Interesting Article on MACD Indicator

A rather long post at The Big Picture goes into detail on the MACD correlations to the S&P performance.  Personally I've found MACD to be very useful as a momentum indicator.

Emerging Market Performance Update

Time for a quick update for what the technical charts show.  As I pointed out 2 weeks ago, the stock markets were beginning to peak.  While the US stock market has overall performed well and recovered to the highs of April, the emerging markets really never recovered.  Many only retraced 50% of the April peak.

As you can see here, two weeks later, the peak timing was accurately called.  The emerging markets have definitely reversed its momentum and has dropped almost 4%.

For the S&P 500, the current peak occurred just a couple of days after my call.  However, calling peaks on the exact day is generally more coincidence than skill but regardless, the market indicators were showing slowing momentum and potential reversals incoming which is what has happened over the last 2 weeks.

So the million dollar question: where will the market go next?  Normally, indicators would say there's still room for the market to drop as momentum has only recently turned negative.  However...the anticipated Fed intervention and ECB intervention and potential Euro bailout relief all play a huge role in where the market will go.  Right now, the answer to that question relies solely on the policies that will be announced over the next week or two...  Hold onto your hats!

Dow 30 Overbought Indicator

Interesting chart from Bespoke invest on the overbought/oversold nature of the Dow 30.

Crude Oil & Gas Prices

Having had a recent trip in Chicago, I was shocked by one gas station with a listed regular unleaded gasoline price of $4.59 per gallon.  So lets take a quick look at crude oil (Brent shown).

While there was a huge spike during the spring with the Iran tensions peaking at $108/barrel, crude has dropped down significantly to $78 before recovering back to its current price of $93.  Thats almost a 20% spike from the middle of June, a very large jump.

However, its still below the peaks of the last few years and it seems in general that the economy has adjusted somewhat with the new expectations of higher gas prices.  Normally, such a high oil price will tend to slow growth significantly.  It likely has to some degree but the recent glut of cheap, abundant (too abundant in some views) natural gas is likely to mitigate some of the pricing factors.

From a consumer standpoint however, with such a high unemployment, expect gasoline prices to remain a drag on discretionary income and limit retail demand.

Additional Reports - China Slowdown & Lost Decade

As I pointed out last week regarding China's slowdown and inventory build, The Big Picture also picks up the story and notes the overall weak results of the Shanghai index.  China industrial profits also show an extremely negative picture.

Bespoke Invest goes so far as to call this China's Lost Decade.




However, I think that's a bit sensationalist as you can see from the chart, the Index has been relatively stable from 2000-2007 in the 1000-2000 range.  A side note, its interesting that the Shanghai composite really does not track China GDP or growth as China was still growing double digits during that time frame but the Shanghai index actually dropped in that time frame.  Regardless, it was a sudden bubble in 2007-2008 where it jumped before falling back down.  If you look at the overall trend minus the bubble and stimulus, the Shanghai composite is actually close to where it would be from a historical average.  Whether it should be there or not however is a different story.

Several stories have pointed, China's retail investor population is extremely underdeveloped.  Bloomberg pointed out:

While overseas firms were granted $6.9 billion of quotas to purchase mainland securities since December, more than in any full year since the government program began, the number of Chinese stock accounts containing funds dropped by 788,000 to 56.3 million in the year to Aug. 3, the most for a 12-month period. A record 110 million are empty or frozen, according to regulatory data compiled by Bloomberg.

Falling valuations aren’t enough to entice Yao Lina, a 32- year-old accountant in Shanghai who sold all her stock holdings in February and withdrew 80,000 yuan ($12,580) from her trading account. She has no plans to invest in equities, saying the government may take as long as five years to fix “structural” challenges in the economy that have curbed growth.

“I have no confidence in the stock market,” Yao said by phone on Aug. 8.

 As economic growth has slowed, the number of Chinese equity accounts that contained assets fell for 11 straight weeks through Aug. 3, the longest stretch of declines on record, according to the China Securities Depository & Clearing Corp.

Investors opened 322,851 new accounts to trade shares last month, the fewest since the clearing house began publishing the weekly data five years ago and down from a peak of 4.1 million in the four weeks to Sept. 21, 2007. The 110 million empty or frozen accounts are equivalent to about 8.5 percent of China’s 1.3 billion people and exceed the populations of Germany and the Philippines.

So where is the money going?  Well many alternative investments, in particularly real estate.  While real estate prices are starting to increase again in China, its too early to say if its a blip or a long lasting trend.  However, what is sure is that until a large retail investing culture takes hold in China, the Shanghai index will not be able to generate or reflect the growth that China is experiencing.  With the structural issues that China faces, don't expect to see that anytime soon.

Fed Comments - Likelihood of QE3

Everyone is currently anticipating a few important policy speeches scheduled over the next few weeks. First up on the line is Bernanke's Jackson Hole speech which kicked off QE2 what seemed like an eternity ago.  Calculated Risk notes a few key comments here and even more here from Fed members to gauge their likelihood of embracing QE3.

From Cleveland Fed Pianalto:

I am expecting the U.S. economy to continue to grow, but at a moderate pace. I expect economic growth of about 2 percent this year. And with this moderate GDP growth forecast, my outlook is for very slow improvement in the jobless rate. I expect the pace of GDP growth to pick up gradually through 2014, and for the unemployment rate to remain above 7 percent through 2014. Given my outlook for slow economic growth, I also expect slow wage growth, and I anticipate that core inflation will remain near the FOMC's 2 percent long-term objective over the next few years. While inflation remains close to our objective, unemployment is still well above the FOMC's estimate of the longer-term normal rate. The monetary policy debate is whether the FOMC should take further actions to stimulate today's slow-growth economy to bring down unemployment.

Monetary policy should do what it can to support the recovery, but there are limits to what monetary policy can accomplish. Monetary policy cannot directly control the unemployment rate. It can only foster conditions in financial markets that are conducive to growth and a lower unemployment rate. At times, significant obstacles can get in the way.

The bottom line is this: I am supportive of actions that provide economic benefits with manageable risks. The FOMC's policy actions to date have been important economic stabilizers and have acted to support the expansion. Yet today, we still find ourselves in a challenging economic environment – one in which we continue to rely on nontraditional policy tools. These new tools come with benefits and with risks ... and we must constantly weigh both in our efforts to meet our dual mandate of maximum employment and stable prices.

From  Chicago Fed Evans:

Finding a way to deliver more accommodation — whether it is monetary or fiscal — is particularly important now because delays in reducing unemployment are costly. An unusually large percentage of the unemployed have been without work for quite an extended period of time; their skills can become less current or even deteriorate, leaving affected workers with permanent scars on their lifetime earnings. And any resulting lower aggregate productivity also weighs on potential output, wages and profits for the economy as a whole. The damage intensifies the longer that unemployment remains high. 

Failure to act aggressively now could lower the capacity of the economy for many years to come.... I have outlined some policy actions that I think can take us in the direction of a more vibrant and resilient economy. Given the risks we face, I think it is vital that we make such moves today. I don’t think we should be in a mode where we are waiting to see what the next few data releases bring. We are well past the threshold for additional action; we should take that action now

....

As suggested recently by my colleagues Eric Rosengren and John Williams, these could be open-ended purchases, meaning that they would continue at a certain rate until there was clear evidence of improvement in economic conditions.

Note that Evans is a non-voting member of FOMC so while his views are important, they are somewhat limited in influence.  Whats more surprising in the relative lack of Fed Hawks in the news, indicating either the majority is larger than thought or that there is some consensus on what directions the Fed is leaning on.

Another interesting note is how the previous QE1/QE2/Twist all came on the back on substantial drops in the stock market.  If QE3 is announced at the Sept talk, then it'll be coming on the back of basically the highest the stock market has been since the beginning of the crisis.  As note in some locations, the Nasdaq is now at its highest in 11 years and the S&P500 is only 10% from its 2007 high but 110% from its 2009 low.  Arguably the stock market performance is not a factor in this decision.

Market Double Top

Interesting point out by The Big Picture from The Chart Store:

A double top formation has occurred in the S&P 500 at approx 1422 and 1426.  Interesting note, last year, there was a triple top formation in Feb, Mar, and July before market really took the plunge.

The uncertain factor right now is Fed stimulus.  If stimulus is a go, watch the markets soar.  If not...well watch out.  Unfortunately, gov't intervention isn't something you can really predict so just hold onto your horses for the announcement at the end of the week!



Also interesting to note from Bespoke Invest, the S&P 500 is currently at a decent high of ~70% of stocks above the 50 day moving average.  While that is high, its not as high as the 80+ from earlier in the year.  They also note the move out of defensive stocks into cyclicals which is typically a positive sign.

China Slowdown - More Signs

The signs are unmistakable that China is either starting its economic slowdown or that its already well underway but are hidden from public view.  However, any imbalances in the supply, demand, and profit balance will eventually show up if one looks hard enough.  Couple of recent articles highlight more signs that the slowdown is well under way.

Rising inventory is one of the best early signs of a slowdown as it shows up after demand has dropped but before supply has realized or adjusted.  In the NYTimes, there is evidence of a mass buildup in inventory, in spite of attempts by the Chinese government to hide it.

  But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.

  Chinese export growth, a mainstay of the economy for the last three decades, has slowed to a crawl. Imports have also practically stopped growing, particularly for raw materials like iron ore for steel making, as industrialists have lost confidence that they will be able to sell if they keep factories running. Real estate prices have slid sharply, although there have been hints that they might have bottomed out in July, and money has been leaving the country through a variety of legal and illegal channels. 

  Inventories of unsold cars are soaring at dealerships across the nation, and the Chinese industry’s problems show every sign of growing worse, not better. So many auto factories have opened in China in the last two years that the industry is operating at only about 65 percent of capacity — far below the 80 percent usually needed for profitability.
Yet so many new factories are being built that, according to the Chinese government’s National Development and Reform Commission, the country’s auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.

Another sign is to look at the raw material side and in particular: steel/iron ore.  Much of China's growth has come from manufacturing and infrastructure.  Steel production is a key raw material to go into those industries.  So looking at ore demand to the factories is also useful.  Unfortunately, the signs from Australia (the main supplier of iron ore to China) doesn't look pretty.  China has enormous steel production capacity but yet iron ore has dropped to $106 per tonne, below the $120 per tonne normally considered profitable for miners.  The falling prices indicate there is virtually no demand from China's steel mills and thus no demand from manufacturing and industry indicating pretty anemic growth.  

All these point to significant slowdown, well below what one would think from official growth rates of ~7%.  Is the government hiding the real figures?  Very likely...

Officially, though, most of the inventory problems are a nonissue for the government.
The Public Security Bureau, for example, has halted the release of data about slumping car registrations. Data on the steel sector has been repeatedly revised this year after a new method showed a steeper downturn than the government had acknowledged. And while rows of empty apartment buildings line highways outside major cities all over China, the government has not released information about the number of empty apartments since 2008.

In any case, the Chinese stock market has been reaching new lows, likely in anticipation of the slowdown, there still remains significant headwind risk for many countries that rely on China for various trading relationships.  Australia and Brazil both rely on China for a large part of their raw material sales and most of Southeast Asia as well as Japan also suffer significant domestic demand risk.  Heads up, if China slows down dramatically, there really is nobody left to pick up the slack between the US growth stagnation and Europe's economic crisis.

Hedge Fund Performance Update - YTD

As always, its interesting to look at professional benchmarks to get a big picture of where you stand vs everyone else.  Numerous studies have shown that the majority of hedge funds (outside of some great performers) fail to outperform a simple passive index fund (I'm looking at you John Paulson), sometimes by significant and almost embarrassing amounts considering the outrageous fees they charge.

Courtesy of Bloomberg Briefs, here is a compiled list of hedge fund returns by strategy as of early August.  For reference the S&P 500 was up approximately 11.25% in this same timeframe.

As you can see, the ONLY hedge fund strategy which delivered above market performance is... Mortgage-Backed Arbitrage.  A bit surprising but considering that strategy's 2010 and 2011 performance as well as the inefficiencies left in the housing industry after the real estate bubble, its understandable.

However, what is very unfortunate for hedge funds is the more common Global Macro and Long/Short Equities and Long Biased Equities who delivered performance of -2.4%, -3.5%, and -4.6% respectively.  Considering the 11%+ returns in the S&P passive index method, this again support the argument that hedge funds are a great way to lose money and to pay them while doing it.  Ok, that may be harsh but so far, its justified based on these numbers.

Source: Bloomberg Briefs

Corn Commodity Price - How Much Has It Increased

The midwest drought this summer is all over the news, particularly regarding the sharp increase in commodities such as corn.  It is so bad that livestock such as beef are being slaughtered to save money on feed rather than to raise them further as a future investment.  But how much has it actually gone up?

As you can see from the chart below, Corn has jumped over 30% from mid June just 2 months ago.  That is an astounding increase.  However, if you look over the last 2 yrs, Corn is only 5% or so higher than the peak in June 2011.  If you extend to the last 5 yrs, the same story shows where the 2008 peak is relatively close to its current level.

What is surprisingly however is the constantly higher baseline after each spike over the last 10 yrs.  From 2002 to 2007, corn was pretty stable at ~$115/metric ton .  After a spike in 2007 and 2008, corn returned to a pretty stable price but at a higher baseline of ~$170.  This was then followed by a spike in early 2011 which established  a new baseline of ~$271.  With the current spike in price, if past trend holds, we can expect a higher baseline for corn than its historic average.

Fed QE3 Speculation - Chart Reversal Possibilities

Surprisingly, the minutes of the FOMC meeting revealed the Fed is much more ready to execute another round of Quantitative Easing than many had anticipated.  While economic growth has been rather anemic, it is stable and compared to the risks from another round of easing, many had assumed the chances were low of QE3.  While the market looks overbought, QE1 and QE2 resulted in a huge market rally during their time of operation.  Based on that, the impact of QE3 should not be underestimated.

Looking at the S&P 500 5 day chart, there was a distinct and strong downward trend from the last 2 days.  All that changed the moment the minutes came out and the market rallied significantly.

Looking at the daily chart over the last 6 months, there was a slight peak forming in the stock market last few days. With today's announcement, its hard to say yet if the upward trend will continue due to Fed intervention.  The next week, culminating with the Jackson Hole announcement (QE2 was announced there) will be instrumental in setting the tone of the market of the rest of the week.

NASA Curiosity Descent Video in Full 1080p

Completely unrelated to finance but too cool to pass up.  For those who haven't seen, embedded is the latest video in full 1080p of the MSL Curiosity Descent onto Mars.

Literally out of this world.

Via: Wired

Emerging Market Highlight - Philippines

Following my earlier posts about the current yearly performance of the BRIC countries, I'm considering starting a short series highlighting the other not as well known emerging markets.  The world is a big place and 4 countries does not an emerging market make.

As a reference, the MSCI Emerging Markets Index (of which the EEM and VWO ETFs are supposed to track) currently follows these countries:

So lets look today at the Philippines and its stock market.

Positives:    

• The 7th most populated Asia country and 12th most populated country in the world at over 100 million people and a GDP of ~$215 billion USD.  
• Very favorable working age demographic.  Currently over 61% of the population is 15-64 yrs old, 35% are 0-14 years and a median age of ~22.  In contrast with many other rapidly aging countries like Japan, US, and even China, there is a large and growing population of young workers who can enter the workforce.  Economic indicators lists % of young workers as one of the largest predictors of future economic growth.  For example, China grew to its size off the backs of its large young labor supply who filled its factories.
• Surprisingly strong stock market performance.  While it may have been lost in the shuffle of the Europe crisis, the Philippines stock market has turned in one of the best stock market gains in 2012.  With the emerging market index only registering a 6.5% gain YTD, the Philippines market has returned over 18%, soundly beating the rest of the emerging markets.

• Unlike the BRIC countries, Philippines is still only at the beginning of its agricultural to industry shift.  Historically this once in a generation shift tends to lead the way for modernization of the economy and a subsequent boom.
• Growing GDP.  In the first quarter of 2012, Philippines GDP grew at a 6.4 annual growth against the general target of 5-6% growth target vs a 2011 GDP of 3.9%.  
• Growing exports.  Exports grew 7.7% to $26.75 billion in the first half of 2012 vs same period last year.   

• Low inflation.  Unlike many other emerging countries such as India and China and Brazil which are suffering from high inflation, Philippine inflation has stayed in the 3% range, exceptionally low for emerging and growing economies.

Negatives:

• This is not the first time Philippines has looked good.  Following WWII, Philippines was one of the wealthiest Asian countries and was poised to lead the region.  Unfortunately the next point happened...
• Poor government policy.  Economic stewardship by the Philippines government has not been favorable, especially under the dictatorship of Ferdinand Marcos.  Poor policies have severely stunted its long term potential in the past.  While much better, the current government and overall culture still suffers from extreme corruption.  Its been observed that you have to bribe the airport employees to even get an answer about the location of the bathrooms.  
• While growing, as with most global economies, there are indicators of slowing growth and demand, particularly with exports.  Second quarter showed significant drops in exports to its trading partners in Japan and Asean.  Its top export markets are:

• The European crisis and China slowdown will play a significant role in Philippines growth, decoupling is a myth.
• Poorly developed infrastructure and people productivity.  To really sustain and grow for the long term, Philippines would need significant improvements to its infrastructure and focus on education as there still remains significant socio-cultural issues and an extremely large poverty rate.  Unemployment currently stands at 6.9% though underemployment remains high at 19.3%.

How to Invest:

• More details to follow but one suggestion is the iShares ETF: EPHE

References:

WorldBank July 2012 Update

US Dollar and Chinese Renminbi/Yuan Appreciation Update

Following up on my update regarding the Japan Yen & US Dollar exchange rate, here is an update regarding the US Dollar and Chinese Renminbi exchange rate from my post at the beginning of the year.

At the beginning of 2012, the US Dollar and RMB had just completed another round of almost straight line depreciation from an exchange of 6.8 to 6.3 over the course of 1.5 yrs, yielding a 5% annual rise, a decent enough return.

However, it seems I had picked the perfect time to mention the, at the time, very reliable appreciation because it ended almost exactly then.

From Jan to Apr, with various economic indicators showing a slowing China economy, the government apparently decided to hold the USD/RMB peg steady at 6.3.  After April, the exchange rate actually reversed and went higher to almost 6.4.  As can be seen in the 5 year chart below, this bump is somewhat unprecedented within the last 5 years.  However, a strongly slowing China is also somewhat unprecedented which explains the unusual move.

If China economy slows further, expect to see the RMB to either weaken vs the US dollar (somewhat unlikely due to equilibrium issues) or at least hold steady around the 6.3-6.4 range.  Regardless, it seems that the Chinese government is much more concerned with preventing slowing growth in China than it is with appeasing international calls for currency depreciation.

This highlights the dangers sometimes inherent in currency trading and speculation as you are at the mercy the the government and their central banks!

Quick Chart - S&P Stocks Above 200 DMA

As Bespokeinvest.com mentioned the relatively poor breadth of the current market advance, it's good to take a quick look at the % of S&P stocks that are above their 200 day moving average.

While other indicators have said we are close to a top, this indicates we may still have a small ways to go. Over the last 3 yrs, the market typically has hit ~90% of stocks above the 200 day moving average before it drops while we are currently at only 73.  However, we've also not gone as low on the last drop as would've been expected, only reaching 45% vs the 25% and 10% in 2010 and 2011.

Stock Market Status Update - BRIC

With the recent market rally in the US stock market, the S&P 500 is almost back to its year high.  At this point, lets check in on where the "emerging" market BRIC countries are.  Lets get started:

Brazil Bovespa Index: The Brazil index is close to where it started at the beginning of the year.  It had a strong climb of ~17% to a peak in March whereupon it broke down dramatically at the onset of the Europe crisis and China slowdown and still have yet to recover to its year high.  With Brazil's reliance on commodities, global growth, and its strengthening currency, the path looks rocky still for the rest of the year.

China, Russia, and India after the break.

India Sensex: Surprisingly strong performance of 14.3% for India for 2012 so far (though this masks a very weak 2011).  Similar to US performance, there was a strong movement from January, peaking in mid February (earlier than Mar-Apr peak for most other countries however), big drop in May and a slow recovery back up.  India's troubles are high inflation, high interest rate (with a limited ability to ease), and a weak corrupt ineffective government.  With its promising demographic shift (largest # of maturing adult workers in the world), it still has potential, the question is whether they can put in place policies that makes use of it.

Russia RTS: Russia shows a similar chart profile to the other BRICs, especially Brazil.  However, the RTS is still 7% below its starting point and a full 17.5% below its peak in Mar.  Its issues are government policies, heavy reliance of commodities like oil (which has fallen quite a bit this year), and potentially political unrest.  Russia is basically a commodity play for now, for better or for worse.

China Shanghai SEC: Ah...China, arguably the most influential country in the world right now from a global economy perspective.  For a country with 7-8% GDP growth, you would expect a growing stock market, instead its been on a downward trajectory ever since the start of the financial crisis (still a ~50% drop from its 2007 peak).  

Year to date, the Shanghai index is almost completely flat and unlike the other BRIC and US markets which started a recovery in June, it has continued to drop, falling an additional 9% since June, in sharp contrast to the S&P 500's 11% rise.  Of course China's issue revolves around its slowing economy and the Europe recession (its biggest trading partner).  While its GDP is still growing, China's stock market has continued to refuse to recover for a number of reasons which will be the subject of a later post.  

US S&P 500: Needs no introduction.  A strong 12% climb from the beginning of the year, large 10% correction in the middle, and a slow and volatile climb back to the peak.  

US Dollar & Japan Yen Exchange Rate Update

Back in January and February, I was making the point that the Japan Yen exchange was in an unsustainable level and that severe depreciation would be needed if they wished to retain their manufacturing base.  In February, the Japanese government finally intervened to weaken the yen.  I argued that the size of their intervention was too small to significantly affect the exchange rate in the longer time frame and that more easing was required.

So 6 months later, where does the Yen exchange sit?  As seen below, there was a strong jump after the announcement, with the yen going from 76 to 84 in a month.  Since then, it has fallen back down to 78, retreating severely from its high.

As I said before, Japan's easing needs to be significantly larger if they want to (and they really do need to) weaken the Yen to the point that it doesn't decimate their economy.

Market Top Indicators - VIX

Continuing the indecisiveness trend over the last week, the market today refused to rise or drop by any significant amounts.  As mentioned yesterday, there are several signs the market looks to be approaching a peak.  Lets take another look: the VIX.

As most are aware, the VIX volatility indicator has a great correlation in the last few years to the stock market peaks and bottoms.  Low volatility readings has almost always indicated a local peak in the S&P. Below is the VIX for the last 2 yrs.  There has been approximately 5 times in the last 2 years where the VIX has fallen to a reading of ~15, circled in blue.  (2011 - Feb, May, July)  (2012 - Mar, Aug)

Below is the S&P 500 index for the same period.  Each of the 5 lows in the VIX marked a local high.

Based on the VIX indicator, there exists a significant chance that the market is at a local high.  What is particularly compelling here is that the indicator has been very accurate and in each case, was followed by a large drop of >6%.  If the trend holds, a drop may start within the next few weeks.  Also interesting to note, each drop took an average of approximately 2 months to bottom out.

Market Timing - Slow Approach of a Peak

After a volatile several months in the stock markets following a flare up of the Europe crisis, the markets are again close to hitting a high for the year.  S&P 500 is now at 1403, close to its 1420 peak hit back in end of March.  Since the early June bottom, it has made a series of very volatile up and down jumps to get to today's point.  However, is there a sufficient justification for this?

The catalyst for May's drop was the Europe financial crisis and fears of another recession both in US and in emerging markets, specifically China.  Has that changed at all?  Since May, Spain and Italy are both approaching or have already passed unsustainable yields for their bonds.  Greece is worse than ever.  Political impasse in Europe has not changed.  More data from China shows a slowdown as well as weak data in the US.  In that light, is it justified that the market should be back at its year high?

A technical analysis of the S&P technical chart below shows clearly a slowing momentum in the S&P peaks and even early signs of a reversal in the last 2 days.  While the technical support has not broken down, there are hints that its poised to make a big move soon.  

As for the Nasdaq... (read more)

Looking at the the Nasdaq, we see a similar story though it has not quite recovered back to its March peak.  Nonetheless, the declining upward momentum, combined with the strong resistance puts it significantly at risk.

Advice: Take some profits where you can, especially on positions that have overperformed recently as a reversion to the mean is likely.  While its too early to call a market reversal, there are strong indicators in place for it.

ETF Cheat Sheets

Courtesy of Bespokeinvest.com, here is a list of handy cheat sheets on what ETF's cover what.