The Morning Call
The Market
Technical
The
indices (DJIA 15191, S&P 1683) had another good day. The S&P remained within its short term
uptrend (1650-1804) and above its 50 and 100 day moving averages. The Dow closed within its short term trading
range (14190-15550), though it did manage to trade up through its 100 day
moving. It continued below its 50 day
moving average.
Both
of the Averages are well within their intermediate term (14786-19786,
1573-2159) and long term uptrends (4918-17000, 715-1800).
Volume
rose; but oddly breadth deteriorated.
The VIX declined 7%. However, it
is well within its short term trading range (no hint of direction).
The
long bond was down, finishing within its short and intermediate term
downtrends. In my opinion, not a plus
for stocks.
GLD
got whacked, closing right on the lower boundary of its very short term
uptrend. However, it ended the day back
below the upper boundary of its very short term downtrend---not a good sign for
our new position in GLD.
Bottom line: the
technical health of the S&P continued to improve, as did that of the
DJIA. Nevertheless, the Dow is not
validating the uptrend in the S&P and it remains below its 50 day moving
average. And both of the Averages are fighting higher interest rates. Clearly, if equities have another day or two
like the last two, the Dow could swing back in line with the S&P. For the moment, the Market remains directionless
and our Portfolios remain on the sidelines.
Any up move in price into their Sell
Half Range
Sentiment
summary (medium):
Fundamental
Headlines
The
not so good news out of China
(medium):
That
was followed quickly by more good news on Syria .
All parties seemed to be jumping on board with the Russian proposal
(international control of Syrian gas weaponry); and investors continued to
react positively to the news---as they should.
I have made it clear that in my opinion this whole Syrian ‘red line’
threat was pointless, with no serious consideration having been given to any
follow through but with the potential of entangling the US in a rat’s nest
where we have no strategic interest, where the best thing that could happen to
us is that both sides lose, but where much bigger players (Russia and Iran) do
have strategic interests and could very well have been willing to make this
conflict a much more painful exercise.
So
doing the only thing that makes sense, last night Our Leader in a speech that
tests the limits of credibility and logic announced a delay in the
implementation of a policy (bombing Syria )
that a majority of Americans oppose.
That is the bottom line. Over the
next couple of weeks, we will most likely be subject to endless debates over
political and diplomatic fine points and minutia. But in the end, nothing will happen except
the further discount of Obama’s status as a leader and the downgrading of this
potential clusterf**k back to the status of a circus side show---unless, of
course, our ruling class manages once again to snatch defeat from the jaws of
victory.
On
a completely different subject, I must admit that I am somewhat surprised that
the Market has not reacted more negatively to the parade of financial experts
that have weighed in of late regarding the lack of progress in solving the ‘too
big to fail’ problem with our big banks, how much financial risk is still
imbedded in the system and the Fed’s role in all of this. Monday, I linked to a John Thain
interview. Below is another with Barry
Ritholtz, who wrote one of the definitive books on the 2007/2008 collapse, as
well as comments from Hank Paulson and Todd Harrison, who provides a brief look
at a new movie coming out on the Fed.
They all support the concerns I express weekly regarding Fed policy and
the sorry state of the balance sheets of our major financial institutions.
The Fed---money
for nothing and .............. (medium):
As
a follow up to yesterday’s interview with John Thain, here is one of my
favorites, Barry Ritholtz, on how little we have learned from the 2008
financial crisis. Sad. (4 minute video and a must watch):
And
Hank Paulson weighs in (short):
I
can only assume that as long as the Fed is pumping money into bank reserves,
investors believe that they have a ‘get out of jail free’ card from the Fed to
pursue asset purchases---the recent hiccups in emerging markets and bonds
notwithstanding.
Bottom line: the
Syrian risk continues to fade and our economy is making the kind of progress
that has been built into our Economic Model.
But the time is drawing nigh for both our elected and appointed official
to focus on issues in which all of us have a strategic interest, to wit,
enacting policies that puts this country on a sound fiscal/ monetary path. There will be a lot on their plates in the
next 30-60 days (a budget resolution, addressing the debt ceiling, finding a
workable resolution to the fiscal problems caused by the FY 2014 sequestration
and implementation of Obamacare, clarifying the transition process from cheap
to tight money and replacing Bernanke).
How they do the
jobs that they are being paid to perform will likely not only determine the
direction of the economy but also how much investors are willing to pay for
it. Unfortunately, this country is at a
point in both fiscal and monetary terms that the policy makers have few attractive
choices, e.g. does congress continue to drive government spending to GDP
higher or cut spending; does the Fed ‘taper’ now or wait? Whatever the answers,
the US economy
is in for some pain. The good news is
that we have this priced into our Valuation Model; the bad news is a majority
of Market participants haven’t.
That doesn’t mean that this country is
going to hell in a hand basket. It does
mean, in my opinion, that stocks are way over valuing the likely earnings that
can be produced from an economy on the current trajectory of the US
Ready
for stagflation (medium):
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