Tuesday, June 7, 2016

The Morning Call---She does it again

The Morning Call


The Market

The indices (DJIA 17920, S&P 2109) recovered the losses from last week yesterday. Volume fell; breadth was stronger.  The VIX rose, somewhat surprising for an up Market day, bouncing off the lower boundary of its short term trading range which it has rebounded off of four times. 

The Dow closed [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 finished [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 {2037-2110}, [d] in an intermediate term trading range {1867-2134} and [e] in a long term uptrend {830-2218}. 

The long Treasury gave back some of its advance on Friday, but still remained above the former upper boundary of a very short term downtrend, above its 100 day moving average and well within a short term uptrend.

GLD continued its upward move, ending well above its 100 day moving average and the lower boundary of its short term trading range.

Bottom line:  the bulls continued their upward pressure.  That said, the S&P challenged the upper boundary of its short term trading range and failed; in addition, the VIX was up on a pretty strong up Market day.  Both suggest a possible loss of momentum.  However, investors’ unbridled enthusiasm for both good and bad economic news keeps me thinking that a challenge to the upper boundaries of the Averages intermediate term trading ranges remains a strong likelihood.

            Melt up? (short):



            No US economic data was released yesterday and the only foreign stat was a poor April German industrial orders number.

            ***overnight, EU first quarter GDP was slightly better than expected; April German industrial output was much better than anticipated.

            The news of the day once again came from the Fed.  Actually prior to Monday, two Fed chiefs spoke reiterated that a June hike was on the table.  But the coup de grace came from Yellen in which she again tried to have both ways: on the one hand, the economy really is awesome, on the other hand, the Fed just doesn’t know when to rate rates---which as always is data dependent.  Odds of either a June or July rate increase declined.

            After all that rhetoric from all those Fed members about hiking rates, Yellen now wants to reintroduce uncertainty.  Haven’t these people been talking to each other?  What in the name of heaven are they thinking about, when they know that everyone in the globe is hanging on their every syllable?  Either Yellen was throwing virtually the entire FOMC under the bus or she is trying to keep us all in suspense before a June rate hike.  I just don’t know how this can end well.

Her comments:

Central banks in fantasy land (medium):

            Bottom line: in addition to a multitude of other sins (which I will save you time by not reiterating), the Fed has made itself indispensable to the Market.  Nobody cares anymore what the numbers here or abroad are, or what the result of the current political clown show is, or whether there is a Brexit or not.  They only care about what the Fed’s reaction will be, that is, whether or not interest rates will remain low so they can continue to chase yield and gamble on the carry trade.   My opinion, one day this link is going to be broken whether by accident or by another stupid move by the Fed.  I also believe that cash will be handy when that occurs.

            My thought for the day is that following the passage of Glass-Steagall our financial system operated in relative safety.  Since its repeal fifteen years ago, we have experienced the biggest financial crisis since 1929.  Today, irresponsible Fed policy has encouraged, on an unprecedented scale, the assumption of risk in order to chase yield.   Yes, recent regulatory actions have forced banks to increase capital.  However, we have no idea how to measure the magnitude of the counterparty risks in their derivative portfolios, especially as it relates to the international banks which have not been subjected to the kind of reforms placed on US banks.  As long as banks are able to operate beyond their original charters, the temptation to speculate with basically free money remains and will ultimately lead to another crisis  (to wit, student and subprime auto loans.  See below)

       Investing for Survival
            How much retirement spending can you afford?

    News on Stocks in Our Portfolios

   This Week’s Data

            First quarter US productivity fell 0.6%, in line; unit labor costs rose 4.5% versus expectations of +4.1%.


            Why so many Americans are voting against the status quo (short):

            More on subprime auto loans (medium):

            More manufactured data from China (short):



DHS is catching and releasing busloads of illegal immigrants (medium):


            Obama refuses to discuss nuclear options with Russia (medium):

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