Tuesday, June 27, 2017

The Morning Call--Premature gnashing of teeth

The Morning Call


It is summertime and this year the living isn’t particularly easy in Texas.  It is way too hot.  So I am departing for cooler climates tomorrow and won’t be back to mid-July (yes, I know, it will still be hot).  As always I will have my computer with me and if action is needed, I will communicate via Subscriber Alerts.  Though I will note, that given the extent of equity overvaluation, it will take a hell of a selloff to prompt any action.

The Market

The indices (DJIA 21409, S&P 2439) rose fractionally on low volume but slightly improved breadth.  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. 

The VIX (9.9) fell another 1 ¼ %, ending below the lower boundary of its intermediate term trading range for the second day (if it remains there though the close on Wednesday, it will reset to a downtrend) and right on the lower boundary of its long term trading range.  Remember that it has unsuccessfully attempted to reset both of these boundaries six times since mid-April.  Odds suggests a seventh failure. 

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

The dollar rose slightly ($0.04), ending in a very short term downtrend and below its 100 and 200 day moving averages---also lending little support to the strong economy/rising inflation scenario.

GLD declined, closing below the upper boundary of its short term trading range, back below its 100 day moving average, voiding Friday’s break but above its 200 day moving average.   

Bottom line: the Averages meandered through another lazy, low volume summer day, ostensively impervious to the data flow.  That suggests that there are few concerns and, in general, everyone is happy with what they own.  I have no insight into how long this lethargy will last; but it seems reasonable to assume that, technically speaking, the indices next big move will be to challenge the upper boundaries of their long term uptrends.
            Yesterday in charts (short):



            The economic data got off to a very rough start this week: May durable goods, the May Chicago Fed national activity index and the June Dallas Fed manufacturing index were all disappointing---not the kind of follow through you want from last week’s improved stats. 

Overseas, the Italian government bailed out two failed banks---a plan that did not meet EU guidelines and called for the Italian taxpayers to put up $17 billion.  Why is it that the taxpayers are always the one getting screwed?

            ***overnight, the Bank of England raised capital requirements on its banks.

                Plus, Draghi made some hawkish statements; and Yellen speaks today in London.

            In the US, the CBO released its much anticipated scoring of the senate version of healthcare reform.  The major items include (1) 22 million will lose healthcare coverage by 2026 [23 million in the house version], (2) it will reduce the deficit by $321 billion over the next ten years [$119 billion in the house version] and (3) insurance premiums will increase in the first two years, then decline in the third year.  So it is better than the house version but not a perfect bill.  I would expect further improvement in the final senate version and still more when, as and if it reaches reconciliation.  Who knows what the final product will look like; but some progress is better than no progress.  So I think it too soon for the gnashing of teeth and tearing of hair.

Bottom line: the numbers are not improving; and the Fed appears determined in its drive to tighten monetary policy.  As you know, I am not concerned about the economic consequences of the latter but believe that it will impact equity valuations.  As a result, I believe that every investor should have some cash reserves.  It is impossible to buy low if you don’t sell high.
            The latest Fed statements (medium):

            The nightmare scenario (medium):

       Investing for Survival
            The hardest thing.

    News on Stocks in Our Portfolios
Boeing (NYSE:BA) declares $1.42/share quarterly dividend, in line with previous.
FactSet Research Systems (NYSE:FDS): Q3 EPS of $1.85 beats by $0.01.
Revenue of $312.1M (+8.6% Y/Y) in-line.


   This Week’s Data

            The June Dallas Fed’s manufacturing index came in at 15.0 versus expectations of 18.0.

            Another lesson from Japan (medium):

            This is what a bubble looks like (medium):

            GM raising $3 billion to fund pension plan (short):

            Update on credit markets (medium):



Supreme Court re-instates temporary travel ban, sort of (short):

  International War Against Radical Islam

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