The Morning Call
Just a reminder that I leave for Savannah
first thing tomorrow morning, so there will be no Morning Call and no Closing
Bell this week.
The Market
Technical
The
upside streak remains alive and well with the indices (DJIA 15326, S&P
1689) closing higher. Short term, (1)
the S&P finished within its short term uptrend [1651-1805]; it also ended
above the upper boundary of its former short term trading range [1687], (2) the
DJIA closed within its short term trading range [14190-15550] and busted up
through its 50 day moving average.
Both of the
Averages are well within their intermediate term (14786-19786, 1573-2159) and
long term uptrends (4918-17000, 715-1800).
Volume
was flat; and again breadth was poor.
The VIX was off but remains within its short term trading range and its
intermediate term downtrend.
The
long Treasury rose (rates down) finishing slightly above the upper boundary of
its short term downtrend. Our time and
distance discipline now kicks in; if it remains above this boundary through the
close Friday, the downtrend will re-set to a trading range.
GLD
fell slightly; but it was enough to put it below the lower boundary of its very
short term uptrend. Our time and
distance discipline kicks in here also.
If it remains below this boundary, the very short term uptrend will be
invalidated and I will have to consider stopping out our recent GLD
purchase. If it rallies, our Portfolios
will likely add to their holdings.
Bottom line: the
bulls remain in charge of this Market; although the DJIA and S&P remain out
of sync. Plus, breadth has not been that
great for the last two days. For the
moment, the Market remains directionless and our Portfolios remain on the
sidelines. Any up move in price by our
holdings into their Sell Half
Range
Update
on ‘the best stock market indicator ever’:
Fundamental
Headlines
Yesterday’s US economic news was not that great: weekly mortgage
and purchase applications were disappointing while July wholesale inventories
came in below expectations. Foreign
datapoints weren’t any better: Chinese lending rates spiked up while the UK
unemployment declined only slightly.
***overnight,
July EU industrial production fell---the first big negative number out of Europe
in a month.
Investors
clearly didn’t care. I assume that they
were focused on either (1) the lessening risk of military action in Syria ---though
this is getting to be very old news and/or (2) the first of many big, upcoming
economic events---in this case, next week’s FOMC meeting in which a decision on
‘tapering’ may or may not be made. Even
though my impression from listening to and reading the media is that opinions
are fairly evenly split between those who believe ‘tapering’ will occur and
those who don’t, everyone was tiptoeing through the tulips yesterday. In other words, the desire to put money to
work overwhelmed the news flow. OK, it
does that with some frequency.
Bottom line:
surely the Syrian risk is now largely in the rear view mirror. Before the Market/our ruling class lies a
number of quick but not so easy hurdles: the decision on whether or not to
‘taper’ (begin the transition to tighter monetary policy)---next week; the
FY2014 budget resolution which encompasses the sticky problems of a new FY
sequestration plus the implementation of Obamacare---9/30; the debt
ceiling---circa 10/15; picking a replacement for Bernanke---before 1/14.
I am not going
to suggest how these issues get resolved.
I am going to suggest that most of the alternatives involve some
pain---less now if our leadership makes the right choices; more pain if its
business as usual and they kick the can down the road. The only question in my mind is, when do the
Markets start discounting the inevitable?
Clearly to date, I have been wrong on its timing; and I certainly have
little confidence that the Market is going to start to agree with me today.
But math is
math. Federal spending as a percent of GDP
can’t continue to rise indefinitely nor can the Fed continue to grow its
already massively bloated balance sheet to infinity. Sooner or later these travesties to our
economy and to future generations have to be corrected. Our Models suggest that ‘sooner’ is the more
likely alternative. But whichever the
case, I don’t want to be standing around with a huge equity exposure when the
selling starts. The good news is that I
won’t.
That doesn’t mean that this country is
going to hell in a hand basket. It does
mean, in my opinion, that stocks are way over valuing the likely earnings that
can be produced from an economy on the current trajectory of the US
Can
stock prices hold up if interest rates keep rising (medium):
The
latest in the series comments by major financial figures commenting on the Fed
and monetary policy. Here is Stanley
Druckenmiller in four separate videos (25 minutes total) discusses entitlement
spending, the Fed and monetary policy.
While long, this is a must watch:
And:
Investing for Survival
Margin
debt and fat tails (short):
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