Wednesday, September 5, 2018

The Morning Call--Upbeat no matter what the problem


The Morning Call

9/5/18

The Market
         
    Technical

The Averages (DJIA 25952, S&P 2896) took a modest respite from the current their robust very short term uptrend.  Volume fell.  Breadth was weak---much more so than I expected.  The indices remain strong technically; and my assumption is that they will challenge the upper boundaries of their long term uptrends (29807, 3065)

Tops are a process (medium):

            September tends to be the worst month for Market performance (short):

The VIX continues to vacillate near the mid-point of its short term trading range but below both moving averages.  It is really not giving much directional information.


TLT got hammered on huge volume, closing near the lower boundary of its long term uptrend (and the current pennant formation).  However, it does remain above both moving averages.  Given the strong performance of the dollar, it clearly lost its correlation to UUP.  At first blush, it appears to have been a reaction to the strong ISM manufacturing stat (meaning the Fed will continue to tighten) and the emerging markets pushing rates higher in an (failed) attempt to stabilize their currencies.  I hope for more clarity.

The dollar was up on significant volume, continuing its bounce off a higher low, above both moving averages and in a short term uptrend.  I am assuming this is a result of the continuing dollar funding problems in Turkey and Argentina that have now spread to India, Indonesia and South Africa.   
                       
           GLD’s chart remains abysmal.

            Bottom line:  dollar funding problems continued to impact the dollar, though their effect faded, at least temporarily, on the long bond.  Of course, the equity crowd remains unimpressed with any difficulties of any kind, in any place, at any time.  I expect a challenge of the upper boundaries of the indices long term uptrends.

            Yesterday in the charts.

    Fundamental

       Headlines

            Yesterday’s economic data was mixed: the August ISM manufacturing index was well above consensus while July construction spending was significantly below; the August manufacturing PMI was basically in line.  More diverse signals.

            The biggest economic headline was the continuing turmoil in the currency markets.  Bond investors may be over it while equity investors apparently never really cared.  However, this is a manifestation of the unwinding of asset mispricing and misallocation and you know what I think that means.

            Spanish bank exposure to Turkey’s to dollar funding problem (medium):
           
            And things aren’t all that great at Italian banks (medium):

            Bottom line: I don’t believe the data supports the case for a lift off for the US economy.  Rather I believe they portray an economy that is working hard just to maintain any growth.  The dollar funding problems in the emerging markets appear to be growing.  If left unchecked, they will eventually find their way to the US.  Meanwhile, equities seem impervious to any bad news---which, in my opinion, provides a great opportunity to take some money off the table.

            Sales growth versus earnings growth (medium and a must read):

            The latest from John Mauldin (medium and a must read):

            Counterpoint from Ed Yardini (short and a must read):

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

            July construction spending rose 0.1% versus expectations of +0.4%.

            The August manufacturing PMI came in at 54.7 versus estimates of 54.5.

            The August ISM manufacturing index was reported at 61.3 versus forecasts of 57.7.

     International

    Other

            Investment boom or not (short):

What I am reading today

            Travel bloggers’ favorite five secret travel destinations (medium):

            Are you an investor or a speculator? (medium):

            The decision matrix (medium):

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