The Morning Call
The Market
Technical
The
indices (DJIA 13954, S&P 1507) resumed their relentless drive to the hoop
yesterday. Both closed above the upper
boundary of their respective short term uptrends (13189-13859, 1435-1502). Clearly this resistance line carries little
weight. They also finished within their
intermediate term uptrends (13226-18226, 1398-1993).
Volume
fell; breadth improved. The VIX
declined, remaining within its intermediate term downtrend---a plus for stocks.
GLD
rose, recovering above the lower boundary of that very short term uptrend. It remains within a short term downtrend and
an intermediate term trading range.
Bottom
line: hello, 14140/1576; here we come. Can
stock prices go beyond these all time highs?
I will answer with a question, are economic conditions or the prospects
of economic conditions in the US
Margin
debt up; short interest down (short):
Fundamental
Headlines
Yesterday’s
economic data was neutral to slightly negative.
Weekly retail sales were mixed, consumer confidence was terrible while
the Case Shiller home price index rose less than expected. Mixed is our forecast; so nothing new here.
Of
course, investors weren’t paying attention anyway---you know, who gives a s**t
about the numbers, when stocks are soaring into the stratosphere? Indeed, the Market itself was the main
headline yesterday, as the renewed thrust to the upside brought all kinds of
pundits calling for either higher or lower prices.
As
I have repeatedly noted, I can’t get valuations higher without a significant
improvement in the outlook for economic growth; and I can’t get that without a
meaningful reduction the deficit to GDP and
the debt to GDP ratios; and I can’t get that
without a substantial decline in government spending (a more responsible
monetary policy would also help). To be
sure, spending cuts are clearly possible.
The question is, are they probable?
Was
Paul Ryan speaking the truth on Sunday (about the sequester occurring)? Could be; and if he was, then maybe we are at
the nadir of fiscal irresponsibility.
But the ruling class has much to prove before I buy it. Along those lines, Reid is already
crawfishing on the likely deficit reduction actions that would forestall the
sequester saying that there has to be more tax increases.
Further,
even if the sequester occurs (or some equivalent deficit reduction measure) and
rekindled my faith in a return to the long term secular economic growth rate of
this country, to get from here to there is going to be painful in the short
term. Reducing government spending will
initially slowdown the economy.
Bottom
line: profligate spending and currency debasement may be great in the short
term for investors; but long term, the picture isn’t pretty. On the other hand, a return to fiscal and
monetary responsibility may be the optimal long term economic strategy; but
short term, the economy can not avoid the hangover. Either way, I can’t get valuations higher
over the next 12-18 months.
The
latest from Doug Kass (medium):
The
fear and greed index (short):
Update
on the trials and tribulations of Monte del Paschi (Italian bank) financial
problems (medium):
Subscriber Alert
In
a recent Buy Discipline review, Sysco (SYY )
financial quality score fell below the minimum level to qualify it for both the
Dividend Growth and the Aggressive Growth Universes. Hence, it is being Removed and, at the Market
open, will be Sold by the Aggressive Growth Portfolio. No shares are owned in the Dividend Growth
Portfolio. It’s score remains high
enough to be retained in the High Yield Universe and Portfolio.
Small
portions of the following technically overextended stocks are being Sold this
morning:
In
the High Yield Portfolio: Oneok Energy Ptrs (OKS)
In
the Aggressive Growth Portfolio: Oracle (ORCL )
and Donaldson (DCI ).
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