The Morning Call
1/28/15
The Market
Technical
So much for
falling volatility. The indices (DJIA
17387, S&P 2029) moved down big yesterday but remained within uptrends
across all timeframes: short term (16464-19236, 1911-2892), intermediate term
(16493-21648, 1737-2451) and long term (5369-18860, 783-2083).
Volume
jumped; breadth was lousy. The VIX climbed
11% finishing within a short term trading range, an intermediate term downtrend
and back above its 50 day moving average.
The
long Treasury rose but not enough to re-capture the lower boundary of its very
short term uptrend. Hence, the break of
that trend is confirmed. It remained
within its uptrends across all the remaining timeframes and above its 50 day
moving average. While the violation of
the very short term uptrend is a downer for the bond bulls, (1) that trend was
very steep and ultimately not sustainable and (2) so far the ‘consolidation’
has been meager at best. So the TLT
chart remains quite strong.
GLD
was up, ending within a very short term uptrend, above the upper boundary its short
term uptrend, within an intermediate term trading range and above its 50 day
moving average. The bounce suggests that
like TLT the current consolidation will be relatively mild. At the open today, our Portfolios will Buy a
2% position in GLD.
Bottom
line: the good news in an otherwise poor
day was that the Averages remained within all uptrends as well as above the mid
December lows (17288, 1920). The bad
news is that they have made two lower highs in the last month. With the post close euphoria levitating on
the upbeat Yahoo and Apple news, today’s pin action should be interesting.
GLD’s sell off
didn’t last long, so our Portfolios will nibble today. ‘Nibble’ is the operative word; they are not establishing
a full position.
Stock
performance in February of pre-election year (short):
Fundamental
Headlines
Lots
of US economic news yesterday; virtually all of it positive: the November Case
Shiller home price index, the January flash services PMI, December new home
sales, January consumer confidence and the January Richmond Fed manufacturing
index were all ahead of expectations.
However, all was not rosy; December durable goods orders really sucked. In sum though, the numbers were good and the
strong new home sales were an offset to the durable goods orders.
The
principal focus of the day though was more poor earnings reports from leading
companies in major industries---and clearly, investors weren’t happy. I have been commenting on this developing
negative trend since earnings season started but cautioned that it was too
early to assume that profits for the entire season would be disappointing. Yesterday’s pin action suggests that it may
not be too early anymore.
That said, after
hours Yahoo announced that it was spinning off Alibaba and Apple reported great
earnings. After pissing and moaning all
day, the media turned on a dime, largely dismissing the 290+ point decline in
the Dow and its potential causes, instead focusing on these two positive
datapoints. Of course, they may correct
in doing so. Today’s tape will certainly
provide some guidance on that point. However,
irrespective of that, the momentum to date in profit reports has been on
deteriorating earnings; and if that continues, the long term implications for
both corporate profits and the economy in general will likely overwhelm any temporary
respites provided by the occasional upbeat revenue and income statement.
Overseas
there was one stat reported: Chinese industrial earnings dropped 8% year over
year. Not good but again largely ignored
as investors and the media continue to struggle with the implications of the
Greek elections. My bottom line is that I
have no clue how this story ends but expect confusion to reign before it does. Here are some clarifying articles:
This
is a good explanation of the size of Greece’s debt problem and possible
solutions (medium):
Greeks
brace for a showdown (medium):
A
brief look at the winning anti-austerity party’s (Syriza) coalition partner
(medium):
***overnight,
Syriza’s first policy moves (medium):
***overnight,
China is expected to lower its 2015 growth target to 7% and Singapore joins the
QE free for all.
Bottom
line: yesterday’s poor earnings reports and
the ensuing sell off notwithstanding, stocks are still priced to reflect an outlook
that incorporates an extremely positive assumption to every possible economic variable---to
the point that even if that perfect scenario occurred, they would still be
overpriced. Until one of the numerous
risks facing the US manifests itself with sufficient force for investors to seriously
question their faith that the global central banks’ polices are not only
correct and will provide an infinite Market put, stocks are likely to retain their
current risk premium. When that faith is
broken, which I believe will, I don’t want to be caught wondering what I should
Sell. Because it will be too late.
I
can’t emphasize strongly enough that I believe that the key investment strategy
today is to take advantage of the current high prices to sell any stock that
has been a disappointment or no longer fits your investment criteria and to
trim the holding of any stock that has doubled or more in price.
Bear
in mind, this is not a recommendation to run for the hills. Our Portfolios are still 55-60% invested and
their cash position is a function of individual stocks either hitting their
Sell Half Prices or their underlying company failing to meet the requisite
minimum financial criteria needed for inclusion in our Universe.
The
latest from John Hussman (medium):
The
latest from Odey Asset Management (medium):
Subscriber Alert
In
our annual review of Rockwell Collins (COL), the company failed to meet the minimum
quality standards for inclusion in the Aggressive Growth Universe. Therefore, at the Market open, the Aggressive
Growth Portfolio will Sell COL and the stock is being Removed from the
Aggressive Growth Universe.
Investing for Survival
IL’s
Annual Global Retirement Index 2014: The Categories and Scores
Accurately
scoring the world’s top retirement locations is a complex process. So, we’ve
broken down each of our categories to give you a “behind the curtain” look at
how we put the Index together.
Real Estate: Countries where real estate prices are low and the
purchase of real estate is relatively easy received good scores. For 2014, we
have also taken the average purchase price and rental price per square meter
into consideration. And we’ve added a “value factor,” based on reports from our
contributing editors and from real estate contacts around the world on how much
bang for your buck you get when buying real estate in each country.
Special Benefits: This category considers government provisions that make
moving to and living in each country easier and more affordable for foreign
retirees. Taken into account are discounts on health care, public transport,
airfares, entertainment, utilities, whether you can import goods duty free,
property rights for foreign residents, and property tax rates.
Cost of Living: This score is based on the first-hand information
collected by our editors and contributors. We look at the daily costs a couple
encounter in a destination, utilities, groceries, transport…we ask how much a
good meal costs, and if the price of a movie ticket or a day trip out of the
city is low…
Ease of Integration: In order to score countries in this category, we looked
at things like the degree to which English is spoken, the friendliness of the
locals, the size of the existing expat community and the availability of home
comforts.
Entertainment and
Amenities: Here, we looked at
the range of activities open to expats. We rated the quality and availability
of restaurants, movie theaters, outdoor activities and local music and art. We
also ask our in-country contacts to rate the variety of activities on a scale
to see how much excitement you can find in a destination.
Health Care: Considered in this category are the cost of health care
and the quality. How much a typical visit to a general practitioner tells you a
lot, as does cost and the coverage particulars of health insurance. Also
considered are the number of people per doctor, the number of hospital beds per
1,000 people, the percentage of the population with access to safe water, the
infant mortality rate, life expectancy, and public health expenditure as a
percentage of a country’s GDP.
Retirement Infrastructure: We look
at the quality of the roads, the availability of good public transport, the
number of cell phones, and Internet penetration, and how easy it is to get to
and from the U.S. and Canada by plane.
Climate: Countries with temperate weather throughout the year,
moderate rainfall and little risk of natural disaster come out on top in this
category. This year, we also took the comfort factor into consideration for the
first time. We use data representing each country as a whole instead of
favoring one region over another.
The
Final Scores
News on Stocks in Our Portfolios
o
Boeing (NYSE:BA): Q4 EPS of $2.31 beats
by $0.20.
o
Revenue of $24.47B (+2.9% Y/Y) beats
by $540M.
o
T. Rowe Price (NASDAQ:TROW): Q4 EPS of $1.18 beats
by $0.04.
o
Revenue of $1B (+7.6% Y/Y) misses
by $20M.
·
o Earnings from continuing operations of $737M, or $2.19 per diluted
share, vs. $624M, or $1.76 per diluted share in the same quarter a year ago.
o Operating margins were 12.8% for Q4, 130 bps higher than
fourth-quarter 2013 margins.
o Free cash flow from operations of $3.2B for the year.
o Total backlog at the end of the quarter was up 58% Y/Y to $72.4B.
·
Praxair (NYSE:PX): Q4 EPS of $1.57 in-line.
·
Revenue of $2.99B (-0.7%
Y/Y) misses by $70M.
- Canadian National Railway (NYSE:CNI):
Q4 EPS of C$1.03 beats by C$0.06.
- Revenue of C$3.21B (+17.2% Y/Y) beats by C$90M.
·
AT&T (NYSE:T)
expects a 2015 of "continued consolidated revenue growth" and
adjusted EPS growth "in the low single-digit range" while improving
free cash flow and dividend coverage.
·
The company noted revenue gains
of 4.5% after adjusting for Connecticut wireline property sale, highlighted by
total wireless revenues that grew 7.7% to $19.9B. Wireline revenues gained 0.4%
to $14.6B.
·
Wireless service revenues were
down again, -3.7% to $15.1B, on "continued customer growth of Mobile Share
Value plans." Wireless operating income -18.1% to $3.2B; Phone-only
postpaid ARPU dropped 10.7% Y/Y.
·
For the full year, revenues of
$132.4B were up 2.8% from 2013 (3.1% when excluding Connecticut wireline
divestments) and EPS was up fractionally to $2.51 from $2.50. Full-year cash
from operations was $31.3B; capex of $21.4B.
·
Apple (NASDAQ:AAPL):
FQ1 EPS of $3.06 beats by $0.46.
·
Revenue of
$74.6B (+29.5% Y/Y) beats by $6.91B.
·
74.5M
iPhones (above expectations), 21.4M iPads (near expectations), 5.5M Macs (near
expectations).
·
Expects FQ2
revenue of $52B-$55B vs. a $53.79B consensus.
Economics
This Week’s Data
The
November Case Shiller home price index came in at +0.7% versus consensus of
+0.6%.
The
January flash services PMI was reported at 54.0 versus expectations of 53.8.
December
new home sales rose 11.6% versus estimates of up 3.1%.
January
consumer confidence came in at 102.9 versus forecasts of 96.0.
The
January Richmond Fed manufacturing index was reported at 6.0 versus an
anticipated 5.5.
Weekly
mortgage applications fell 3.2% while purchase applications were off 0.1%.
Other
The
impact of congress’ 2013 decision not to re-authorize the extension of
unemployment benefits (short):
Fear
and dread of deflation (medium and a must read):
Politics
Domestic
International War Against Radical Islam
Obama’s
Iran nonsense (short):
Ponder this (short):
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