Thursday, March 2, 2017

The Morning Call--What is perfection worth?

The Morning Call

The Market

The indices (DJIA 21115, S&P 2395) staged a moon shot, following Trump’s speech and its lack of specificity.  Volume spiked, remaining at a high level; breadth was strong.   The VIX (12.5) fell 3 % (a very modest decline for a 300 point up day), finishing below its 100 and 200 day moving averages (now resistance), in a short term downtrend and in the trading range dating back to mid-January.   It continues to signal 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 {18863-21182}, [c] in an intermediate term uptrend {11815-24667} 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 {2206-2540}, [d] in an intermediate uptrend {2055-2659} and [e] in a long term uptrend {881-2561}.

The long Treasury dropped 1 ¾ %, slipping all the way to the lower boundary of the developing pennant formation; how it resolves this pattern should give us a hint on the bond guys’ attitude toward Trumpflation (a stronger economy, higher interest rates and higher inflation).  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 declined, closing within a very short term uptrend and above its 100 day moving average (now support).  However, it remained below, but near, its 200 day moving average (now resistance) and within a short term downtrend. 

The dollar was up almost 1%, ending above its 100 day moving average (now support), its 200 day moving averages (now support), in a short term uptrend and is attempting to establish a very short term uptrend.  

Bottom line: the Averages continue to tell us that they are going to challenge the upper boundaries of their long term uptrends.  Sit back and enjoy.

            Mom and pop are all over this Market (medium):

            Something amiss (short):

            Update on NYSE margin debt (medium):



            Yesterday was another active one for data, this time mixed: weekly mortgage and purchase applications, January personal income and the February ISM manufacturing index were above consensus while January personal spending, the February Markit PMI and January construction spending were below.   In addition, the Fed released its latest Beige Book which read pretty much as expected---the economy modestly improving.

            Meanwhile, the Atlanta Fed (joined by some big names on the Street) lowered their first quarter GDP growth estimate (medium):

            Overseas, the numbers were also mixed:  the February Chinese manufacturing PMI rose from the prior month while the services PMI declined; the February EU manufacturing PMI was up versus January while the UK manufacturing PMI was down.

            Of course, the Market was the news yesterday, driven as it was by Trump’s speech Tuesday night containing lots of hope but little detail and delivered in a more presidential tone.

            Bottom line: I have no doubt that changes for the better will be forthcoming as Trump and the GOP congress work their way through the Obamacare reform, tax reform and infrastructure spending.  The question is their order of impact; and that is something that we don’t know because there is so much that we don’t know, like even the broadest outline on either healthcare reform or infrastructure spending.

True we have a decent idea about some aspects of tax reform.  But the border tax issue hasn’t been resolved; and whether or not it is included, there are problems either way.  If it isn’t, there is no tax increase offset; meaning the deficit skyrockets which is politically unpalatable to many in the GOP.  If it is included, then expect a sharp price increase in large segments of the consumer products industry---not a plus for consumer spending which itself carries a political liability. 

The point is not that conditions are negative; no, they are increasingly upbeat.  The issues are (1)  how upbeat can they be until the government deficit and debt are addressed and (2) what does one pay for any improvement, taking into account that stocks are richly valued by multiple measures.
            But David Stockman thinks that even I am smoking dope (medium):

            The stealth rotation (medium):

            Ed Yardini on Buffett and current equity valuations (short):

            My thought for the day: know thyself.  Studies show that 75% of all investors think that they are above average.  Those same studies show that the average investor grossly underperforms the Market.  Do the math.

       Subscriber Alert

            The price of General Dynamics (GD-$194) has risen above the lower boundary of its Sell Half Range.  Accordingly, the Dividend Growth Portfolio is Selling Half of its current position.

       Investing for Survival
            The biggest myths in investing #5:

    News on Stocks in Our Portfolios
General Dynamics (NYSE:GD) declares $0.84/share quarterly dividend, 10.5% increase from prior dividend of $0.76.


   This Week’s Data

            The February Markit manufacturing PMI was reported at 54.1 versus expectations of 55.0.

            The February ISM manufacturing index came in at 57.7 versus estimates of 56.4.

            January construction spending fell 1.0% versus forecasts of a 0.5% increase.

            Weekly jobless claims fell 19,000 versus an anticipated rise of 1,000.


            Creative destruction in the US (short):

            The Bank of International Settlements has now conducted a study on the relationship of private debt to GDP and the subsequent rate of economic growth.  Not surprisingly, it comes to the same conclusion that Reinhold and Rogoff did regarding government debt---advanced levels of debt are bad for economic growth.  Guess where we are today? (medium and a must read):

            As a follow up, how will raising interest rates cause the consumer to lead the US to 2%+ GDP growth? (short):

            The euro breakup risk is rising (short):



  International War Against Radical Islam

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