Wednesday, October 5, 2016

The Morning Call--Something new or just noise?

The Morning Call

10/5/16

The Market
         
    Technical

The indices (DJIA 18168, S&P 2150) had a rough day.  Volume was up off a low base; breadth deteriorated.  The VIX was up fractionally, but still closed below its 100 day moving average and in a short term downtrend---which remains supportive of stocks.  Nonetheless, it is still in a very short term uptrend---a negative. 

The Dow ended [a]  above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {18158-19882}, [c] in an intermediate term uptrend {11437-24282} 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 {2139-2375}, [d] in an intermediate uptrend {1955-2557} and [e] in a long term uptrend {862-2400}. 

The long Treasury had a very bad day on heavy volume.  Indeed, the entire debt complex suffered some severe whackage.  This all appears related to mounting concerns of tightening central bank monetary policy (ECB tapering; a December Fed rate hike)---the economic data notwithstanding.  It closed below its 100 day moving average; if it remains there through the close on Thursday, this MA will revert from support to resistance.  It did manage to finish within very short term, intermediate term and long term uptrends.  So TLT’s chart is getting even more squirrelly.

GLD got pounded, down 3 ½%, finishing below a key Fibonacci level, below its 100 day moving average (if it remains there through the close on Thursday, it will revert from support to resistance) and below the lower boundary of its a short term trading range (if it remains there through the close on Thursday, it will reset to a downtrend).  As I note yesterday, this is not a healthy chart and it is getting more unhealthy.

 As I also noted yesterday, GLD opened down big, so the Aggressive Growth Portfolio Sold its holding of GDX.  Remember this was a trading position, betting on a flight to safety.  While I see plenty of reasons to want such an investment, clearly the Market disagrees; and I am not going to argue with the Market on a trading position.  That doesn’t mean our Portfolios may not Buy GDX back. 
               
Bottom line: the Averages moved lower again on low volume.  But the pin action was in the fixed income and precious metals Markets; and I noted above, it was not good.  I am not sure what this means, though it would appear central bank policy related.  But we will likely see the reasons fairly soon---one of which, by the way, may be Market noise.

    Fundamental

       Headlines

            Only one minor datapoint yesterday: month to date retail chain store sales were stronger than in the prior week.

            On the other hand, the Atlanta Fed revised down its third quarter estimates for US GDP growth; and the IMF revised down its 2016 forecast for US GDP growth.

            Overseas, Japanese September consumer confidence came in above forecasts; the central bank of India cut key interest rates.

            ***overnight, the EU Markit September Composite PMI was the weakest since January 2015; the UK Markit September services PMI was below forecasts.

And speaking of central banks (and I wish that I wasn’t), the Fed members are making headlines suggesting that not only is the probability of a December rate hike increasing but also that there is likely to be more to follow.           And the ECB upped the ante, suggesting that it may be considering tapering QE before it is due to end (medium):

            A look at the consequences of that move (medium):

            Plus, don’t forget the linked article yesterday regarding the increasingly precarious position of BOJ head because of the failure of Japanese monetary policy.  The point here is that central bankers appear to be seriously considering a move to monetary normalization.  As you know I think that this should have happened years ago; although given the central bankers obsession with growing their respective economies, I am surprised that it is occurring in the face of such crappy economic numbers both here and abroad. 

            That said, as you  also know, if these guys are really and truly intent on normalizing monetary policy, I don’t believe that higher interest rates and/or tighter money will be a negative for the economy because easy money and low rates haven’t done diddly to improve it.   On the other hand, having created a gross mispricing and misallocation of assets, the absence of easy money and low rates is apt to painfully reverse that process.

            Of course, this is all speculation based on a couple days of central bank chatter and some increased volatility in the securities markets.  There is a lot more to be said and, more importantly, done before monetary normalization is anything but a gleam in my eye.
                       
            More on Deutschebank (medium):

Bottom line: it is way too soon to know whether or not the central bankers are indeed finally realizing that the whole QE, NIRP, ZIRP policy has been an abject failure.  Further, even if they have, we don’t know if they have the cojones to follow through when Market prices start to unwind the aforementioned asset mispricing and misallocation.  Further, we don’t know how Markets will react if the central bankers chicken out and restart QE, NIRP, ZIRP or take it one step beyond and start buying corporate stocks and bonds.  In fact, we don’t even know if yesterday was just Market noise. 

My opinion is that (1) the global economy is struggling and may be slowing, (2) QE, NIRP, ZIRP have been failures, (3) if the central banks reverse those policies, it will have little impact on the economy but a dramatic effect of securities prices, (4) if they don’t reverse those policies, it will have little impact on the economy and, in the absence, of a reality check, securities will continue to get overvalued.

            The latest from John Hussman (medium):

            Demographics don’t support a bull market thesis (medium):

My thought for the day: it is highly unlikely that you will get rich quickly investing in the Market.   Historical long term returns are 6-8% annual returns for stocks and a 3-4% annual return for bonds.  So curb your greed/fear, be patient and take advantage of the power of compound interest.   If not, you end up buying after stocks have soared and selling after they plunge.

    News on Stocks in Our Portfolios
 
Economics

   This Week’s Data

            Month to date retail chain store sales rose substantially from the prior week.
           
            Weekly mortgage applications rose 2.9% while purchase applications fell 0.1%.

            The September ADP private payroll report showed job increases of 154,000 versus expectations of increase of 170,000.

            The August US trade deficit was $40.7 billion versus estimates of $39 billion
           
   Other

            Let’s make entrepreneurship even harder (short):

            The creators of bubbles should be made to pay (medium):

            A quarter of all Chinese companies can’t pay the interest on their debt (medium):

            A thought on economic growth (short):

Politics

  Domestic

PC coming to a football team near you (short):

Where is the concern about equality? (short):

Bill Clinton on Obamacare (short):

  International War Against Radical Islam

            Syria keeps getting worse (short):

            A letter to Obama (medium and a must read):

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.