Thursday, February 9, 2017

The Morning Call--Dodd Frank joins Obamacare and tax cuts

The Morning Call


The Market

The indices (DJIA 20054, S&P 2294) were mixed yesterday (Dow down but still above 20000; S&P up but still below 2300).  Volume was flat, but still at a high level; breadth was mixed.   The VIX (11.5) was up 1 ½ %, finishing below its 100 and 200 day moving averages (now resistance) and in a short term downtrend but is near the lower boundary of its intermediate term trading range (10.3)---leaving complacency at a high level.

The Dow ended [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {18688-20730}, [c] in an intermediate term uptrend {11745-24597} and [d] in a long term uptrend {5730-20736}.

The S&P finished [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2185-2528}, [d] in an intermediate uptrend {2040-2641} and [e] in a long term uptrend {881-2500}.

The long Treasury shot up 1 ¼ %, but remained in a very short term downtrend, near the lower boundary of its short term trading range and below the 100 day moving average (now resistance), falling further below its 200 day moving average (now resistance).   However, it is near reestablishing the recent uptrend.

GLD was up, closing within a very short term uptrend and above its 100 day moving average (reverting to support).    It finished below its 200 day moving average (now resistance) and within a short term downtrend. 

The dollar declined fractionally, voiding a very short term downtrend and ending  above its 100 day moving average (now support), its 200 day moving averages (now support) and in a short term uptrend.  

Bottom line: the indices continue to battle the 20000/2300 levels.  Until the S&P can cross the 2300 barrier, I think the upside in stocks in general is limited.  That said, as long as the Dow remains above 20000, I don’t see much downside.
            The long Treasury joined the dollar and GLD in challenging resistance levels---all of which are indicating moves to the upside.  TLT and GLD are suggesting that the Trumpflation trade may be coming to an end, the dollar less so.  If the Trumpflation trade is over, that represents downside risk to equities. 


            There was only one minor datapoint released yesterday:  weekly mortgage and purchase applications rose.  Nothing from overseas.

            Politics remains the headlines.  The good news is that the revamping of Dodd Frank is apparently little more than a gleam in Trump’s eye.  The bad news is that it joins the repeal of Obamacare (not good news) and the lower taxes/higher infrastructure spending (not good news) in the morass of Washington sausage making.  It appears increasingly likely that the initial euphoria over a swift, major turn in fiscal policy is becoming of victim of what we all knew---Washington simply has to many opposing rent seekers to ever get anything done rapidly, legislatively speaking.

            Another bit of good news is that Tillerson met with his Mexican and Canadian counterparts, hopefully getting relations back on track to allow the needed changes in NAFTA---if the Donald will just stay quiet and let his secretary do his job.  Of course, I have speculated that this may have been his plan all along. 

Also supporting that notion is the recent announcement by the Japanese that they are prepared to make large investments in US infrastructure projects.  I don’t think that is because they like us.  Yet another sign that Trump’s abrasive style is accomplishing more than anyone wants to give him credit for.

            ***overnight, Trump actually had something nice to say to China (medium):

            Bottom line: post-election euphoria seems to be creeping towards the realization that nothing gets done rapidly in congress.  In this case, it is repeal of Obamacare and Dodd Frank and the implementation of substantial tax cuts and infrastructure spending.  In the absence of these reforms, investors would then have to hang their economic improvement happy hats on regulatory change and trade where Trump can act somewhat independently of the legislature. 

To be sure, transforming the regulatory environment is a plus for the economy; but nothing of the magnitude of the effect of trade policy.  And as I have been repeating ad nausea, if the Donald follows his trade threats with actions that would be a big negative for economic growth---but with the caveat that his rhetoric may be just a negotiating which could lead to something more upbeat.  The initial promises from the Japanese seem to support that notion.

So there is lots of potential good and bad news.  The problem is that the Market seems to be ignoring the latter.  With stocks priced for perfection, I believe that there is too much risk to justify not taking some profits and getting rid of your losers.
            Larry Fink turns bearish (short):

            My thought for the day:  every investor is different and their investing style should reflect their personality.  If they are risk averse, then they should have smaller positions, greater diversification and tighter price parameters.  If they are more aggressive, they can loosen up on those factors as long as they don’t fall into the trap of believing that they are smarter than the process.

       Investing for Survival
            Lessons from 2016 (part 1):

    News on Stocks in Our Portfolios
Cummins (NYSE:CMI): Q4 EPS of $2.25 beats by $0.23.
Revenue of $4.5B (-5.7% Y/Y) beats by $120M.

Coca-Cola (NYSE:KO): Q4 EPS of $0.37 in-line.
Revenue of $9.41B (-5.9% Y/Y) beats by $270M.

United Parcel Service (NYSE:UPS) declares $0.83/share quarterly dividend, 6.4% increase from prior dividend of $0.78.


   This Week’s Data

            Weekly jobless claims fell 12,000 versus expectations of a 4,000 increase.


            A different measure of national wellbeing (short):

            Are there enough shovel ready workers (short)?



Five reforms DeVos will bring to the department of education (medium):

Quote of the day (short):


            The currency problems involved with a Grexit (medium):

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