Wednesday, January 22, 2020

The Morning Call---Valuation, valuation, valuation


The Morning Call

1/22/20

The Market
         
    Technical

While the Averages (29196, 3320) took a breather yesterday, they still closed above both MA’s and in uptrends across all timeframes.  Volume rose; breadth remained strong though it is in overbought territory.  Remember that there are still multiple gap up opens down below that ultimately need to be filled.

            Counterpoint.

The VIX was up 6 ¼%, but that did little to improve the chart/suggest that investor sentiment could be changing to the negative.

The long bond rose 1%, but momentum remains to the downside.  That is not surprising given the current positive investor sentiment regarding an improving economy.  The only potential technical challenge is that TLT is nearing its 100 DMA (now resistance).  A move above that MA could call into question the current upbeat economic scenario.

The dollar continued to decline (down two cents).  Of the group of indices that I follow, it has by far the ugliest chart.  So, it appears that there is more downside.  That said, there is a huge gap down open dating back to 12/23 that will at some point begin to exert a powerful magnetic pull to the upside on UUP. 

Gold was up 1/8%, closing within very short term and short term uptrends and above both MA’s.

The charts of TLT and the S&P are clearly pointing at a stronger economy.  Those of GLD and UUP not so much.

            Tuesday in the charts.

    Fundamental

       Headlines

            No US stats reported yesterday.  Overseas, the numbers continued their positive trend. October UK payrolls, November German PPI and January EU and German economic sentiment were better than anticipated.  However, November Japanese industrial production was below estimates.

            Bottom line: impeachment sucked a lot of air out of the Market yesterday; though Boeing’s latest announcement on the delay of the recertification of the 737 Max had an impact.

            Lurking in the background is the potential negative developments if the SARS like virus in China were to begin spreading.  Too soon to know if this will become a problem.

            More discussion on valuations:

            The latest from David Rosenberg (must read).

            Counterpoint from Ed Yardini.

            The latest from Paul Tudor Jones.

            Cash on the sidelines.

    News on Stocks in Our Portfolios
 
Johnson & Johnson (NYSE:JNJ): Q4 Non-GAAP EPS of $1.88 beats by $0.01; GAAP EPS of $1.50 beats by $0.03.
Revenue of $20.75B (+1.8% Y/Y) misses by $80M.

           

Economics

   This Week’s Data

      US

            Weekly mortgage applications fell 1.2% while purchase applications were down 2.0%.

            Month to date retail chain store sales growth was flat with the prior week but an improvement from the negative growth of the week before.

            The November housing index came in at 0.2, in line.

            The December Chicago Fed national activity index was reported at -0.35 versus consensus of -0.3.

     International

            January German economic sentiment was reported at 26.7 versus forecasts of 15.0.

            Q1 UK business optimism came in at 23 versus expectations of -28.

    Other

            Price Waterhouse global survey shows CEO’s negative on economic growth in 2020.       

            A history of interest rates since 1311.

A mildly positive take on the US/China trade deal (surprisingly) from the NY Times.

Truck tonnage update.

What I am reading today

            Stop getting conned out of your money.
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Tuesday, January 21, 2020

The Morning Call--I'm back


The Morning Call

1/21/20

The Market
         
    Technical
               
                The good news is that absolutely nothing has changed in the S&P chart in the last four weeks.  The index continues to smoke to the upside, remaining above the MA’s and in uptrends across all timeframes.  There is little technical evidence that this will change in the near future.



                The long bond hasn’t altered its trading pattern.  After falling back from the upper boundary of its intermediate term uptrend, it went on to revert its 100 DMA from support to resistance and reset its very short uptrend to a trading range.



                The whackage in the dollar continued.  Both MA’s have reverted to resistance and its short term trend has reset to down.



                Gold made a nice recovery over the last month, now trading above both MA’s and in short term and very short term uptrends.



As you might expect in a strong up Market, the VIX hovers around all-time lows and gives no sign that sentiment could be turning negative.



                Bottom line: the S&P, TLT and VIX are all suggesting that the economy and prospects for better earnings growth are improving.  However, the dollar should be acting better and GLD worse under such a scenario; so, they represent cautionary signals.

    Fundamental

       Headlines

            During the week of 12/16, the US numbers were neutral while the overseas stats were positive; the week of 12/23, the US data was positive, the overseas numbers were negative; the week of 12/30, the US and overseas stats were negative; however, the weeks of 1/6 and 1/13 were both quite positive not only for the US but also across all the major global economies. Score: in the last 223 weeks, seventy-three were positive, one hundred and one negative and fifty neutral. 

In sum, the US numbers continue to portray the economy as sluggish.  However, the marked improvement in the economic stats in the last two weeks helps feed the notion that the US can avoid a recession---though I would by no means conclude that some kind of ‘lift off’ is occurring.  Much more is needed for that.
           
            For the economic optimists---don’t worry about debt.  One question, what about all that mortgage debt in 2008 and what about that leverage in hedge funds today?

            Counterpoint.

            For the true Fed believers.

            Rounding out this day of optimism, John Mauldin actually pinned an upbeat long term outlook.

            But there is always that nagging problem of valuations.

            And the Fed. (must read)

            Jeff Gundlach’s latest take on Fed policy.

            Bottom line: as long as investors buy into the notion that the Fed will forever have the Market’s back, stock prices are likely to go higher.  However, sooner or later, expansive monetary policy that only benefits equities versus the real economy will push valuations to such extremes that an ‘emperor’s new clothes’ moment seems inevitable.  May not happen for a year, two years.  But when it does, cash reserves will look awfully good.  Enjoy the ride; but consider taking some profits in your big winners.

    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

      US

     International

            October UK payrolls grew faster than anticipated while November average earnings were up 3.2% versus forecasts of up 3.1%.

            November Japanese industrial production fell 1.0% versus estimates of -0.9%.

            December German PPI came in at 0.1% versus expectations of +0.2%.

            January EU economic sentiment came in at 26.7 versus consensus of 15.0.

    Other

            IMF cuts global economic outlook, again.

            Baltic Dry index continues to decline.

            Update on Brexit.

            The latest on the oil market.

What I am reading today

            The survival function of Roman emperors.
                   
            The ethics of your financial affairs.
                   
            The math of debt.

            Update on bitcoin.

            Quote of the day.

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.




Thursday, December 19, 2019

The Morning Call--The beginning of the end?


The Morning Call

12/19/19

Our #3 granddaughter arrives today to start the Christmas season.  I am taking off until after New Year’s.  Have great Holiday Season.

The Market
         
    Technical

The Averages (28229, 3191) inched downward yesterday, but still closed above both MA’s and in uptrends across all timeframes.  So, momentum remains to the upside, at least short term; and that is being aided by seasonal factors.

            And.

However, nothing changed with respect to those multiple gap up opens down below or my concern that this is not healthy and could be an indication that the Market is entering or has already entered a blow off top. 

Volume was flat; breadth weaker than I had expected but remains near overbought territory.  The VIX was up 2 3/8%, but ended near the lows established last April, July and November. 

The long bond declined 7/8%, finishing (1) below the lower boundary of its very short term uptrend  which is also the lower boundary of the current pennant formation.  If it remains there through the close today, it will negated the very short term uptrend.  If it remains there through the close on Friday, it will void the pennant formation, which would be a decidedly negative technical sign for TLT, and (2) right on the lower boundary of its short term trading range. (must read)

The dollar rose ¼ %, but still ended near the lower boundary of its short term trading range.

Gold was up one cent, closing within a developing pennant formation.

The trading pattern of the VIX and the S&P are clearly pointing at a stronger economy.  And now TLT appears ready to join the crowd.  UUP and GLD continue to suggest uncertainty among their investors.

            Wednesday in the charts.

    Fundamental

       Headlines

            Only one minor US datapoint was released yesterday.  Weekly mortgage and purchase applications declined.

            The latest business cycle risk report.

            The latest Atlanta Fed Q4 GDPNow forecast.

Overseas, October EU YoY construction output and November German PPI were disappointing, the November Japanese trade deficit was much better than anticipated and November EU  and UK CPI’s were in line.

              Bottom line: the impeachment hearings sucked all the air out of the Market yesterday.  Indeed, given the extent of its overbought condition, I was surprised that it wasn’t off more.  But I guess that the irresistible force of $500 billion being pumped into the financial system can overcome all.

            ***overnight, the Bank of Japan left rates unchanged and will continue QE; the Bank of China made a huge liquidity infusion into its financial system; the Bank of Sweden raised its key bank rate.; the Bank of England left rates unchanged but hinted that it may start tightening.  Is this the beginning of the end or just noise?


              Trump has never been serious about fiscal responsibility.

            ***overnight, US and China discussing the signing of the Phase One traded deal.

            The latest from Stanley Druckenmiller.

    News on Stocks in Our Portfolios
 
Paychex (NASDAQ:PAYX): Q2 Non-GAAP EPS of $0.70 beats by $0.02; GAAP EPS of $0.72 beats by $0.03.
Revenue of $990.7M (+15.3% Y/Y) beats by $2.44M.

Accenture (NYSE:ACN): Q1 Non-GAAP EPS of $2.09 beats by $0.10.
Revenue of $11.36B (+7.1% Y/Y) beats by $210M.

Accenture (NYSE:ACN) declares $0.80/share quarterly dividend, in line with previous.
FactSet Research Systems (NYSE:FDS): Q1 Non-GAAP EPS of $2.58 beats by $0.16; GAAP EPS of $2.43 beats by $0.24.
Economics

   This Week’s Data

      US

            Weekly jobless claims fell 18,000 versus expectations of down 27,000.

            The Q3 trade deficit was $124.1 billion versus consensus of $122.1 billion.

            The December Philadelphia Fed manufacturing index came in at 0.3 versus estimates of 8.0.

     International

            November UK retail sales fell 0.6% versus forecasts of +0.3%.

    Other

What I am reading today

           

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Wednesday, December 18, 2019

The Morning Call--The hole in Phase One


The Morning Call

12/18/19

The Market
         
    Technical

The Averages (28267, 3192) drifted higher yesterday, finishing above both MA’s and in uptrends across all timeframes.  So, momentum is clearly to the upside, at least short term; and that is being aided by seasonal factors.

However, nothing changed with respect to those multiple gap up opens down below or my concern that this is not healthy and could be an indication that the Market is entering or has already entered a blow off top. 

Volume was flat; breadth strong and is entering overbought territory.  The VIX was up 1 ¼% (unusual for an up day in the Market), but remained near the lows established last April, July and November---now safely back in territory indicative of complacency. 

The long bond declined 1/8%, ending in the developing pennant formation (with in a trend of lower highs and a trend of higher lows) which is a sign of investor confusion or uncertainty.

The dollar rose 1/8%, lifting off the lower boundary of its short term trading range.

Gold was down three cents.  Like TLT, it is in a developing pennant formation.

The trading pattern of the VIX and the S&P are clearly pointing at a stronger economy, while TLT, UUP and GLD are suggesting uncertainty among its investors.

            Tuesday in the charts.

    Fundamental

       Headlines

Yesterday’s stats were very upbeat. The October Jobs Openings report, November industrial production (primary indicator), and November housing starts (primary indicator) were above expectations while month to date retail chain store sales were disappointing.

            Overseas, October UK unemployment and the October EU trade surplus were better than anticipated.
            The only other headline was our ruling class deciding that the FY2020 deficit wasn’t quite irresponsible enough and voted to increase it even more.  Trump is scheduled to sign it on Friday.

            I can’t let a day go by without a dose of criticism for the Fed.
           
            Plus, this stunning admission from the head of the Boston Fed.

            Bottom line: yesterday’s data notwithstanding, there is no reason to believe that the economy is lifting off.  As you know, the pattern of economic growth for the last decade has been sluggish characterized by fits and starts.  Until there is a sustained period of growth, I am not changing my forecast.  I find comfort in that outlook because (1) the political class continues to load debt on the US economy which has the effect of restraining growth and (2) the distortion in capital investment resulting from the gross mispricing and misallocation of assets stemming from a far too easy monetary policy.  My complaints aside, I still believe that the economy will avoid recession.

            However, at some point, the fiscal and monetary policies adverse impact on corporate profit growth will in time render valuations so absurd that some adjustment in investor expectations seem inevitable.  But probably not until the Fed stumbles.
           
            The hole in the Phase One trade agreement (must read)

            The latest investment manager survey (must read).

    News on Stocks in Our Portfolios
 
General Mills (NYSE:GIS): Q2 GAAP EPS of $0.95 beats by $0.07.
Revenue of $4.42B (+0.2% Y/Y) misses by $10M.
Economics

   This Week’s Data

      US

            The October Jobs Openings report showed a total of 7.26 million available jobs versus estimates of 7.02 million.

            November industrial production  rose 1.1% versus forecasts of up 0.8%; capacity utilization was 77.3% versus 77.4%.

                Weekly mortgage applications fell 5.0% while purchase applications were down 2.1%.

     International

            October EU YoY construction output was up 0.3% versus expectations of +2.4%; MoM CPI fell 0.3%, in line.

            The November Japanese YoY trade deficit equaled Y82.1 billion versus -Y369 billion.

            November German PPI was 0.0% versus consensus of +0.1%: UK CPI was 0.2%, in line.

    Other

            College enrollment skids for 8th year in a row as student loan debt soars.

            Where is the inflation?

What I am reading today

            Some of the most exciting fossil discoveries ever.

            Intangible returns.

            Quote of the day.

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.