Thursday, June 22, 2017

The Morning Call--The Fed and the bond market

The Morning Call


The Market

The indices (DJIA 21410, S&P 2435) were off again yesterday, though not by much.  However, it was enough to close Monday’s gap open---eliminating this factor as pressure to the downside.  They retain their upward momentum as defined by their 100 and 200 day moving averages and uptrends across all timeframes.  At the moment, I see nothing, technically speaking, to inhibit the Averages’ challenge of the upper boundaries of their long term uptrends---now circa 24198/2763.  Volume declined; breadth was weaker though it remains in a positive zone.

The VIX (10.8) was off fractionally, leaving it between the lower boundaries of its intermediate and long term trading ranges on the downside and its 100 and 200 day moving averages on the upside. (must read)

The long Treasury was strong again, finishing above its 100 and 200 day moving averages (now support) and in a short term trading range---continuing to reflect bond investors’ doubts about a strong economy/rising inflation.

The Fed versus the bond market (medium and today’s must read):

The dollar fell, ending in a very short term downtrend and below its 100 and 200 day moving averages and lending little support to the strong economy/rising inflation scenario.

GLD was up, closing below the upper boundary of its short term trading range, below its 100 day moving average for the third day, reverting to resistance but back above its 200 day moving average---a slight improvement to an ugly chart. 

Bottom line: the Averages satisfied the need to close Monday’s gap opening, removing about the only technical factor suggesting lower prices.  There seems little reason to be concerned about the long term, technically speaking, except for the troublesome decline in Treasury rates and the flattening yield curve.


            Yesterday’s economic stats were upbeat: May existing home sales were much stronger than anticipated; weekly mortgage applications were up, though purchase applications were down.

            Overseas news was highlighted by a reversal of Tuesday’s news: (1) the BOE’s chief economist directing contradicted [rate increases needed] the comments of head of the bank made the prior day and (2) China attempted to un-invert its bond yield curve.
            Falling oil prices remain center stage (short):

            There was more at play than just supply/demand: a change in succession in Saudi Arabia (medium):

            What that means (medium):

Bottom line: the numbers so far this week have been upbeat, though not enough to get me jiggy.  Oil now has everyone’s attention, especially with respect to its implications for the economy.  While some pundits are still trying to sell the ‘unmitigated positive’ line, recent history suggests ‘wishful thinking’.  That said, if the rising geopolitical tensions in the Middle East lead to an escalation of violence, the price of oil could be the least of our worries. 

The rest of the news flow seems like white noise:  the deteriorating relations with Russia, the coming senate bill reforming Obamacare, the implications of the GOP win in Georgia. 

Investors remain in a joyous mood and there is no sign that state of mind is going to end anytime soon.  So enjoy the ride; but please exercise some discipline and take some profits.  The only way that you can buy low is to sell high.

            Update on valuations (medium):
            My thought for the day: losses are simply the cost of doing business; it is the price you pay for the chance to make winning investments.  The key is having the discipline to keep the losses small and knowing the price at which to take profits.  It is not about being right or wrong, it is about being agnostic about everything except not taking big losses and letting profits run.

       Investing for Survival
            Go to the gym and watch your expenses.

    News on Stocks in Our Portfolios
Accenture (NYSE:ACN): Q3 EPS of $1.52 in-line.
Revenue of $8.87B (+5.2% Y/Y) beats by $40M.

Oracle (NYSE:ORCL): Q4 EPS of $0.89 beats by $0.11.
Revenue of $10.9B (+2.8% Y/Y) beats by $450M.

Check out my recent article on Gilead Sciences at Seeking Alpha


   This Week’s Data

            May existing home sales rose 1.1% versus expectations of a 0.3% decline.

                Weekly jobless claims rose by 3,000, in line.


            The tax data on wages and salaries (short):

            More on student loans (short):

            Does anyone know what is going on in the EU banks? (medium):

            Demography and economic growth (medium):

            The ECB updates its bond purchase program (medium):

            Clarity or confusion at the Fed (medium):

            The reason the Fed is hiking rates (medium):



US military running out of steam? (medium):


            Tensions continue between the US and Russia (medium):

            State Department’s reply (short):

                Sabers keep rattling (medium):

            This article focuses on the EU involvement in Syria; but it applies equally to the US, in my opinion (medium and a must read):

            A little history on the US involvement in the affairs of other governments, in this case Iran (medium):

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