Thursday, August 25, 2016

The Morning Call---Will she or won't she?

The Morning Call


The Market

The indices (DJIA 18481, S&P 2175) moved lower yesterday.  Volume was flat (and still quite low); breadth weakened.  The VIX rose 8%, 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 {17681-19415}, [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 fractionally, remaining 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 1%, 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. This only heightens my concern about its failure at its second try to surmount a key Fibonacci level, then its negating a very short term uptrend. 

Bottom line: while trading in all the Markets yesterday reflected a sour mood by investors, I don’t think that it really means much since the universe appears to be awaiting the Yellen speech before making any trading/investment decisions.  So in the absence of some exogenous event or the release of her prepared speech, stocks are likely to stay in a narrow trading range until Friday.


            Yesterday’s US data was discouraging: weekly mortgage and purchase applications were down and July existing home sales were very bad---which seems a bit inconsistent with Tuesday’s blockbuster new home sales number.  I am sure this will all get worked out in the revisions; although remember the new home sales number was itself subject to some big revisions.  These data continue the recent trend in big seasonal adjustments---something that I initially pointed to in the first quarter when the accountants started tinkering with those factors because their masters didn’t like what was being reported.  However, this gets resolved, remember that the existing home sales market is about ten times the size of the new home market.

            Nothing from overseas.
            ***overnight, the German Info Institute business climate index declined and was worse than anticipated; July Japanese PPI came in at the highest level in ten months.

            Still investor preoccupation is focused on Yellen’s speech on Friday.

            How the central banks got it wrong (medium):

Bottom line: the economic bulls who trumpeted Tuesday’s new home sales were nowhere to be found after yesterday’s existing home sales report.  Of course, both are simply a part of an economic big picture that is very uncertain no matter how upbeat one makes their forecast---and that is the key.  My forecast of a recession is no better than one expecting a recovery.  No one knows and no one can claim in particular insight because the data has, at best, no trend. 

So if the Fed is as ‘data dependent’ as it says that it is, I can’t see a rate hike soon---assuming that these guys are focused on the data in the first place.  Which we all know that they are not.  They have been, are and will be focused on the Markets.  So given the elevated level of stock prices, then in the absence of a precipitous drop in those prices today, the Yellen could very well deliver a hawkish speech on Friday.   Then if the Markets take it hard, the Fed can always back off in their September meeting. 

If this is all very confusing, join the crowd.  Unfortunately, it is the result of the Fed’s pursuit of an ill-conceived monetary policy, lying about the goals of that policy, failing to achieve even a modicum of success in improving the economy, driving asset prices to extreme speculative levels, neglecting to admit any of the above and creating the fantasy that they have matters under control when in fact they are clueless and powerless to correct the disaster which they have created for the economy and the Markets. 

Remember: QE did nothing for the economy, so it absence will not likely matter; however, it has led to extreme asset valuations and its absence will likely unwind that process.

            My thought for the day:  Investors can convince themselves that they can be great investors because they have read and studied everything about the investing techniques of a Warren Buffet or Peter Lynch.  The temptation is to think ‘yeah, I understand that completely.  I can do just as well.’  Unfortunately, that is like reading and studying the techniques of Ben Hogan and then thinking they can go out and shoot a 68.  Instead, investors should approach the very taxing job of managing their money with a huge dose of humility, a keen sense of that they don’t know and the recognition that the real money gets made in times of greed and panic---and that takes a strong stomach and a lot of nerve.

      Investing for Survival
            Wiped out.

    News on Stocks in Our Portfolios
T. Rowe Price (NASDAQ:TROW) declares $0.54/share quarterly dividend, in line with previous.

Medtronic (NYSE:MDT): FQ1 EPS of $1.03 beats by $0.02.
Revenue of $7.17B (-1.4% Y/Y) in-line.

Tiffany (NYSE:TIF): Q2 EPS of $0.84 beats by $0.12.

Revenue of $932M (-5.9% Y/Y) misses by $2.74M.


   This Week’s Data

            July existing home sales fell 3.2% versus expectations of -0.1%.

            July durable goods orders rose 4.4% versus estimates of +3.7%; ex transportation, they were up 1.5% versus forecasts of +0.5%.

            Weekly jobless claims declined 1,000 versus consensus of +3,000.


            Latest snapshot of S&P trailing earnings (short):

            Chinese ‘liquidity trap’?

With the change of Saudi oil ministers and Iran reaching its max production, the conditions may now favor a production freeze agreement (though at higher levels) at the Algiers meeting in late September.

            Plus there is always this: (short):

            The demographics of home buying (medium):



Media ignores Soros hacked email dump (medium):

  International War Against Radical Islam

            The US State Department has issued a travel warning to all US citizens to leave Gaza (medium):

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