Tuesday, July 12, 2016

The Morning Call---Phase 3, Helicopter money

The Morning Call


The Market

The indices (DJIA 18226, S&P 2137) continued their winning ways on Monday, though volume shrank and the VIX was up (unusual for the VIX to rise on an up Market day).  If there is any follow through to the upside, then it will have failed in its sixth attempt at challenging the lower boundary of its short term trading range.  Breadth was strong. 

The Dow closed [a] above rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] above the upper boundary of its a short term trading range {17498-18167}; if it remains there through the close on Wednesday, the short term trend will reset to up, [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] above the upper boundary of its short term trading range {2037-2110} for the second day; if it remains there through the close today, it will reset to an uptrend, [d] above the upper boundary of its intermediate term trading range {1867-2134}; if it remains there through the close on Thursday, it will reset to an uptrend and [e] in a long term uptrend {862-2246}. 

The long Treasury fell, breaking with its recent correlation with stocks.  It continues to trade above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends. 

GLD also declined, ending above its 100 day moving average and within short term and intermediate term uptrends.

Bottom line:  the indices continued their upward momentum though volume remained weak and the VIX actually rose yesterday.  Further, bonds and gold which have been following stocks in the current everything is awesome world, sold off.  Not a lot; but they still represent cognitive dissonance. 

I have noted several times that (1) I thought that the Averages would likely challenge the upper boundaries of their short and intermediate term trading ranges, but (2) wouldn’t be successful.  They are clearly in the midst of those challenges; success or failure is yet to be determined.



            No US economic data was reported yesterday---it will be a slow week until Friday when we will get a flood of numbers.  Overseas, June Chinese consumer inflation was up less than expected while May Italian industrial output was fell.

***overnight, the European Economic Commission lowered its 2017 economic growth forecast for both the EU and the UK.

            The real news which seemed to keep investors excited was Bernanke’s visit to Japan.  While we know nothing about what is being said, rumors are flying that he is there to encourage the Japanese central bank to institute what has been come known as ‘helicopter’ money (that is, the central bank directly financing fiscal spending).  That notion was supported by Abe’s promise to institute a ‘new’ stimulus policy, following an election that raised his party’s representation in parliament.  Since Japan has been the global leader in QEInfinity, ZIRP and deficit spending (‘old’ stimulus policies), Abe doesn’t have many other ‘new’ alternatives for stimulus.   Since no one has ever tried helicopter money (did someone say Zimbabwe?), I can’t say that it will be a bust.  I can say that QE and ZIRP have been.

            And (medium):

            What with Brexit and the Italian banks, China has recently slipped out of investor consciousness.  Well, here is an update on that everything is awesome economy (medium):

            And (medium):

            Speaking of Italy, everything is not awesome (medium):
Bottom line: if the aforementioned rumors are correct, then it seems that the world is about to embark on yet another experimental central bank monetary policy.  God help us if it achieves the same level of success as QE and ZIRP. 

That said, it seems that investors are feeling all warm and fuzzy about those prospects; so what do I know?  I do believe that a healthy dose of skepticism is warranted given the central bank’s track record on new experimental policies.

            Given the current price levels, it is an excellent opportunity to sell a portion of your winners and all of your losers.

            Getting nowhere fast (medium):

            Why earnings season is such a joke (medium):

            Thoughts from a bull (medium):

            My thought for the day: think carefully about how you define a ‘safe’ investment.  I read and see ads every day for mutual funds, gold coins, annuities, etc. that are labeled ‘safe’.  I remember that my dad once invested in a vacation development in Mexico because a member of his church said that it was a great deal and was ‘safe’.  It ended in bankruptcy. Just because someone says an investment is safe, doesn’t make it so, even if he is a member of your church.  Remember, (1) anyone touting you generally has a financial interest in you buying; and they usually either don’t know or don’t care whether it is ‘safe’ or not, (2) forget complex investments; if the rationale can’t be explained in 25 words or less, walk away or hire an impartial expert, (3) trust but verify, (4) if the investment is too good to be true, it probably isn’t.

       Investing for Survival
            Winning by hitting singles instead of homers.
    News on Stocks in Our Portfolios

   This Week’s Data

            The June small business confidence index was reported at 94.5 versus expectations of 94.0.




  International War Against Radical Islam

            Merkel admits terrorists entered Germany in ‘refugee flow’ (medium):

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