Friday, July 13, 2018

The Morning Call---Uncertainty is now a good thing


The Morning Call

7/13/18

The Market
         
    Technical
                 
The Averages (DJIA 24924, S&P 2798) had a good day, though volume declined.  Breadth improved slightly.   The Dow continued to trade above its 100 day moving average (now support), above its 200 day moving average (now support) and within a short term trading range.  The S&P ended above both moving averages, in uptrends across all timeframes and above the minor resistance from its June high.  

VIX declined 7 ¾ %, remaining below its 100 day moving average (now resistance), below its 200 day moving average (now resistance) and within a short term trading range.  It once again appears headed for a challenge of the May/June double bottom.

The long Treasury fell a penny, but still finished well above its 100 and 200 day moving averages and in a long term uptrend. 

            The dollar was up, staying above both moving averages and in a short term uptrend.
           
            Gold rose ½ %, but continued to trade below both moving averages and near the lower boundary of its short term downtrend.

            Bottom line: the technical position of the indices continues to improve as the S&P pushed above June highs---the only real negative being that both 100 day moving averages continue to fall toward their 200 day moving averages.  The assumption remains that stock prices are going higher.   TLT, UUP and GLD continue to perform like investors are betting on a relatively positive US economy versus the rest of the world’s economy.   The only problem, in my opinion, is that doing less poorly than the rest of the world is not a reason for stocks to advance when they are already near historic high valuations.

            The ‘smart money’ continues to sell (short):

            Explaining the bullish case for stocks (medium):

    Fundamental

       Headlines

            Yesterday’s economic releases were mixed: weekly jobless claims were solidly better than anticipated; the headline CPI number was a bit hotter than expected, though ex food and energy, it was flat; the June budget deficit was smaller than estimates, though  year over year, it continues to grow.

            Yesterday headlines were basically an Abbott/Costello routine.  Trump announced that NATO members would begin contributing their fair share the NATO defense budget.  Immediately, Macron and Merkel responded ‘no way Melvin’.   At the moment, there is no further clarification.  As you know, I think that this issue is intertwined with the trade; so its resolution will likely have an impact on tariff talks.

            This from the New York Times (medium):

            Meanwhile, investors interpreted overnight comments from Chinese officials as less aggressive than expected, suggesting progress was being made in US/China trade talks.  Then, Mnuchin said that there was no discussions going on.  Then, North Korean Kim sent a friendly letter to Trump, having been highly critical of the US following Pompeo’s visit.  Again, defusing tensions with North Korea are all part of the trade discussions.  So, the assumption has to be that the Chinese are attempting to calm the trade rhetoric.

            ***overnight, the June Chinese trade surplus expanded---which clearly won’t help matters.  In addition, June credit grew well below estimates.


                Bottom line: if you are confused, don’t be.  Because investors clearly view confusion as a plus.  That condition could last until there is an outcome, for which I think there is a decent probability of being positive; and if that happens, then it will be a plus for the long term secular growth rate of the economy.  The questions are (1) how much of that is already reflected in stock prices and (2) how much of its positive effect be offset by the usurpation of cash flow/assets to service the mounting debts in all sectors of the economy?
I don’t think that investors are properly considering those questions as witnessed by the record equity valuations.  I am not suggesting that investors run for the hills; I am suggesting that this a good time to own some cash.

            Putting tariffs in perspective (medium and a must read):

    News on Stocks in Our Portfolios
 
Paychex (NASDAQ:PAYX) declares $0.56/share quarterly dividend, in line with previous.

Qualcomm (NASDAQ:QCOM) declares $0.62/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

      US

            The June budget deficit was $74.9 billion versus expectations of $91.0 billion, though the year over year number continues to increase.

            June import prices fell 0.4% versus estimates of a 0.1% increase; export prices came in +0.3%, in line.

     International

    Other

            Are the employment numbers really that strong? (medium):

            Are companies investing enough for future growth? (medium):

            The Fed could steepen the yield curve if it wanted (medium):

            EU lowers GDP growth forecast for 2018 (short):

            Update on the oil market (medium):

            Some states are woefully unprepared for a recession (medium):

What I am reading today

            A huge sarcophagus is unearthed in Egypt (medium):

            Mexico’s new president plans to end the war on drugs (medium):

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