The Big Picture

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• Senator Vol Wins
• 10 Tuesday PM Reads
• October Car Sales
• Economic Indicators Dashboard
• Fill in the blank: Today’s midterm elections are about _____.
• 10 Tuesday AM Reads

Senator Vol Wins Posted: 05 Nov 2014 02:00 AM PST Senator Vol Wins November 4, 2014 David R. Kotok       The winner of today's election is volatility. In fact, "Senator Vol" had already won four months ago. Some quick bullets to consider: • US stock markets tend to rise after midterm elections. We expect new highs in stock prices in the United States and an upward trend for months to come. • Monetary policy of central banks operates on a different timetable than midterm elections do. The Fed's policy is at neutral with rolling maturities of existing central bank holdings. The European Central Bank is trying to figure out how to do more QE. Japan is now on steroids. • The Japanese stock market is on fire. Remember, there is high correlation among most global stock markets due to "spillover" effects. There has been a particularly high correlation between the Japan and US markets the last few years. And Japan's market has a bullish seasonal bias between now and March. Note that Japan is (and has been) the largest weight (currency-hedged) in Cumberland's International ETF strategy. • Watch the US lame-duck session for winners and losers. Especially watch the details of any "tax extender" bill. And watch the sectors if Republicans take control of the Senate. The stock market goes up regardless of who wins the Senate majority, but the sectors may change. • Also watch Europe. They have elections coming, as do we. (We start the next US presidential election season in earnest tonight.) In Germany, the debate over policy is intense. Note the German 10-year benchmark sovereign bond is yielding around 0.8%. After the US Treasury 10-year note, the "bund" is the most important bond reference in the world. US at 2.2% yield, Germany at 0.8% yield! The overwhelming majority of the world's currency reserves are denominated in US dollars and euros. The weighted average of the world's reserve bond holdings is close to 1% yield. The weighted average of the world's short-term reserve interest rates is near zero. • Another election on the horizon is the Swiss referendum on gold reserves. Switzerland maintains a floor peg of the Swiss franc to the euro (1.2 to 1). It will continue to do that regardless of the gold referendum outcome on November 30. The Swiss may buy more gold if the referendum passes and they are required to raise their gold holdings to 20%. Or they may spin out a sovereign wealth fund and thereby shrink the central bank balance sheet in order to reach the 20% limit without unleashing the force of their gold purchases onto the market. No matter the outcome of the gold vote, the euro is likely to weaken; the Swiss franc will follow; and both central banks will be easing and adding more stimulus. • Elections are important. We are not the only ones having them. A US-centric view misses outside influences. Meanwhile, our US ETF accounts remain fully invested. ~~~ David R. Kotok, Chairman and Chief Investment Officer

10 Tuesday PM Reads Posted: 04 Nov 2014 02:30 PM PST My afternoon train reads: • Positively Surprising: The Economic Story You're Not Hearing (Fox Business) • The spread of state minimum-wage laws is making Congress look bad (WonkBlog) • How Wall Street's Favorite Politicians Are Taking Apart Dodd-Frank, One Piece at a Time (Slate) • The World Is Still Not Flat (Harvard Business Review) • HF Managers Cautioned to Avoid Herd Mentality (Chief Investment Officer) • Mapping The Changing Face Of The Lone Star State (FiveThirtyEight) but see Texas’s Voter ID Law: So, is it suppressing voters? (The Economist) • The Nobel Prize-Winning Science That Explains Why You’re Not Lost All The Time (Business Insider) • States That Make Voting Super Simple–or Stupidly Hard (Bloomberg) • The cost of traffic jams (The Economist) • With many-worlds, all quantum mechanics is local (Ars Technica) What are you reading?   Saudi Oil-Price Cut Upends Market Source: WSJ

October Car Sales Posted: 04 Nov 2014 09:00 AM PST Source: NY Times

Economic Indicators Dashboard Posted: 04 Nov 2014 09:00 AM PST Source: Russell Investments

Fill in the blank: Today’s midterm elections are about _____. Posted: 04 Nov 2014 06:00 AM PST Fill in the blank: Today's midterm elections are about _____. Most people won’t be able to answer that question. Obamacare? It's the law of the land. Quantitative easing? Its over, and besides, Congress didn’t control that. Go down the list of hot button issues — ISIS, Ebola, voter ID laws, deficits, tax policy, immigration, abortion and just about anything else you can think of in terms of actual policy making won’t be affected. Despite all the sturm und drang about control of the Congress, whether the Republicans capture the Senate, or the Democrats retain it, not much will change in our national priorities. Regardless of the outcome, don’t expect more or less legislation to get passed. Indeed, there isn’t all that much at risk in the midterm elections, at least on the national level. The present split Congress is the least-productive in U.S. history. Regardless of the election's outcome, the 114th Congress is unlikely to be any more productive than the 113th. Certainly, a few things will change. The Congressional Budget Office, the non-partisan analytical service of Congress, will move away from data-driven analysis toward a more ideological (i.e., biased) approach. Republican control of the Senate will have a significant impact on appointments to key chairman seats: Appropriations, Budget (especially Commerce, Science, and Transportation), Energy and Natural Resources, Environment and Public Works, and Judiciary will shift. Legislation won’t change much, but the rhetoric will. Look for deniers of anthropogenic global warming to be appointed to key committee seats. The bombast will no doubt be overheated, but little of substance will change. On the other hand, local elections, which usually have low voter turnout, have the potential to result in significant change. The local issues range from encouraging to amusing to absurd. Consider the following: Continues here

10 Tuesday AM Reads Posted: 04 Nov 2014 05:00 AM PST Its Election Day, or as  I like to call it, 90% incumbent day! And as noted by John Oliver, the Senate is a distraction, its really all about the local races. Oh, and our morning train reads: • After Ferocious Advance, What's Next for Stocks? (Barron’s) see also Stocks just stormed back into the lead against bonds (Quartz) • For Pot Inc., the Rush to Cash In Is Underway (NYT) • The takeaway from six years of economic troubles? Keynes was right. (Anatole Kaletsky) • A WSJ Commodities two-fer: ….-Cooling Chinese Demand for Gold Adds to Metal's Gloomy Global Outlook (WSJ) ….-Saudi Oil-Price Cut Upends Market (WSJ) • Romer and Romer vs. Reinhart and Rogoff (MoneyBeat) Continues here

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