I am back but not full speed. Studying is a drag for a 73 year old and doesn’t go as smoothly as when I was 20. So I will continue to devote time to studying. The test is Friday. I will produce short Morning Calls through Thursday. Then nothing Friday and Saturday. Back on Monday if I am sober.
Monday Morning Chartology
If a picture is worth a 1000 words, then I needn’t say anymore.
Selling volume continues to expand (medium):
The long Treasury (132) ended Friday above the upper boundary of a very short term downtrend. As you can also see, it is not the far away from the upper boundary of its intermediate term trading range. If it breaks that level, the next stop is the upper boundary of its long term uptrend (circa 150). Nothing says recession/deflation quite like falling interest rates.
GLD (121) continues to act well. It looks like it is going to have another try at the upper boundary of its intermediate term trading range. If it breaks that the next stop is the upper boundary of its long term downtrend (140).
The VIX continues to mill around the lower boundary of its short term trading range but has been unable to break below it. A move out of the very short term trading range that has existed since mid-March would likely lead me to add to the Aggressive Growth Portfolio’s VXX position.
Although the economic flow last week was a bit slow, it was nonetheless upbeat: above expectations: the April small business confidence index, month to date retail sales, April retail sales, weekly mortgage and purchase applications, April import/export prices and May consumer sentiment; below expectations: March wholesale inventories and sales, March business inventories and sales, weekly jobless claims and April PPI; in line with expectations: the April budget surplus and April PPI, ex food and energy. There was only one primary indicator (April retail sales); and it too was up. The score: in the last 35 weeks, eight have been positive to upbeat, twenty six negative and one neutral.
We have to take good news anyway we can get it. But the above performance is hardly a reason to question our forecast.
Overseas, the data was mixed: above expectations: German April manufacturing orders and first quarter household spending, April Chinese and EU auto sales; below expectations: the April Chinese trade deficit, consumer inflation and wholesale prices and March German industrial production. Again nothing here to prompt a rethink of our forecast.
***overnight, April Chinese credit growth, industrial production, retail sales and fixed asset investment came in below estimates.
In other matters, I reported that a Japanese official had suggested additional currency weakening monetary measures; and I suggested that it should be taken with a healthy dose of skepticism in light of recent warnings from both the US and Chinese that more competitive devaluations would not be welcome.
In addition, it is rumored that Abe will delay the implementation of a second (upcoming) sales tax increase. You may recall that I thought it absurd to effect the first hike. The Japanese economy is comatose and the last thing it needs is another rise in sales tax. The measure makes a lot more sense than doubling down on zero interest rates, especially since the US and Chinese suggested that fiscal action taken to improve an economy was perfectly acceptable. That said, don’t look for the Japanese economy to lift off anytime soon; but it may help dampen the rate of decline.
Of course, the real chuckler of the week came from none other than our beloved Fed chairperson when she allowed that she wouldn’t rule out zero interest rates as a policy tool here. This lady is either delusional or she is considering becoming the head of marketing for the new Rocky Mountain High cigarettes. She needs to do a quick check of the success that the Japanese have experienced with zero interest rates and then shut the f**k up.
Bottom line: last week’s US economic news was better than a sharp stick in the eye; though I need a lot more of this kind of data flow before I get too encouraged. Earnings season is over; and while reported profits were better than estimates, those estimates had been lowered considerably. Plus those reported earnings have been propped up with so much funny accounting, I think that they only marginally reflect the real numbers. The overseas stats did nothing to contribute to any improvement in the outlook; and if you don’t believe me review the dialogue coming out of Japan. Finally, pray that Yellen was just having a senior moment. If the Fed goes to negative rates, the mispricing and misallocation of assets will get much worse.
Stock prices remain in some sort of never never land, which is to say, grossly overvalued. The best investment strategy at the moment is to sell a portion of your winners and get rid of the losers.
Another warning from David Stockman (medium):
News on Stocks in Our Portfolios
This Week’s Data
The New York Fed manufacturing index came in at -9.02 versus expectations of +7.00
Quote of the day (short):
International War Against Radical Islam
This makes you stop and think (medium):
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