The Morning Call & Subscriber Alert--Much ado about nothing

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The Morning Call

1/4/13

The Market

           

    Technical

            The indices (DJIA 13391, S&P 1459) took a breather yesterday after a torrid two day advance.  If they close near the current levels today, then their short term trends will be re-set to up.  If they do continue to rise, then in addition to the upper boundary of their new short term uptrends, they face interim resistance at 13692/1474 and 14140/1576.  They remain in their intermediate term uptrends (13068-18068, 1381-1976).

            Volume declined; breadth deteriorated.  The VIX was down again, finishing below the upper boundary of their former short term downtrend, below the lower boundary of a very short term uptrend and above the upper boundary of its intermediate term trading range.

            GLD was down, remaining within its short term downtrend and above the lower boundary of its intermediate term trading range.

            Bottom line: it is not a surprise that the Market took a rest yesterday after two huge up days.  In fact, given the news on the Fed minutes (see below), I was surprised that the sell off wasn’t more aggressive.  So I see nothing that suggests any diminution of recent strength under the Market.

            Yesterday’s GLD whackage was also a function of an implied tighter Fed; though it was considerably more severe than the stocks.  The near term technical picture for GLD is not all that great.  Any further weakness will likely prompt additional sales.

    Fundamental

    

     Headlines

            Yesterday’s economic data contributed little to the portrait of the economy.  The mortgage and purchase applications numbers appeared horrible but they were mostly a function of the holidays.  December retail sales were mixed.  Jobless claims were up but less than anticipated.

            The real economic news was the release of the minutes of the last FOMC meeting in which it was disclosed that some members were much more concerned about the Fed’s Mach 5 money printing policy than the Markets had originally supposed. (hence, rates were up and gold was down).  

I remind you of a couple of things (1) as far back as QEII, regional Fed heads Fisher and Plosser were complaining that Fed policy was too easy, but they voted with the majority.  In other words, these meeting give dissenters a forum for venting their spleen, but have little to do with policy, (2) at the same meeting that this language [concern that Fed policy is too easy] came out of, the Fed added $45 billion of purchases to its balance sheet, (3) this is an Obama Fed ruled by Bernanke, Yellen and Dudley; and as long as it is, the presses will be running 24/7, (4) history: the Fed has never, ever began tightening money supply at the proximate time that would keep a lid on inflation [‘never, ever’ being the operative words].  So a little patience is probably called for before altering investment strategy on the assumption of a tighter Fed.

            Here is the operative verbiage:

            http://www.calculatedriskblog.com/2013/01/fomc-minutes-several-members-expect-qe3.html

            ***over night the European PMI was reported up for first time in a couple of months, another sign that economic conditions may be improving across the pond.  On the other hand:

            http://www.zerohedge.com/news/2013-01-03/spain-plunders-90-social-security-fund-buy-its-own-debt

            Bottom line: the just released FOMC minutes in no way convinces me that the Fed is anyway close to tightening.  Yesterday’s pin action could have been nothing more than traders using the FOMC minutes as an excuse to take profits.  On the other hand, on the off chance that the sphincter tightening that was occurring yesterday proves to be one of those ‘emperor’s new clothes’ moments in which the Markets suddenly realize that the current explosive Fed policy is detrimental to US economic health, that it cannot be sustained, that its unwinding will either be highly inflationary (if too slow) or highly recessionary (if too fast) and that the Fed has never gotten a policy transition right, then it is possible that the bond Market might be resuming its historic role of forcing change in Fed policy rather than the current passivity in which it simply responds to Ben’s money printing. 

If that happens, owning stocks won’t be fun for a while and owning bonds is a recipe for suicide.  Of course, this is probably just wishful thinking on my part.   Until the bond guys prove to me that they are anything more than the Fed sycophants they have been since QE started, stocks are probably biased to the upside---in which case, our Portfolios will continue to lighten up on stocks.

            The latest from David Rosenberg (medium):

            http://www.zerohedge.com/news/2013-01-03/myth-reality-david-rosenberg

       Subscriber Alert

            At the Market open this morning, our Portfolios will continue to lighten up on stocks that have reached significant technical levels:

            In the High Yield Portfolio a small portion of MMM and Bank of Nova Scotia will be Sold.

            In the Dividend Growth Portfolio a small portion of MMM will be Sold.

            In the Aggressive Growth Portfolio a small portion of Franklin Resources will be Sold.

            With the sales of both yesterday and today, our Portfolios cash position is getting really large even with our less than euphoric attitude toward the Market.  As a result, I am going to use a portion (operative word) of the funds generated to Buy small positions of either stocks on our Buy Lists or foreign ETF’s.  On the latter, you will recall that our Portfolios have holdings in non dollar denominated equities as a means of diversifying (1) out of dollar and (2) into regions of the world with better growth prospects.

            In the High Yield Portfolio, new holdings are being initiated in Lorillard (LO) and Pioneer Southwest (PSE).

            In the Dividend Growth Portfolio, an addition is being made to the Wisdom Tree Emerging Market ETF (DEM).

            In the Aggressive Growth Portfolio, a new position is being initiated in Atrion (ATRI) and additional shares will be Bought in DEM.

      Thoughts on Investing--from Steve Leuthold

-"Opinions are for show; numbers are for dough." In other words, don't make investment decisions based on emotions, news reports or cocktail talk. Do your research. If you have a tendency to make emotional decisions, consider an asset allocation fund made up of a mix of stocks and bonds with a manager paid to worry for you.
-Be conservative. Save more, spend less because the idea that the future will always be better, well, "That's not necessarily true."
-Don't follow the herd. Although being in the middle of the herd is the most comfortable place to be, consider getting out of your comfort zone. "When you see everybody go one way, look at why they may be wrong."
-Go global. Investors should work toward having 50 percent of their portfolio based outside the United States, particularly in Asia. "The U.S. was the economic king of the world after World War II," Leuthold explained. "We had this huge wave behind the U.S. that gave us superior growth for 30 years. Then all of a sudden (other countries) started catching up. ... We go along like we're still the kings and can afford deficits as far as the eye can see and something is going to happen magically to support all these retired people with Social Security and Medicare. And it's a pipe dream."

-Remember that investing isn't about the warm fuzzies. It can be downright unnerving. One short-term, tactical play is to consider investing in European stocks with global earnings. He mentioned Nestle, Siemens and Unilever.

      News on Stocks in Our Portfolios

 

Economics

   This Week’s Data

            Weekly mortgage applications dropped 21.6% while purchase applications fell 14.8%.  These are holiday impacted numbers some of little informative value.

            Weekly jobless claims rose 10,000 versus expectations of a 13,000 increase.

            http://www.calculatedriskblog.com/2013/01/weekly-initial-unemployment-claims.html

                December nonfarm payrolls rose 155,000 in line with estimates.

   Other

Politics

  Domestic

  International War Against Radical Islam

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.