The Morning Call
2/27/15
The Market
Technical
The indices
(DJIA 18214, S&P 2110) had a quiet but fractionally down day, ending within
uptrends across all timeframes: short term (16669-19441, 1941-2922),
intermediate term (16718-21869, 1762-2476) and long term (5369-18860,
797-???). They both closed above their
50 day moving averages and their mid-December highs. The S&P finished right on the former
upper boundary of its long term uptrend.
As you can see, it has to date been following the same pattern (i.e.
hugging the upper boundary but not making a jail break above it) as it did from
mid-November to late December. Meanwhile
the Dow remains well below its comparable boundary.
Volume
was flat; breadth deteriorated. The VIX rose
fractionally, closing within its short term trading range, its intermediate
term downtrend and below its 50 day moving average.
How
volume and volatility are related (short):
The
value of sentiment indicators (short):
The
long Treasury got whacked, driving it back to right on the lower boundary of
its short term uptrend. It also finished
within its intermediate and long term uptrends and above its 50 day moving
average.
GLD
was up, ending within its short term uptrend, its intermediate term trading range,
a very short term downtrend and below its 50 day moving average. The lift of the last two days has been very
timid and leaves me concerned about the reminder of our Portfolios’ GLD
position,
Bottom
line: the indices continued to meander
around the flat line yesterday, and once again on light volume. GLD did virtually nothing. However, there were big moves in the long
Treasury, oil and the dollar. This somewhat
disparate pin action may be just noise but could be signaling something not
obvious to me. But in the absence of
anything new, my assumption is that momentum remains to the upside.
Fundamental
Headlines
Yesterday’s
economic stats returned to their recent (disappointing) ways: January CPI fell
0.7%---much more than expected, the headline January durable goods were up more
than estimates but ex transportation, the number was much less than
anticipated, weekly jobless claims were up more than estimates and the February
Kansas City Fed manufacturing index came in well below consensus. So
unless we get some blow out data today, we are now looking at the fifth
consecutive week of discouraging stats--- clearly increasing the burden of not
lowering our outlook for economic growth.
And
speaking of the Fed (that’s a joke, I know I wasn’t), did you catch the
connection or lack thereof between the long stated Fed objective to push
inflation to 2% (presumably as a sign of higher economic activity) and
yesterday’s January report of CPI (-0.7%)?
Who says that QEInfinity hasn’t worked?
You know, all we really need is QEIV to get that inflation rate right where
the Fed wants it to be. Just kidding.
Then
again, there is always hope (medium):
Greenspan
on the Fed and the economy (short):
No
international economic data was reported but the anti-austerity protests have, not
unexpectedly, begun in Athens. They probably
won’t do much good, unless (pardon my cynicism) the new government wants the populous
to ‘force’ it to reject the new bail out deal.
http://www.zerohedge.com/news/2015-02-26/full-circle-first-anti-government-protest-greece-turns-ugly
***overnight,
the German parliament approved the Greek bailout, consumer prices rose in
Germany and Italy, India upped its forecast for economic growth, Japan reported
retail sales down, inflation down, household spending down, unemployment up and
industrial production up.
Bottom line: the
US economic numbers are back to having a terrible week. So has the Fed. What with Yellen being harassed by those mean
old republicans and then the CPI missing the Fed’s inflation target by a mile….well,
more than that. At some point those guys
and gals are going to quit focusing on fine tuning their Models which have
seldom worked anyway and take a gander at the big picture---which is that QE
has done little for the economy but has been successful in (1) leading to the
wholesale misallocation of resources and mispricing of assets and (2) encouraging
the other major central bankers to pursue the same irresponsible, unworkable
monetary template in an attempt of ‘beggar thy neighbor’. Yeah, this is going to end well.
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.
More
on valuation (medium and a must read):
Countdown
to a 2016 crash?
Can
stocks rise in spite of weak earnings (short):
Thoughts on Investing from Barry Ridholtz
Reality
Check: What Are You Lying to Yourself About?
By Barry Ritholtz –
Sam: Ah, come on. Nothing’s more important than sex.
Michael: Oh yeah? Ever gone a week without a rationalization?
-The Big Chill
One of the things we all do as investors — indeed, as human beings — is to tell ourselves lies. Indeed, lots and lots of them. Some are little, some are giant, but they all have the same thing in common: We spend a lot of time and energy rationalizing our behavior, beliefs and decision making.
We fool ourselves.
It is part of our nature, we cannot help ourselves. But when it comes to investing, constantly lying to ourselves can be especially costly.
Here is a short list of the lies we collectively tell ourselves:
We can avoid allowing our emotions impact our thinking and behavior
We don’t have many biases that affect the way we perceive the world around us
We can evaluate fund managers (mutual or hedge funds)
We can predict the future
We are saving enough for retirement
We can pick stocks better than owning a broad index
Even if we have biases, we are smart enough to be aware of them
We are process, not outcome, focused
The Media hasn’t affected our thinking about a investment
We know how well we are doing with our investments
We are making good choices based on empirical evidence, not myths
We don’t allow hype to get us excited and drive us to making bad decisions
We are not easily influenced by experts
We understand the fees, costs, expenses and taxes impacting our portfolio
We do not chase performance
We have a good plan, we understand it intellectually
We have the discipline to follow our plan, and not get distracted
I won’t make the same mistakes this time
We can actively trade in and out and show a profit
We are smarter than most of the people we know, therefore we are smarter than the market
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
February Kansas City Fed’s manufacturing index came in at 1.0 versus
expectations of 3.0.
Revised fourth quarter
GDP was reported up 2.2% versus the initial reading of 2.6% and a 2.1%
forecast.
Other
The
dollar and corporate profits (short):
Politics
Domestic
International War Against Radical Islam
Kerry’s
testimony before the House Foreign Affairs committee (short)
US planning to invade Syria? You be the judge (medium):
More saber rattling (short):
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