Wednesday, October 21, 2020

The Morning Call--Just because you are too young to remember a crash doesn't mean it won't happen

 

The Morning Call

 

10/21/20

 

The Market

         

    Technical

 

            Tuesday in the charts.

            https://www.zerohedge.com/markets/stocks-bitcoin-bullion-jump-dollar-bonds-dump

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

Weekly mortgage applications fell 0.6% while purchase application were down 2.1%.

 

                        International

 

September UK CPI was up 0.4% versus estimates of up 0.5%; core CPI was up 0.6%, in line.

 

                        Other

 

                          To whom does the US Government owe money?

                          https://politicalcalculations.blogspot.com/2020/10/to-whom-does-us-government-owe-money.html#.X48plNBKiM8

 

                          OPEC on the brink of crisis.

                          https://www.zerohedge.com/energy/opec-brink-crisis

 

Here is a fairly balanced analysis of the economic impact of either a Trump or Biden win.

                          https://www.zerohedge.com/markets/trump-vs-biden-economy-fed-markets

 

            The Fed

 

              What is the purpose of the Fed?---------ab—soo--lutely nothin’. Huh.

              https://www.zerohedge.com/economics/what-purpose-fed

 

            The coronavirus

 

              More on Sweden’s success in combating the virus.

              https://www.zerohedge.com/medical/google-mobility-data-suggests-sweden-socially-distanced-less-other-countries

 

            China

 

               The continuing battle in technology with China.

               https://www.zerohedge.com/geopolitical/former-mi6-spy-alastair-crooke-two-undersides-geo-politics

 

 

            Bottom line.  Just because you are too young to remember a crash doesn’t mean that it won’t happen.

              https://www.marketwatch.com/story/many-stock-investors-are-too-young-to-remember-the-october-1987-market-crash-why-thats-a-problem-2020-10-19

 

            I have been in this business since 1968.  So, I have seen a wide variety of crashes: the long drawn out crash (1970’s), the one day crashes (1987), the gut wrenching 60% plus crashes (2008) along with your everyday variety of 10-20% selloffs.  As the above article points out, to assume none of these will happen again is fatally na├»ve.  Especially at a time when equity valuations are stretched to the upside and the economic backdrop is worrisome at the least.

 

            So, what is an investor to do.  As a contrary opinionist, my solution is to always go to the stocks that are in the tank.  Of course, they are there for a reason; but many have been beaten down more than they should.  In addition, many also pay handsome dividends that can provide attractive income during periods of Market malaise.  Among my holdings, I would point out (all ratings are from Value Line): ATT (7.7% yield, A++ rated), Altria (8.5% yield, B++ rated), AbbVie (5.9% yield, A rated), BEN (4.8% yield, A++ rated), Bank of Nova Scotia (6.4% yield, B++ rated), MSM (4.4% yield, A rated), XLE (energy sector ETF 7.2% yield).

 

            Here is more (conventional) advice on dealing with today’s richly valued Market:

 

            What high valuations mean for your retirement plan.

            https://www.morningstar.com/articles/1004634/what-highish-equity-valuations-mean-for-your-retirement-plan

 

                Where to find yield today.

            http://www.capitalspectator.com/desperately-seeking-yield-20-october-2020-edition/#more-14916

 

Here is a thought for those that do not want to assume the risk of holding individual stocks and would prefer an ETF/mutual fund.

https://seekingalpha.com/article/4379755-vym-one-of-better-choices-for-passive-investor-today?utm_medium=email&utm_source=seeking_alpha&mail_subject=vym-one-of-the-better-choices-for-the-passive-investor-today&utm_campaign=nl-etf-daily&utm_content=link-0

 

    News on Stocks in Our Portfolios

 

MSC Industrial Direct (NYSE:MSM) declares $0.75/shar quarterly dividend, in line with previous.

 

Canadian National Railway (NYSE:CNI): Q3 Non-GAAP EPS of C$1.38 misses by C$0.08; GAAP EPS of C$1.38 misses by C$0.06.

Revenue of C$3.41B (-11.0% Y/Y) misses by C$80M.

 

Canadian National Railway (NYSE:CNI) declares CAD 0.575/share quarterly dividend, in line with previous.

 

What I am reading today

 

            A great must read article on the current political scene from a liberal author.

            https://johnhcochrane.blogspot.com/2020/10/understanding-left.html

 

            Yeah, this is going to help America be more competitive.

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

 

 

 

Tuesday, October 20, 2020

The Morning Call--More debt equals less growth

 

The Morning Call

 

10/20/20

 

The Market

         

    Technical

 

            Beware of the impact of target date funds.

            https://blog.evergreengavekal.com/swimming-with-the-target-date-whale/

 

            Monday in the charts.

            https://www.zerohedge.com/markets/black-ish-monday-stimulus-stumble-sparks-big-techs-worst-streak-14-months

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Month  to date retail chain store sales grew faster than in the prior week.

 

September housing starts rose 1.9% versus expectations of up 4.9%; building permits were up 5.2% versus +2.9%.

                          https://www.zerohedge.com/personal-finance/single-family-housing-startspermits-soar-highest-2007

 

                          The October housing index came in at 85 versus consensus of 83.

                          https://www.calculatedriskblog.com/2020/10/nahb-builder-confidence-increased-to-85.html

 

                        International

                           

                            September German PPI was up 0.4% versus estimates of -0.1%.

 

                        Other

 

              Recessions are a good thing.

              https://www.advisorperspectives.com/commentaries/2020/10/19/recessions-are-a-good-thing-let-them-happen

 

              Vehicle miles driven decreased 12.3% YoY in August.

              https://www.calculatedriskblog.com/2020/10/dot-vehicle-miles-driven-decreased-123.html

           

Fiscal Policy

 

  Fiscal cliffication looms if no stimulus deal.

  https://www.nakedcapitalism.com/2020/10/fiscal-cliffication-continues-as-the-election-looms.html

 

            The coronavirus

 

Last week, I went to California.  The plane, both ways, was completely full.  So, it appears that Americans are paying attention to the stats and are deciding to resume life to the extent possible.  More evidence:

              https://www.zerohedge.com/personal-finance/tsa-passenger-traffic-tops-million-sunday-return-normalcy-continues

 

            Bottom line.  As you know, one of my key economic/investment thesis is that the rising level of debt (government, corporate, individual) will stymie economic growth.  Rogoff and Reinhart produced a major study showing that when government debt exceeds 90% of GDP, it became a barrier to growth---the reason being that servicing that debt consumed so much investment capital that what was left was insufficient to fund normal economic growth.  That thesis has played out over the last decade as the long term secular growth rate of the US economy has been subpar.  Looking ahead, this problem is only going to get worse as our political class is adding trillions of dollars of new debt annually.  So, those of you thinking that the US long term secular economic growth (and hence, corporate profit growth) is going to accelerate as the US emerges from the coronavirus crisis, you may want to reconsider.

 

            Here are a couple of articles addressing this issue on more detail.

 

The problem with debt.

https://alephblog.com/2020/10/15/the-rules-part-lxvii/

 

More problems with debt.

https://www.ft.com/content/87efe5a9-4cb6-493b-a31a-f9efd5ddd242

 

Five easily avoidable investment mistakes.

              https://www.usatoday.com/story/money/investing/2020/10/17/5-easily-avoidable-investing-mistakes-beginners-dont-have-to-make/114275778/

 

 

    News on Stocks in Our Portfolios

 

Procter & Gamble (NYSE:PG): FQ1 GAAP EPS of $1.63 beats by $0.20.

Revenue of $19.32B (+8.5% Y/Y) beats by $930M.

 

ATT---a bond substitute.

https://seekingalpha.com/article/4379868-t-stock-bond-alternative?utm_medium=email&utm_source=seeking_alpha&mail_subject=t-at-t-stock-the-bond-alternative&utm_campaign=rta-stock-article&utm_content=link-0

 

What I am reading today

 

            A generation of constitutional illiterates.

            https://www.nationalreview.com/2020/10/congress-v-the-constitution/?utm_source=recirc-desktop&utm_medium=article&utm_campaign=river&utm_content=top-bar-latest&utm_term=fifth

 

            The dysfunctional media.

            https://www.epsilontheory.com/knowledge-takes-the-sword-away/

            How to make this winter not totally suck.

            https://www.vox.com/future-perfect/2020/10/14/21508422/winter-dread-covid-19-pandemic-happiness-psychology

            Once again, only the gophers go to jail while the big boys walk.

                        https://www.zerohedge.com/markets/crime-pays-goldman-strikes-2bn-deal-doj-avoid-all-charges-banks-role-1mdb-scandal

 

                        At last, the French seem to get it.  Follow through?

            https://www.zerohedge.com/geopolitical/fear-changing-sides-france-launches-unprecedented-crackdown-islamic-terror

 

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

 

 

 

Monday, October 19, 2020

Monday Morning Chartology

 

The Morning Call

 

10/19/20

 

The Market

         

    Technical

 

On Thursday, the S&P broke the short term trend of higher lows to the downside.  While it recovered on Friday, it was not enough to recapture the trend.  That sets up the potential of having made a high that is lower than its early September high and creating a double top.  It is way too soon to make that call but, as I said, the potential now exists.  Stay tuned.

            https://www.zerohedge.com/markets/robinhood-warns-day-traders-raise-margin-requirements-widely-held-stocks

 


            Recall that in late September, the long bond broke out of a pennant formation to the upside---a technical signal of a further move up.  Well, just to show technical rules are not cast in stone, TLT almost immediately made a big move down resetting the trend of lower highs---a sign of lower prices (higher yields).  The key now is whether TLT can hold above its 200 DMA (wiggly blue line).  If so, any move to higher rates will be limited.  If not, it would be a sign of mounting investor concern about inflation, safety or both.

            https://www.zerohedge.com/markets/foreigners-dump-us-treasurys-august-chinas-holdings-drop-almost-4-year-low


 

            Gold continues to struggle for direction.  I thought that the gap up open/break of the trend of lower highs that occurred Friday before last was a harbinger of an upside break in price.  But there was no follow through and GLD sold off; although it didn’t violate a trend of higher lows.  Now it is right on the point of a pennant formation.  The technical rule is that any move from the point is an indication of further follow through in direction of that move.  Stay tuned.



            In late September, the dollar broke to the upside out of a short term downtrend.  While my hope was that it would continue to recover, after a short rally, it resumed its downward trajectory making a new series of lower highs.  It still has the lower boundaries of both its short term trading range and intermediate term uptrend as support.  But it seems likely that it at least will make a second attempt to challenge the lower boundary of its short term trading range.  Stay tuned.

 


            It seems that ‘stay tuned’ remains the current technical theme.  When the major indicators are all signaling that in unison, historically the best strategy is to do nothing.

 

                Friday in the charts.

            https://www.zerohedge.com/markets/vix-stocks-rise-week-banks-puke-ahead-black-monday-anniversary

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        Last Week in Review

 

Last week was another slow one for statistical releases in the US.  What we got was basically mixed.  The fact that the data remains mixed, however skimpy, fits with the current pattern of economic improvement but not in the ‘V’ shape that is hoped for.

 

Overseas, the indicators were also sparce and mixed---not much informational value there.  So, after two very positive weeks of results, global stats are back to a mixed to negative bias.  Not helpful to our own recovery.

 

Whatever the shape or magnitude of the near term bounce back, I am not altering my belief that long term the economy will grow at a historically subpar secular rate due to the twin burdens of egregiously irresponsible fiscal and monetary policies---which, by the way, are becoming even more egregiously irresponsible as a result of measures being taken by the government and the Fed in dealing with the current crisis.

             

                        US

 

 

                        International

                          

The September Japanese trade balance was Y675 billion versus projections of Y989.8 billion.

           

Q3 Chinese YoY GDP growth was 4.9% versus estimates of 5.2%; industrial production was up 6.9% versus 5.8%; retail sales rose 3.3% versus 1.8%.

   https://www.zerohedge.com/geopolitical/china-q3-gdp-disappoints-retail-sales-signal-domestic-rebound-alive

 

Other

 

                          Update on big four economic indicators.

                          https://www.advisorperspectives.com/dshort/updates/2020/10/16/the-big-four-september-retail-sales-sees-all-time-high

 

                          Commercial construction backlog falls in September.

                          https://www.zerohedge.com/economics/after-brief-uptick-commercial-construction-backlog-falls-again

 

                                  World Bank economist says financial crisis could emerge from pandemic.

                          https://www.bloomberg.com/news/articles/2020-10-16/carmen-reinhart-sees-risk-financial-crisis-emerges-from-pandemic?sref=loFkkPMQ

 

                        The Fed

 

              All that is wrong with the US financial system.

              https://www.zerohedge.com/markets/one-chart-summary-all-wrong-us-financial-system-deposits-over-loans

 

            Fiscal Policy

 

              2020 budget deficit triples to $3 trillion.

              https://www.zerohedge.com/markets/budget-deficit-hits-record-21-trillion-fiscal-2020-us-spends-90-more-it-collects

           

            China

 

              UK spy chief warns of Chinese covert activities.

              https://www.zerohedge.com/geopolitical/uks-new-spy-chief-says-chinas-covert-activities-biggest-long-term-threat

               

                Bottom line.

 

              Growth versus value post-election.

              http://www.capitalspectator.com/will-value-stocks-overtake-growth-shares-after-the-election/

 

 

    News on Stocks in Our Portfolios

           

V.F. Corp (NYSE:VFC): FQ2 Non-GAAP EPS of $0.67 beats by $0.19; GAAP EPS of $0.62 beats by $0.15.

Revenue of $2.61B (-17.9% Y/Y) beats by $70M.

 

V.F. Corp. (NYSE:VFC) declares $0.49/share quarterly dividend2.1% increase from prior dividend of $0.48.

 

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

 

What I am reading today

           

           

 

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

 

 

 

 

Wednesday, October 14, 2020

The Morning Call---Hear no risk, see no risk, speak no risk

 

The Morning Call

 

10/14/20

 

I am gone until next Monday

 

The Market

         

    Technical

 

            Tuesday in the charts.

            https://www.zerohedge.com/markets/banks-bust-bullion-battered-sterling-slammed-stocks-slump

           

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

Weekly mortgage applications fell 0.7% and purchase applications declined 1.7%.

 

The September small business optimism index was reported at 104.0 versus estimates of 99.0.

                          https://www.advisorperspectives.com/dshort/updates/2020/10/13/nfib-small-business-survey-improvement-in-september

 

                        International

                          

August Japanese industrial production was up 1.0% versus consensus of       up 1.7%.

 

August EU industrial production was up 0.7% versus predictions of up 0.8%.

 

                        Other

 

                          The ‘K’ shaped recovery.

                              https://www.zerohedge.com/economics/k-shaped-recovery-v-some-not-most

 

                          October IMF global growth outlook.

                              http://econbrowser.com/archives/2020/10/october-imf-world-economic-outlook

 

                                  Johnson says he won’t walk away from Brexit negotiations.

                          https://www.zerohedge.com/markets/odds-no-deal-brexit-plunge-boris-johnson-signals-he-wont-walk-away-talks-eu

 

            The Fed

 

              Central banks in overdrive.

              https://www.bloomberg.com/news/articles/2020-10-13/central-banks-in-qe-overdrive-to-finance-deficit-spending-chart?sref=loFkkPMQ

 

            The coronavirus

 

              Lockdowns have been a disaster.

              https://issuesinsights.com/2020/10/13/covid-19-lockdowns-have-been-a-disaster-end-them-now/

 

  Global GDP loss due to coronavirus reaches $12 trillion.

  https://politicalcalculations.blogspot.com/2020/10/world-gdp-lost-due-to-coronavirus.html#.X4X03GhKiM8

 

              Patriotism in a contemptible country.

              https://unclenap.com/patriotism-in-a-contemptible-country/

 

It is about time: court rules Michigan’s governor’s emergency pandemic executive powers unconstitutional.

              https://www.zerohedge.com/markets/michigan-supreme-court-denies-gov-whitmer-request-extension-pandemic-executive-powers

 

                          Lilly joins JNJ is suspending coronavirus treatment tests.

              https://www.zerohedge.com/markets/eli-lilly-suspends-covid-19-antibody-therapy-trial-over-potential-safety-concern

 

                          We destroyed the greatest economy in the world for no reason.

              https://www.zerohedge.com/economics/rickards-we-destroyed-worlds-greatest-economy-no-reason

 

            Bottom line.  Hear no risk, see no risk, speak no risk.

              https://www.zerohedge.com/markets/see-no-risk

 

              There is no Smart Money.

              https://www.epsilontheory.com/the-frustrated-money-manager/

 

              Possible outcome of ‘blue wave’ election

              https://www.advisorperspectives.com/commentaries/2020/10/13/global-impact-of-a-blue-wave-election-outcome

 

              Don’t mix politics with your portfolio.

              https://awealthofcommonsense.com/2020/10/dont-mix-your-politics-with-your-portfolio/

 

    News on Stocks in Our Portfolios

 

Procter & Gamble (NYSE:PG) declares $0.7907/share quarterly dividend, in line with previous.

 

Cummins (NYSE:CMI) declares $1.35/share quarterly dividend, 3% increase from prior dividend of $1.311.

 

            ATT: it is about more than just a dividend.

            https://seekingalpha.com/article/4378928-retirement-strategy-and-t-is-just-dividend?utm_medium=email&utm_source=seeking_alpha&mail_subject=retirement-strategy-at-t-is-more-than-just-about-the-dividend&utm_campaign=nl-investing-income&utm_content=link-0

 

What I am reading today

 

            Berlin and the road to socialism.

            https://www.adamsmith.org/blog/berlin-and-the-road-to-socialism

 

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