Friday, June 17, 2016

The Morning Call--Odds of a Brexit now lower?

The Morning Call


Our daughter and family arrive this afternoon for Dad’s day weekend.  No Closing Bell.  Back on Monday.  Remember today is Quad Witching.

The Market

The indices (DJIA 17733, S&P 2077) did another intraday turnaround, opening down big and then closing up strongly. Volume was flat.  Breadth improved, rebounding from an oversold condition.  The VIX was down 4%, but still finished well above its 100 day moving average, now support.


The Dow closed [a] above its rising 100 day moving average, now support, [b] above its rising 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 finished [a] above its rising 100 day moving average, now support, [b] above its rising 200 day moving average, now support, [c] within a short term trading range {2037-2110}, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {830-2218}. 

The long Treasury was up, ending above its 100 day moving average and within short, intermediate and long term uptrends.

GLD (122.4) got whacked.  It is closed above the lower boundary its 100 day moving average; however, intraday it traded above the upper boundary of its short term trading (124.2) and reached the upper boundary of its intermediate term trading range (125.6) but fell back below the former by the final bell.

Bottom line: it is tough to know if yesterday’s bout with schizophrenia was related to the news flow (central bank disappointment, the murder of the British MP), today’s quad witching, a bounce off an oversold condition or just noise.  I don’t expect to get an answer to that today; but we will know more early next week.  Still, best to do nothing---unless you want to take profits.

The TLT chart couldn’t get much more bullish; though if this is a reflection of recession or coming economic/political turmoil, it is not a plus for stocks.

GLD’s reversal was concerning; but like equities, it is difficult to know how much of this is options/futures related.



            Yesterday’s economic data was mixed to slightly upbeat: May CPI was below forecasts, ex food and energy, it was in line (the numbers I reported yesterday were incorrect due to a reporting error at Barron’s); weekly jobless claims rose more than projections; both the first quarter US trade deficit and the June housing market index were fractionally better than expected while the June Philly Fed index was very strong.

            The central banks remained in the headlines.  The Fed continued to take flack for yet another tangled explanation of Fed policy which could have been delivered by the Cowardly Lion.  The saving grace for Yellen was that overnight the Bank of Japan, which is only central bank whose policies are more oblique and f**ked up than our own, announced that it had also left rates unchanged. 

            The Fed chickened out again (medium):

            Janet whiffs again (medium):

            EU parliament members urge Draghi to implement helicopter money (medium):

            Late in the day, a British MP was assassinated by a deranged Brexit supporter and rumors flew that next week’s vote might be postponed---which perversely enough seemed to lighten investors’ hearts.

            EU peripheral bond risk soars (medium):

            ***overnight, Greece receives new E7.5 billion loan.  Of course, there is a price. (medium):

Bottom line: central banks have led to the excessive mispricing and misallocation of assets; and in the last week, investors seemed to indicate than they have had enough.  It may be that yesterday’s dramatic intraday reversal reflects that investors have decided to again give the benefit of the doubt to the Fed.  Who knows; but investors’ opinions are different from the facts.  Zero interest rates haven’t, aren’t and are not likely to have any positive impact on the global economy.  Sooner or later that policy gets reversed.  When it does, asset prices will respond and it is not apt to be pretty.

The Brexit vote at last count was near a tossup.  It may be that the tragic death of the British MP will really change the vote of the electorate.  I am certainly no expert on the British voter.  But I can’t think of an issue in this country on which I would change my mind based on the senseless killing of an advocate on one side or the other. 

In short, I can’t come up with a good fundamental reason for yesterday’s surprising pin action.  However, I can think of two technical explanations: quad witching and/or an oversold market.  But I have an open mind.  Let’s get through the options expiration and then reconsider.

My thought for the day: I recently cautioned against chasing yield because that extra yield comes with a price, i.e. higher risk.  Yet my whole investment strategy is based on buying dividend paying stocks.  I don’t own a single stock that doesn’t pay a dividend.  So if I am chasing dividends, aren’t I chasing yield?  No.  How do I reconcile those seemingly inconsistent factors?
Because the strategy involves buying dividend growth not yield.  Not only that but it involves buying dividend growth by companies with sound balance sheets and good investment returns that have a long history of growing their dividends.  In other words, I am not focused on yield but on the combination of yield plus the long term rate of dividend growth.
For instance, the hurdle rate for inclusion in our universe is a minimum yield/dividend growth combination of 11% for the Dividend Growth and High Yield Portfolios and 15% for the Aggressive Growth Portfolios.  The reason is simple.  I want to create an income stream that grows every year irrespective of what happens into stock prices. 
Unfortunately, it isn’t quite that simple because, as with chasing yield, if I chase yield plus growth, I can still incur too much risk for the price I pay.  That is where our Price Disciplines come into play.  But I have already covered that topic with some frequency.

        Investing for Survival
            Tips for advisors.

    News on Stocks in Our Portfolios
Oracle (NYSE:ORCL): FQ4 EPS of $0.81 misses by $0.01.
Revenue of $10.6B (-1.0% Y/Y) beats by $130M.


   This Week’s Data

            The June housing market index came in at 60 versus expectations of 59.

            May housing starts fell slightly, though much less that estimates; while permits rose much less than anticipated.


            More on student loans (medium):



CIA director Brennan warns of increasing attacks by ISIS (medium):

  International War Against Radical Islam

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