Thursday, July 19, 2018

The Morning Call--I guess that he will never learn


The Morning Call

7/20/18

The Market
         
    Technical

The Averages (DJIA 25064, S&P 2804) sold off yesterday.  Volume was up slightly; breadth deteriorated.   The Dow continued to trade above its 100 day moving average (now support), above its 200 day moving average (now support), within a short term trading range but remains below its June resistance high.  The S&P ended above both moving averages, in uptrends across all timeframes and above the minor resistance from its June high.  Yesterday’s pin action and the somewhat lagging performance of the Dow notwithstanding, the assumption has to be that the indices will challenge their all-time highs (26656/2874).

VIX jumped 6 ½ %, but still finished below its 100 day moving average (now resistance), below its 200 day moving average (now resistance) and continued the bounce off the lower boundary of its short term trading range.

The long Treasury was up ½ %, ending well above its 100 and 200 day moving averages, in a long term uptrend but in a short term downtrend.  The most noteworthy aspect of this chart is the narrowing gap between the upper boundary of the short term downtrend and the lower boundary of the long term uptrend.  Yesterday, TLT finished very close to the upper boundary of the short term downtrend.

            The dollar was up ¼% on volume, staying above both moving averages, within a short term uptrend and very near the June high (if it trades above that level, it will re-establish a very short term uptrend).  
           
            Gold (116) was down another ½% on huge volume, closing below both moving averages (its 100 DMA is a short hair a way from crossing below its 200 DMA---an additional negative), within a short term downtrend and below the minor support offered by its December 2017 low.  The next visible support level is the lower boundary of its intermediate term trading range (106); so there is plenty of room for more downside.
           
            Bottom line: the technical position of the indices remains strong and the assumption remains that stock prices are going higher and will at a minimum challenge their former highs.  

TLT, UUP and GLD continue to perform like investors are betting on a relatively positive US economy versus the rest of the world’s economy.  The only problem, in my opinion, is that doing less poorly than the rest of the world is not a reason for stocks to advance when they are already near historic high valuations.

            Yesterday in the charts (medium):

    Fundamental

       Headlines

            Yesterday’ economic data was positive: weekly jobless claims and the Philly Fed manufacturing index were better than anticipated; the June leading economic indicators were slightly better than expected, but the May number was revised down more than the June increase which is a big offset.

            The highlight of the day was another d**k stomping moment for the Donald.  In an interview, he opined that the Fed shouldn’t be raising interest rates because they hinder economic growth by driving the dollar up (a strong dollar means US exports are more expensive and imports from say China are less expensive)---when he was doing all he can do to improve the economy.  This is so stupid on so many levels that I can’t believe anybody on his staff had any idea that he was going to say what he did. 

First of all, the Fed was created as an independent agency so that it would remain above politics.  Historically, that has generally been respected by the office of the president for obvious reasons.  Even if Trump is correct (which is questionable), making a comment like he did just puts him at odds with himself in trying to reduce government regulations.  How can he justify wanting to reduce government oversight of the economy and then insinuate the need for more government control over what is an independent agency?

Second, the dollar is up because (1) the Chinese yuan is down because the Chinese government’s decision to devalue it in response to Trump’s imposition of tariffs on Chinese goods [a lower yuan means Chinese goods are cheaper and it thereby offsets at least part of the impact of tariffs] and (2) the US economy is currently one of the relatively strongest of the globe’s economies.  Investors generally seek to put their funds in the relatively best performing economies---which is a good thing for the US not a bad thing.

Finally, on a historical basis, US interest rates are very low.  Indeed, as you are well aware, one of my major beefs with the Fed has been and remains that it has kept rates too low; and, as a result, this has led to the mispricing and misallocation of assets.

            Emphasizing this point is the growing awareness that the Chinese are deliberately driving down the yuan, raising concerns that the trade war has been joined by a currency war. 
           
Monetary policy is driving the Markets (medium):

            More (medium):

             Last but not least the EU announced said that it is now preparing a new list of US goods to hit with tariffs.

            Bottom line: my wife and I used to laugh about the antics of our teenage daughter.  Our favorite saying was that she wakes up every morning, sits on the side of bed and says to herself ‘what can I do to screw my life up today?’ and then she would go out and do it.  Sometimes Trump reminds me of that time in my life.  Yesterday was one of those times.  I have no clue what he was thinking.  My guess is that today will be spent trying to walk back his statements/logic. 

            While I like a lot of what Trump is trying to do, I worry that he will undermine his own efforts.

            On days like today, Trump makes me happier than I should be that I own a decent cash position.
           
    News on Stocks in Our Portfolios
 
International Business Machines (NYSE:IBM): Q2 EPS of $3.08 beats by $0.04.
Revenue of $20B (+3.7% Y/Y) beats by $120M.

Sherwin Williams (NYSE:SHW) declares $0.86/share quarterly dividend, in line with previous.

Genuine Parts (NYSE:GPC): Q2 EPS of $1.59 beats by $0.01.
Revenue of $4.82B (+17.6% Y/Y) beats by $140M.

Coca-Cola (NYSE:KO) declares $0.39/share quarterly dividend, 5.4% increase from prior dividend of $0.37.

Economics

   This Week’s Data

      US
           
Weekly jobless claims fell 8,000 versus estimates of +6,000.

            The July Philadelphia Fed manufacturing survey was reported at 25.7 versus forecasts of 22.0

            The June leading economic indicators came in up 0.5% versus expectations of up 0.4%; but the May number was revised from +0.2% to 0.0%.

     International

    Other

            Fed policy is still easy (short):

            Why interest rates are low (medium and a must read):

            China suffers is biggest bankruptcy of 2018 (medium):

                The latest on the EU/US trade spat (medium):

What I am reading today

            Tips on grilling fish, hamburgers and ribs (medium):

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Wednesday, July 18, 2018

The Morning Call--Lay back and enjoy it


The Morning Call

7/19/18
Posted 5:00pm 7/18
The Market
         
    Technical

The Averages (DJIA 25199, S&P 2815) rose again yesterday, maintaining their upward momentum.  Volume was flat; breadth mixed.   The Dow continued to trade above its 100 day moving average (now support), above its 200 day moving average (now support), within a short term trading range but remains below its June resistance high.  The S&P ended above both moving averages, in uptrends across all timeframes and above the minor resistance from its June high.  The somewhat lagging performance of the Dow notwithstanding, the assumption has to be that the indices will challenge their all-time highs (26656/2874).

VIX was up slightly, but still finished below its 100 day moving average (now resistance) and its 200 day moving average (now resistance).  Intraday, it traded very close to the lower boundary of its short term trading range and then bounced; once again suggesting that stock prices may need to consolidate very short term.

The long Treasury was down ½ %, but still ended well above its 100 and 200 day moving averages, in a long term uptrend but in a short term downtrend.  The most noteworthy aspect of this chart is the narrowing gap between the upper boundary of the short term downtrend and the lower boundary of the long term uptrend.  A break of one of these barriers should be directionally important.
           
            The dollar was up, staying above both moving averages and in a short term uptrend.  
           
            Gold (116) lifted fractionally, closing below both moving averages (its 100 DMA is near to crossing below its 200 DMA---an additional negative), within a short term downtrend and below the minor support offered by its December 2017 low for a second day.  The next visible support level is the lower boundary of its intermediate term trading range (106); so there is plenty of room for more downside.

            Bottom line: the technical position of the indices continues to improve.  The assumption remains that stock prices are going higher and will at a minimum challenge their former highs.   TLT, UUP and GLD continue to perform like investors are betting on a relatively positive US economy versus the rest of the world’s economy.  The only problem, in my opinion, is that doing less poorly than the rest of the world is not a reason for stocks to advance when they are already near historic high valuations.
           
            Yesterday in the charts (medium):

    Fundamental

       Headlines

            Yesterday’s economic data was focused on housing: weekly mortgage and purchase applications fell and June housing starts were dismal.

            Powell gave his second day of congressional testimony, basically repeating his first day’s narrative: ‘labor market strong, inflation on track, fiscal policy a plus to growth, the banks in solid financial condition.’  The bottom line being that the Fed is staying on track for rate hikes and the unwind of its balance sheet, but is open to change if the data changes.  Nothing new.
                  
            The July Beige Book was also released yesterday and pretty much echoed Powell’s testimony (moderate growth, inflation rising slowly, firm labor market), save for a much deeper concern about tariffs.

            The other thing worth mentioning is that CNBC held its annual Delivering Alpha investor conference.  In the multiple interviews aired were several high profile individuals (Kudlow, Bannon) who opined that the US is in a trade war with China and that Trump is prepared to go to the mat to win it.  That is not any sudden insight; but it is a big headline that investors can’t ignore.  Which is another factor that speaks to the positive investor psychology---lousy trade headlines being taken in stride by the Market.

            Bottom line: it makes no sense to stand in front of a freight train.  And right now, that train is investor psychology.  There is nothing to do but lay back and enjoy it.  Actually, there is something to do---be sure you have some cash reserves.

            Three metrics of stock overvaluation (medium):

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

     International

    Other

What I am reading today

            Are SUV’s ruining retirement savings? (medium):

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The Morning Call--What bad news?


The Morning Call

7/18/18

The Market
         
    Technical

The Averages (DJIA 25119, S&P 2809) rose yesterday, maintaining their upward momentum.  Volume was up slightly; breadth improved.   The Dow continued to trade above its 100 day moving average (now support), above its 200 day moving average (now support), within a short term trading range but remains below its June resistance high.  The S&P ended above both moving averages, in uptrends across all timeframes and above the minor resistance from its June high.  The assumption has to be that the indices will challenge their all-time highs (26656/2874).

VIX was down 6 %, finishing below its 100 day moving average (now resistance), below its 200 day moving average (now resistance) and within a short term trading range but near its lower boundary.

The long Treasury was down fractionally, but still ending well above its 100 and 200 day moving averages, in a long term uptrend but in a short term downtrend.  These two trends (the upper boundary of the short term downtrend and the lower boundary of the long term uptrend) continue to narrow (they are about 3 points a part).  A break of one of these barriers should be directionally important.
           
            The dollar was up, staying above both moving averages and in a short term uptrend.  
           
            Gold (116) was down 1% on heavy volume, closing below both moving averages (its 100 DMA is near to crossing below its 200 DMA---an additional negative), within a short term downtrend and below the minor support offered by its December 2017 low.  The next visible support level is the lower boundary of its intermediate term trading range (106); so there is plenty of room for more downside.

            Bottom line: the technical position of the indices continues to improve---the only real negative being that both 100 day moving averages continue to fall toward their 200 day moving averages.  The assumption remains that stock prices are going higher.   TLT, UUP and GLD continue to perform like investors are betting on a relatively positive US economy versus the rest of the world’s economy.  The only problem, in my opinion, is that doing less poorly than the rest of the world is not a reason for stocks to advance when they are already near historic high valuations.
           
    Fundamental

       Headlines

            Yesterday’s economic stats were mixed: month to date retail chain store sales growth was down, July housing index was in line and June industrial production was in line (though the May number was revised down big).

            Fed chair Powell completed his first of two days of congressional testimony.  The narrative remains upbeat: labor market strong, inflation on track, fiscal policy a plus to growth, the banks in solid financial condition.  What’s not to like?  Importantly, it justifies the Fed staying on track for rate hikes and the unwind of its balance sheet.  But he cautioned that this is all subject to change if the data changes (dovish caveat which the Markets embraced).  However, I don’t believe that it is the data that Fed is worried about; it is the Market.  So the $64,000 question is, will policy change if the Market changes?

            Highlights from Powell’s prepared statement (medium):
      
            I think it also an important indication of investor sentiment that Netflix, an investor darling and one of the best performing of the Market leading FANG stocks, issued a disappointing narrative on subscriber growth (the stock was down 5%) and the Market showed little weakness aside from that specific to Netflix. 

            Bottom line: a possible trade war. who cares? the Fed expects to continue to tighten monetary policy.  Pffffff.  the yield curve is flattening. give me a break. Trump stomps on his own d**k.  so what. a Market darling disappoints.  fugitabotit.  Stocks are going up; and that’s great.  But doesn’t keep me from feeling comfortable with a decent cash position.

            The latest BofA macro investor survey (medium):

            The tax cut and earnings growth (medium):

    News on Stocks in Our Portfolios
 
BlackRock (NYSE:BLK) declares $3.13/share quarterly dividend, 8.7% increase from prior dividend of $2.88.

W.W. Grainger (NYSE:GWW): Q2 EPS of $4.37 beats by $0.65.
Revenue of $2.86B (+9.2% Y/Y) beats by $40M.

Economics

   This Week’s Data
           

      US

            Month to date retail chain store sales grew slower than in the prior week.

            June industrial production was up 0.6%, in line; however, the May reading was revised from -0.1% to -0.5%; capacity utilization was 78%, in line.

            The July housing index came in at 68, in line.

                Trouble ahead for the housing market (medium):

Weekly mortgage applications fell 2.5% while purchase applications were down 5.0%.

            June housing starts declined 12.2% expectations of a 0.2% decrease.


     International

    Other

            Freight volume and recession (short):

            Lehman Brothers and the Fed (short):

            Trade tension and China (medium):

What I am reading today

            The high administrative costs of the US health care system (medium):

            Growing your portfolio takes time and patience (medium):
           
            Records are made to be broken (short):

            The rationale for diversification (medium):

            The importance of humility (medium):


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Tuesday, July 17, 2018

The Morning Call---Trump is headline


The Morning Call

7/17/18

The Market
         
    Technical

The Averages (DJIA 25064, S&P 2790) turned in a mixed performance yesterday (DJIA up, S&P down).  Volume declined but breadth improved.   The Dow continued to trade above its 100 day moving average (now support), above its 200 day moving average (now support) and within a short term trading range.  The S&P ended above both moving averages, in uptrends across all timeframes and above the minor resistance from its June high for a third day.  The assumption has to be that it will now challenge its all-time high (2874).

VIX rose 5 ½ %, but still finished below its 100 day moving average (now resistance), below its 200 day moving average (now resistance) and within a short term trading range.  But for the second time in a week, it rallied before challenging the lower boundary of its short term trading range. 

The long Treasury was down ½ %, ending well above its 100 and 200 day moving averages, in a long term uptrend but fell back below the upper boundary of its short term downtrend, negating Friday’s break. 

            The dollar was down fractionally, but stayed above both moving averages and in a short term uptrend.  
           
            Gold was down slightly, continuing to trade below both moving averages (its 100 DMA is near to crossing below its 200 DMA---an additional negative) and near the lower boundary of its short term downtrend.  The only possible positive is that it is held above the minor support offered by its December 2017 low.

            Bottom line: the technical position of the indices continues to improve---the only real negative being that both 100 day moving averages continue to fall toward their 200 day moving averages.  The assumption remains that stock prices are going higher.   TLT, UUP and GLD continue to perform like investors are betting on a relatively positive US economy versus the rest of the world’s economy.  And that is being confirmed by the data flow (see below).  The only problem, in my opinion, is that doing less poorly than the rest of the world is not a reason for stocks to advance when they are already near historic high valuations.

            Yesterday in the charts (medium):

    Fundamental

       Headlines

            Yesterday’s economic data was mixed to somewhat positive: the July NY Fed manufacturing index was above forecasts; June retail sales were in line, though ex autos and gas, they were disappointing; May business inventories were in line, but sales were better than anticipated. 
      
            Overseas, Chinese stats were mixed to somewhat negative.

            Trump held the headlines yesterday with his comments following his meeting with Putin; and they were not well received.  Universal condemnation comes to mind.  Lost in the shuffle was the imposition of retaliatory tariffs by five countries against US which then filed a complaint with World Trade Organization.  Not to state the obvious; but so far, the Donald’s trade strategy is not having the hoped for results.  (medium):

            I normally avoid discussions of politics since this is an investment blog; but given yesterday’s (and who knows how long this will last) hue and cry, I thought this left/right debate interesting and helpful in putting the Putin meeting in perspective (medium):

            Aside from trade, this week investors will also be dealing with Fed Chair Powell’s Humphrey-Hawkins testimony before congress (senate today, house tomorrow).  Plus the meat of second quarter earnings season begins.

            Bottom line: while the dataflow this week will low volume wise, but it will be heavy for the primary indicators.  June retail sales (which wasn’t that impressive) started us off with industrial production, housing starts and leading economic indicators following up.  That said, if investors continue to kid themselves about the underlying strength in the economy, anything short of a catastrophe will likely be greeted as good news.

Expectations for this earnings season are reasonably upbeat.  As long as that scenario plays out, equities will likely maintain the upward momentum.

            As I noted above, to date, the trade narrative has not been good.  The longer it remains that way, the more likely it will return as a drag on stock prices.

            With stock prices at historically high valuations and momentum remaining to the upside, investors are being provided with an excellent opportunity to build cash reserves.  I am not suggesting that they run for the hills, just use price strength to provide a source of funds for purchasing bargains when the second half of this Market cycle inevitably occurs.

            Are ‘bubbles’ the new norm (medium):

    News on Stocks in Our Portfolios
 
Johnson & Johnson (NYSE:JNJ): Q2 EPS of $2.10 beats by $0.03.
Revenue of $20.83B (+10.6% Y/Y) beats by $440M.

Johnson & Johnson (NYSE:JNJ) declares $0.90/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

May business inventories rose 0.4%, in line; sales were up 1.4%.

     International

    Other
               
                A trade war and high global debt don’t mix (medium):
               
                Update on big four economic indicators (medium):

What I am reading today

            Mueller’s Russian indictments (medium):

            Quote of the day (short):

           

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