The Morning Call
The Market
Technical
The
bulls returned yesterday. The indices
(DJIA 14075, S&P 1515) smoked to the upside but remained within their (1)
short term uptrends [13509-14169, 1472-1541] and intermediate term uptrends
[13419-18419, 1421-2015].
Volume
declined, breadth continued to improve.
The VIX sold off, finishing within its short term and intermediate term
downtrends.
GLD
got hit after a couple of up days. It
remains within its short term downtrend; so the immediate direction is down and
will remain so, until that downtrend is successfully challenged.
Bottom line:
yesterday’s pin action notwithstanding, I think that the jury is still out as
to whether the Market is in a topping process or positioning itself for an attack
on the 14140/1576 levels. Whatever
occurs, our strategy hasn’t changed. If
prices continue to the upside, our Portfolios will raise more cash; if it rolls
over, they will wait for a return to more reasonable values to put their
current cash position to work.
Fundamental
Headlines
Yesterday’s
economic data was mixed: weekly mortgage and purchase applications were down,
January durable goods orders also declined rather sizably but that was primary
a function of poor aircraft orders---ex transportation, orders rose well above
expectations. Not great but it fits.
Bernanke
did a second day on the Hill and just in case anybody had any doubts after
Tuesday’s testimony that the Fed would be printing dollars as fast as it could
buy the paper and ink, he re-emphasized the point. As you know, there wasn’t much of a question
in my mind that easing would go on for an extended time. But I think he wanted to be sure that those
who interpreted last week’s FOMC minutes as a foreboding of future Fed
tightening were completely assured that it ain’t happenin’. Obviously, investors were overjoyed to know
the Fed intends to do all it can to support stock prices irrespective of the
underlying valuation.
More
low lights from Bernanke’s testimony (medium):
Great
graphic providing a slightly different take on Bernanke’s record on inflation
(short and a must read):
One
day older and deeper in debt. The
sequestration effective date is tomorrow.
Obama continues to do what He does best---campaign, this time for tax
hikes; but so far, the GOP is hanging tough.
As you know, I believe that all the whining over the coming cuts will be
proven wrong; I believe that for there to be any chance of a return to fiscal
responsibility, the sequester has to be implemented; indeed, I believe that
there is a reasonable probability that the cuts in government spending could
have a positive impact on economic growth.
Hence, I am
encouraged; and to the extent that yesterday’s optimism reflects investors’
agreement with that position, then I understand their upbeat mood. However, a move back from ever growing budget
deficits will not be a day in the park.
It will take time; and the burdens of too much inefficient government
spending will continue to impact growth for several years. So even in the best case, corporate profits
are not going to suddenly explode to the upside; and I suspect that the
readjustment of the US economy will cause sufficient heartburn that multiples
aren’t going to expand until it is truly clear that the ruling class has the
will to complete the task. In sum, with
stocks already overvalued, I can’t make a case for higher prices under even the
optimum scenario.
The
tired rhetoric of sequestration (medium):
More
nanny state regulatory authority for the Fed (medium):
A
failing Italian economy and political process couldn’t dampen investor
enthusiasm. However, I believe that the
third Act of this play has not yet started---and this is a tragedy. The news is not likely to improve.
The
Germans are upset; but it may not matter (medium):
And
(medium):
A
century of French and Italian economic decline (medium):
Unfortunately,
at present, it is more than just the French and Italian economies that are
declining (medium):
Bottom
line: I continue to be encouraged by the
economic progress the US
is making. In addition, I am encouraged
that the sequestration process could prove to the first step back in the
direction of fiscal responsibility.
While not a magic elixir that will smooth over years of profligate
behavior, if it proves to the tipping point then that is enough for today.
That said, I
believe that the Fed is digging itself into such a hole that it will never be
able to right the sum total of its wrongs without causing either a more
significant economic slowdown or a more destructive level of inflation than
would otherwise occur with a less aggressively expansive monetary policy.
In addition, I
am losing what little confidence I had in the eurocrats’ ability to fix a
hangnail much less the growing sovereign/bank insolvency problem. This is a stick of dynamite stuck up the
global financial system’s ass. A wrong
move could be very painful for us all.
I like our cash
position.
The
latest from Cumberland Advisors (medium):
The
latest from David Rosenberg (medium):
Bill
Gross’ latest monthly letter (medium):
Investing for Survival
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