The Morning Call
Reminder: I am heading for Augusta. See you Monday
The Market
The Market
Technical
The indices
(DJIA 14673, S&P 1568) had good day, closing within all major uptrends:
short term (13986-14681, 1527-1601), intermediate term (13679-18679, 1448-2042)
and long term (4783-17500, 688-1750).
Nevertheless, they remain out of sync on surmounting their all time highs---the
Dow having done so (14190), the S&P not (1576).
Volume
rose; breadth was mixed. The VIX
declined, finishing within both its short and intermediate term downtrends.
GLD
was up again. It remains well within its
short term downtrend. However, the
strength of the recent rise coupled with the fact that it only traded below the
developing support level for two days, convinces me that this support level is
in tact.
Bottom line: ‘stocks prices remain in an uptrend. The question is, is that coming to an
end? Given that all uptrends remain in
tact, why would there even be a question?
Market internals are weakening, the S&P hasn’t even challenged its former
all time high and the upward momentum in the DJIA is slowing. So there are some telltale signs of a topping
process.
That said, this will remain a hypothetical
until the aforementioned uptrends start breaking down. I stay cautious with emphasis on the sell
side’.
Chart
porn for you viewing pleasure:
Update
on Dr. Copper:
Update
on margin debt:
Fundamental
Headlines
Yesterday’s
economic numbers were positive: weekly retail sales were up; and while February
wholesale inventories shrank, sales were quite strong suggesting future
inventory build. From overseas, China
reported a much lower CPI increase than
anticipated---leading to investor hope of government stimulus. These two factors got the Market off on the
right foot and that carried through the day.
Both fit our forecast nicely.
***over
night Japan
says its easing is over (short):
The
other item that is generating increasing attention among investors is one that
I first mentioned last week and then again in yesterday’s Morning Call; and
that is the likelihood of the Fed starting a move to less ease. The first mention was prompted by a speech from
the San Francisco Fed head about which you may recall I wondered out loud if it
was some sort of trial balloon. You may
also remember that I blew off as the self indulgent mumblings of the power
elite. However, since then several other
FOMC members seem to have joined the discussion.
Whether or not
this leads to action is anyone’s guess.
If it does, then I repeat two of my oft repeated refrains; (1) the
sooner it starts the less pain that the US economy will have to endure in the
withdrawal process but (2) the withdrawal process will nonetheless likely be
painful because history tells us that the Fed has never transitioned from easy
to tight money without pain.
Finally, today
Obama introduces His budget (three months late). While that will undoubtedly capture some
headlines, bear in mind that the house and senate have already passed their own
versions; and if I remember the budget resolution process (its been four years
after all) correctly, a joint committee should be working on a compromise soon,
suggesting the Obama’s budget is mostly PR fluff.
Bottom line: I
have been pissing and moaning about irresponsible central bank money printing
and the lack of progress in solving EU sovereign/bank insolvencies forever---my
concern being the pain that the resolution of these problems could have on our
economy.
I linked to an
article yesterday on the latter issue whose main thesis was that the austerity
that has been imposed on Ireland, Spain, Portugal, Greece et al is having the
effect of improving the debt management of these countries and their banks and
by extension their ability to survive any future crisis.
As I noted
above, over the last week the Fed seems to be testing the water on at least
trying slow down the printing presses.
The point here
is not that there won’t be another crisis in Europe (Italy ,
France , Slovenia )---if
indeed the above quoted thesis is correct--or that there won’t be pain if the
Fed starts to tighten soon. The point is
that the tail risks for these factors may
(please, this is the operative word at the moment) be lessening.
It is too soon
to tell. So to be clear, I am not
altering my forecast. Nor am I changing
my position on the aforementioned tail risks.
I simply alerting you that there are potential changes that could impact
the magnitude of the tail risks I have associated with Fed policy and EU
insolvencies and that we need to be cognizant of those factors and watch them
closely.
Looking at the
end game IF it turns out the conditions are changing (1) stocks are still
overvalued, even if we didn’t have to worry about the risks of an irresponsible
Fed or inept eurocrats, (2) as I noted in the discussion on Fed policy, there
is still pain that must be endured as free markets correct excesses, (3) it is
highly unlikely that I have all the pain factored into our Models but (4) the
unquantifiable downside to both Fed policy and the euro-malfeasance may be less
than I feared, (5) meaning that IF we get more evidence of improvement in EU
government finances and IF the Fed starts its policy transition sooner rather
than later, our Portfolios’ cash positions would become less elevated from
normal than they have been in the past year.
In
the meantime, I remain quite happy with those cash positions.
The
latest from Jeffrey Gundlach (medium):
The
latest from Lance Roberts (medium):
The
latest from Kyle Bass (medium):
The
Bank of Japan boomerang play (medium):
Italian
bank holdings of Italian sovereign debt rise to all time highs (short):
Don’t
forget France
(medium and a must read):
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