Thursday, February 15, 2018

The Morning Call---A return to 'everything is awesome'?

The Morning Call

2/15/17

The Market
         
    Technical

The indices (DJIA 24893, S&P 2698) blew off a couple of concerning economic datapoints and surged higher.  They negated their very short term downtrends, leaving them in a trading range with their former highs serving as the upper boundary.  They remain above both moving averages and within uptrends across all major timeframes.    Volume rose but was still relatively low; breadth improved.  The technical assumption is that long term stocks are going higher. 

The VIX plunged 23%, but is still at elevated levels, remaining well above a support level.  Of course, if yesterday’s volatility continues, it wouldn’t be there very long.

The long Treasury also fell sharply (1%+), finishing below both moving averages, in very short term and short term downtrends and less than a point away from the lower boundary of its long term uptrend, a breach of which would clearly intensify investors’ concern about rising interest rates/inflation

The dollar was hammered, leaving it below both moving averages and in an intermediate term downtrend. This remains an ugly chart.
           
GLD spiked 1 ¾ % on heavy volume, continuing the bounce off a minor support level and leaving its chart in relatively good shape.

Bottom line: equity investors were clearly not concerned about either higher inflation or poor retail sales yesterday.  The dollar pointed at lower rates or higher inflation, gold was all-in for both and bond investors were very worried about inflation.  Confused? Me, too.  Follow through; but at the moment, stock prices appear likely to go higher.
           
            Yesterday in charts (short):

            Bonus charts (short):

            Update on margin debt (medium):

    Fundamental

       Headlines
           
            Yesterday economic data couldn’t have been worse---higher than expected CPI, lower than expected retail sales.

            That combo describes stagflation to a tee.  Of course, it is too early to be scare mongering such a scenario.  On the other hand, it seems a stretch to get jiggy with it.

            That said, the consensus among the chattering class was that the higher than anticipated CPI number was not a concern and the shortfall in retail sales means an easier Fed for longer.  In other words, a return to good news is good news and bad news is good news.

            A new measure of inflation from the NY Fed (medium):
      
Bottom line: there wasn’t a lot (rumored senate deal on DACA and trade action against China) to drive stock prices yesterday other than the aforementioned stats.  Of course, a lot of times stocks don’t need a reason to do what they do. 

My concern remains an expanding deficit/debt at a high in economic activity in combination with a Fed that has been too easy and is late to the tightening process.

            The long term insolvency of the US government (medium):

The growing deficit/debt (medium):

            Counterpoint (medium):

            Of course, it appears that I am wrong about the impact of the tax bill; so I could be equally wrong on this score.
           
            The myth of America’s crumbling infrastructure (medium):

                ***overnight, Trump proposed an increase in the gasoline tax.  Since this is essentially a ‘user’ tax, it makes a lot of sense---more so than his infrastructure bill. (medium):

            Axel Merk on risk parity (medium):

    News on Stocks in Our Portfolios
 
Sherwin Williams (NYSE:SHW) declares $0.86/share quarterly dividend, 1.2% increase from prior dividend of $0.85. 

Economics

   This Week’s Data

      US

            December business inventories rose 0.4% versus expectations of up 0.3%; business sales rose 0.4%.

            Weekly jobless claims rose 7,000 versus estimates of an increase of 8,000.

            The February Philadelphia Fed manufacturing index was reported at 25.8 versus forecasts of 21.0.

            The February NY Fed manufacturing index came in at 13.1 versus consensus of 17.5.

            January PPI rose 0.4%, in line; ex food and energy, it was up 0.4% versus projections of up 0.2%.

     International

    Other
           
The Bloomberg consumer comfort index soared to 17 year high (short):

            Update on big four economic indicators (medium):

            Trade data shows strength in US and China economies (short):

            US starts trade action against China for dumping cast iron soil pipe fittings (short):

            Foreign trade is not bad for America (medium):

            Financial markets have taken over the economy (long but a good read):

What I am reading today

            The cost of retirement (medium):

            IRS issues warning on new tax refund scam (medium):

                        Senate group says they have a deal on DACA (short):

                Yellowstone super volcano under strain (medium):


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