Market Digest \u2013 Week Ending 8\/23\r\n\r\nWednesday\u2019s eagerly anticipated release of the July Fed minutes turned out to be a non-event. The minutes left plenty of room for guesswork, but did little to change consensus expectations of a modest \u201ctaper\u201d of bond buying in September. Stocks and bonds treaded water for the week, both posting modest gains.\r\n\r\nWeekly Returns:\r\nS&P 500: 1,664 (+0.5%)\r\nFTSE All-World ex-US: (-0.6%)\r\nUS 10 Year Treasury Yield: 2.81% (-0.02%)\r\nGold: $1,392 (+1.3%)\r\nUSD\/EUR: $1.338 (+0.3%)\r\n\r\nMajor Events:\r\n\r\n \tMonday \u2013 The Fed said some of the largest U.S. banks may need to increase capital levels or curtail dividends and share buybacks to satisfy regulators.\r\n \tTuesday \u2013 German Finance Minister Wolfgang Sch\u00e4uble said Greece will need another bailout.\r\n \tWednesday \u2013 The Federal Reserve's July policy meeting minutes provided no clear signal on the timing of when the central bank will start scaling back its $85 billion bond-buying program. Fed officials described recent data as \u201cmixed\u201d. \r\n \tWednesday \u2013 Syrian rebels claim the government killed over a thousand people in a chemical weapons attack.\r\n \tThursday \u2013 A preliminary Chinese August manufacturing report showed greater than expected growth.\r\n \tThursday \u2013 The Nasdaq stock market experienced technical issues and was forced to halt trading for three hours.\r\n \tFriday \u2013 Microsoft announced that CEO Steve Ballmer will retire within the next 12 months. Mr. Ballmer has been CEO since January, 2000. Shares rose.\r\n \tFriday \u2013 The U.S. considered military options for possible strikes in Syria in response to allegations the government killed over 1,100 civilians with chemical weapons.\r\n\r\nOur Take:\r\nEmerging markets stocks are down about 13% and are lagging the S&P 500 by nearly 30% year to date. In the financial media, it is accepted that emerging markets are falling because the Fed may taper bond purchases. This is partially right, but not for the reasons most commonly cited. Yes, it has been enticing to borrow at zero interest rates and invest abroad where you can earn a higher return. But not much has changed in this regard. US short-term rates remain near zero and are expected to stay there for at least another 12 months.\r\n\r\nHowever, if Fed tapering successfully contains the \u201cgreat experiment\u201d without inflation accelerating, it will be good for the dollar. Indeed, the majority of the decline in emerging markets has been currency translation, not falling stock prices in local markets. Interestingly, just last year most emerging economies were being lauded for having their debt situation under better control than the US, Europe and Japan.\r\n\r\nEmerging markets have a lot of warts and problems. A potential banking crisis in China concerns us as does Russia\u2019s unfortunate political realities. Emerging markets are volatile on the upside and the downside. But that\u2019s always been the case. It\u2019s why they are called \u201cemerging\u201d. Things may get worse before they get better, but it is likely a mistake to get scared away.\r\n\r\nRetail investors are fleeing emerging market mutual funds and ETFs. Institutional investors are not. Don\u2019t abandon one of the great tools to generate long term growth and enhance diversification. It is too hard to time when to get back in. But don\u2019t get greedy either. For most investors we continue to recommend 30% of stocks allocated to international, and roughly 30% of that to emerging markets (9% of total equities).