Tuesday, September 27, 2016

The Morning Call--Deutschebank=Lehman?

The Morning Call


The Market

The indices (DJIA 18094, S&P 2146) had a rough day.  Volume was up but is still low; breadth weakened.  The VIX rose 18%, closing in a short term downtrend and right on its 100 day moving average. 

Eighth down Friday, down Monday of 2016 (short):

The Dow ended [a] below its 100 day moving average, now support; if it remains there through the close on Wednesday, it will revert to resistance, [b] above its 200 day moving average, now support, [c] within a short term uptrend {18069-19803}, [c] in an intermediate term uptrend {11420-24247} 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 {2124-2360}, [d] in an intermediate uptrend {1946-2548} and [e] in a long term uptrend {862-2400}. 

The long Treasury was up on volume, ending above its 100 day moving average and well within very short term, intermediate term and long term uptrends. 

GLD fell slightly, finishing above its 100 day moving average and within a short term trading range.  However, it also closed above the lower boundary of its former short term uptrend.  If it can pull away from this trend line, I will likely reinstate the uptrend.

Bottom line: the DJIA chart experienced its first test since mid-June---closing below its 100 day moving average and very near the lower boundary of its short term uptrend.  There is nothing ominous in this pin action---yet.  The break below the 100 day moving average won’t be confirmed until Wednesday and the short term uptrend is yet to be challenged.  At this moment, this is just something that needs to be watched.


            Two US economic stats were released yesterday: the good news is that they both beat expectations, the bad news is that they were still awful---new home sales fell less than anticipated, the Dallas Fed manufacturing index was not as bad as the prior month.

            Overseas, there was one positive datapoint---German business confidence is near a high; but there was also one ominous announcement.  German PM Merkel stated that Deutschebank would not receive any state aid in its battle to stay solvent and that could be a big problem, just not for Deutschebank but for the EU banking system.

            Merkel’s dilemma (medium):

            Update on Deutschebank (short):

            In addition, the Japanese government bond yield curve is not following the BOJ’s intended script. (medium):

            ***overnight, the World Trade Organization lowered its 2016 estimate for global growth from 2.8% to 1.7%; August Chinese industrial profits rose 19.5% year over year (if you believe it).

            Closer to home, the Fed is revamping its bank stress test criteria; and that is apt to make life a bit more difficult for the banks. (medium):

            Bottom line: the Averages got banged around pretty hard yesterday as fears of a banking crisis surfaced again, driven by Merkel’s promise to not rescue Deutschebank.  Much has been written about the potential problems lurking not just in the German or EU but the global financial system---and I have covered this pretty extensively.  Of course, we are not going to know how bad the situation is until some trigger mechanism is activated because there are so many variables---we are not sure about the veracity of bank accounting, we have no idea of the true counterparty risks in the huge derivative portfolios of each bank and we only know what the political class is saying not what they will do.  There may be no banking crisis or it may be just a hiccup; but we do know there are problems of the same nature that led to the 2008 calamity.  My only thought is to have some protection in case of a bad outcome---like cash.

            Why negative rates aren’t working (medium):

            Stephen Roach on Fed policy (medium):

            David Stockman on valuations (medium and today’s must read):

My thought for the day: too often investors will opt for a small but immediate payoff over of a larger payoff down the road. Some discounting is rational, but investors consistently take it to the extreme. People who have decades ahead of them to invest trade in and out of the market to avoid small, short-term losses, almost always at the expense of long-term returns.  I avoid this by setting Price Disciplines, buying only when a stock reaches its historic relative and absolute lows, then holding until it achieves historic relative and absolute highs---as long as the underlying fundamentals of the company remain sound.

    News on Stocks in Our Portfolios
Hormel Foods (NYSE:HRL) declares $0.145/share quarterly dividend, in line with previous.

FactSet Research Systems (NYSE:FDS): FQ4 EPS of $1.69 misses by $0.01.
Revenue of $287.3M (+9.7% Y/Y) misses by $3.13M.


   This Week’s Data

            August new home sales fell 7.5% versus expectations for an 8.5% decline.

            The September Dallas Fed manufacturing index was reported at -3.2 versus a -6.2 reading in August.


            Thoughts on the estate tax (medium):



Quote of the day (short):

  International War Against Radical Islam

            Russia responds to Power’s accusations (short and a must read):

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