Friday, November 13, 2015

The Fed goes 6 for 6; meanwhile, more bad economic news

The Morning Call


The Market

The indices (DJIA 17448, S&P 2045) took a body blow yesterday.  The Dow ended [a] above its 100 moving average, which represents support {I am an idiot, I have been carrying this as resistance, when it was clearly support.  I hate getting old!}, [b] below its 200 day moving average, now support; if it remains below this MA through the close next Tuesday, it will revert to resistance, [c] within a short term trading range {16919-18148}, [c] in an intermediate term trading range {15842-18295}and [d] in a long term uptrend {5471-19343}.

The S&P finished [a] below its 100 moving average, which represents support {see above}, [b] below its 200 day moving average, now support; if it remains below this MA through the close next Tuesday, it will revert to resistance, [c] in a short term trading range {2016-2104}, [d] in an intermediate term uptrend {1955-2747} [e] a long term uptrend {800-2161}. 

Volume rose; breadth was negative.  The VIX (18.3) was up 14%, ending [a] right on its 100 day moving average, now resistance, [b] within a short term downtrend and [c] in intermediate term and long term trading ranges. 
Update on sentiment (short):

            Also (short):

            More on breadth (short):

The long Treasury rose, remaining below its 100 day moving average, now resistance but within very short term, short term and intermediate term trading ranges.

GLD rose fractionally, ending [a] above the lower boundary of its short term trading range, [b] below its 100 day moving average, now resistance, [c] in intermediate and long term downtrends. 

Bottom line: both the Averages are now challenging their 200 day moving averages; but that won’t be confirmed till next Tuesday.  So right now the key is whether there is any follow through to the downside (having made a lower high and adding weight to the argument that the Market is topping out) or if the pin action was just noise (and we get a rebound that could lead to a challenge of the all-time highs and upper boundaries of the indices long term uptrends).  Stay tuned.


            US economic releases yesterday were mixed to negative: weekly jobless claims were in line, weekly mortgage applications were down but purchase applications were up and the October budget deficit was 12% larger than last October.  These are all secondary indicator so by themselves of only minor significance.  However, they add to the negative week to date aggregate datapoints.

            Perhaps the bigger economic news was:

(1)   big declines in global material and industrial stocks---likely reflecting the continuing poor global economic trends,

(2)   six Fed officials spoke yesterday and, overall, they did nothing to alter the view that a December rate hike is coming---which suggests that [a] either they aren’t paying attention to (1) above or [b] as I have proposed, they have made their minds that they have to raise rates because it will be easier to argue that they were too late to raise rates due to an overabundance of caution than to have to defend themselves for having completely missed the opportunity to normalize monetary policy.

            Overseas, Draghi continued to pound in his more QE in December theme (indicating that he is not missing the lousy data), the Greeks were in the streets protesting EU imposed austerity (begging the question, how can the ECB be trumpeting a new, more aggressively easy monetary policy presumably the result of disappointing economic numbers, while simultaneously the EU is being a hard ass on the Greeks who are teetering on depression) and for the good news, Japanese machinery orders were up.

Meanwhile, falling credit demand in China is resulting in a major increase in fiscal stimulus (medium):
            ***overnight, third quarter EU GDP fell short of estimates (medium):

                        And China raised margin requirements (medium):

Bottom line: the global economic scene continues to deteriorate and is being reflected in numerous areas---plunging commodity prices, declining industrial production and falling Chinese credit demand.  Somehow the Fed is looking at these data as well as the sputtering US economy and convinced itself that now is the time to raise rates. 

Not that a 25 basis point increase in interest rates will make a tinker’s damn to the economy; but it likely will to the Markets---and it is the Markets that have been the real focus of Fed policy for lo these many years.  The logical conclusion is that when the time comes it will not raise rates.  But if it doesn’t, then (1) it will be acknowledging that all its happy horses**t about a strengthening economy is just that and (2) if the global economy slips into recession, which seems increasingly probable, that its policies have once again damaged the economy [which, I am fond of reminding you, like it has in every single transition from easy to normalized monetary policy in its history].  My opinion hasn’t changed: whenever the Fed starts to normalize monetary policy, Market pain will be incurred; and the longer it waits, the greater the pain.

The most important point is that I would use the strength to take some profits in winners and/or eliminating investments that have been a disappointment.
            Six strange things happening in the Markets.  Note the number of times the word ‘liquidity’ is used (medium and a must read):

       Investing for Survival
Risk: your best friend and worst enemy.
    News on Stocks in Our Portfolios

   This Week’s Data

            The October federal budget deficit was $136.5 billion up 12% from last October.

            October PPI fell 0.4% versus expectations of a 0.2% increase; ex food and energy the number was -0.3% versus consensus of +0.1%.

            October retail sales rose 0.1% versus estimates of up 0.3%; ex autos, they were up 0.2% versus forecasts of up 0.4%.


            More from an optimist (medium):



Obamacare as income redistribution (short):

Crony capitalism at Freddie Mac (medium):


            Now this from Spain---the latest on Catalan secession (medium):

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