Monday, February 8, 2016

Monday Morning Chartology---Obama's imaginary recovery

The Morning Call


The Market

       Monday Morning Chartology

            As you can see, the S&P was neither able to best the 2/1/16 high nor hold the lower boundary of that developing very short term uptrend.  Our attention must now go the 1867 support level and whether or not it can withstand another challenge.

            What the charts say (medium):

            For some reason, the TLT chart did not update Friday’s close.  I have marked the closing price with the short purple line.  The bond was unable to successfully challenge the upper boundary of its short term trading range and has violated the very short term uptrend.  Given the lousy nonfarm payroll numbers on Friday, which has me at a loss.  Perhaps investors think that the White House will muscle the Fed to raise rates in March to support the bulls**t, ‘the economy if doing great’ narrative Obama espoused on Friday; or perhaps the Fed has finally realized QE hasn’t, isn’t and won’t work and will pursue the return to normality irrespective of what investors want.

            Who is the guy that was whining that this is an ugly chart?  This is a pretty dramatic spike in gold prices.  The short term trend will now reset to a trading range and barring a big turnaround today, the intermediate term will reset.  Something is clearly going on in this market and it is not worry about higher interest rates (which historically are a negative for gold).  Some investors are speculating that with the mad dash by central bankers to negative interest rates that gold now presents a higher return (0%) than a negative interest rate bond.

            The only thing about this chart that would argue against higher volatility (lower stock prices) is the downward sloping trend of the 100 day moving average.  If that turns up, then the outlook of equity prices worsens a bit.


            A brief note on Friday’s nonfarm payrolls report which included (1) slower job growth, (2) but a lower unemployment rate and (3) higher wage growth.  Without getting into an hour lecture on economics, the task of capitalism to provide for an equitable split of the income pie, that is, improved profitability and wage growth.  But that doesn’t always happen because of the cyclicality of the economy.  When the economy is on the rise, sales grow, profits grow (assuming efficient management) and some part of that increased profitability gets passed on as higher wages.  But when the economy reaches a cyclical peak, sales start to slow (which they are now), so if costs remain the same, there are pressures on margins.  What does management do?  They stop hiring (lower job growth, like now) and they start paying current employees to work overtime (higher wages, like now).  But that lowers productivity and increases unit labor costs (like now).

            In short, Obama’s self gratulatory, high five news conference was a figment of His imagination.  To be clear, I don’t think that He has a clue about the economic thesis that He was throwing out.  So there was nothing deliberately deceptive about His presentation.  He just doesn’t know jacks**t about economics and that has been clear since His inauguration.  I have no doubt that His economic advisors cautioned Him about His statement; but His political advisors clearly won out and in an attempt of somehow claim another legacy for His presidency, they persuaded Him to use some questionable data (which again, He has no clue about) to pronounce a full recovery from the prior administration’s failed policies that led to recession.

            In my opinion, the data on Friday read as it did because the economy is slowing so (1) business cut back on hiring [lower job growth], (2) and since there were fewer jobs available more people dropped out of the labor force [pushing down the unemployment rate], (3) and industry opted to pay more overtime than hire new people [higher wage growth], (4) productivity fell and unit labor costs went up.

            An update on fourth quarter corporate earnings (medium)

       Investing for Survival
            Questioning a ‘buy and hold’ strategy:
    News on Stocks in Our Portfolios
FactSet Research Systems (NYSE:FDS) declares $0.44/share quarterly dividend, in line with previous.


   This Week’s Data


            That Chinese reserve number discussed on Friday came in right where the harm was minimized (medium):

            Update on big four economic indicators (medium):


Quote of the day (short):

  International War Against Radical Islam

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