Friday, August 26, 2016

The Morning Call--We now return you to the regularly scheduled program

The Morning Call

8/26/16


The Market
         
    Technical

The indices (DJIA 18448, S&P 2172) creep lower yesterday on lower volume and deteriorating breadth.  The VIX rose 1%, but is still below its 100 day moving average and within a short term downtrend.  However, it is back above the lower boundary of its former short term trading range and has now made its third higher low.

The Dow ended [a] above rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {17707-19441}, [c] in an intermediate term uptrend {11333-24160} 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 {2077-2316}, [d] in an intermediate uptrend {1923-2525} and [e] in a long term uptrend {862-2400}. 

The long Treasury declined again, but closed above its 100 day moving average and well within very short term, short term, intermediate term and long term uptrends.  However, it has been stalled since late June.

GLD fell, but ended above its 100 day moving average and within short term and intermediate term uptrends.  Like TLT, it has gone nowhere since late June; but it is now near the lower end of that trading range.  More important, GDX (Aggressive Growth Portfolio) has broken a key technical level.  If it fails to recover by the close Monday, I will Sell a portion of that holding.

Bottom line: as you know, most Markets have been on hold all week awaiting this magical Fed day.  Thankfully, this is about to be over---whatever Janet says.
           
            Is the Market ripe for a correction? (medium):

    Fundamental

             Headlines

            Yesterday’s US economic data were upbeat: weekly jobless claims were better than expected, July durable goods orders (primary indicator) were very strong and the August Kansas City Fed manufacturing index remains in negative territory.

Overseas, the German Info Institute business climate index declined and July Japanese PPI came in at the highest level in ten months.

            ***overnight, the July UK sentiment index rose.

            Bottom line: as of the close last night, the economic data this week has been a wash, although today will be the biggest reporting day of the week.  So there is really no change on the outlook for the economy.  The tone and content of Yellen’s speech has the potential to alter economic and Market assumptions---if she does something other than give an hour’s worth of the same old ‘on the one hand/on the other hand’ narrative followed by an indication that the Fed will not raise rates.  Absent a surprise, the Market will likely breathe a sigh of relief and leave early for the weekend. 

            Hilsenrath, the Fed whisperer, on the Fed (medium and a must read):

            Have investors already started to tune out the Fed? (medium):

            Central banks own $25 trillion in financial assets (short):

            More on rising Libor rates.  Have Markets had enough of failed central bank policy and are starting to raise interest rates irrespective of what central banks do?   Remember an inverted yield curve is the historic precursor to recession (short):
           
            My thought for the day: when I was in the investment banking business, our firm raised money for small/medium sized companies.  Once we were hired, one of the first things we asked the client to do is give us a mission statement---preferably in 25 words or less.  Once we had that we could measure the effectiveness of every decision that the company had made and more importantly, intended to make with the money we raised.  It provided a laser like focus for management decision making.

            The same is true for the investor.  Each investor needs to have an investment policy statement articulating the key reasons why they investing and what they hoping to gain from their investments.  Once they have that it becomes their guide for keeping their investment portfolio on course to meet its goals.

          It also forces them to consider the specifics for how they intend to meet their objectives.   Clearly, it makes no sense to say ‘I want a 10% annualized return; or I want to retire with $1 million’ and have no plan on how to accomplish it.  So they need to define (1) the timeframe in which they have to achieve the goal, (2) how much they have to save and how much return they expect from their portfolio over that timeframe, (3) determine the asset allocation required provides that portfolio return, (4) decide how frequently they will audit their plan/portfolio to verify that they are on track and, if not, what changes may need to be made to their investment policy statement.

     Investing for Survival
   
            Three essential points every investors should understand.


    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

            The August Kansas City Fed manufacturing index came in at -4 versus the July reading of -6.

                Revised second quarter GDP was up 1.1%, in line; the GDP price index rose 2.4% versus expectations of up 2.2%; corporate profits fell 2.2% versus the prior report of down 2.3%.

            The July US trade deficit was $59.3 billion versus consensus of $63.2 billion.

   Other

            An in depth look at the durable goods orders number released yesterday (medium):

            Update on subprime auto loans (medium):

                New Saudi oil minister sounds more hawkish on a production freeze than previously (short):


Politics

  Domestic

A round of applause for the University of Chicago (short):

  International War Against Radical Islam


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