The Morning Call
9/8/26
The
Market
Technical
Last week, the
S&P made another (unsuccessful) attempt at pushing below its former all
time high as well as the uptrend off its March low. On the other hand, it
remained below the recently set lower high. On a longer term basis, the picture
remains upbeat: it is above all three DMAs as well as being in uptrends across
all timeframes. Short term, the index did not fade last week in the face of a
lot of negative technical as well as fundamental press. That suggests staying
upbeat on stocks. But the fundamentals (deficit, war, oil, the nonfarm payrolls
number) give me the willies. So I will continue to sit on my hands.
Bond investors
certainly aren’t having any fun. The Warsh Jacksom Hole speech, Friday’s
nonfarm payrolls data, our ruling class’s lack of fiscal responsibility, Trump’s
‘beautiful’ tariffs, the economic fallout from two wars along with the
explosive AI spend are more than enough to explain that and more. TLT
is below all three DMAs and in downtrends across all timeframes;… for the long
bond to rise enough to even challenge the upper boundary of its very short term
downtrend is going to take a series of very positive developments. Unless the bond
boys somehow take a rate increase as a plus, I don’t see how that can change.
GLD cut short its
brief rally, reset its 200 DMA back to resistance and is now vacillating
between its 100 and 200 DMAs---properly reflecting I think the fundamentals
that historically drive gold prices---potentially higher interest rates versus
a love stew of the continuing inflationary pressures from lousy fiscal policy,
the economic fallout from two wars and higher tariffs. I am unsure of the
outcome but for the moment holding on to my GDX.
The dollar backed off last
week’s rally though it did manage to hold above its 100 DMA. It like every
other index appears confused. It remains in a longer term ‘no man’s land’ where
it is going to take a lot for it to break out of even its short term trading
range.
Friday in the charts.
https://www.zerohedge.com/markets/payrolls-kill-wallers-fed-pause-party-oil-yields-ai-earnings-whipsaw-markets-week?gift=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJuaWQiOiIxMTIzOTYwIiwic2VuZGVyVWlkIjoiUUhnc3BaZVVFS2E3RHhXM216eFlKbjhaWEFoMiIsImlhdCI6MTc4ODU1MzYyMCwiZXhwIjoxNzkxMTQ1NjIwLCJhdWQiOiJ6aC1naWZ0In0.F9ZHxLnEXM1D0xo7BEaELA387qUzVZho3evqA-mCYyo
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
The latest from
Goldman.
Tuesday morning
setup: US futures fell as Brent crude approached $100 a barrel, chasing
Shanghai crude which is now trading above $102, reinforcing expectations that
central banks will have to raise interest rates to contain inflation while a
key CPI print looms on Friday. As of 8:15am, S&P 500 futures were 0.3%
lower while Nasdaq futures were fractionally negative after reversing an
earlier rise. In premarket trading, Mag 7 stocks are mostly lower:
Stocks in Europe
and Asia were also weaker. Brent traded around $99 after Saudi Arabia said
operations at facilities in the kingdom’s south were halted by attacks. As
discussed here, strong Chinese purchases added to tightness in oil markets. The
dollar gained as the yen erased gains of as much as 1% deriving support from
expectations of more restrictive Bank of Japan policy, which had pushed the
USDJPY as low as 152, levels last seen in February. Treasuries slipped ahead of
a $58 billion auction of three-year notes. Today's US economic data slate
includes August NY Fed 1-year inflation expectations (11 a.m.) and July
consumer credit (3 p.m.). Fed speaker slate is blank during Sept. 5-17 external
communications blackout period around the Sept. 15-16 FOMC meeting.
September
setup.
https://www.zerohedge.com/markets/september-market-weakness-setup-has-teeth
Fundamental
Headlines
The
Economy
Last
week, the US stats were slightly upbeat with two primary indicators (one plus,
one minus) and no price measures. The overseas, the data was negative with one
positive and one neutral inflation datapoint.
The
US numbers continue to lessen my concern about a weakening economy. The absence
of any inflation data leaves my ‘good as it is going to get but not any worse’
forecast alive and well. But my level of uncertainty is increasing.
Item
one: The big kahuna last week was Friday’s off the chart nonfarm payrolls
number---a good indication that the economy is continuing to grow. Clearly a
plus.
https://bonddad.blogspot.com/2026/09/august-jobs-report-possibly-best-report.html
However,
despite some dovish mumblings from FOMC members, it likely raises the odds of a
rate hike this month. Not that it is not otherwise needed given the continuing
fiscally irresponsible spending by our ruling class, the enormous ongoing AI
buildout driving economic growth and the lack of any kind of softening in the
inflation rate.
Of
course, the Fed raising rates is not of necessity a bad thing---if it is driven
by a strong economy (indicating growth) and in response to signs of higher demand
pull inflation. Investors could even approve because it shows that the Fed is
at last getting it right.
Unfortunately,
a part of the current economic strength is driven by an outlandish budget
deficit/national debt. Couple that with the price pressure that accompanies
higher tariffs and rising commodity prices resulting from the Iranian and
Ukrainian conflicts, investors now must apprise a rate hike not solely required
to reign in a robust economy but one at least partially necessitated by poor
governance and war. In short, I am concerned that any tightening action by the
Fed which while necessary could be viewed negatively by the Market.
***late
Friday, Trump threw a monkey wrench in everybody’s attempt to discern the
course of the economy/Fed policy when he threatened to cease doing business
with any country with which the US had a trade deficit (virtually every
country) if the Fed raised rates. Boneheaded threat is too kind a word and if
he really does it, I think it would the political equivalent of self-emollition.
I await the back lash. ‘God grant me the serenity….’
Why
the government can’t seem to balance the budget.
https://politicalcalculations.blogspot.com/2026/09/hausers-law-in-action-1946-2025.html
The
case for not raising rates.
https://www.advisorperspectives.com/commentaries/2026/09/04/if-inflation-problem-why-arent-wages
Item
two: I continue to stew over is the health of the AI buildout. I have already
elaborated on the potential problems in earlier notes. So I won’t repeat them. What
keeps me concerned is the continuous flow of analysis questioning the viability
of the spend. To be sure, there is plenty of equally responsible analysis by
equally responsible analysts confirming the positive case for the future payoff
of the current spend rate.
My
problem is that I am not smart enough to figure out which case is the more
likely outcome. So, I continue to hold positions in both the chip
manufacturers and the hyperscalers---although their performances has been such
that I have Sold Half of virtually every stock. And I am not running for the
hills in the rest of my Portfolios. That said, I have my finger on the trigger
for several holdings. And should the negative case appear the more likely
outcome, I will take some money off the table.
Here
is an upbeat article on AI. This was done by an analyst in the Dallas Fed. I
live in Dallas. I recently tried to change a reservation with American
Airlines---a Dallas based company. I got an AI responder. I spent an hour and a
half trying to change that reservation because I kept getting a ‘I don’t
understand the problem’ response. Believe me it wasn’t complicated. Eventually,
I figured out how to get a human on the line and the task was completed in
about ten minutes. The point being either AI needs to improve or companies are
going to be rehiring.
https://www.dallasfed.org/research/economics/2026/0901
Versus
a more skeptical take.
As usual, Lance Roberts has
good advice on the subject.
https://talkmarkets.com/article/ai-bears-right-about-the-excess-may-be-wrong-on-the-trade-1788526054
Bottom
line: doubts on the trajectory of the economy/inflation/AI buildout are
increasing---at least in my mind. Not yet enough to warrant a change in my outlook
but enough to keep me on the sidelines with my finger on the warning light
button.
US
The August small
business optimism index came in at 98.7
versus estimate of 99.3.
International
Q2 (3rd est)
EU GDP grew 0.6 versus expectations of +0.4%.
Q2 Japanese GDP was up 0.4%, in line.
July
German industrial production fell 1.1% versus consensus of +0.1%; the July trade balance was +E21.3 billion versus +E16.0
billion.
The August Chinese
trade balance was $119.1 billion, in line.
Other
Are central banks moving out of dollar assets?
https://libertystreeteconomics.newyorkfed.org/2026/09/are-central-banks-moving-out-of-dollar-assets/
Overnight
News
Yemen's
Tehran-backed Houthis attacked four cities in the south of U.S. ally Saudi
Arabia on Tuesday, wounding more than 70 people and setting oil installations
ablaze in what appeared to be a major expansion of the six-month-old Middle
East war. They used drones and missiles to strike a Saudi airbase in the
southern city of Khamis Mushait, and targets belonging to Saudi Arabia's state
oil company in nearby Abha, Najran on the Yemeni border and Jazan, a major Red
Sea port city that houses a large refinery and power plant.
New Canadian
tariffs targeting roughly $20 billion in U.S. imports officially snapped into
place on Tuesday, the latest escalation in an increasingly costly trade war
that has ensnarled two longtime allies.
Inflation
Inflation is the theft of peace and happiness.
Tariffs
Congress takes aim at executive tariff power.
https://www.cato.org/blog/senators-take-aim-executive-tariff-power
Investing
Depressing reasons to be bullish on gold.
https://investor.fm/depressing-reasons-why-i-am-bullish-on-gold/
Right but not solvent.
https://www.rcmalternatives.com/2026/09/right-but-not-solvent-the-lessons-of-victor-niederhoffer/
Nobody knows anything.
https://ritholtz.com/2026/09/nobody-knows-anything-rate-expectations-edition/
The latest from BofA.
The latest from Goldman.
News (but not a Buy recommendation) on Stocks
in Our Portfolios
What
I am reading today
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