The Morning Call
3/11/16
The
Market
Technical
The Market
consolidation process continued with yesterday’s mixed closing in the Averages
(DJIA 16995, S&P 1989). Volume was
flat, breadth mixed. The VIX declined 1 ½%, ending in a short term trading
range and below its 100 day moving average.
The Dow finished
[a] below its 100 day moving average, now resistance, [b] below its 200 day
moving average, now resistance, [c] above the lower boundary of a short term
downtrend {16671-17410}, [c] in an intermediate term trading range
{15842-18295}, [d] in a long term uptrend {5471-19343}, [e] and has now made a
third higher high.
The S&P
ended [a] below its 100 day moving average, now resistance, [b] below its 200
day moving average, now resistance [c] within a short term trading range
{1867-2104}, [d] in an intermediate term trading range {1867-2134}, [e] in a
long term uptrend {800-2161} and [f] has now made a second higher high.
The long
Treasury fell slightly, but closed well within its short term uptrend and above
its 100 day moving average. It is building
a pennant formation bounded by the upper boundary of a very short term downtrend
and above a key Fibonacci retracement level. Patterns of this type usually resolve
themselves to the downside (higher yields)---which is exactly opposite of what I
assume would happen in a declining interest rate environment.
GLD rose 1 ½%, finishing
within very short term and short term uptrends, as well as substantially above
its 100 day moving average. It continues
its very strong pin action.
Bottom line: intraday
volatility aside, the indices remained overbought but, impressively, unwilling
to give up much ground. On the other
hand, they tried unsuccessfully for a third time to challenge their 100 day
moving averages. I would have thought
that yesterday’s news event would have prompted a forceful move in one
direction or the other. No such
luck. The bulls and bears are duking out
at current levels; and I do not want to get in the middle of that fight.
Fundamental
Headlines
Another
slow day for US economic data: weekly jobless claims declined more than
expected while the February US budget deficit was larger than projected. Overseas,
February Chinese CPI rose 2.3%.
Nobody
really noticed because the big news of the day was:
(1)
Draghi didn’t just roll out a bazooka, he brought an
ICBM---giving the Market all it had hoped for and more: lower rates, more QE
and an expanded list of securities available for central bank purchase. Afterwards, he said that there would be no
more rate cuts. That sort of bummed
investors. But for pete sakes, this may
be the most intelligent thing that he has said in the last ten years. How much deeper into QE/negative rates does
he need to get before crying uncle on the entirety of this failed policy?
I suspect that Draghi knows that this latest move is
the last hoorah for QE/negative rates.
If it doesn’t work, there is nothing left for him to do other than slink
out the back door and join Brother Love’s salvation show.
In a perverse way, I think this move is good because the
ECB is going ‘all in’ on QE and if it fails [which if history is a guide, it
will] then maybe our central bankers will recognize the need to try something different,
like normalizing monetary policy.
QE and inequality (medium):
(2)
the Chinese joined in, even upping the ante on
irrational central bank policy. It
announced a proposal [***overnight it was upgraded to ‘drafting a rule’] to
have banks convert nonperforming loans into equity which would free up their
balance sheets to make more loans. So
let’s see if I have this right. First, banks
are going to exchange the nonperforming loans of a bunch of poorly run
companies for the equity in those companies, thereby trading a senior position
in their capital structure for the most junior position. Then, the Bank of China is going to inject
liquidity into the bank balance sheets so that they can turn around and make
more s**tty loans to poorly run companies.
Yeah, that ought to work.
Chinese money chasing unicorns (medium):
(3)
OPEC renounced the Wednesday press release that a
meeting had [supposedly] been scheduled for all major oil producers on March
20. That allowed them to cover the
shorts they had laid out following the original announcement. Just kidding [maybe].
Bottom line: Draghi
delivered, just as hoped for. Now it is ‘put
up or shut time’. If this new improved
version of QE works like the past installment, not only will it not work, it
will likely make economic conditions worse.
If that happens, all that will be left of the EU economy is popcorn
sacks and wagon tracks. The good news is
that maybe, just maybe, when it happens, these clowns will realize the
uselessness of the last seven years’ monetary policy.
In my opinion,
the current rally represents an excellent opportunity to raise cash reserves by
selling either a portion of your profitable investments and/or sell your
losers.
Global
liquidity tracker (short):
Update
on valuation (medium):
Investing for Survival
Retail
venture capital.
News on Stocks in Our Portfolios
Philip
Morris (NYSE:PM) declares $1.02/share quarterly dividend, in
line with previous.
Forward yield 4.25%
Economics
This Week’s Data
The
February US budget deficit came in at $192.6 billion slightly greater than
forecast.
February
import prices fell 0.3% versus consensus of down 0.8%; export prices declined
0.4% versus estimates of down 0.5%.
Other
Update
on household net worth (short):
Politics
Domestic
International War Against Radical
Islam
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