Saturday, May 30, 2015

The Closing Bell

The Closing Bell

5/30/15

Statistical Summary

   Current Economic Forecast

           
            2013

Real Growth in Gross Domestic Product:                    +1.0-+2.0
                        Inflation (revised):                                                           1.5-2.5
Growth in Corporate Profits:                                            0-7%

            2014 estimates

                        Real Growth in Gross Domestic Product                   +1.5-+2.5
                        Inflation (revised)                                                          1.5-2.5
                        Corporate Profits                                                            5-10%

            2015 estimates

Real Growth in Gross Domestic Product (revised)      0-+2%
                        Inflation (revised)                                                          1.0-2.0
                        Corporate Profits (revised)                                            -5-+5%

   Current Market Forecast
           
            Dow Jones Industrial Average

                                    Current Trend (revised):  
                                    Short Term Uptrend                                 17273-20078
Intermediate Term Uptrend                      17431-22559
Long Term Uptrend                                  5369-19175
                                               
                        2014    Year End Fair Value                             11800-12000                                          
                        2015    Year End Fair Value                                   12200-12400

            Standard & Poor’s 500

                                    Current Trend (revised):
                                    Short Term Uptrend                                     2028-3007

                                    Intermediate Term Uptrend                       1830-2597
                                    Long Term Uptrend                                    797-2138
                                               
                        2014   Year End Fair Value                                     1470-1490

                        2015   Year End Fair Value                                      1515-1535        

Percentage Cash in Our Portfolios

Dividend Growth Portfolio                          51%
            High Yield Portfolio                                     52%
            Aggressive Growth Portfolio                        53%

Economics/Politics
           
The economy is a neutral for Your Money.   The data this week was slightly weighed to the negative by quantity and the positive by quality: positives---April new home sales (note: last week  I mistakenly listed new home sales instead on housing starts), April pending home sales, weekly purchase  applications, March Case Shiller home price index, May consumer confidence and consumer sentiment and April durable goods orders; negatives---weekly mortgage applications, month to date retail sales, weekly jobless claims, the May Markit flash services index, the Dallas Fed manufacturing index, first quarter corporate profits and the May Chicago PMI; neutral---the Richmond Fed manufacturing index, first quarter GDP and price deflator.

The primary indicators this week were April new home sales (plus), April durable goods orders (plus) and first quarter GDP (neutral) and corporate profits (negative)---a positive showing.  Note though that I rated the poor GDP number a neutral just because it was not quite as bad as had been expected.  In sum, I rate this as a neutral week, meaning that the last eighteen weeks of economic data have been negative sixteen times and neutral twice.  That is a pretty abysmal showing.  Still the two neutral weeks were close enough together that it may be a sign that the economy is starting to flatten out---a circumstance that we desperately need to avoid having to lower our economic growth forecast even more.

Our forecast:

 ‘a much below average secular rate of recovery, exacerbated by a declining cyclical pattern of growth,  resulting from too much government spending, too much government debt to service, too much government regulation, a financial system with an impaired balance sheet, and a business community hesitant to hire and invest because the aforementioned, the weakening in the global economic outlook, along with...... the historic inability of the Fed to properly time the reversal of a vastly over expansive monetary policy.’
           
        The pluses:

(1)   our improving energy picture.  ‘Oil production in this country continues to grow which is a significant geopolitical plus.  However, we have yet to see the ‘unmitigated’ positive attributed to lower oil prices by the pundits.  Not surprisingly, with oil prices up, this same crowd is trumpeting the pluses that rising prices will have on capital spending.  If they keep trying, the law of averages says that they will eventually be right.  But who will listen?

       The negatives:

(1)   a vulnerable global banking system.  This week:

[a] Deutschebank pled guilty to falsifying prices of its derivatives holdings

Derivatives remain a blind spot in the TBTF banks (medium):

[b] our Masters of the Universe banks {Citi, JP Morgan and Bank of America} are under investigation of facilitating the bribe payments in the world soccer scandal.

‘My concern here.....that: [a] investors ultimately lose confidence in our financial institutions and refuse to invest in America and [b] the recent scandals are simply signs that our banks are not as sound and well managed as we have been led to believe and, hence, are highly vulnerable to future shocks, particularly a collapse of the EU financial system.’
      

(2)   fiscal policy.  Nothing this week of consequence.

(3)   the potential negative impact of central bank money printing:  The key point here is that [a] the Fed has inflated bank reserves far beyond any comparable level in history and [b] while this hasn’t been an economic problem to date, {i} it still has to withdraw all those reserves from the system without creating any disruptions---a task that I regularly point out it has proven inept at in the past and {ii} it has created or is creating asset bubbles in the stock market as well as in the auto, student and mortgage loan markets. 

Thankfully quiet after the s**t storm of confusion from the Fed last week.

(4)   geopolitical risks: the reportable items this week were [a] the buildup of Russian weapons on the Ukraine border.  That isn’t necessarily bad news in the sense that Kerry could very well have agreed to that {Russian hegemony over Ukraine} in his recent meeting with Putin and [b] the ISIS siege of Iraq’s largest oil refinery---not a happy occurrence if contemplating global oil supplies,

(5)   economic difficulties, overly indebted sovereigns and overleveraged banks in Europe and around the globe.  The key datapoints this week were:

[a] mixed Japanese data.  Early in the week I thought we might get a second week in a row of upbeat stats out of Japan; but that was deep sixed by poor numbers later.  I am not giving up yet that Japan could be improving; but clearly we need more than one positive week followed by a mixed week before even considering that a turn in the economy is possible,

[b] the turd in the global economic punchbowl is China where the data has not been good and keeps looking worse.  This week a third large Chinese company defaulted on its ‘in country’ bonds.  While the Bank of China seems to be pumping liquidity into its banking system in its own special version of QE, results to date have not shown promising results,

[c] the Greek/Troika bailout discussions continued---if that is what you want to call them.  For the last two weeks, they have mostly been comprised of the Greek government making upbeat statements about the progress being made in the bailout negotiations and the Troika slam dunking those comments as wishful thinking. 

There was a positive development on Friday in which the IMF said that it was considering allowing Greece to make all payments {there are four} due in June at the end of June, effectively postponing the June 6 maturity.  This is a clear reminder of the eurocrats excellence at kicking the can down the road. Certainly, it buys time for a bail out agreement.  Whether it works remains to be seen.

        Great analysis of the ongoing events (medium and a must read):


My bottom line here hasn’t changed: I don’t know how this ends, I don’t know what that means for the markets but I do believe that there will be unintended consequences; and since those are by definition unknowable, this situation demands some caution.    

    ‘Muddling through’ remains the assumption for the global economy in our Economic Model with the proviso that if a Greek default/exit occurs, all bets are off. This remains the biggest risk to forecast.
     
Bottom line:  the US economic news improved slightly, in the sense that a week of mixed stats is better than a sharp stick in the eye.  We need more of that to lower the risk that I may have to revise our forecast down again.

The international data didn’t improve the odds.  After an upbeat week of Japanese stats, they turned a bit more mixed this week.  There were two disappointing EU GDP reports (Switzerland and Greece). And the news out of China remains dismal.  Finally, the Greek/Troika negotiations managed a last minute delay to avoid a Greek default/exit next week.  But that technically could only be postponed until June 30---unless, of course, the IMF postpones repayment again.

The Fed thankfully was quiet this week---probably trying to figure out how to spin last week so there appears to be a semblance of logic in their words and actions.  I remain as confused as ever as to what these guys will do next; though I am more sure that whatever they do, it will have more impact on the Markets than it has on the economy.

This week’s data:

(1)                                  housing: April new home sales were much stronger than forecast, as were April pending home sales; weekly mortgage applications declined while purchase applications increased; the March Case Shiller home price index rose more than estimates,

(2)                                  consumer: month to date retail chain store sales slowed; weekly jobless rose versus expectations of a fall; May consumer confidence and consumer sentiment were better than anticipated,


(3)                                  industry: April durable goods orders fell less than consensus; the May Markit flash services index was below forecast; the May Chicago PMI was terrible; the Richmond Fed manufacturing index was in line while the Dallas Fed index was well below estimates,

(4)                                  macroeconomic: revised first quarter GDP came in slightly above negative expectations; the price deflator was in line; corporate profits were down almost 6%.


The Market-Disciplined Investing
         
  Technical

The indices (DJIA 18010, S&P 2107) were down on the week.  Both closed above their 100 day moving average but below their former all-time highs.  The S&P is in a struggle passing above and below that level several times while the Dow managed a one day jaunt above its comparable level and is now well below it. 

Longer term, the indices remained well within their uptrends across all timeframes: short term (17273-20078, 2028-3007), intermediate term (17431-23559, 1830-2597 and long term (5369-19175, 797-2138).  

Volume rose markedly on Friday; while unsurprisingly breadth was poor.  The VIX was up modestly, but not as much as I would have expected on lousy day for pin action.  That along with a finish below its 100 day moving average and the upper boundary of a very short term downtrend keeps this indicator a plus for equities.

Margin debt hits all time high (short):


The long Treasury rose slightly on Friday, but still closed below its 100 day moving average and within its short term downtrend.  In Friday’s trading, it touched a minor resistance level, then backed off.  A push above that level will add some momentum to the upside. 

GLD continues to meander within a short term trading range.  Meanwhile, oil was up big on Friday, closing right on the upper boundary of its short term trading range; and the dollar was off slightly but remained above its 100 day moving average and the lower boundary of that former short term uptrend.

Bottom line: the Dow tried to make a new high last week, but failed and has declined ever since.  The S&P did manage to confirm a new high but just barely, on anemic volume and has been unable to return to that level.  On a more positive note, both of the Averages have established a series of higher lows and until that is broken, I have to assume that, at the moment, the buyers have the edge. 

‘I feel almost certain that, having come this far, the indices will at least make an old school try at challenging those upper boundaries.  That said, I also believe that challenges will be unsuccessful---which, from a strictly technical viewpoint, makes the short term risk/reward in the Market right now unattractive.’

Longer term, the trends are solidly up and will be so until the short term uptrends, at the very least, are negated.
             
Fundamental-A Dividend Growth Investment Strategy

The DJIA (18010) finished this week about 49.1% above Fair Value (12073) while the S&P (2107) closed 40.5% overvalued (1499).  Incorporated in that ‘Fair Value’ judgment is some sort of half assed attempt at getting fiscal policy under control, a botched Fed transition from easy to tight money, a historically low long term secular growth rate of the economy and a ‘muddle through’ scenario in Europe, Japan and China.

This week’s mixed US economic stats, while a welcome break from the steady drumbeat of poor reports, were still mixed.  And, as I mentioned several times, we need to have something a little better than mixed just to meet our current downwardly revised forecast.  So net, net, it did nothing to alter the assumptions in either our Economic or Valuation Models. 

Likewise, Japan’s economic numbers contained both good and bad news, which was a bit of disappointment given last week’s more upbeat data.  The key remains follow through. Europe and China both disappointed this week---Europe because it broke the recent trend in improving stats; China because things just keep getting worse.

 I noted last week that the economic progress being reflected in the EU and Japanese numbers were much welcomed in that if they were a sign that the trend in the international economy was stabilizing and perhaps even recuperating, our ‘muddling through’ scenario had an  increased probability of being correct.  This week didn’t help.

  All that said, as I have explained numerous times lousy economic data (at least at the current level of ‘lousy’) won’t impact the numbers in our Valuation Model, but it will almost certainly force changes in Street Models which will likely cause heartburn for equity prices.

Thankfully, all was quiet on the central banking front, though that doesn’t remove the clear and present danger of the consequences of the unraveling of QE on the securities markets.

The Middle East just keeps getting more complex.  ISIS now has the largest refinery complex in Iraq under attack and Obama is doing His best ‘deer in the headlights’ impression.  If the ISIS action leads to problems in the level of global oil production, this could cause problems for the equity market---at least if history is any guide.

We are now at T-7 on the IMF repayment which Greece has already said it couldn’t make without a bailout.  This week was filled with claims of an impending deal and counter claims that someone was smoking dope.  This has all the drama and bluster of the final act; but these guys have such a rich history of kicking the can down the road, I feign to predict a conclusion. 

And speaking of kicking the can down the road, the IMF has apparently given the Greeks a reprieve on next Friday’s debt repayment, allowing them to repay all four June maturities on June 30.  My bottom line is that I have no idea how this resolves itself but if a default/Grexit occurs there are apt to be unintended consequences that are disruptive to the Market.

‘As I noted last week, I have no clue how to quantify the aforementioned geopolitical risks’ impact on our Models even if I could place decent odds of their outcome because: (1) the outcomes are mostly binary, i.e. Greece either exists the EU or doesn’t and (2) they all most likely incorporate potential unintended consequences, which by definition are unknowable.  Better to just say these are potential risks with conceivably significant costs and then wait to see if we ‘muddle through’ or have to deal with those costs.  The important investment takeaway, I believe, is to be sure that your portfolio had at least some protection in the downside.’

Bottom line: the assumptions in our Economic Model are unchanged but still in danger of being revised down again.  If they are anywhere near correct, they will almost assuredly result in changes in Street models that will have to take their consensus Fair Value down. 

The assumptions in our Valuation Model have not changed either; though there are scenarios listed above that could lower Fair Value.  That said, our Model’s current calculated Fair Values are so far below current valuation that any downward revisions by the Street will only bring their estimates more in line with our own.

Update on Buffett’s favorite valuation metric (medium):

Everything is overvalued: an interview with Robert Shiller (medium):

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.
           
DJIA                                                   S&P

Current 2015 Year End Fair Value*              12300                                                  1525
Fair Value as of 5/31/15                                  12073                                                  1499
Close this week                                               18010                                                  2107

Over Valuation vs. 5/31 Close
              5% overvalued                                12676                                                    1573
            10% overvalued                                13280                                                   1648 
            15% overvalued                                13883                                                    1723
            20% overvalued                                14487                                                    1798   
            25% overvalued                                  15091                                                  1873   
            30% overvalued                                  15694                                                  1948
            35% overvalued                                  16298                                                  2023
            40% overvalued                                  16902                                                  2098
            45%overvalued                                   17505                                                  2173
            50%overvalued                                   18109                                                  2248
            55% overvalued                                  18713                                                  2323

Under Valuation vs. 5/31 Close
            5% undervalued                             11434                                                      1420
10%undervalued                            10832                                                       1345   
15%undervalued                            10230                                                  1270



* Just a reminder that the Year End Fair Value number is based on the long term secular growth of the earning power of productive capacity of the US economy not the near term   cyclical influences.  The model is now accounting for somewhat below average secular growth for the next 3 to 5 years. 

The Portfolios and Buy Lists are up to date.


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 47 years of investment experience includes institutional portfolio management at Scudder. Stevens and Clark and Bear Stearns, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies.  Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.








Today's Investing for Survival

 Investing for Survival

            12 things I learned from David Tepper: #3

3. “We won’t stop if we’re down a little bit. We don’t freeze. We keep investing with a disciplined, logical approach.”
Michael Mauboussin points out: “You must recognize that even an excellent process will yield bad results some of the time. If you are going to be the in the business that David Tepper is in you need to stay focused on your process, rather than any specific short term result. If you make an investment and the odds are substantially in your favor and you generate a loss, that is OK as long as your process was sound.
A sound process exists when the process is net present value positive (i.e., genuine investing). If the process is net present value negative, that is gambling/speculation/a fool’s errand. Howard Marks points out the key elements in his process as follows: “a) have an approach b) hold it strongly c) accept that, no matter what, there will be times where your approach doesn’t work, and d) work within your own skill set and personality, not someone else’s.” David Tepper, Howard Marks, John Bogle, George Soros are not you and vice versa. Your investing approach should be consistent with who you are. Everyone is different. In addition to being disciplined and logical, David Tepper believes: “We’re pretty unemotional when we invest” which is a very good thing since most mistakes in investing are based on emotional or psychological errors.


Friday, May 29, 2015

The Morning Call---Lack of confidence

The Morning Call

5/29/15

The Market
           
    Technical

The indices (DJIA 18126, S&P 2120) drifted lower yesterday.  Both closed above their 100 day moving average.  However, the Dow finished below its former all-time highs, while the S&P closed right on that level. 

Longer term, the Averages remained well within their uptrends across all timeframes: short term (17266-20071, 2028-3007), intermediate term (17425-22553, 1828-2595 and long term (5369-19175, 797-2138).  

Volume fell as did breadth.  The VIX was slightly higher, but ended below its 100 day moving average and the upper boundary of its very short term downtrend. It remains a plus for stocks. 

The long Treasury declined fractionally, finishing below its 100 day moving average and within a short term downtrend. 
                       
GLD was up slightly, ending below its 100 day moving average and the neck line of the head and shoulders pattern. 

Oil rose but remained within a short term trading range.  The dollar was down fractionally, finishing well above the lower boundary of that short term uptrend which had been technically negated.  It is near the upper boundary of a developing very short term downtrend.  If it pushes through that level, I will re-instate the short term uptrend.

Bottom line: neither the bulls nor bears seem to be able to generate any follow through.  That suggests to me that neither side feels terribly confident in its position which probably means that stocks are going nowhere in the absence of defining news event.  I remain of the opinion that the Averages will almost surely challenge the upper boundaries of their long term uptrends but that any further advance will be limited to the rate of ascent of those boundaries.

The current bull market in length and magnitude versus prior bull markets (short):

            ***overnight, Chinese stocks are crashing for a second day.

    Fundamental
   
       Headlines

            Yesterday’s US economic data included a disappointing weekly jobless claims number but strong pending home sales data, the latter carrying a bit more weight than the former---‘a bit’ more being the operative words.

            Overseas, April Japanese retail sales were up after three down months in a row.  This is that country’s third upbeat datapoint in two weeks.  Promising but not definitive.  However, were it to continue and the EU shows more economic improvement, it would do wonders for our ‘muddle through’ scenario.

            ***overnight, the series of better Japanese stats ended abruptly as household spending fell 1.3% (the thirteenth decline in as many months) and inflation came in at 0.00%; first quarter Swiss GDP declined 2.0% while Greece dropped 0.2%.

            Another day older and closer (T minus 8) to default for the Greeks.  Most observers seem to believe that there will be some resolution however inadequate it is in long term.  I am not sure what odds they are placing on that assumption; but every day that goes by, the probability of a misstep by one or more of the involved parties rises.  It won’t be long now.

            The latest on the Greek bail out end game (medium):

            ***overnight, IMF says a Grexit is a ‘possibility
           
Bottom line: absent today’s economic data releases, this week’s US numbers will end up in a wash.  The Japanese retail sales stat along with recent EU data offers hope that the global economy may have stopped retreating; although the economic news out of China, its stock market notwithstanding, is not comforting.  That said, there is a ‘muddle through’ assumption in our Models; and if the above is the definition of ‘muddling through’ then the problem is that, with that assumption, the S&P is now priced roughly 40% over our Valuation Model’s current Fair Value (1499).   In short, we need all the good news we can get. 

So you can see my concern with declining forward guidance in earnings, the prospect for financial crisis in Europe resulting from a Greek default/exit or an interest rate spike that alters the valuation bogey for equities.

 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.


            Understanding why the ten year returns in equities looks so abysmal (medium):

            Chasing the tape (medium):

            The excesses currently visible in the stock market (medium and today’s must read):

  Economics

   This Week’s Data

            April pending home sales rose 3.4% versus expectations of being flat.

                Revised first quarter GDP came in at -0.7% versus estimates of -0.8%; the price deflator was -0.1%, in line; corporate profits were -5.9%.

   Other

Politics

  Domestic

More on Obama’s immigration reform executive action (medium):


  International War Against Radical Islam

            Ukraine’s response to the latest buildup of Russian weapons on its border (medium):









Thursday, May 28, 2015

Today's Investing for Survival

Investing for Survival

            12 things I learned from Morgan Housel: Part 12

12. “When you think you have a great idea, go out of your way to talk with someone who disagrees with it. At worst, you continue to disagree with them. More often, you’ll gain valuable perspective. Fight confirmation bias like the plague.”
“Starting with an answer and then searching for evidence to back it up.  If you start with the idea that hyperinflation is imminent, you’ll probably read lots of literature by those who share the same view. If you’re convinced an economic recovery is at hand, you’ll probably search for other bullish opinions. Neither helps you separate emotion from reality.”
“Charles Darwin regularly tried to disprove his own theories, and the scientist was especially skeptical of his ideas that seemed most compelling. The same logic should apply to investment ideas.”
I have always loved this Charlie Munger quote on confirmation bias: “Most people early achieve and later intensify a tendency to process new and disconfirming information so that any original conclusion remains intact. The human mind is a lot like the human egg, and the human egg has a shut-off device. When one sperm gets in, it shuts down so the next one can’t get in. … And of course, if you make a public disclosure of your conclusion, you’re pounding it into your own head.” The trick is to really listen to other people who you trust. Ray Dalio’s investing process is very focused on this approach. Set out immediately below are two paragraphs on Dalio’s view:
“There’s an art to this process of seeking out thoughtful disagreement. People who are successful at it realize that there is always some probability they might be wrong and that it’s worth the effort to consider what others are saying — not simply the others’ conclusions, but the reasoning behind them — to be assured that they aren’t making a mistake themselves. They approach disagreement with curiosity, not antagonism, and are what I call ‘open-minded and assertive at the same time.’ This means that they possess the ability to calmly take in what other people are thinking rather than block it out, and to clearly lay out the reasons why they haven’t reached the same conclusion. They are able to listen carefully and objectively to the reasoning behind differing opinions.
When most people hear me describe this approach, they typically say, “No problem, I’m open-minded!” But what they really mean is that they’re open to being wrong. True open-mindedness is an entirely different mind-set. It is a process of being intensely worried about being wrong and asking questions instead of defending a position. It demands that you get over your ego-driven desire to have whatever answer you happen to have in your head be right. Instead, you need to actively question all of your opinions and seek out the reasoning behind alternative points of view.” 
Both Morgan Housel and Charlie Munger cite Darwin as a model for people working hard to avoid confirmation bias. Here’s Munger: “The great example of Charles Darwin is he avoided confirmation bias.  Darwin probably changed my life because I’m a biography nut, and when I found out the way he always paid extra attention to the disconfirming evidence and all these little psychological tricks. I also found out that he wasn’t very smart by the ordinary standards of human acuity, yet there he is buried in Westminster Abbey. That’s not where I’m going, I’ll tell you.”

    

The Morning Call--Liar, liar, pants on fire.

The Morning Call

5/28/15

The Market
           
    Technical

After a rough Tuesday, the indices (DJIA 18162, S&P 2123) bounced back yesterday.  Both closed above their 100 day moving average.  However, they are again out of sync on their former all-time highs.  The S&P traded back above that level, leaving it as support; while the Dow remains below its comparable level. 

Longer term, the Averages remained well within their uptrends across all timeframes: short term (17247-20052, 2026-3005), intermediate term (17405-22533, 1828-2595 and long term (5369-19175, 797-2138).  

Volume fell; breadth recovered nicely.  The VIX dropped 5%+, finishing below its 100 day moving average and the upper boundary of its very short term downtrend. It remains a plus for stocks. 

A break in the advance/decline indicator (medium):

The long Treasury rose fractionally, but closed below its 100 day moving average and within a short term downtrend.  However, it remained above the upper boundary of a very short term downtrend, negating that trend.

GLD was down slightly, ending below its 100 day moving average and the neck line of the head and shoulders pattern. 

Oil was down again, leaving it within a short term trading range.  The dollar was up fractionally, finishing well above the lower boundary of that short term uptrend which had been technically negated.  It is near the upper boundary of a developing very short term downtrend.  If it pushes through that level, I will re-instate the short term uptrend.

Bottom line: clearly, the buy the dip crowd still has life in it.  Yet to be seen is whether it has the power to make that push the indices to the upper boundaries of their long term uptrends.  I remain of the opinion that prices will almost surely challenge those trend lines but that any further advance will be limited to the rate of ascent of those boundaries.

            The dollar, TLT, GLD and oil all took the day off; apparently unimpressed with whatever was making the stock boys get jiggy.  This doesn’t improve my confusion.

            Update on sentiment (short):

    Fundamental
   
       Headlines

            Following Tuesday data dump fest, US economic releases slowed to a trickle: weekly mortgage applications fell while purchase applications rose; the rate of growth in month to date retail chain store sales declined for a second week in a row.  In short, a mixed reading among secondary indicators; so not a lot of information value.

            Given the NASDAQ making a new all time high, I should mention the takeover offer for Broadcom which helped send the chips stocks on a moonshot.

            No international economic news; though once again the Greek bail out negotiations were center stage.  This time on a statement by the Greek PM that Greece and the Troika were near a deal.  Here is the statement and the Troika’s response (medium):

            The German denial (medium):

***overnight, Japanese April retail sales were up modestly after three down months in a row

Bottom line: very little in the fundamentals to account for yesterday’s rebound in equity prices---certainly nothing in the economic outlook either here or abroad.   The Broadcom takeover is just part of the QE cheap money fueled M&A extravaganza that has kept investors wetting their pants.  Unfortunately, all this cheap money is not being spent to increase American productive capacity or efficiency, which ultimately will come back to haunt us.  But that is a long term negative; and right now investors can’t see much past today’s close.

The Greek news may also be a plus, assuming that it is not more of the same crap trumpeted by the Greek government in their ‘game theory’ approach to the Troika negotiations.  For the sake of our own forecast, I hope that it is true.  But as I have made clear, if Greece defaults/exits all bets are off.  In any case, with the S&P sniffing the upper boundary of its long term uptrend, there is not a lot of room on the risk/reward scale for anything short of a storybook ending.

 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.

            The Fed’s pretense of knowledge (medium):

            Update on S&P earnings expectations (short):

       
Economics

   This Week’s Data

            Weekly jobless claims rose 7,000 versus expectations of a decline of 4,000.

   Other

            The $500 million spec home (short):

Politics

  Domestic

Obama gets set back on immigration executive order (medium):

  International

            How China’s new ‘silk road’ is altering geopolitics (medium and very interesting):


            I have to wonder if this Russian move in Ukraine is the result of or in conflict with whatever agreement Kerry made with Putin in his recent visit?