Friday, March 24, 2017

The Morning Call--Surprise!!

The Morning Call


The Market

The indices (DJIA 20656, S&P 2345) drifted slightly lower, as the universe focused on the house Trumpcare vote.  Volume fell; breadth was weak.   The VIX (13.1) was up another 2 ½ %, ending above the lower boundary of its very short term uptrend, above its 100 day moving average for the second day (now resistance; if it remains there through the close today, it will revert to support), below its 200 day moving average (now resistance) and in a short term downtrend.  It appears that the thesis that the period of complacency could be ending remains in place.

The Dow closed [a] above its 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] in a short term uptrend {19126-21431}, [c] in an intermediate term uptrend {11884-24736} and [d] in a long term uptrend {5751-23298}.

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 {2236-2570}, [d] in an intermediate uptrend {2072-2676} and [e] in a long term uptrend {881-2561}.

The long Treasury was down fractionally, but remained above its 100 day moving average for the second day (now resistance; if it remains there through the close today, it will revert to support), below its 200 day moving average (now resistance) and in a very short term downtrend.
GLD fell slightly, but finished above its 100 day moving average (now support), below its 200 day moving average (now resistance) and within a short term downtrend. 

The dollar inched higher, but ended below its 100 day moving average (now resistance), above its 200 day moving averages (now support) and in a short term uptrend.

Bottom line: investors remained focused on the final disposition of the Trumpcare vote which was postponed late in the day.  Despite that, the participants appear to be making a valiant effort to reach some sort of compromise. 

That has the pundits opining that a bill is likely to pass and that stocks will rise in its wake.  But if the bill is likely to pass, why wouldn’t prices already be up.  The point here is that investors appear to have a different opinion than the pundits.

Whatever occurs, what we know today is that the Averages have fairly decisively taken out their very short term uptrends and that there is little technical support between current prices and the lower boundaries of their short term uptrends.



            Yesterday, we got three stats: the bad news was that weekly jobless claims were much higher than anticipated; the good news is that February new home sales and the Kansas City Fed manufacturing index were stronger than estimates.

            There were again no global economic reports; but the ECB did announce its latest round of bond purchases which was more generous than many had expected.

            ***overnight, the March EU flash composite PMI rose, hitting a six year high; a Bank of Japan official said that there was no reason to tighten monetary policy.

            As I noted above, all eyes are on the current house version of a new healthcare bill which has yet to be voted on.  I don’t see that as particularly negative.  It has just been so long since we have had to watch the ugly legislative process that many interpret the lack of a quick compromise as a problem.  I actually believe that we should all be thankful that is occurring---think about the results we have gotten over the last decade when the process was obscure or nonexistent.

            Without getting too deep into the policy weeds, last night, Larry Kudlow made an important comment about the major sticking point in getting a deal---that is the existence of what are called ‘essential benefits’ in Obamacare.  This was the ‘one size fits all’ element, which is that all insurance plans had to include broad coverage for everyone in every circumstance.  So things like psychiatric care, drug rehab, abortions, etc. were mandatory provisions whereas in prior times they had been electives to a policy.  Clearly, the ‘essential benefits’ drove up the cost of Obama’s health plan.    The bottom line here is that this provision remains in its original form in the GOP plan and, as I said, is apparently the main point of contention. 

            In a related item, the CBO scored the latest version of the healthcare bill and the results were (1) the cost savings went down but (2) the number of individuals that would lose coverage remained unchanged.  Think about both points within the context of the ‘essential benefits’ disagreement.  If individuals can choose their own coverage, it makes sense that savings would go up and so would the number of individuals that could afford coverage.

                        Bottom line: investors seem to be putting a lot of weight on the successful and timely passage of the house healthcare bill.  I can see that as a score on Trump’s deal making ability; but I am not sure it is good measure of magnitude and timing of his fiscal plan.   Indeed, I think it ridiculous to gauge the success of the rest of the Donald’s fiscal program to the speed of passage of the house bill.

First of all, even if the house passes a compromise bill today, the rest of the legislative process is going to take a long time.  It still has to get approved by the senate, which we already know has a lot more objections to the bill than the house republicans.  That means the senate version will likely take a good deal of time to draft and vary significantly from the house bill.  Then those two versions have to be resolved; and gosh only knows how long that will take.  So the getting this thing passed is not an immediate event.

Secondly, not to be repetitious, even if the entire healthcare bill were signed, sealed and delivered tomorrow (1) there is even more opposition in the senate to the fiscal impact of tax reform and infrastructure [i.e. bigger deficits] than to Obamacare reform and (2) the math of a rising budget deficit and mounting federal debt, from current levels [operative words], have been demonstrated to be a negative, not a positive, for economic growth.
***overnight, Trump surprised all (again) and told the house either vote on healthcare bill today or he is moving on to other issues (tax reform).  That is probably the best decision he could make.  The problem as I noted above is that (1) there is substantial opposition to increasing the deficit and (2) there is considerable evidence that an increase in the deficit and federal debt inhibits, not stimulates growth.  That said, any kind of tax reform (simpler and fairer), even if there is no net cut in taxes, will still have a positive impact on growth---just not as much as many seem to believe.

            More on valuations (medium):

            My thought for the day: don’t underestimate emerging markets (ETF’s)

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    News on Stocks in Our Portfolios

   This Week’s Data

            February new home sales rose 6.1% versus expectations of up 1.8%.

            The March Kansas City Fed manufacturing index came in at 20 versus February’s reading of 14.

                        February durable goods orders rose 1.7% versus consensus of up 1.5%; ex transportation, they increased 0.4% versus forecasts of +0.8%.


            Problems in the commercial real estate market (medium):



Quote of the day (short):

  International War Against Radical Islam

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