The Morning Call
The Market
Technical
The
indices (DJIA 15215, S&P 1650) were up (again) yesterday, closing within
all major uptrends: short term (14389-15112 [the Dow is back above this level],
1578-1652), intermediate term (13922-18922, 1476-2065) and long term
(4783-17500, 688-1750).
Volume
rose; breadth improved. The VIX actually
rose which is unusual for a strong up price day. I wonder out loud if that is not a good sign
that the VIX is about as low as it can go and, therefore, for traders whether
it is at a good entry point as a hedge.
GLD
fell, finishing below the lower boundary of its intermediate term
downtrend. As I noted yesterday, it
appears to be in the process of challenging its April low and/or the lower
boundary of its long term uptrend. If it
bounces off those levels, then our Portfolios will likely start to re-build
this holding.
Bottom line: optimism
prevails. Enjoy the ride. But remember that discretion is the better
part of valor. Don’t try to be a hero.
Meanwhile, (m)y strategy continues to be to take
advantage of what I consider unwarranted optimism by lightening up on positions
when the stock price trades into its Sell Half Range
Stats
on the current bull market (short):
Fundamental
Headlines
Overseas,
EU industrial production was ahead of estimates though German consumer
confidence was disappointing. The EU
industrial production was a pleasant surprise in what is developing into a
string of pleasant surprises. Still too
soon to be getting jiggy over Europe ; but we are getting
there.
***over
night EU first quarter GDP came in
-0.2%---ooops
The
real Market movers yesterday were:
(1)
it was Tuesday---the eighteenth up Tuesday in a
row. Why? Well, Tuesday’s are usually the day when the
Fed does most of its weekly purchases in QEInfinity. More money, higher prices,
(2)
David Tepper, an extremely well regarded hedge fund
manager, was on CNBC and gave a very upbeat
outlook on the Market. I linked to the
video segment mid day yesterday. So if
you didn’t see it, go back and take look.
The interview was a Market mover.
Given Tepper’s
track record, one contradicts him with some humility. So before putting my two cents in, I will let
the Pragmatic Capitalists lead the way.
My point this
that Tepper seems to assume that when Fed ‘has to taper back’ it will do so in
a way that won’t disrupt markets. My
principal point with respect to Fed tightening [tapering] is that it has never,
ever done so without causing a recession or inflation. Will it get it right this time? Maybe.
But how much money do you bet on that outcome?
Another great
piece from Lance Roberts (medium):
(3)
the government cash flow keeps getting better---shrinking
the deficit faster than many expected.
If I am going to get excited about an improving investment environment,
this is my number one candidate. To be
sure, the smaller the share of GDP usurped
by the government, the more money you, I and businesses have to spend and
invest as we see fit.
Plus, not
only is the combination of lower spending and higher taxes cutting the deficit
faster than expected, Obama’s current political problems could very well derail
His second term agenda. While there may be
much that needs to be undone from the first term, if confidence develops that
the worst is over, then the combo of lower deficits and lower potential
government growth has to be viewed positively
But before
sounding the ‘all clear’, we can’t forget that [a] the math of built in
entitlements increases hangs around our children’s necks like a ten ton anchor,
[b] our tax system is too complex and too expensive to administer to encourage
business optimism, [c] government regulation is far too intrusive into our
economic, social and political lives and [d] the current government cash flow
can’t be extrapolated into the future because so much income {and hence, taxes}
were moved into calendar year 2012 {FY 2013} that the rate of tax revenues will
likely slow considerably as we move forward.
So, the
shrinking budget deficit is a positive; but there are caveats. I would like to see FY 2013 fourth quarter
tax receipts before declaring a tactical victory.
Bottom
line: the economy is a positive for Your
Money. Fiscal policy appears to be
making more progress than I have assumed in our Models and could get even better
if our ruling class can come up with a ‘grand bargain’. Europe , also, seems to
be healing. It is a bit too soon on all
counts to be changing our Model; but even assuming a more positive outlook, stocks
still are overvalued; and the risks from the unprecedented global race of
central banks to devalue simply can’t be dismissed as causally as so many
pundits are now doing.
Another
bear cries ‘uncle’ (medium):
The
latest from Mohamed El Erian (today’s must read):
Don’t
dismiss what is occurring in Japan ;
it will be our turn soon enough (medium):
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