Friday, March 27, 2015

The Morning Call---I don't need geopolitical risk to be cautious

The Morning Call

The Market

The indices (DJIA 17678, S&P 2056) continued their downtrend, though the decline lost some momentum.  Nevertheless, they remained well within their uptrends across all timeframes: short term (16852-19629, 1967-2948), intermediate term (16946-22097, 1781-2539 and long term (5369-18860, 797-2116).  However, both closed below their 100 day moving averages as well as the lower boundaries of their very short term uptrends.  A finish there today will negate those resistance points.

Volume was up; breadth mixed. The VIX was up, remaining within its short term trading range, its intermediate term downtrend, its long term trading range, above its 50 day moving average and within a developing pennant formation.  Its pin action of late seems subdued to me; so it remains a reasonably priced hedge.

The long Treasury took some serious whackage, finishing within its short term trading range, intermediate and long term uptrends and above its 50 day moving average.   It also ended below the lower boundary of a developing very short term uptrend; if it closes below it today, the trend will be negated.

GLD’s price rose again, closing within its short and intermediate term trading ranges, its long term downtrend and below its 50 day moving average.  Despite a seven day uptrend, GLD still has a number of tough resistance levels yet to overcome before we can assume that the worst is over.

Bottom line: the Averages were up pre-Market but then reversed and sold off the rest of the day.  That put both of the indices through their 100 day moving averages and the lower boundaries of their very short term uptrends; but those challenges need to be confirmed (today’s close) before getting too beared up.  Oddly, after four down days, stocks are still not in oversold territory; so there may be more downside before we get a technical bounce.  Add to this mix that the pros are in the midst of end of quarter window dressing, I would expect another couple of days of confusing technical behavior.

So despite the Averages challenging two resistance points, we still need more follow through before assuming anything directionally related.  Longer term, until the short term uptrends have been successfully assaulted, the presumption has to be that stocks will continue to move higher.

            April is the top performing month since 1950 (short):

                Update on sentiment (short):


            Yesterday we received more good US economic news than bad news: weekly jobless claims fell versus expectations of a rise; the March Markit flash services PMI was ahead of estimates; however, the March Kansas City Fed manufacturing index was less than anticipated. So far by volume the indicators have been mixed this week though the primary indicators remain negative.

            Overseas, it was another day without stats but not without excitement on geopolitical front.  The saber rattling in Ukraine rose another notch (medium):

            And the economic battle continues as well.  What does Russia do if Ukraine defaults? (medium):

            Saudi Arabia and Egypt commenced military operations against Yemen (medium):

            And the fate of the Greek bail out remains uncertain (medium):

            ***overnight, Japanese inflation was reported at 0 versus Abe’s 2% target (ain’t QE great?); reports from China indicate that the big banks are cutting dividends due an increase in bad debt and the second largest bank replaced its chairman accusing him of taking too much risk.

            While any of these situations could have a serious impact on the global economies, I have no idea how to incorporate those risks into our forecast because (1) placing odds on any one of them occurring is guess work, (2) the outcomes are mostly binary, i.e. Greece either exists the EU or it doesn’t and (3) they all likely have unintended consequences, which by definition are unknowable.  So I resort to the coward’s way out---pronounce them risky but wait to see if we ‘muddle through’ and, if not, then deal with the costs. 

Bottom line: what with Tuesday’s and yesterday’s more upbeat economic data, we may actually get a week where the stats are mixed---though right now the bias is still to the negative. 

The international news was largely geopolitical in nature.  It was universally bad; but, in general, negative geopolitical events have a way of being contained because the stakes can be so high and calmer heads usually prevail in those circumstances---of course, until they don’t.

That said, I think that the front burner issues are a deteriorating US economy, an even weaker global economy, slowing corporate profit growth, a death wish among central bankers as they relentlessly pursue competitive currency devaluation and a stock market that is a short hair away from all-time high valuations.   I don’t need geopolitical risk to be cautious on the Market.

I can’t emphasize strongly enough that I believe that the key investment strategy today is to take advantage of the current high prices to sell any stock that has been a disappointment or no longer fits your investment criteria and to trim the holding of any stock that has doubled or more in price.

Bear in mind, this is not a recommendation to run for the hills.  Our Portfolios are still 55-60% invested and their cash position is a function of individual stocks either hitting their Sell Half Prices or their underlying company failing to meet the requisite minimum financial criteria needed for inclusion in our Universe.

            Stock sector performance during periods of rising interest rates (short):

            Another thought on performance (short):

      Thoughts on Investing from Cullen Roche
            7 investment myths (1-3)

Financial markets are complex dynamic systems, populated by irrational and biased participants. Because of this we have a tendency not only to misunderstand how the financial markets function, but we tend to buy into myths that often harm our financial well-being.
But by better understanding the financial markets, ourselves and the behavioral flaws that drive these persistent myths we can increase our odds of achieving our financial goals. Here’s what investors need to watch out for:

1. You too can be Warren Buffett
Over the last 30 years the world’s greatest investor has come to be idolized. But the way Warren Buffett has amassed enormous wealth is often misunderstood. The myth of the simpleton from Omaha who just picks “value” stocks has driven an entire generation to fall for the myth that they can easily replicate what Buffett does.

Where can investors find value?

Some stock investors are betting the bull market has more room to run. But where are the bargains? Mark Okada, Highland Capital Management co-founder, joins MoneyBeat. Photo: Getty Images.
Make no mistake — Buffett is not a simple value-stock picker. What he has built is far more complex and resembles something that few retail investors can even come close to replicating.
Berkshire Hathaway BRK.A +0.04%BRK.B +0.03%   , Buffett’s firm, essentially acts as a multi-strategy hedge fund. Berkshire engages in sophisticated insurance underwriting, complex fixed-income strategies, multi-strategy equity approaches and tactics that more resemble a private equity firm than a value-based brokerage account. Replicating this isn’t just difficult — it might well be impossible.

2. You get what you pay for
Few things are more detrimental to portfolio performance than fees. Most mutual funds underperform a highly correlated index, yet they charge 0.8% more in fees on average than a highly correlated index. That might not seem like much, but when you compound this at 7% over 30 years, your total return gets reduced by 23%. At that rate of return, an investor who buys $100,000 of a closet index fund and one who buys a highly correlated, low-fee index will amass, respectively, $590,000 and $740,000 over that 30-year period. Millions of investors are stuck in mutual funds that don’t outperform a benchmark index.
There’s a simple and irrefutable rule in markets — all assets are always held by someone. Therefore, in the aggregate, the performance of the market is what it is; no one “beats” the market. So the investor who incurs greater fees, frictions and other inefficiencies will underperform the aggregate as well a peer who incurs fewer of these frictions. In finance, more expensive doesn’t necessarily mean better.
3. You should focus either on fundamentals or technical analysis
A great battle rages in financial circles between fundamental analysis and technical analysis. Fundamentalists believe you need to understand corporate fundamentals to predict how an asset might perform; technicians believe an asset’s past performance is the key to its future.
But this debate is like trying to determine whether it’s better to drive looking through the windshield or also utilizing the rear-view mirror. The truth is somewhere in-between, as both can be useful ways to be aware of the road. Be open-minded about financial markets. There are no holy grails and there’s value in various styles and approaches, including both fundamental- and technical analysis.

    News on Stocks in Our Portfolios

            Chevron selling CalTex Australia (short):

   This Week’s Data

            The March Markit services flash PMI came in at 58.6 versus estimates of 57.0.

            The March Kansas City Fed manufacturing index was reported at -4 versus consensus of 0.

                The final revision of fourth quarter GDP was unchanged at +2.2% though it was below forecast of 2.4%; the price deflator was up 0.1%, in line.


            Margin debt in the Chinese markets (short):

            The misleading data on income and wealth (medium):



Another great example of the lack of control over the US bureaucracy---DEA agents had sex parties with prostitutes paid for by the drug cartels (medium):

  International War Against Radical Islam

            The US ups the ante against Israel (short):
            The latest on US/Iran nuclear talks (medium):

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