Wednesday, May 10, 2017

The Morning Call--Another delay for tax reform?

The Morning Call


The Market

The indices (DJIA 20975, S&P 2396) were generally quiet again yesterday, though they were down.  The S&P successfully challenged its 2402 former higher intraday but failed to hold above it.  Volume was flat; breadth was mixed.   Both remain above their 100 and 200 day moving averages and the lower boundaries of uptrends across all major time frames---all of which act as support. 

However, they are both still hovering near their former highs (21228/2402).   My assumption is that they will probably successfully challenge those highs; though the longer they hang around current levels and the more unsuccessful challenges they make of their former highs, the greater the odds that the next move is down. However, I am not suggesting a Market top.  We will only know that when those support levels start to get violated.

Attention remains on the VIX (9.9) which moved up enough to close back above the lower boundary of its long term trading range---voiding Monday’s break.  However, it remained below the lower boundary of its intermediate term trading range for the second day (if it remains there through the close on Friday, it will reset to a downtrend)

                My thought for the day:  in 1987, I was running a risk arb desk at Bear Stearns.  Right around the corner from our desk was the cold call unit.  Stocks were soaring then and the trade de jour was to sell naked puts, because…you know…the Market would go up forever and those put premiums were easy money.  Then on October 1st, the Market fell almost 1000 points intraday.  In one day…one day… the entire book of business those guys had worked so hard to build was destroyed.  Today, those same guys, or guys just like them, are shorting the VIX, because…you know…, the Market will go up forever and money being made in the short is easy money.  I have no idea when this story ends.  But I do know one thing born of almost 50 years plus in this business:  people….never….learn.

The long Treasury and GLD were down, while the dollar was up.  This is the first day in some time that all three of these indicators pointed to higher interest rates---probably a function of three more Fed heads’ hawkish comments.

Bottom line: investors remain calm, probably relieved for the break from the trend in three inch domestic and international headlines.  As I suggested above, the question right now is, are the indices resting in preparation for an assault on their former highs or have they shot their wad?  I think the answer is likely the former, but we won’t know until it happens.



            There were three economic releases yesterday: April small business optimism came ahead of expectations while month to date retail chain store sales and March wholesale inventories/sales were disappointing.

            Overseas, March German industrial production was better than expected while its trade surplus was slightly less; March Japanese real wages were the lowest since 2015.  In addition, commodities continue to slide in China.


(1)   April Chinese CPI and PPI slowed---another sign of a slowing economy brought on by tightening monetary policy,

(2)   March French and Italian industrial production were stronger than anticipated,

(3)   it now appears certain that Greece will receive the next round of bailout funds.

(4)   finally, as I am sure you are aware, Trump fired Comey and the dems are exploding.  I try to avoid political comment; so I will stick to economics.  I think that the only significant consequence of this action is that will serve as a distraction from the Donald’s fiscal agenda and possibly delay it.  Not that the dems would vote for any GOP measure.  But the time and energy that will have to be expended to address the Comey firing issue is time and energy better spent on repeal and replace and tax reform.

            As I noted above, three regional Fed chiefs spoke yesterday.  All supported the narrative that came out of the last FOMC meeting, i.e. rate hikes and balance sheet shrinkage is coming.  As you know, my thesis has been and remains that the Fed would screw up a return to monetary normalcy---not so much for the economy, since QE never really helped; but for the Markets.  Supporting that notion:

            Jeffrey Snider on central bank policy (medium):

The risk of a dollar shortage.  Speaking of Jeffrey Snider, he has been talking about this for over a year; now others are catching up (medium):

            I talk endlessly about the below average secular growth rate of the economy and the difficulties in regaining past glory.  This is as clear an explanation of the ‘why’ that you will find. (medium):

            Bottom line: so far, this week’s US economic data is not improving.  Overseas, European stats continue to come in ahead of estimates while Japanese and Chinese economies are going in the other direction.  I remain perplexed what the Fed sees (a healthy economy) that I (and others) don’t.  But if those guys are as worried about the Markets as they have been for the last nine years, I think that they are on a nonoptimal course (tightening monetary policy).

            The latest from David Stockman (medium):

       Investing for Survival
            Four things to consider before retiring,

    News on Stocks in Our Portfolios
Cummins (NYSE:CMI) declares $1.025/share quarterly dividend, in line with previous.

3M (NYSE:MMM) declares $1.175/share quarterly dividend, in line with previous.


   This Week’s Data

            Month to date retail chain store sales grew at a slower pace than in the prior week.

            March wholesale inventories rose 0.2%, in line; however, sales were flat.

            Weekly mortgage applications were up 2.4% while purchase applications were up 2.0%.

            April import prices were up 0.5% versus expectations of up 0.1%; export prices rose 0.2% versus estimates of up 0.1%.

            The future of oil (medium):

            Atlanta Fed already lowering its second quarter GDP growth estimate (short):



  International War Against Radical Islam

Visit Investing for Survival’s website ( to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

No comments:

Post a Comment