Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Investor Update For August 19, 2013

|Includes:WisdomTree India Earnings ETF (EPI)

Interest rates are creeping higher and becoming the dominant story at the end of the summer. Adding an exclamation point to that story is the decline in Indonesian and Indian stocks, along with further weakness in the Indian rupee. Concern over the deteriorating financial situation in India led the prime minister to deny a crisis was possible, but his need to deny the rumors belies his statement. He was concerned enough to comment on the situation.

India has been suffering from a large fiscal deficit exacerbated by Indian demand for gold. Imports have been large and the falling rupee has kept the price of gold from falling as much as it did in U.S. dollars. The government has tried taxing imports and now it is banning the import of bars and coins, hiking the tax from 4 percent to 10 percent (a tax that is only about a year old) and passing other restrictive measures. In essence, these are capital controls trying to stop citizens from dumping their rupees for gold.

The weakness in India will help keep emerging markets depressed in the near future. Longer-term, it could be the source of more serious instability among developing markets. On the flip side of this brewing crisis is the rising U.S. dollar and U.S. interest rates. Rising rates make the U.S. dollar more attractive to foreigners and puts pressure on all the short dollar positions held by investors who bet on emerging markets. Thus far the trades have unwound relatively calmly, with pockets of weakness in India and Brazil, but the risk of a dislocation increases along with U.S. interest rates.

The rate on the 10-year Treasury climbed from about 1.5 percent a year ago to 2.8 percent today, and a further rise to as high as 3.7 percent is quite possible, because rates were that high (and even slightly higher) as recently as 2011. However, markets behave in a non-linear fashion and while the U.S. economy can probably handle rates that high, the signs from various emerging markets imply they cannot.

Big Picture: A light week for economic data, except for the FOMC minutes due on Wednesday. These minutes will be pored over by investors and traders looking for any clues to the taper. It's unlikely there will be any shocking revelations, but in the short-term we can see a quick bout of buying or selling based on whether the immediate interpretation is bullish or bearish. Other economic data out this week will be examined in the context of whether it is positive or negative for a September taper.

Earnings: Earnings season is now at the tail end, with the last wave of major reports coming out of the retail sector. Gap (NYSE:GPS), Target (NYSE:TGT) and Best Buy (NYSE:BBY) are among the slew of retailers reporting this week, with about 20 firms delivering earnings. Home Depot (NYSE:HD) will be one to watch this week, since it has exposure to the housing market and home construction stocks have been weak.

If you would like to know which mutual funds make up our newsletter model portfolios, please call us at (800) 548-3797.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: EPI