Tuesday, April 26, 2016

The Morning Call--Still more QE?

The Morning Call


The Market

The indices (DJIA 17977, S&P 2087) were off yesterday, though they finished well off the lows of the day. Volume fell, breadth was weaker and the VIX continues to look like it has found a bottom.

The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {17553-18508}, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5471-19343}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2085-2187}, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {800-2161}. 

The latest from Bank of America on smart money trading (medium):

The long Treasury continues to struggle.   While it remains in a short term uptrend, it is approaching its 100 day moving average.  As I noted last week, if this continues, it could be signaling either higher inflation or a tighter Fed.

GLD rallied back above the upper boundary of a very short term downtrend and a key Fibonacci retracement level.  It remains in a short term uptrend and above its 100 day moving average.


Bottom line:  the indices continue to digest recent gains and in a very technically healthy way (i.e. minor losses).   My assumptions haven’t changed: stocks are in heavily congested territory, so the upward progress will be more plodding but I expect them to challenge their all-time highs and fail.

            Updated chart on stock performance in the eighth year of a presidential cycle (short):



            This week got off to another rough start.  In the US, March new home sales were very disappointing and the April Dallas Fed manufacturing index was below forecast.  Overseas, the April German business climate index fell, China announced that government debt hit 237% of GDP and the Bank of Japan revealed that it was among the top ten shareholders of 90% of Japanese companies.

            With respect to the latter, I have noted that both the Bank of Japan and the Fed meet this week.  Japanese officials have all but guaranteed some form of additional monetary ease.  Whether it is more QE or moving negative rates even lower or some combination of both, we will know soon enough.  But it doesn’t matter because it is just another desperate attempt to disprove Einstein’s definition of insanity.
            Hopefully, the Fed will not follow suit.  The good news is that it doesn’t seem to have the same death wish as the Bank of Japan.  The bad news is that the Fed still apparently believes in the same clap trap that drives Japanese monetary policy---i.e. that somehow QE will result in economic growth notwithstanding that there is no evidence to support that notion.

            The Fed and the ‘wealth effect’ (medium and a must read):

Bottom line: the economic data remains negative; and the best solution that the global bankers can come up with is to pursue more of the same ineffective monetary easing policies that they have been following for the last eight years.  Last week, the ECB expanded its asset purchase program.  This week it appears highly likely that the Bank of Japan will make one or more additional steps to ease what has been, to date, the globe’s most aggressive monetary easing in the last decade.  And to what end?   A near zero growth economy.  No matter how much QE; no matter how negative the interest rates.  I remain stumped as to how central bankers think their actions can be reversed without pain.

My thought for the day is that in achieving investment success, knowing how to sell is twice as important as knowing how to buy.  Think about it, you buy a stock and one of three things will happen: the stock price goes up, does nothing or goes down.  What kills your performance isn’t choices one or two; it is number three.  Of course, all investors are going to take losses but what really destroys your performance is that you let a small loss grow into a large loss. 

That is why a Stop Loss Price is an integral part of our Price Discipline.  Every stock in our Portfolios has a Stop Loss Price which is set to avoid taking a big loss.  If I can avoid big losses, (1) I always have chips to stay in the game and (2) even if I can’t do any better in picking stocks than a monkey throwing darts, my portfolio is still only going to hold stocks that are up or flat. 

To be sure, taking a loss is a hard psychological barrier to overcome and most investors can think of a thousand rationalizations for holding a loser.  But it doesn’t change that fact that a loser is still a loser.  For me, the safest Discipline is a simple percentage---never take a loss of greater than 15%.  It has the benefit of dismissing all those rationalizations (it will come back, I was wrong on the timing, etc. etc. etc.) that could keep me holding on.  It is hard and fast---no if’s and’s or but’s.  It absolutely keeps me from making one performance destroying mistake.
            Three trends that don’t help the outlook for stocks (medium):

       Investing for Survival
            The bias of knowing the past.

    News on Stocks in Our Portfolios
United Technologies (NYSE:UTX) declares $0.66/share quarterly dividend, 3.1% increase from prior dividend of $0.64.

CF Industries (NYSE:CF) declares $0.30/share quarterly dividend, in line with previous.

Genuine Parts (NYSE:GPC) declares $0.6575/share quarterly dividend, in line with previous.

Canadian National Railway (NYSE:CNI) declares C$0.375/share quarterly dividend, in line with previous.

Canadian National Railway (NYSE:CNI): Q1 EPS of C$1.00 beats by C$0.08.
Revenue of C$2.96B (-4.5% Y/Y) misses by C$120M.

3M (NYSE:MMM): Q1 EPS of $2.05 beats by $0.13. Adjusted EPS of $1.95 (excluding $0.10 gains from new FASB accounting standard)
Revenue of $7.41B (-2.2% Y/Y) beats by $80M.

T. Rowe Price (NASDAQ:TROW): Q1 EPS of $1.15 beats by $0.12.
Revenue of $994.1M (-3.5% Y/Y) misses by $15.9M.

Procter & Gamble (NYSE:PG): FQ3 EPS of $0.86 beats by $0.04.
Revenue of $15.76B (-6.9% Y/Y) misses by $50M.


   This Week’s Data

            March new home sales fell 1.5% versus estimates of a 1.9% increase.

            The April Dallas Fed manufacturing index came in at -13.9 versus expectations of -9.0; however, the production index rose.

            March durable goods orders rose 0.8% versus forecasts of up 1.6%; ex transportation, the number was -0.2% versus projections of +0.5%.


            No more currency wars? (short):

            Why the Saudi’s killed Doha (medium):

            The problem with the US trade deficit (medium and a must read):

            Bad news from the transportation sector (medium):

                Rising commodity prices.  A head fake or a sign that the global economy is improving (medium):

            Last week, we saw the Central States pension plan having to reduce benefits, this week a UK fund has to follow suit. (medium):




            Russia and US keep poking each other in the eye (medium):

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

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