Wednesday, February 1, 2017

The Morning Call--The lack of civility doesn't help

The Morning Call


The Market

The indices (DJIA 19864, S&P 2278) had another down day, though they recovered nicely off their lows.  Volume increased and remains at elevated levels; breadth was weak.   The VIX (12) was up 1%, voiding its very short term downtrend but still closing below its 100 and 200 day moving averages (now resistance) and in a short term downtrend.

Record short position in the VIX (short):

                Here is another record (short):

            Another indicator (short):

                One last indicator (short):


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 {18617-20657}, [c] in an intermediate term uptrend {11740-24592} 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 {2177-2520}, [d] in an intermediate uptrend {2034-2635} and [e] in a long term uptrend {881-2500}.

The long Treasury rose, but still closed 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).  

GLD was up 1.4% but ended in a short term downtrend and below its 100 day moving average (now resistance) which continues to push further below its 200 day moving average (now resistance). 

The dollar plunged, but finished above to its 100 day and 200 day moving averages (now support) and in a short term uptrend.   However, it continues to develop a very short term downtrend and is very near its 100 day moving average.

Bottom line: the Averages had another poor day.  It is a negative that they couldn’t break decisively above the 20000/2300 level but a positive that they remain within their trading ranges dating back to mid-December.  A definitive move either way would likely provide good directional guidance.  Patience.


            Another not so good day for US data: the fourth quarter employment cost index was below estimates (which could be good or bad news depending on your perspective), month to date retail chain store sales growth was below the prior week’s number, the January Chicago PMI and January consumer confidence were less than anticipated.

            On the other hand, the Bank of Japan raised its 2017 forecast for GDP growth and inflation; 2016 EU GDP growth was better than consensus while unemployment was down and inflation up.  The bad news was the continuing stalemate on the Greek bailout problem.

                ***overnight, the January Chinese manufacturing PMI was slightly below expectations while the nonmanufacturing PMI was above; the January UK manufacturing PMI was in line.

            Tuesday with Trump:

(1)   meets with pharma executives and actually has positive things to say,

(2)   trade advisor accuses Germany of using undervalued euro to exploit US and its EU partners  He is right, of course; but I continue to wonder if the strategy of confrontation is the best way to solving the problem,

(3)   supposed leaked executive order drafts outlines further crackdown on immigrants.

(4)   cans acting Attorney General. 

Bottom line:  the economy is not providing a lot of upbeat data; and Trump’s early actions (corporate interventions, talking the dollar down, his anti-free trade policy proposals) or lack thereof (absence of any visibility of any tax and infrastructure plans) will likely not make conditions any better.  As I have said before, much of this early currency/trade maneuvering may just be establishing a negotiating position from which he intends to level a playing field that he believes has been unfairly tilted against the US.  Even assuming that he gets everything that he wants, the Market issue is how much damage gets done to the visibility of corporate profits in the interim.

Further, I have presented a lot of data that argues that the math is against any massive tax cuts or infrastructure spending measures---which were a primary reason for all the initial euphoria about the Trump economy.  Don’t get me wrong.  The tax code can be rationalized and made fairer; but without cutting total receipts dramatically.  In addition, many of Trump’s deregulation executive orders will undoubtedly reduce government spending which can then be reapplied to more economically beneficial infrastructure investments.  But the point here is that, in my opinion, given the huge federal budget deficit and debt, trillions of dollars in tax cuts and infrastructure spending is wishful thinking---and that too is apt to be less than positively received by investors.

The upside to reducing regulations (short):

 Finally, I worry about his name calling and other acts of incivility.  I can’t imagine that helps in making a deal or moving a controversial policy forward.  It certainly does not dignify the office.  Moreover, it tends to cloud those positive polices that he is implementing---again, not Market friendly. 

Small wonder that investors may be developing heartburn---and at valuation levels that leave little room for error. I would continue to sell a portion of my successful positions and get rid of my losers.

            The latest from Doug Kass (medium):

            My thought for the day: investing is risky.  Gold plunged 70% in the 1980’s and 90’s; Treasuries fell 40% from the 1950’s to the 1970’s; stocks fell over 40% in 2008/2009.  Bad things happen to all assets classes eventually.  Valuations get out of whack (2007, today?), industries change (buggy whip, telephone, computer, copier, camera), managers fail (Ken Lay, Bernie Ebbers, Jimmy Kane) and politicians make terrible decisions (fill in the blank).  Things just always don’t turn out as expected.  Diversification, patience, an open mind and ignoring the hype are keys to survival.

       Investing for Survival
            Biggest myths in investing #1
    News on Stocks in Our Portfolios
International Business Machines (NYSE:IBM) declares $1.40/share quarterly dividend, in line with previous.

C.H. Robinson Worldwide (NASDAQ:CHRW): Q4 EPS of $0.86 beats by $0.02.
Revenue of $3.41B (+6.2% Y/Y) beats by $80M

Automatic Data Processing (NASDAQ:ADP): FQ2 EPS of $0.87 beats by $0.06.
Revenue of $2.99B (+6.4% Y/Y) misses by $30M


   This Week’s Data

            The January Chicago PMI came in at 50.3 versus expectations of 55.3.

            January consumer confidence was reported at 111.8 versus estimates of 112.2.

            Weekly mortgage applications fell 3.2% while purchase applications were down 6.0%.

            The January ADP private payroll reported showed an increase of 246,000 jobs versus consensus of 168,000.


            More on the border tax (medium):

            More the benefits of imports versus exports (medium):

            Historical look at personal income and spending (short):

            Though there is some disagreement about spending (medium):



The growth in federal regulations (short):

  International War Against Radical Islam

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