Friday, April 17, 2015

The Morning Call---The fountain of perpetual QE

The Morning Call


The Market

The indices (DJIA 18105, S&P 2104) declined slightly yesterday.  They both closed above their 100 day moving averages.  The Dow ended above the upper boundary of a very short term downtrend for a second day, negating that trend; however, the S&P remained below its comparable trend line.

Longer term, the indices remained well within their uptrends across all timeframes: short term (16984-19761, 1987-2968), intermediate term (17091-22217, 1796-2567 and long term (5369-18873, 797-2129).  

Volume fell; breadth was really poor.  The VIX dropped again, closing back below the lower boundary of the pennant formation for a second day, negating that formation to the downside and implying more upside for equities.  It also ended within its short term trading range, its intermediate term downtrend, its long term trading range and below its 100 day moving average.  The cheaper this gets, the better its value as a hedge. 

The long Treasury declined again, but remained within very short term and short term trading ranges, intermediate and long term uptrends and above its 100 day moving average.  The longer it holds those short term trading ranges, the better the odds that it has stabilized.

GLD’s price decreased, closing within its short and intermediate term trading ranges, its long term downtrend and below its 100 day moving average.  GLD continues to struggle just to stay flat.

Bottom line: the indices are now out of sync on a very short term basis.  However, the performance of the VIX suggests that this draw will be settled to the upside.  That said, both to the Averages are near the upper boundaries of their long term uptrends which I believe will provide formidable resistance.  Looking at the risk/reward offered by the upper boundaries of the long term uptrends (reward) and the lower boundaries of the short term uptrend (risk), risk wins.

            The US economic data maintained it downward sloping trend yesterday: March housing starts and building permits were awful and weekly jobless claims rose versus an anticipated decline.  The good news was the April Philadelphia Fed manufacturing survey which rose modestly from its March reading.  The most important stat was housing starts; so our revised forecast appears right on.

            Ignoring the data (medium):

            There were also four Fed speakers yesterday, all but one of whom made dovish mewings---most of which included references to the lousy economic numbers that we have been getting for lo these many weeks.  Translated, I think that means that the odds of a rate increase just took another step down.  Which also provides further confirmation that the Fed has whiffed again on the timing of the transition from easy to normal monetary policy.  Perhaps more important, if the Fed is now figuring out that the economy is for s**t, how long do we have to wait before the ‘goldilocks’ true believers suddenly recognize that the emperor has no clothes?   I don’t have the answer; but when, as and if they do and all their economic and valuation models have to be revised, cash is probably not a bad thing to own.

            Overseas, EU March auto sales were strong, providing additional evidence that economic conditions are starting to improve in Europe.  Unfortunately, the EU is facing a couple of geopolitical hot potatoes that could derail any recovery, assuming that there even is one.  I speak of (1) Ukraine where Putin is beginning to turn up the heat [violence] again as the country struggles to gain financing from the IMF and (2) Greece whose population from all appearances have a death wish.  The government, whether because it is too inexperienced or too reckless, still hasn’t met the terms of the troika to gain ECB financing while at the same time pursuing Russian aid and the help of a well-known sovereign debt restructuring/bankruptcy attorney.

            Meanwhile back at the ranch, things are going from bad to worse (medium):
            And (medium):

            So it is looking like the pundit consensus that the fallout from a Grexit will be contained may have to be re-thought (medium):


Bottom line: yesterday’s events were a rough repeat of Wednesday’s: lousy economic news, more weak Fed gruel and a Greek government apparently hell bent on self-destruction.  The only thing missing was some lousy international economic stats.  Oh well, I guess we are stuck with only a hat trick.  Nevertheless, investors seemed willing to take it all in stride as long as the fountain of perpetual QE continues to flow. 

And that is the essence of the Market---ignore everything but global central bank policy.   Not that global monetary policy isn’t important; but global monetary policy has been pursuing QE with almost no tangible results except in its very early stages; and we are long passed that point for virtually everyone except the EU.  So the question is, when will the Markets contemplate some factor aside from QE and/or recognize that QE is a fraud on the global financial system?

 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.

      Thoughts on Investing from Barry Ridholtz

The Fine Art of Doing Nothing

 Don’t just do something, sit there!
 I love that purposefully juxtaposed Yogi Berra-ism.
I have been thinking about nothing on this lovely Friday morning. More precisely, why doing nothing — or at least much less — is better for your long term investing outcomes than doing something, also known as more.
Don’t do something, anything, just for the sake of it. If you are going to do something, you better have a damned good reason for it.
Doing something feels good. Doing something creates the illusion of control. Doing something responds to the angst we feel when we are unhappy with current circumstances.
Doing something is why people dump all of their stock at market bottoms; please-just-make-the-pain-stop-sell it-I-don’t-care-if-this-is-the-low was heard quite often in February and March 2009.
I have been thinking about nothing recently, mostly in the context of time frames (a post I did a few weeks ago, expanded into a full column for Sunday).
Humans exist in the here and now, at the intersection of past and future. The present is all they really know from experience. Contextualizing the long game is not their forte. What 24/7 media fills their minds with is so much meaningless detritus, so many useless options — it’s why they often forget that nothing itself is a viable choice. Indeed, nothing is often the best choice available.
Nothing is the enemy of the financial industry. Doing nothing does not generate any business. You cannot sell a front load mutual fund, an annuity, or any sort of private placement when people do nothing.
Nothing generates no fees, commissions, costs or taxes.
Nothing doesn’t pay the rent. Nothing is the costly opponent of salespeople everywhere. They have come up with all manner of clever phrases to taint the art of doing nothing. “Paralysis by Analysis” is my favorite example.
The investment industry hates nothing. Just about everything the financial sector does or says or markets or advertises is designed to get you to do something — anything! And right now, too: Track your portfolio tick by tick! Get instant updates the second news breaks! Free trading for ETFs! Real time alerts!
E) None of the above.
When confronted with a problem, many people feel obligated to do something, anything — even the wrong thing.
Well, at least you tried” they say, when what they really meant was “You did not think this through or fully consider the options and outcomes to your decision making. You failed.
Even Pop culture references this, obliquely. Yoda was philosophical about nothing as an option: “Do. Or do not. There is no try.” Hence, Star Wars recognized that nothing was a viable option.
No, not Seinfeld — it was never a show, as so many people have mischaracterized it,  about nothing. It was actually a show about the minutia of life.
Nothing is underrated.
Sometimes, nothing is better than something.
 What are you doing when you should be doing nothing?

      News on Stocks in Our Portfolios

o    Schlumberger (NYSE:SLB): Q1 EPS of $1.06 beats by $0.15.
o    Revenue of $10.25B (-8.8% Y/Y) misses by $210M.


   This Week’s Data

            The March Philadelphia Fed manufacturing index rose to 7.5 versus February’s reading of 5.0.

                The March CPI headline number came as expected (+0.2%); however, ex food and energy, it was up 0.2% versus expectations of up 0.1%.


            Bloomberg’s economic surprise index (short):



  International War Against Radical Islam

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