The Morning Call
The Market
Technical
Investor
euphoria returned yesterday. The DJIA
(14511) continues to trade above its former all time high (14190) and the upper
boundary of its short term uptrend (13743-14424). On the other hand, the S&P remains unable
to challenge its comparable levels (1576) and 1501-1575).
Both
remain within their intermediate term uptrends (13543-18543, 1436-2030) and
their long term uptrends (4783-17500, 688-1750).
Volume
was flat; breadth improved. The VIX fell
and closed within its short term and intermediate term downtrends.
GLD
declined, but remained roughly in the middle of its short term downtrend. However, a short term support level and a
very short term uptrend continue to develop.
Bottom line: Cyprus
and the EU got shoved back stage yesterday as enthusiasm for endless money
printing returned. Still the Averages
remain out of sync; and, at least under our time and distance discipline, that
means no confirmation of a break to new highs in stocks. That in turn leaves open the issue of whether
equities are in a topping process or building a base for launching to a new
high.
I remain partial
to the former but being wrong is not terribly worrisome given stocks proximity
to the upper boundary of an 80 year uptrend.
Fundamental
Headlines
Two
bits of economic news yesterday: mortgage and purchase applications were down
and the FOMC wrapped up its latest meeting, leaving monetary policy unchanged
and their economic forecast relatively unchanged (see below). This does nothing to disturb our forecast, which
as you know, it includes the assumptions that the Fed will continue to
mishandle monetary policy and will not be able to exit the QE’s without causing
problems (inflation). It does not
include the assumption that inflation could potentially be much greater than
expected.
In
addition, three bell weather stocks reported (FedEX, CAT
and ORCL ) disappointing earnings.
Nonetheless,
investors were just tickled pink that Fed ease will continue for at least until
my grandchildren are on social security and then got absolutely ecstatic when a
BOJ official advocated more aggressive easing.
Money, money everywhere but not a buck to.........
Having
all those fuzzy, wuzzy, feel-good feelings seems to have overwhelmed any
misgiving about Cyprus /the
EU. And investors may be right to do
so. I have noted that Cyprus
is a small rather insignificant country.
So what if it
goes toes up? The answer depends on the
following: (1) how much of a hit to credibility do the eurocrats take?, (2) how
much depositor confidence is damaged in other EU countries?, (3) how much
counterparty risk on Cyprus debt exists on other EU bank balance sheets? (4)
what are the political implications if Russia bails Cyprus out and ends up
owning their banks, being granted a naval base on the island, sole rights to
drill [reportedly huge] Cypriot offshore acreage and who knows what else? (5) what happens if (4) scares the living s**t
out of the eurocrats [Germans] and they [the eurocrats, Germans] decide to
break all EU regulations and bail out Cyprus ?
I don’t know the
answer to any of those questions; but I submit that neither does anyone else
and some, if not all, of the answers to those questions are not positive. Nevertheless, if I am still prepared to admit
that I am too pessimistic on the EU if the Cyprus crisis is resolved and little
to no damage is done to the remainder of the EU banking system due to loss of
confidence in the eurocrats ability to resolve the sovereign/bank debt
problems, large derivative losses or a loss of confidence in deposit safety.
***over
night, Chinese PMI looked good while EU
flash PMI ’s were terrible. Plus the ECB gives Cyprus
an ultimatum (medium):
Plus the bitcoin is
starting to roar in EU (medium):
David
Kotok on Cyprus
and the EU (medium):
The
WSJ on the EU (short):
Another
look at valuation (short):
Investing for Survival
I
have been doing a lot of work on exchange traded funds (ETF) and will soon come
out with an ETF Portfolio. So I am going
to start linking to articles on ETFs in order to familiarize subscribers with
their good and bad points. Here is the
first in a series:
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