The Morning Call
4/8/15
The Market
Technical
The indices
(DJIA 17875, S&P 2076) opened to the upside then traded off at the end of the
day to close on a negative note. The Dow
closed above the lower boundary of its very short term uptrend, but below its
100 day moving average. While the
S&P finished below the lower boundary, but above its 100 day moving average. Neither could climb above its prior high,
setting up a second lower high.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(16921-19698, 1976-2951), intermediate term (17015-22151, 1789-2551 and long
term (5369-18860, 797-2122).
Volume sunk
noticeably; breadth was poor. The VIX
was up fractionally, ending within its short term trading range, its
intermediate term downtrend, its long term trading range, below its 50 day
moving average and within a developing pennant formation. I continue to think that it remains a
reasonably priced hedge.
And
(short):
The long
Treasury rose. It ended within its short
term trading range, intermediate and long term uptrends and above its 50 day and
100 moving averages. While TLT seems to
have stabilized, it is still below its prior high.
GLD’s price fell,
but still finished within its short and intermediate term trading ranges, its
long term downtrend and above its 50 day moving average. GLD may have put in a low, but still has a
number of tough resistance levels yet to overcome to prove that case.
Bottom line: despite
an intraday attempt to trade above their prior highs, the Averages couldn’t get
it done, potentially marking a second lower high. Also adding some confusion to the short term
outlook, the Dow and S&P are vacillating above and below their 100 day
moving averages (which has provided strong support in the last two years) and
the lower boundaries of their very short term uptrends. This pin action could signify a topping
process or simply consolidation before another move to the upside. My bias is the former based on my perception
of the fundamentals; however, I have already said that too many times and have
been wrong.
Certainly long
term, the indices remain solidly within their uptrends; and that carries a lot
more weight than my prejudice.
Fundamental
Headlines
Yesterday,
month to date retail sales improved (a plus); and February consumer credit was
up big. However, the internal make up of
this number was not that positive, i.e. revolving credit (credit cards) fell
almost $4 billion (suggesting that consumers have stopped spending) and banks
reduced lending; that was offset by a smoking hot increase in student loans
(all of which will definitely be repaid.
Just kidding).
This recovery
really stinks (short):
The
economy and the stock market (short):
Overseas,
Europe provided another set of upbeat stats---the March EU and UK services PMI’s
advanced from February’s readings.
Are
markets underpricing a Grexit? (medium):
Germany’s
response to the Greek war reparations ploy (medium):
The
problem with Draghi’s plan (medium and a must read):
In
addition, the Bank of Australia kept its key rate unchanged but signaled that
it was prepared for future rate declines---in case, you know, their trading
partners keep pushing for QE nirvana.
***speaking
of which overnight, the Bank of Japan voted to keep QE going full blast; German
factory orders were well below expectations; the Swiss government issued a 10
year note at a negative yield; and Saudi Arabia upped its oil production---just
to help our fracking industry and assist the Fed in reaching its 2% inflation
goal.
Bottom line: so
far, nothing in this week’s US economic data suggest any improvement; however,
the European stats are going into their fourth week of progress. Unfortunately, even if the EU is recovering,
it is still the outlier in the global economy.
So the best that we can do is hope that nothing in Greece or Ukraine
blows up and that any expansion is strong enough that (1) any negative impacts
from a slowing global economy doesn’t hold it back, (2) or even better, that it’s
strong enough to moderate the rate of any declines in its principal trading
partners. Hope being the operative word.
Earnings season
starts today. So over the coming weeks
we will get the bottom line on how much the current economic malaise is
impacting profits.
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 Jim Grant (short):
The
latest from Mohamed El Erian (medium):
Warren
Buffet on buying Berkshire Hathaway stock (short):
Investing for Survival from Shelby Davis
8. Know your history.
Too
many investors spend most of their time protecting themselves from the
past while ignoring the future. Even an amateur market historian has the
foresight to recognize when investor behavior and current market events mimic
the past.
The book is filled
with glimpses of market history stretching from the 1920s up to the dot-com
bust. The biggest history lesson you can learn is that the market cycles
from bust to boom and back again. Investor behavior flows with it.
Each time is slightly different but similarities abound and the cycle
always rolls on.
7. Stocks beat everything long-term despite the pessimism of the
day
Short term fear and
pessimism keeps most investors from ever realizing great returns. Of all the
possible assets, investors have the biggest love/hate relationship with stocks.
Great performances become a love fest, while terrible ones bring fear and
loathing.
Between these two
extremes, and what investors forget, is a great long-term track record at
compounding money that no other asset class offers. The few times in history
when there is an exception, investors rarely seized the opportunity because
they projected their short-term pessimism far into the future.
Long term Treasury
rates bottomed in April 1946 at 2.03%. At the time, a survey done by the Fed
showed that 90% of investors preferred bonds. They’d rather earn 2% compounded
returns, despite losing money to inflation, because they weren’t losing money in stocks! The rare exception in the
’80s watched 30-year Treasuries rates hit 15%, while investors saw
high inflation and passed.
Not looking beyond
the worry of the day causes most investors to miss obvious opportunities.
6. A bear market helps you make money.
Bear markets are
buying times that lead to can’t miss bull market performances:
Out of
crisis comes opportunity…A
down market lets you buy more shares in great companies at favorable prices. If
you know what you’re doing, you’ll make most of your money from these periods.
You just won’t realize it until much later.
And
Bear markets make
people a lot of money, they just don’t know it at the time.
Don’t be concerned
about timing the bottom. Remember, Davis was stingy, but he never tried to time
the market. He recognized cheap and waited. Among the many opportunities, Davis
bought the ’87 crash. He lost $125 million on Black Monday, but was happy
because everything he bought was a bargain.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Month
to date retail chain store sales advanced nicely from 3.0% to 3.4%
February
consumer credit rose by $15.5 billion versus expectations of a $14.0 billion
increase; however, revolving credit (credit cards) fell $3.7 billion while bank
lending fell and student debt soared.
Weekly
mortgage applications rose 0.4% while purchase applications were up 7.0%.
Other
The
Financial Times gives the UK economy a rough review (medium):
Politics
Domestic
I love this article
on political correctness; but if you are easily offended, don’t read it (medium
and a must read):
International War Against Radical Islam
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