Monday, June 14, 2021

Monday Morning Chartology

 

The Morning Call

 

6/14/21

 

The Market

 

    Technical

 

After breaking its short term uptrend (and resetting to a trading range) in the prior week, the S&P made a new high last week resetting again to a short term uptrend.  Granted it was a tortured effort, but the end result is still the same.  However, given the index’s slow rate of ascent versus the trendline, it could easily repeat this process (short term uptrend to trading range back to short term uptrend) in the coming weeks. If this continues, it is going to be a long boring summer.  That said, it is better than a 400 point drop.  Longer term, my premise remains: ‘I can’t see an end to this uptrend as long as the money keeps flowing with abundance and in the absence of any major negative exogenous event.’    

 


 

 

The big news of the week was the markets’ wide acceptance of inflation as transitory (at least for the moment).   The long bond’s pin action captures that  fact.  After a strong close on the previous Friday, TLT pushed ahead, negating a very short term trading range and reverting its 100 DMA from resistance to support.  This likely portends further gains to the upside and would be supportive of  (1) a lower concern about tapering and (2) higher stock prices.

https://www.zerohedge.com/markets/what-if-everyone-wrong-about-us-inflations-impact-interest-rates

 



 

GLD responded to the ‘inflation is transitory’ theme as you might expect.  With bonds prices falling and the dollar picking up steam on the notion of disinflation, gold fell.  Nonetheless, it remains above both DMA’s and in uptrends across all timeframes including the move off its March lows.  However, if the ‘inflation is transitory’ remains the dominant Market narrative, I would expect further weakness in GLD.

https://www.zerohedge.com/the-market-ear/c1zo00miz5

 



 

The dollar continued its bounce (its fourth) off the lower boundary of the short term trading range, making a minor new high in the process.  As noted above, its performance reflects the ‘inflation is transitory’ thesis.  As long as that dominates investor psychology, I would expect a further rise in the dollar.

 


 

 

 

Friday in the charts.

            https://www.zerohedge.com/markets/bond-yields-plunge-most-year-dollar-spikes-inflation-soars

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        Review of Last Week 

 

It was a slow week for economic releases with no primary indicators reported.  What there was, was balanced; though the big number of the week was May CPI which was higher than expected.  I would rate the week as a weak negative which would extend the string to poor data releases to six weeks.  Thus, the stats continue to confirm that the post Covid burst of economic activity is slowing and supports the notion that the Fed’s forecast that the current spike in inflation is transitory is right on. 

 

That said, I would have expected that the aforementioned CPI number to cause some investor consternation; but I was wrong.  Both equity and bond markets rallied in the face of that datapoint, reaffirming their belief in the Fed’s ‘transitory’ thesis.  So far, so good.

 

Transitory or not, the loss of purchasing power is permanent.

https://www.zerohedge.com/economics/its-permanent-not-temporary-dollars-purchasing-power-plunged-fastest-pace-1982

 

My problem is that (1) the Fed has never had the right policies in place at critical inflection points in the economy, (2) nor has it ever successfully executed the transition from accommodative to normal monetary policy and (3) there are very few investors/economists around that experienced the ‘too much money chasing too few goods’ type inflation of the 1970’s.

 

Bottom line, as I discussed in Friday’s Morning Call, I think that the biggest risk to the ‘transitory’ scenario is stagflation---slow economic growth accompanied by rising inflation.

http://scottgrannis.blogspot.com/2021/06/the-us-economy-as-seen-from-30000-feet.html

 

In this piece, Jeffrey Snider argues that Treasury bonds rates are declining because (1) the Fed is buying them from the banks, (2) which then have to buy them back [the reverse repo] to meet reserve requirements.  So, there is constant bid for bonds from the Fed and the banks irrespective of what is occurring in the economy.

https://www.realclearmarkets.com/articles/2021/06/11/because_central_bankers_have_no_clue_what_else_to_do_781006.html

 

 

Lance Roberts argues that rates are falling because they have always dropped near the end of a monetary easing phase.

https://www.zerohedge.com/markets/talking-taper-fed-starting-campaign-slow-its-asset-purchases

 

Lance Roberts also contends that the biggest risk is a much weaker, disinflationary economy with the Fed either helpless to do anything or becoming too tight and making things worse.

                        https://www.zerohedge.com/markets/rates-dollar-feds-dis-inflationary-dilemma

 

Overseas, the data flow was again mixed.  So, we continue to get little help on the economic growth front from the rest of globe.  One item worth comment is that the ECB reiterated its support for its QE policy, saying that it may up its bond buying program.  Thus, providing even more ammo for the ‘too much money chasing too few goods’ argument.

 

Bottom line. ‘As you know my opinion is that following an initial snapback (which may already be over), the US economy will likely return to its former subpar secular growth rate, stymied by an irresponsible mix of fiscal/monetary policies.’---which are only getting more irresponsible---with the potential added risk of  ‘non-transitory’ inflation.

                       

                                US

 

                        International

 

                          April EU industrial production rose 0.8% versus consensus of +0.4%.      

                       

 

                        Other

 

         News on Stocks in Our Portfolios

           

What I am reading today

           

               

 

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Friday, June 11, 2021

The Morning Call---Boy, was I wrong

 

The Morning Call

 

6/11/21

 

The Market

         

    Technical

 

            Thursday in the charts.

            https://www.zerohedge.com/markets/bonds-bullion-bid-meme-stocks-are-monkey-hammerd

 

            Equity and credit protection hitting new lows.

            https://www.zerohedge.com/the-market-ear/cynhnx2nbo

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                        International

 

The April UK trade balance was -L0.9 billion versus -L2.0 billion in March; April industrial production was down 1.3% versus estimates of +1.2%; April manufacturing production was -0.3% versus +1.5%; April GDP was up 2.3% versus +2.2%.

 

May Chinese vehicle sales declined 3.1% versus +8.6% in April.

 

May German PPI was +1.7% versus +1.1% in April.

 

                        Other

 

                          Household net worth increased $5 trillion in Q1.

                          https://www.calculatedriskblog.com/2021/06/feds-flow-of-funds-household-net-worth.html

 

Up to one half of pandemic unemployment payments may have been fraudulent.

https://www.zerohedge.com/bailout/half-pandemic-unemployment-funds-may-have-been-stolen-axios

 

            The Fed

 

              Druckenmiller slams Fed.

              https://www.zerohedge.com/markets/druck-slams-fed-manipulation-stocks-bond-yields-jump-after-cpi-soars

 

            Biden’s Plan

 

              The positives to the G7 minimum corporate tax proposal.

              https://www.project-syndicate.org/commentary/g7-corporate-tax-agreement-end-of-hyper-globalization-by-dani-rodrik-2021-06

 

Biden cancels Keystone XL pipeline project.  This article from a happy environmentalist.  I hope she lives in Minnesota when the fuel runs out.

              https://www.nakedcapitalism.com/2021/06/keystone-xl-developer-abandons-pipeline-project.html

 

            Inflation

 

              This author says supply constraints are a myth.

              https://www.zerohedge.com/economics/supply-bottlenecks-excuse-inflation

 

 

            The coronavirus

 

              Beijing’s useful idiots.

              https://unherd.com/2021/06/beijings-useful-idiots/

 

              Lockdowns will prove to be one of the most catastrophic events in history.

              https://www.zerohedge.com/covid-19/professor-historians-will-look-back-lockdowns-most-catastrophic-event-all-human-history

 

     Bottom line.

 

Inflation bets run out of steam.  I was clearly wrong yesterday in my comments about a heightened debate about whether or not inflation will be ‘transitory’.  Judging by the pin action in both the stock and bond markets, it appears that, the reported numbers notwithstanding, investors have for the time being concluded that inflation is indeed transitory. 

            https://www.ft.com/content/cae302ad-ec5d-4398-8d0e-45fa8fc1d9a7

 

            Hook, line and sinker.

            https://www.zerohedge.com/markets/markets-have-bought-feds-transitory-narrative-hook-line-sinker

 

As you know, I pay a great deal of attention to the message from the bond market.  The question in my mind is, is the bond market discounting lower inflation or a slowing economy?    As you also know, I believe that the economy will return to a below average secular growth rate. So, if bond investors are betting on slower growth, then I am in agreement.  However, the talking heads are assuming that the markets’ message is that inflation will be transitory. What if growth slows but inflation still remains high due to ‘too much money chasing too few goods’. 

 

My favorite optimist believes that could be the case.

http://scottgrannis.blogspot.com/2021/06/the-good-bad-and-ugly.html

 

            I am not presenting this as a forecast; but I think it is the biggest risk.

 

What does this mean?  Well, short term at least, investors have bought the Fed’s Kool Aid.  Inflation is transitory; so, no need to begin worrying about tapering. ‘I can’t see an end to this uptrend as long as the money keeps flowing with abundance and in the absence of any major negative exogenous event.’

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

            Quote of the day.

            https://cafehayek.com/2021/06/quotation-of-the-day-3551.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

 

            UFOs repeatedly took nuclear systems offline.

            https://americanmilitarynews.com/2021/06/ufos-took-us-nuclear-systems-offline-repeatedly-former-pentagon-ufo-office-chief-says/

 

 

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Thursday, June 10, 2021

The Morning Call--The 'transitory' inflation debate about to intensify

 

The Morning Call

 

6/10/21

 

The Market

         

    Technical

 

            Wednesday in the charts.

            https://www.zerohedge.com/markets/bonds-big-tech-bitcoin-bounce-back-complacency-reaches-20-year-high

 

            Coming volatility.

            https://www.zerohedge.com/markets/its-coming

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

                       

                          Weekly jobless claims totaled 376,000 versus estimates of 370,000.

 

May CPI came in at +0.6% versus expectations of +0.4%; core CPI was +0.7% versus +0.4%.  The ‘transitory’ inflation debate will likely pick up steam.  Who is right Powell or Friedman?

                          https://www.zerohedge.com/economics/core-consumer-prices-surge-fastest-rate-1992

 

                        International

 

                          May Japanese PPI was +0.7% versus consensus of +0.5%.

 

                        Other

 

                          Update on Q2 nowcasts.

                          http://www.capitalspectator.com/us-q2-growth-estimates-decline-but-still-set-to-beat-q1s-increase/

 

                          History repeating itself.

                          https://www.advisorperspectives.com/commentaries/2021/06/09/the-return-of-the-finance-threat

 

            The Fed

 

              The ECB leaves rates unchanged and ups QE pledge.

              https://www.zerohedge.com/markets/ecb-keeps-policy-unchanged-renews-pledge-faster-bond-buying

 

            Biden’s Plan

 

               Biden ends infrastructure negotiations with GOP group.

              https://www.wsj.com/articles/president-biden-ends-infrastructure-talks-with-senate-gop-group-11623185881?mod=hp_lead_pos4

 

 

            Inflation

 

              Tracking shrinkflation.

              https://politicalcalculations.blogspot.com/2021/06/shrinkflation-and-new-tool-to-track.html#.YMDyMflKiUk

 

              More on China’s reaction to that higher PPI number.

              https://www.nytimes.com/2021/06/08/business/economy/china-inflation.html

 

              Could ESG trigger higher inflation?

              https://www.zerohedge.com/markets/why-one-bank-thinks-esg-could-trigger-hyperinflation

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

Dinosaur found in Australia was two stories high and the length of a basketball court.

            https://www.npr.org/2021/06/08/1003975808/australia-biggest-dinosaur-titanosaur-cooper-discovery-outback

 

            Frozen worms brought back to life after 24,000 years.

            https://nypost.com/2021/06/08/24000-year-old-zombie-worms-discovered-frozen-and-alive/

 

 

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Wednesday, June 9, 2021

The Morning Call--Not bad assets, just bad prices

 

The Morning Call

 

6/9/21

 

The Market

         

    Technical

 

            Tuesday in the charts.

            https://www.zerohedge.com/markets/bonds-black-gold-big-shorts-bid-bitcoin-breaks-down

 

            Ten year yields plunge.

            https://www.zerohedge.com/markets/10y-yields-plunge-below-150-record-short-squeeze-accelerates

 

            The dollar---down but not out.

            https://econbrowser.com/archives/2021/06/everything-is-relative

 

            Oil approaches critical level.

            https://www.zerohedge.com/commodities/speculators-brace-commodity-prices-surge-open-interest-hits-125-trillion

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

Weekly mortgage applications fell 3.1% but purchase applications were up 0.3%.

 

The April job openings report (JOLTS) showed 9.3 million available jobs versus consensus of 8.3 million.

                          https://alhambrapartners.com/2021/06/06/weekly-market-pulse-looking-for-workers/

 

                        International

 

The April German trade balance was E15.9 billion versus estimates of E16.3 billion.

 

May YoY Japanese machine tool orders rose 140.9% versus +120.8% in April.

 

May Chinese CPI came in at -0.2% versus predictions of -0.1%; YoY PPI was +9.0% versus +8.5%.  In response, the Chinese government imposed price controls.

https://www.zerohedge.com/economics/traders-alert-china-inflation-shock

 

                        Other

 

                          America (and China) is driving the global economy.

                              https://www.nytimes.com/2021/06/08/upshot/pandemic-economy-trade.html

 

            The Fed

 

This analysis is likely very reflective of what the Fed wants (thinks that it can do) to do with respect to the timing and execution of tapering.  The question is, will it be successful?  As a possible answer, I remind you that the Fed has never, ever got the transition to normalized monetary policy right.  Indeed, it has a history of being dead wrong at the most critical of times.

              https://www.cnbc.com/2021/06/07/the-fed-is-in-the-early-stages-of-a-campaign-to-prepare-markets-for-tapering-its-asset-purchases.html

 

              This as a counterpoint.

              https://www.zerohedge.com/markets/one-bank-goes-apocalyptic-inflation-about-explode-leaving-global-economies-sitting-time

 

            Biden’s Plan

 

How big an impact would the global corporate minimum tax have on S&P earnings?

https://www.zerohedge.com/markets/how-will-15-global-minimum-tax-impact-sp500-earnings

 

             US and EU agree to lift tariffs.

              https://www.zerohedge.com/geopolitical/biden-and-eu-leaders-unravel-trumps-18-billion-america-first-tariff-fight

 

            Inflation

 

              What is not transitory.

              https://thereformedbroker.com/2021/06/08/it-cant-be-transitory/

 

              The relative affordability of new homes continues to decline.

              https://politicalcalculations.blogspot.com/2021/06/relative-affordability-of-us-new-homes.html#.YL-qrflKiUk

 

              But a couple of hopeful signs that inflation may be peaking soon.

              http://www.capitalspectator.com/is-the-recent-surge-in-us-inflation-peaking/

 

              Wednesday morning humor: stripper shortage.

              https://www.zerohedge.com/political/national-exotic-dancer-shortage-forces-new-orleans-strip-club-offer-signing-bonuses

 

            The coronavirus

 

              It is not a recovery because there was never a recession.

              https://americanconsequences.com/there-was-never-any-recession-john-tamny/?utm_source=RCM&utm_medium=Traffic&utm_campaign=Tamny

 

              China involved in massive coverup.

              https://www.zerohedge.com/covid-19/watch-who-advisor-says-china-engaged-massive-cover-covid-outbreak

                 

              Fauci pal describes how Chinese developed killer coronaviruses.

              https://www.zerohedge.com/covid-19/watch-fauci-pal-daszak-describes-chinese-colleagues-developing-killer-coronaviruses

 

 

    Bottom line.

 

            No bad assets, just bad prices.

            https://www.advisorperspectives.com/commentaries/2021/06/08/there-are-no-bad-assets-just-bad-prices

 

    News on Stocks in Our Portfolios

 

Brown-Forman (NYSE:BF.B): Q4 GAAP EPS of $0.25 misses by $0.07.

Revenue of $812M (+14.5% Y/Y) beats by $37.8M.

 

Franklin Resources (NYSE:BEN) declares $0.28/share quarterly dividend, in line with previous.

 

What I am reading today

 

            Getting the goalpost to stop moving.

            https://www.collaborativefund.com/blog/goalpost/

 

            A thought piece, not necessarily because I agree with all of it.

            https://unclenap.com/china-china-china/

 

            A sad commentary on the credibility of science.

            https://marginalrevolution.com/marginalrevolution/2021/06/why-are-the-less-educated-in-democracies-especially-anti-science.html

                       

More (enlightening) detail on yesterday’s story that the rich skated on paying taxes.

            https://www.powerlineblog.com/archives/2021/06/will-biden-prosecute-this-leak.php

 

 

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