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The Ultimate Decoupling

The US small and medium business – the Achilles' heel of the US economy – is shedding jobs like crazy. Half a million out sounds more like Lehman goodbye era. Having been left without business development loans and deprived from hope of quick pick up of the consumer demand as a result of the Fed stimulus programs’ expiration, the non-S&P 500 part of America becomes somewhat weary. At the same time, the big guys seem to have developed their own survival line based on the following postulates: have more of your goods exported, or, if you aren’t able to, cut your workforce, buy robots and boost productivity. Studying still fresh in memory recent corporate reports, one can be as surprised by unusually strong numbers and optimistic outlook as by pathetic eco stats surrounding the former. As if the US corporations managed to evacuate themselves to an isolated ecosystem.
These contemplations gain significance when matched with the Fed’s “wait-and-see, but keep you household in order” stance. Apparently Fed has no luxury to allow the US sovereign market to go astray, because it’s been relatively low debt service expense that kept the US budget deficit away from skyrocketing. At the same time, more and more it becomes the Fed’s sole headache to tackle all these economic miseries we are seeing now, because, as we pointed out above, by now the US big business seems to have developed its stunning standalone viability, so, to some degree, it doesn’t care any longer.
This, from a reader’s permission, “Decoupling. Episode Two” points to some forward-looking conclusions, and the Fed’s imminent urge to show his real attitude on Sept. 21st FOMC Meeting is just  the most trivial one. The less evident (but far more appealing!) part is that bad economy is no longer equal to bad corporate earnings, and, hence, not necessarily bearish for the stock markets. In contrast, bad economy is still bad for the Fed, as far as additional stimulus (hence, further expanding balance along with more Treasurys in circulation) is concerned. Yes, Fed is doomed to sponsor the UST yields, but are the safety-prone investors? McDonalds made the “Grim Thursday” a bit funnier by announcing a placement of $29 m yuan-denominated bonds in China. China, in its turn, is busy diversifying away from the Treasurys. The Treasury yields keep going down. Will this equation last for long? Fed knows the answer.
Taking into account wilder performance of traditional stock and debt markets, we decided to increase our bet on commodity markets. So far our Special Event strategy posted overall gain of 2% over the month. The least earner (+0.68%) appeared the short of a US Retail ETF, for the mere reason the underlying companies posted much stronger results mismatching rather bleak Retail Sales number promulgated on Aug. 13th. The biggest earner proved to become Dec.2010 corn futures having delivered rather impressive 5.83% gain.
It doesn’t take to be a genius to suppose, that currently the biggest evil of international fund managers is not even the unusual uncertainty itself, but unusual volatility. Everyone has to develop its own way to deal with it – much like the US corporations immunized themselves against the poor economic data.