Tuesday, March 6, 2018

The Morning Call--A third possible scenario


The Morning Call

3/6/18

The Market
         
    Technical

The indices (DJIA 24874, S&P 2720) rose dramatically yesterday, following on the heels of Friday’s bounce---though volume declined and breadth was mixed.  The Averages finished above both moving averages and within uptrends across all major timeframes. The technical assumption is that long term stocks are going higher; though the Averages need to overcome their former highs before we have an all clear signal. 

The VIX fell 4 ¼ %, but remained in the narrowing trading range formed by lower highs and higher lows but continued to trade at an elevated level, suggesting that there is no end to the recent volatility.
               
The long Treasury declined, ending below both moving averages, in very short term and short term downtrends and is again nearing 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 unchanged, ending below both moving averages and in an intermediate term downtrend.  It has managed to make a higher high after bouncing off minor support; but it remains an ugly chart and should be doing better as interest rates rise.
           
GLD was off fractionally, though it is still above its 100 and 200 day moving averages and in a short term uptrend.  Still it couldn’t make it above its prior high; and that is not a good sign.

Bottom line: investors seem to have shrugged off fears of a trade war and/or buying the dip hasn’t gone out of style.  The technicals of the equity market point higher.

Still the long Treasury continues to point to higher interest rates/inflation; and the dollar and gold (down) are trading in sympathy. 
                       
    Fundamental

       Headlines

            Yesterday’s economic data was slightly upbeat: the February Markit services PMI was in line while the ISM nonmanufacturing index was above estimates.

            Trade remained front and center in the news flow with Trump crawfishing a bit from his hard ass routine and the vast majority of business and congressional leaders pleading for a rethinking of his position.  There was also news on the latest round of NAFTA negotiations, hinting that the Donald’s rhetoric may be a negotiating ploy (ala art of the deal); that is, he considers the tariffs an ‘incentive’ for a successful outcome.
      
            Tariffs are taxes (medium):

            Checking Wilbur Ross’s math (medium):

                ***overnight, the EU announces countermeasures if Trump goes through with tariff threats (short):

                Bottom line:  it would seem that my rather dismal analysis in yesterday’s Morning Call of the current tariff threats (Playing out before us is a huge gamble by Trump: is he right about the extent of price cheating and that there will be little response or is he about to start a real trade war?) and counter threats left out a third scenario: that we are witnessing just an elaborate ‘art of the deal’ bluff.  Silly me; because I have proposed this alternative numerous times in these pages.  Not that that is what is happening.  But it is certainly a viable third possible outcome to what is now only a battle of words.

            More on valuation (medium):

    News on Stocks in Our Portfolios
 
Donaldson (NYSE:DCI): Q2 EPS of $0.43 misses by $0.01.
Revenue of $664.7M (+20.7% Y/Y) beats by $34.09M.

Economics

   This Week’s Data

      US

            The February Markit services PMI was reported at 55.9, in line.

            The February ISM nonmanufacturing index came in at 59.5 versus estimates of 58.8.

     International

    Other

            In yesterday’s Morning Call, I referred to Jeffery Snider’s assault on the credibility of the Fed’s math.  Here is another edition. (medium):

            Here is a study on the effects of central bank communications (medium):

            Fed considering revamping the Volcker Rule; what could possibly go wrong (medium):

            Update on US business cycle risk (medium):

            The latest look at the US budget---deficit (medium):

            Update on oil supply/demand (medium):

What I am reading today

            Nouriel Roubini on blockchain technology (medium):

                Why does money make some people miserable? (medium):

                ***overnight, North Korea says that it is ready to de-nuclearize; ‘says’ being the operative word (short):



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