove yourself" and your strategy, and make a little money in the process.

Nonetheless, there are a number of questions. While the company does have a system in place to report performance, it is not clear how much data is available, or how accurate it will be if trading data/history is introduced for new managers. It is also unclear whether or not the managers could somehow game the system, or receive an unfair advantage by front-running the followers. One of the founders did respond in the post comments section that there will be minimum liquidity restrictions to prevent some abuse, but the managers could still have an initial advantage over new followers. The minimum daily trading volumes of 10,000 shares and $50 million in market cap also seem a little low. It is also worth noting that the managers will most likely be timing their buying and selling based on what is most beneficial to them, and not necessarily your current situation, causing you to possibly incur a commission and/or tax event at an inopportune time. Such a structure could also lose the ability to take advantage of scale with regard to transactions, unless a large number of investors are already following a particular manager (scale advantages are still possible given that most of the funds will be with only a few brokers - so far TD Ameritrade and Interactive Brokers). Nonetheless, new followers would most likely have to pay higher per share fees.

Although there are still numerous questions to be answered, the idea sounds intriguing, and is certainly worth pursuing more. Check out the Covestor website to learn more.

Below are some links of interest (some already posted to Twitter). I may or may not continue with this, given that there are already some good link pages on the web (in particular, Abnormal Returns). Nonetheless, I may at least organize some recent Twitter posts every day or so.

• Today's earnings calendar (Breifing.com).
• Overview of High Frequency Trading (Clusterstock). HFT in C, BAC, and CIT explained (Zero Hedge). Interesting, and scary stuff. Are high-frequency trading and liquidity rebates keeping CIT over $1 per share? (Zero Hedge, The Pragmatic Capitalist).
• Insiders at Smuckers have been exercising options and selling shares at highs for the last two summers (WSJ). Should you?
• Developers Diversified Realty (DDR) to be the first in commercial real estate to use TALF (WSJ). Are alternative investments to follow?
• Who is laughing now? Variable annuities have been one of the better investments over the last decade (WSJ). But they are still boring.
  
• A Bloomberg Global poll has 61% of investors saying the world economy is stable or improving, with almost 75% taking a favorable view of Federal Reserve chairman Bernanke (Bloomberg). So naturally, he is probably toast.
• Is the NYSE Bullish Percent Index approaching lunacy areas? (ES & EC Futures Analysis)
• Calpers in down 23.45% for the fiscal year (WSJ). Now there is some talk about whether governments will need to sure-up various pension funds. But where will the money come from?
• Inverse relationship between price and volume (The Pragmatic Capitalist). Will this summer be different?
• StockCharts.com Charts on the Blog (VIX and More).
• Bull market for emerging markets (Carpe Diem). Topping, or just getting started?
• Do superstition and eclipses matter for the stock market? (Marginal Revolution) Groovy man.
  
• Death and taxes, and the federal budget. Where your money is going (The Big Picture)?
  

The moves in the markets since the March lows, along with the recent winning streaks for the indexes (see Clusterstock article) and various stocks (see Bespoke Investment Group articles here and here), are causing some investors to begin thinking about cashing out and taking some profits. Yet as many investors know, buying is often the easy part, while knowing when to sell can at times be more difficult without some defined metrics and discipline. When things are going good, no one seems to want to jump off the momentum train, even if there could be derailment due to worries about top line revenue growth and earnings that may not be a good as advertised (see articles here, here and here).

So what should you do if you want to stay on the momentum train? One potential strategy is to consider a stock replacement strategy (see WSJ article), allowing you to lock into current profits while still maintaining some future upside in the stock. Replacement strategies are actually fairly simple, at least if you have some familiarity with options. To enter the strategy, you simply sell the stock of the company that has run-up, thereby locking in the gains. You then buy a call option on the stock, thereby giving you the potential to benefit from future upside moves in the stock.

As with any option purchase, you will need to define a strike price and expiration date. Fortunately, implied volatility has come down in in recent months, making the strategy a little more bearable, yet you will need to determine the cost effectiveness of the strategy at current premium levels. As a starting point, Scott Becker, derivatives strategist at Jefferies, suggest options that are at-the-money, with about three months until expiration (see WSJ article). ATM options will allow you to get in the strategy near your stock selling price, while the three months will take you to the beginning of the next earnings cycle, providing a little more information on the market and its reaction to current fiscal and monetary decisions - not to mention give you a little more insight was to whether the consumer finally steps up to the plate, allowing top line revenue numbers to start coming in higher. Others suggest deep-in-the-money options, causing the delta of the option to be near one, providing an exposure and movement that is closer to owning the stock (see Investopedia description).

As always, remember that while the strategy does allow you to offset some risk, and essentially stay in the position, entering any strategy will cause you to incur extra transaction costs and the bid-ask spread, with this strategy also generating a capital gains tax on your initial stock earnings (see Abnormal Returns article). Nonetheless, while no strategy is perfect, stock replacement may be worth considering as the market and your individual securities keep advancing, and corresponding implied volatility decrease.

Daniel Alpert of Westwood Capital and Jerry Webman of Oppenheimer Funds were recently on CNBC discussing the credit markets. Alpert mentioned that while the panic has left the market, and many banks are doing well due to widening credit spreads, the spreads are wide in-part since the assets on which many of the loans are made are still underwater. This gives room for some concern. Alpert also believes that while the recent funding for CIT was a positive, a bankruptcy at CIT is still about 50-50 given that their collateral will be difficult to collect upon. Alpert also still has some worry as to whether there will be enough capital available in the markets and banking system to absorb the level of losses that will still need to be taken.

Source: CNBC Video

Webman was a little more encouraging and believes that it is a positive that private funding was available for CIT. Nonetheless, credit spreads in the investment grade area are still pricing in defaults and poor recoveries at 4-5 times the historical averages, signaling that people are still cautious. Webman did mention one good trend that is showing up - people are breaking apart the "toxic" assets into their good and bad component parts, with the good assets being put back into less toxic and less complicated assets. This is good since banks are trying to become more capital transparent, which will allow them to make more loans of the type that CIT made. This makes a CIT-type of failure less difficult to deal with, and may explain the somewhat muted market reaction. Webman also believes that the latest earnings news is illustrating a gradual rebuilding of economic momentum, and strength in many parts of the financial world. With the current playing field, the big players will continue to be able to make money, even without the extreme levels of leveraged that were observed in the past.

Nouriel Roubini was recently on CNBC (the video is provided below) discussing his views on the economy, and clarifying his recent comments last week that were interpreted as being more positive than earlier in the year. Some comments/observations from the interview include the following:

• Roubini still believes the recession will last 24 months, causing it to be over by the end of this year.
  
• The recovery will be weak, sub-par, and below trend, with 1% growth for a few years.
• The "recovery" will feel like a recession, even if growth is positive.
  
• The unemployment rate will peak around 11% next year.
• Including partial employed/unemployed workers, the unemployment rate is over 16%.
• We have seen the worst, given that the free-fall in the economy is over.
• Nonetheless, even though we will not have an "L" shaped depression, we will also not have a "V" shaped recovery, and he has worries of a "W" shaped double dip recession.
  
• The slow and lower growth are being driven in-part by current debt and spending levels.
• There is a thin line as to when it is best to exit current monetary policy. This also adds risk.
  
• A second stimulus bill is needed by the end of the year (we need to wait until later in the year to let the current stimulus start working).
  
• The second stimulus should include more shovel-ready infrastructure projects.
  
• If the second stimulus is too small, it will not be effective. If it is too large, the bond market will panic. He believes it should be around $200 billion.
• He feels that the U.S. will be the first advanced economy to exit the recession. While China and India are seeing growth already, it will be weak until the G3 recover and start helping to drive their economies.
• Equities, commodities, and credit markets have gone up too far, too fast.
  
• There is possible downside surprise regarding marcoeconomic numbers, earnings, credit shocks.
  
• The risk in the market is still on the downside. Investors should continue to stay away from risky assets.
• The market will not test the lows of March (the levels of which were pricing in depression), but could see a sell-off below current levels and the March lows if his forecast of downward surprises in economic data come true (which he still expects to happen).
  
  Source: CNBC Video