The Morning Call
The Market
Technical
The
rally continued though the indices (DJIA 15529, S&P 1794) remain out of
sync on the short term trend. The Dow is
in a trading range (14190-15550), while the S&P is in an uptrend
(1661-1815).
Both of the
Averages are well within their intermediate term (14798-19798, 1581-2167) and
long term uptrends (4918-17000, 715-1800).
Volume was flat,
as was breadth. The VIX was up
fractionally, finishing within a short term trading range and an intermediate
term downtrend.
The long
Treasury was up. This action confirms
the invalidation of its short term downtrend.
It now re-sets to a trading range and remains within an intermediate
term downtrend.
GLD rose but
closed within both its short and intermediate term downtrends.
Canadian
billionaire predicts end of dollar as reserve currency (7 minute video):
Bottom line: the
bulls still rule the roost in stocks despite little confirmation from bonds,
gold, our internal indicator and the VIX. Furthermore, the Averages are nearing the
upper boundaries of an 80 year uptrend.
Of course, there is no law that says stocks can’t set a new upper
boundary; although one would think that the long term outlook for the economy
should be considerably more robust than at present for equities to justify such
a move.
Stocks may very
well continue to smoke to the upside.
But if they do our Portfolios will use the advance to lighten up on any
stock trading in its Sell Half
Range
A
caution signal (short)?
Fundamental
Headlines
Once
again none of this mattered as all eyes were on the FOMC which began its latest
meeting yesterday and will wrap up today with its usual press release and a
bonus press conference with Bernanke.
Most of the talking heads opined that ‘tapering’ would, in fact, begin
and that it would equal circa $10-15 billion reduced securities purchases per
month. Judging by yesterday’s pin
action, the Market is happy with that initial move.
However,
as the author of the link below notes, this will mark the beginning of the
transition process; that is, the clock is now started on whether the Fed can
manage the process without either pushing the economy back into recession (too
tight too quick) or igniting inflation (not tight enough, soon enough)---an
accomplishment I am all too fond of pointing out that it has never done in its
long and storied history.
To
be sure, we may not know how the process plays out for sometime which would
clearly give investors the opportunity to get even more jiggy about the
economy, profits and how they are valued.
But sooner or later, they will have to face some tough issues, not the
least of which are (1) what happens to all that money that has been pumped in
to risk assets and which has to be paid back and (2) as John Hilsenrath pointed
out in a link in yesterday’s Morning Call, the Fed’s own 2016 forecast has
unemployment below 6% but inflation also quite low---a huge inconsistency that
will have to resolved one way or the other.
I don’t know how those issues play out, but it appears to me that stocks
are discounting a perfect outcome.
This
says nothing about the fiscal issues that are upon us; and if Obama’s news
conference Monday (in which He took the time to condemn republicans on the
budget resolution and the debt ceiling while He was offering condolences to the
families of the victims in the naval shipyard massacre) is any sign of the
acrimony that exists in DC right now, the next couple of weeks are going to be
rocky.
Bottom line: in
the big picture, today is an important day because it will likely witness the
beginning of the Fed’s transition from an easing of unprecedented magnitude to
more normal monetary policy. Based on
history, I don’t believe that it will be an easy or painless process---but that
is one man’s opinion.
Shorter term,
the fiscal issues both here (budget resolution, debt ceiling) and in Europe
(German elections followed by re-addressing the crushing funding needs of
southern Europe ) are apt to be dominating the headlines
for the next month. Again, finding the
solutions is not likely to be an easy process if indeed they can be found.
The only question in my mind is, when do the Markets start discounting
the inevitable? Clearly to date, I have
been wrong on its timing; and I certainly have little confidence that the
Market is going to start to agree with me today.’
.......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
The
latest from Doug Kass (medium):
The
latest from Todd Harrison (medium):
The
latest from Jim Grant (medium):
For
the bulls (short):
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