Wednesday, January 10, 2018

The Morning Call---Is the bond bull market over? Follow through

The Morning Call


The Market

The indices (DJIA 25385, S&P 2751) resumed their relentless move higher. Volume dropped but remained high and breadth was strong.  Long term, they remain strong viz a viz their moving averages and uptrends across all timeframes. Short term, they are above the resistance level marked by their August highs, meaning that there is no resistance between current price levels and the upper boundaries of the Averages long term uptrends. The technical assumption has to be that stocks are going higher. 

More on how overbought the Market is (medium):

The long Treasury got hammered (down 1 3/8%) on big volume, suggesting that bond investors are starting to believe the strong economy/higher interest rate scenario.  Even though they historically have a better handle on the economy than the stock boys, sooner or later the persistent upward spike in equity prices had to make them start to reevaluate their position.  Plus the latest move by the Bank of Japan (which I reported yesterday) reducing the magnitude of its bond purchases added to the global QE unwinding theme.  Following that there was a dog pile: Bill Gross said the bond bull market is over and China announced it may cut its Treasury holdings.  While that is too soon to assume rates are going higher, I am now considering it.

            Weak Treasury auction (short):

            Bill Gross calls an end to the bond bull market (short):

***overnight, China said that it was considering reducing its US Treasury holdings.

In addition, the other indicators that I follow are also hinting that global investor sentiment is starting to follow the US equity Market: GLD was down, the dollar was up---neither in the order of magnitude of the long Treasury but both moves occurred on volume. 

The only potentially bad news for stock investors is that the VIX was up for the third day in a row (in an upward trending Market).  That may be pointing to investor expectations that while equity prices may continue their ascent, they may do so on increasing volatility.

I want to emphasize that one day does not a trend make.  But we can’t ignore these signals.  As usual, follow through will tell the tale.

I remain uncomfortable with the overall technical picture.



            The Markets were really the story yesterday.  Certainly, it has been a slow week to date for economic dataflow.  On the other hand, earnings reports will start soon; and as I noted yesterday that is likely to provide a lift to equity prices---not that they need any help. 

The other news item coming soon is the budget negotiations as well as the need to extend to funding for the government---which are not only intertwined but are also caught in the fight over funding of the Wall and disposition of the DACA (Deferred Action of Childhood Arrivals) supplicants.   How our ruling class resolves these issues is anyone’s guess; but like the upcoming earnings reports, it may not matter given the prevailing mood among investors.
            But back to the Market---it is getting more overvalued every day.  To the extent that you are invested, that is good news.  Nonetheless, I think it wise to own some cash for your own protection.  As you know, I am 50% invested and sleeping well.

    News on Stocks in Our Portfolios
Accenture (NYSE:ACN) strikes a deal to acquire 3D content producer Mackevision for an undisclosed amount.
The German-based company includes the award-winning visual effects team for Game of Thrones.
Accenture says the addition of the Mackevision will add state-of-the-art visualization capabilities to its digital services portfolio.

Procter & Gamble (NYSE:PG) declares $0.6896/share quarterly dividend, in line with previous.


   This Week’s Data


            Month to date retail chain store sales grew less rapidly than in the prior week.

            Weekly mortgage applications rose 8.3% while purchase applications were up 5.0%.

            December import prices increased 0.1% versus expectations of up 0.4% while export prices fell 0.1% versus estimates of up 0.3%.  With the dollar down, I can understand export prices being lower but the decline in import prices is odd.


            ***overnight, December Chinese CPI was reported up 1.8% versus November’s reading of 1.7%; PPI came in up 4.9% versus November’s 5.8%.


            Bubbles pervade the world economy (medium):

            Demographics point to slower economic growth (medium):

            Odds of a government shutdown (medium):

            Median family net worth the lowest since 1962 (short):

My reading list today

            Sleep deprivation will kill you   

            Astounding images from Jupiter (short):

            Ten things investors can expect in 2018 (medium):

                Waiting for the Market to boom is a terrible investment strategy (medium):

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