Thursday, June 9, 2016

The Morning Call---BOJ and ECB starting to take some flack

The Morning Call

6/9/16

The Market
         
    Technical

The indices (DJIA 18005, S&P 2119) continued to advance. Volume fell; breadth strengthened.  The VIX rose for the third time in as many up Market days.  It remains within a short term trading range and below its 100 day moving average. 

The Dow ended [a] above its rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term trading range {17498-18726}, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5541-19413}.

The S&P closed [a] above its rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] above the upper boundary of its short term trading range for the second day {2037-2110}; if it remains there through the close today, the trend will reset to up, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {830-2218}. 

The long Treasury (133.2) moved higher again, remaining above its 100 day moving average and well within a short term uptrend.  It is nearing the upper boundary of its intermediate term trading range (133.8).

GLD popped 1.5%, ending well above its 100 day moving average and the lower boundary of its short term trading range.

Bottom line:  the upward momentum remains unabated, with the S&P now one day away from confirming the challenge to the upper boundary of its short term trading range.  Still, the VIX closed up for the third up Market day in a row.  I can’t remember the last time that I saw this; so it is quite unusual and seemingly contradictory.  Nonetheless, price is truth; and the truth is stock prices are advancing.  So I continue to think that the Averages will probably challenge the upper boundaries of their intermediate term trading ranges and even possibly the upper boundaries of their long term uptrends.  However, I don’t think that they will be successful.

    Fundamental

       Headlines

            It was another dull day in a very dull week for US economic releases. 
The sole datapoint was weekly mortgage and purchase applications which were both strong.

            Not the case overseas where there was lots of news items, slightly weighed to the negative side: April UK industrial output was above forecasts; the ECB began its corporate bond buying program (QE lovers will consider this a plus; but I think not); first quarter Japanese GDP growth was revised up from the original estimate; meanwhile Japan’s largest bank quit as a primary bond dealer (nothing says failure like abandonment of valued related party; also see below); May Chinese trade data continued to deteriorate, though retail sales were above consensus (note that the Chinese government can make up a retail sales number but they can’t fudge on international trade because the rest of the world is on the other side of the transaction); the World Bank lowered its 2016 and 2017 global economic growth expectations.

            ***overnight, the Bank of Korea lowered key interest rates; May Japanese machine orders fell 11%; the Japanese opposition party demanded an end to negative interest rates; and Deutsche Bank hammers the ECB and its ‘whatever it takes’ policy. (a bit long but a must read):

Bottom line hasn’t changed except that stocks are even more overvalued: as long as investors believe that the Fed can do no wrong, the floor under equity prices is likely to remain, irrespective of the fact that the economy is softening, corporate profits are declining and stocks are in nosebleed territory valuation wise.   In that atmosphere, then why not buy stocks?   First of all, to buy stocks when they are a couple of percent below their all-time high and ~5% from the upper boundary of an eighty year plus uptrend, is to pay a lot for the risk to own a puny reward.   Second, I am not a skilled trader; and those are the only guys who bought stocks yesterday that have a chance of making money in the short term.  I clearly have no clue when the current mispricing of assets ends; but I am willing to wait to avoid getting hammered.

            The latest from Goldman (medium):

                        The silliness of buying stocks because they yield more than bonds (medium):
Soros turns bearish (medium):
My thought for the day:  I have often commented in these pages that investing is a business of being wrong.  The objective is to be less wrong less times than the other guy.  But we are all going to make mistakes.  Just think about.  When you buy/sell a stock, either you or the guy you bought it from/sold it to, will be wrong.  So it should not be surprising that in a certain percentage of those trades, you are going to be on the losing side.
So how do we deal with this inevitability?   First, mistake minimization as a key goal.  That means keeping your bets manageable, i.e. not making such a big bet that a loss will cripple your long term return.  It also means keeping your losses small, i.e. having a Stop Loss that prevents you from rationalizing your way to a huge loss.
Second, it means recognizing that investing, like the rest of life, is a learning experience; and a big part of this learning experience is not just admitting that you were wrong but why you were wrong.  If you do that, then it helps you avoid prior mistakes and improve your chances of being right. 
Howard Marks, a great investor, said ‘I often embrace being wrong even though it’s something I try to avoid.  The thing is, it’s guaranteed to happen in this business.  Investors are in the business of learning to be wrong so they can learn to be right.  No one enters this world or this business knowing everything.  And it’s the people who evolve and learn from their mistakes more quickly than others who stick around in this business.’
       Company Highlight

Tiffany & Co is an internationally renowned retailer, designer, manufacturer and distributor of fine jewelry, timepieces, silverware, china, crystal and gift items. The company has grown profits and dividends at an 11-22% rate over the last 10 years earning a 14-19% return on equity.  While revenues and profits are impacted by economic activity, TIF has weathered difficult times well and should sustain an above average growth rate as a result of:

(1) increased marketing to modernize the brand,

(2) increased penetration in international markets,

(3) a growing customer base resulting from opening a line of new smaller stores    with lower priced, higher margin products,

(4) expanded capital investment in distribution, manufacturing and diamond sourcing.

Negatives:

(1) earnings from its foreign operations are exposed to currency fluctuations,

(2) fashion obsolescence,

(3) its customers are sensitive to macroeconomic events.

TIF is rated A+ by Value Line, carries a 22% debt to equity ratio and its stock yields 2.6%.

    Statistical Summary

                Stock       Dividend       Payout      # Increases  
                Yield      Growth Rate     Ratio       Since 2006

TIF            2.6%             7               37%              10
Ind Ave     3.4                8*              39                NA 

                Debt/                      EPS Down       Net        Value Line
               Equity         ROE      Since 2006    Margin       Rating

TIF            22             18%           3                 13%           A+
Ind Ave     37             16             NA                5              NA.

*many retailers do not pay a dividend.

     Chart

            Note: TIF stock made good progress off its March 2009 low, quickly surpassing the downtrend off its October 2007 high (straight red line) and the November 2008 trading high (green line).  Long term the stock is in an uptrend (blue lines).  Intermediate term it is in a downtrend (purple lines).   The wiggly red line is the 100 day moving average.  The Dividend Growth Portfolio owns a 50% position through a fairly circuitous route.  In 2009, it Bought a full position in TIF.  However, in mid-2011, the company had a serious earnings hiccup and the holding was Sold.  In mid-2012, after the news was digested and the outlook became a bit more visible, a one half position was repurchased.   The upper boundary of its Buy Value Range is $41; the lower boundary of its Sell Half range is $133.



6/16

       Investing for Survival
   
            The silent killer among retirees

    News on Stocks in Our Portfolios
 
            Caterpillar (NYSE:CAT) declares $0.77/share quarterly dividend in line with previous.

C. R. Bard (NYSE:BCR) declares $0.26/share quarterly dividend, 8.3% increase from prior dividend of $0.24.

United Technologies (NYSE:UTX) declares $0.66/share quarterly dividend, in line with previous.

            Philip Morris (NYSE:PM) declares $1.02/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

            Weekly jobless claims fell 4,000 versus expectations of up 3,000.

   Other

            Leveraged loan market heats up again (short):

            The broken labor market (medium):

Politics

  Domestic

More on student loans (short):


Can philosophy stop bankers from cheating? (medium and a must read):

  International

            If there is a Brexit, will there also be a Frexit? (medium):

            US believes that North Korea has restarted plutonium production (medium):

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



 The Morning Call

6/9/16

The Market
         
    Technical

The indices (DJIA 18005, S&P 2119) continued to advance. Volume fell; breadth strengthened.  The VIX rose for the third time in as many up Market days.  It remains within a short term trading range and below its 100 day moving average. 

The Dow ended [a] above its rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term trading range {17498-18726}, [c] in an intermediate term trading range {15842-18295} and [d] in a long term uptrend {5541-19413}.

The S&P closed [a] above its rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] above the upper boundary of its short term trading range for the second day {2037-2110}; if it remains there through the close today, the trend will reset to up, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {830-2218}. 

The long Treasury (133.2) moved higher again, remaining above its 100 day moving average and well within a short term uptrend.  It is nearing the upper boundary of its intermediate term trading range (133.8).

GLD popped 1.5%, ending well above its 100 day moving average and the lower boundary of its short term trading range.

Bottom line:  the upward momentum remains unabated, with the S&P now one day away from confirming the challenge to the upper boundary of its short term trading range.  Still, the VIX closed up for the third up Market day in a row.  I can’t remember the last time that I saw this; so it is quite unusual and seemingly contradictory.  Nonetheless, price is truth; and the truth is stock prices are advancing.  So I continue to think that the Averages will probably challenge the upper boundaries of their intermediate term trading ranges and even possibly the upper boundaries of their long term uptrends.  However, I don’t think that they will be successful.

    Fundamental

       Headlines

            It was another dull day in a very dull week for US economic releases. 
The sole datapoint was weekly mortgage and purchase applications which were both strong.

            Not the case overseas where there was lots of news items, slightly weighed to the negative side: April UK industrial output was above forecasts; the ECB began its corporate bond buying program (QE lovers will consider this a plus; but I think not); first quarter Japanese GDP growth was revised up from the original estimate; meanwhile Japan’s largest bank quit as a primary bond dealer (nothing says failure like abandonment of valued related party; also see below); May Chinese trade data continued to deteriorate, though retail sales were above consensus (note that the Chinese government can make up a retail sales number but they can’t fudge on international trade because the rest of the world is on the other side of the transaction); the World Bank lowered its 2016 and 2017 global economic growth expectations.

            ***overnight, the Bank of Korea lowered key interest rates; May Japanese machine orders fell 11%; the Japanese opposition party demanded an end to negative interest rates; and Deutsche Bank hammers the ECB and its ‘whatever it takes’ policy. (a bit long but a must read):

Bottom line hasn’t changed except that stocks are even more overvalued: as long as investors believe that the Fed can do no wrong, the floor under equity prices is likely to remain, irrespective of the fact that the economy is softening, corporate profits are declining and stocks are in nosebleed territory valuation wise.   In that atmosphere, then why not buy stocks?   First of all, to buy stocks when they are a couple of percent below their all-time high and ~5% from the upper boundary of an eighty year plus uptrend, is to pay a lot for the risk to own a puny reward.   Second, I am not a skilled trader; and those are the only guys who bought stocks yesterday that have a chance of making money in the short term.  I clearly have no clue when the current mispricing of assets ends; but I am willing to wait to avoid getting hammered.

            The latest from Goldman (medium):

                        The silliness of buying stocks because they yield more than bonds (medium):

Soros turns bearish (medium):

My thought for the day:  I have often commented in these pages that investing is a business of being wrong.  The objective is to be less wrong less times than the other guy.  But we are all going to make mistakes.  Just think about.  When you buy/sell a stock, either you or the guy you bought it from/sold it to, will be wrong.  So it should not be surprising that in a certain percentage of those trades, you are going to be on the losing side.

So how do we deal with this inevitability?   First, mistake minimization as a key goal.  That means keeping your bets manageable, i.e. not making such a big bet that a loss will cripple your long term return.  It also means keeping your losses small, i.e. having a Stop Loss that prevents you from rationalizing your way to a huge loss.

Second, it means recognizing that investing, like the rest of life, is a learning experience; and a big part of this learning experience is not just admitting that you were wrong but why you were wrong.  If you do that, then it helps you avoid prior mistakes and improve your chances of being right. 

Howard Marks, a great investor, said ‘I often embrace being wrong even though it’s something I try to avoid.  The thing is, it’s guaranteed to happen in this business.  Investors are in the business of learning to be wrong so they can learn to be right.  No one enters this world or this business knowing everything.  And it’s the people who evolve and learn from their mistakes more quickly than others who stick around in this business.’
      

       Investing for Survival
   
            The silent killer among retirees

    News on Stocks in Our Portfolios
 
            Caterpillar (NYSE:CAT) declares $0.77/share quarterly dividend in line with previous.

C. R. Bard (NYSE:BCR) declares $0.26/share quarterly dividend, 8.3% increase from prior dividend of $0.24.

United Technologies (NYSE:UTX) declares $0.66/share quarterly dividend, in line with previous.

            Philip Morris (NYSE:PM) declares $1.02/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

            Weekly jobless claims fell 4,000 versus expectations of up 3,000.

   Other

            Leveraged loan market heats up again (short):

            The broken labor market (medium):

Politics

  Domestic

More on student loans (short):


Can philosophy stop bankers from cheating? (medium and a must read):

  International

            If there is a Brexit, will there also be a Frexit? (medium):

            US believes that North Korea has restarted plutonium production (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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