Thursday, August 11, 2016

The Morning Call---Confuse them

The Morning Call


The Market

The indices (DJIA 18495, S&P 2175) moved lower yesterday.  Volume was up, just barely; breadth was mixed.  The VIX rose another 3.0%, but still closed below the lower boundary of its former short term trading range for the fifth day.  I am calling the short term trend as down (that is a plus for stocks). 

The Dow closed [a] above rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {17535-19271}, [c] in an intermediate term uptrend {11312-24139} and [d] in a long term uptrend {5541-19431}.

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 uptrend {2053-2292}, [d] in an intermediate uptrend {1917-2519} and [e] in a long term uptrend {862-2246}. 

The long Treasury was up, ending above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends.  However, it continues to trade within a developing pennant formation (breaking that pattern should provide directional guidance on bond prices).

GLD rose, finishing above its 100 day moving average and within short term and intermediate term uptrends.

Bottom line: the very low volume and lack of the Market’s response to news events seems to confirm that it is in the midst of the summer doldrums.  That is OK. Be at ease, smoke’m if you got’m.  It is a plus in this environment that prices are holding near record levels and seems likely to continue in the absence of some stunning piece of exogenous news.  Still, I remain bothered by the continuing volatility in the VIX and the bond, gold, oil and currency markets which suggest that something is amiss. 



            Yesterday was a slow data day in the US, in tune with the seemingly slow and easy mood of the Market.  Weekly mortgage and purchase application rose.

            Overseas, there were no stats; but the central banks were busy little beavers:

(1)   the Banks’ of China and Japan reported on the success of their bond buying programs.  Maybe it is just me; but the wording of the Japanese communique sounded a bit more dovish than prior statements---which if you will recall had the BOJ backing off of its QEInfinity policies,

***overnight, the Bank of China seemed to walk back yesterday’s more dovish statement on monetary policy.  Another Fed ‘on the one hand, on the other hand’ copycat?

(2)   the Bank of England stated that it was having a difficult time implementing its bond buying program due to the lack of offers.

The point here is that my earlier hoped for recognition by the central banks that QE hasn’t, isn’t and won’t work and, therefore, there would be less of it may have been in vain.  That likely means more of the same [struggling economies and rip roaring markets] until acted up on by an outside force.

(3)   a German economic research institute released a report saying that Deutschebank had severe capital problems.  This fits with my ongoing thesis that the EU banks have major balance sheet issues that make many of them highly vulnerable to insolvency.

***overnight, tensions rise in Ukraine (short):

In addition, the South Korean central bank left key rates unchanged; July UK existing home sales declined.

            Meanwhile, our political elite continues make a mockery of the democratic process.  While it does have its comedic value, it does not portend well for the fiscal and regulatory reform our economy so badly needs.

Bottom line: yesterday’s actions of the central banks seem a bit inconsistent with their more restrained narrative of the prior two weeks.  Although the overnight reversal of the Bank of China seems to fit the pattern of our own Fed---confuse the sh*t out of them. I am not sure why I am surprised by that.  In any case, it would seem that central bank policy remains center stage but perhaps with a Hamlet complex.   However, since investors have always given the central banks the benefit of the doubt, that argues for further price moves to the upside until such time that investors recognize the economic ineffectiveness of QE or the gross mispricing and misallocation of assets.

 Investors should use this situation to take some money off the table, either selling a portion of the positions in their winners or all of their losers or both.’

            More on valuation (short):

            My thought for the day:  one of the most misleading adages in the investment world is that stocks go up 6-7% annually, on average.   Remember the old saying that ‘you can drown in a river with an average depth of two inches’?  Well, you can wreck your portfolio assuming an average annual return of 6-7%.   Yeah, I know---but ‘my broker/investment advisor tells me that I can expect to earn 6-7% a year all the time’.  I only have one question, do you seriously think that with the S&P at 2100, the likelihood of attaining a 6-7% annual return over the next seven years is the same as when it was 700 seven years ago?  Clearly, that 6-7% average has much to do with the level of the S&P on the start and stop dates of the period being measured.  But, but my broker says that ‘it will average out over the long term’.  News flash, in the long term, you are dead.

            The point here is that it is a highly questionable assumption that any money invested today is going to earn a 6-7% annualized return for at least a decade and perhaps more.

       Investing for Survival
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    News on Stocks in Our Portfolios

   This Week’s Data

            Weekly jobless claims fell 1,000 versus expectations for a 4,000 drop.

            July import prices rose 0.1% versus forecasts of a 0.4% decline; however, the June reading was revised from +0.2% to +0.6% (again with the big revisions) making the two months a wash.  Export prices were up 0.2% versus June’s report of up 0.8%


            This is interesting---Ed Yardini puzzles over Monday’s lousy productivity numbers (short):

            Hillary’s economy (medium):

            The long term growth prospects for the US economy (medium):

            The Bureau of Labor Statistics just revised first quarter wage growth down---down big.  Remember when it ‘adjusted’ first quarter seasonal factors because the then current ones were ‘understating’ the ‘real’ numbers.  Now the BLS is having to go back and clean up its mess.
Disturbing signs in consumer spending data (medium):




            Thursday morning humor---taking a page from The Donald’s playbook (short):

            Islam and Europe (medium and a must read):

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