The Morning Call
The Market
Technical
The
indices (DJIA 13511, S&P 1472) were mixed yesterday (Dow down, S&P up),
closing within both their short term uptrends (13066-13757, 1419-1487) and
their intermediate term uptrends (13152-18152, 1392-1987). The 13682/1474 resistance barrier remains in
tact; I continue to believe that the evidence suggests that these levels will
be surmounted. However, the longer that
it isn’t, the more likely the ‘double top’ scenario gains credence.
Volume
rose; breadth weakened. The VIX fell,
finishing within its intermediate term downtrend.
GLD
was up a tad, remaining within its short term downtrend and its intermediate
term trading range. It also closed above
the upper boundary of that very short term downtrend for the second day.
Now
the Dutch may want their gold back (short):
Bottom
line: the Averages have stalled, at
least temporarily, just below the September 2012 resistance highs. While the this week’s pin action is quite
typical of the digestive process that takes place following an extreme
overbought condition, the question still remains, can the indices surmount the
13682/1474 barrier with the debt ceiling/sequestration/spending cut debates drawing
nearer? I continue to think that they
can but the longer they remain stalled, the more momentum seeps away. I remain willing to Sell stocks that trade
into their Sell Half
Ranges
The
truth about the predictive value of ‘as goes the first week, so goes the year’
(short):
NYSE
short interest down substantially (short):
Chart
of the day (short):
Another
long term mean reversion chart:
A
look at Market internals (must read):
Fundamental
Headlines
Yesterday’s
economic data was largely positive: weekly mortgage and purchase application
were up strong, reported inflation (CPI )
remains under control and industrial production was above expectations. If you haven’t noticed, the numbers have been
getting better in the last couple of weeks---which clearly keeps all those
recession bears at bay and reinforces our positive (though sub par) growth
forecast.
The
Fed also released its latest Beige Book report which continues to sound like a
Xerox copy of our outlook---controlled growth throughout the economy with
concerns over government fiscal irresponsibility acting as a headwind.
Gun
control bumped the debt ceiling/sequestration/spending cut debate out of the
lime light, at least for one day.
However, this problem is not going away and it is getting closer.
Goldman
on the debt ceiling/government shutdown/sequestration (medium):
Citi on the debt ceiling
(short):
Bottom
line: stock prices continue to trade
about 5% above Fair Value as calculated by our Valuation Model and that assumes
that none of the potential ‘fat tails’ (a shut down of the government, a crisis
in Europe) occur. The most likely
reason that our Model could be too conservative would be a ‘grand bargain’
reached over our budget deficit in which spending is cut sufficiently to began
to drive the deficit to GDP and spending to GDP
ratios meaningfully lower. Many analysts
believe that will happen based primarily on the notion that ultimately our
political class will do the right thing.
And they may be right.
My problem is
that doing the right thing is not the same thing as coming to a
compromise. In other words, I don’t
think the GOP will shut the country down over the debt ceiling issue; but I
also don’t think that they really want to cut spending enough to get the US
So while I don’t
think the ‘fat tail’ of a government shutdown will occur, I don’t see an
improvement in either corporate earnings growth (which is already benefiting
from near historically high profit margins) or the earnings discount factor
(P/E ratio) in a scenario in which government continues to usurp investment
capital via higher taxes and finances an unsustainable level of nonproductive
consumption with the aid of a Fed that prints an ever increasing amount of
worthless paper. Until the ruling class
demonstrates fiscal responsibility, I am unwilling to chase stock prices
higher.
Ten
themes for 2013 (medium):
Five
reasons to be bullish (short):
And
six reasons to be bearish (short):
The
latest from John Hussman (medium):
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