Friday, February 10, 2017

The Morning Call--So much for the radio silence on taxes

The Morning Call


The Market

The indices (DJIA 20172, S&P 2307) spiked yesterday presumably on Trump’s promise of a coming tax proposal.  Volume rose, remaining at a high level; breadth improved.   The VIX (10.9) fell 5%, 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 near record 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 {18708-20750}, [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 {2188-2531}, [d] in an intermediate uptrend {2042-2643} and [e] in a long term uptrend {881-2500}.

The long Treasury declined 1%, giving up much of Wednesday’s gain and hampering its attempt to reestablish the recent two week recovery.  It 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). 

GLD was down, but closed within a very short term uptrend and above its 100 day moving average (now support).    It finished below its 200 day moving average (now resistance) and within a short term downtrend. 

The dollar rose, 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 S&P finally finished above the 2300 level.  If it remains there through the close on Monday, we have to set our eyes on the upper boundaries of the Averages long term uptrends.  While I remain skeptical that they can be successfully challenged, it nonetheless means another possible 6-8% increase on the upside.
            The dollar and GLD continue to push against resistance levels.  But the sharp setback in TLT raises the question as whether it can keep up.  Certainly, if the Trumpflation trade reasserts itself as a result of the tax cut promise, one would expect higher interest rates.  (By the way, yesterday I mistakenly stated that the Trumpflation was bad for stocks which, at least at the outset, is not true.  It would be good.)       

             Bloomberg’s consumer comfort index is at near record levels (short):



            This week’s US dataflow remains upbeat: weekly jobless claims declined versus expectations of an increase and while December wholesale inventories were flat, sales were strong.  Overseas, January Chinese car sales were down 9.8%.

            ***overnight, fourth quarter UK industrial output was better than consensus; January Chinese exports and imports were much stronger than estimates, though many believe that they were impacted by an early lunar new year holiday.

            Again politics were front and center in the investment world.

            Thursday with Trump:

(1)   signs three executive orders to strengthen law enforcement

(2)   promises aviation infrastructure spending and deregulation

(3)   and best of all, promises something ‘phenomenal’ on taxes---soon.  As you know, tax cuts were one of the most economically significant of Trump’s campaign pledges; and to date amidst all the racket he is causing about other less important issues, he has failed to address this one.  So I think that the Donald was feeling some pressure to say something. 

Trump’s problem is that congressional republicans have already made clear that big cuts weren’t likely because of the current budget deficit and the magnitude of federal debt---which by way I agree with.

Donald’s solution appears to be to make a statement virtually devoid of any details of a plan save its characterization as ‘phenomenal’ and that it would be forthcoming in ‘two or three weeks’---with the knowledge that it may go nowhere because of the aforementioned congressional resistance.   

That said, I could be wrong.  Trump may put forth a well-developed plan that congress is willing to pass on a timely basis irrespective of its budget/debt impact.  Certainly, yesterday’s pin action suggests that scenario.  If I am wrong, it won’t be the first time.  But it’s my story and I am sticking with it.

            In other political/economic news:

(1)    push back on the border tax (short):

(2)   more of it from David Stockman (medium):

(3)   on NAFTA (medium):

                 And, facts about NAFTA (medium/long):

(4)   on how much political risk the Market can tolerate (medium):

            ***overnight, Trump spoke with the Chinese president and said that the US would honor the ‘one China’ policy.

Bottom line: so much for the Market’s growing realization that nothing gets done rapidly in congress.  Trump says that he will have a phenomenal tax plan ready in two to three weeks and everybody gets jiggy with it---the legislative process notwithstanding.  However, as I continue to observe, the only thing that gets discounted these days is the good news.  As long as that remains the state of affairs, stock prices are going up; and as I pointed out above, the upside is unobstructed by technical resistance points.

That said 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.

            My thought for the day: it is a misconception to think of your stock portfolio as an investment.  An investment is when an individual gives his money directly to a company to be used for its growth.  However, when that individual gives money to the NY Stock Exchange for a stock certificate, they are just swapping pieces of paper (dollars for a certificate) and that really is an act of savings---just like giving dollars to a bank for a time deposit.

            This difference is critical because Wall Street characterizes this savings process with the same sexy language associated with investing and conjuring up the visions of fabulous returns which can occur in investing.   Worse, it includes excessive fees, excessive portfolio churn and historical subpar performance.  However, if a portfolio is thought of as saving, it puts the proper focus on protecting against the potential for permanent loss and reducing the risk of purchasing power loss.

       Investing for Survival
            Lessons from 2016 (part 2).
    News on Stocks in Our Portfolios
            C.H. Robinson Worldwide (NASDAQ:CHRW) declares $0.45/share quarterly dividend, in line with previous.


   This Week’s Data

            December wholesale inventories were up 1.0%, in line; but sales soared 2.6%.

            January import prices were up 0.4% versus expectations of up 0.2%; export prices rose 0.1%, in line.


            The coming cuts in pension benefits (medium):

Why Greece is suddenly back in the news (medium):

            A slowdown coming in China? (short):



A conservative case for climate change (medium):

Trump’s game of chess---think about this (medium and a must read):

  International War Against Radical Islam

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