The Morning Call
4/9/15
The Market
Technical
The indices
(DJIA 17902, S&P 2081) eked out a gain yesterday. As a result, the Dow closed above the lower
boundary of its very short term uptrend and its 100 day moving average. While the S&P remained below the lower boundary,
but above its 100 day moving average. Both failed again to climb above their prior
highs, leaving open the possibility of setting a second lower high.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(16927-19704, 1978-2953), intermediate term (17022-22158, 1789-2551 and long
term (5369-18860, 797-2122).
Volume was flat
but at a very low level; breadth improved slightly. The VIX fell 5% (a lot more than I would have
expected on modestly positive pin action), 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. At lower prices it makes an even more
reasonably priced hedge.
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 couldn’t get above 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: yesterday’s
modest rise did little to dispel the short term opacity of the Averages’
technicals. So it leaves open the
question I raised yesterday as to whether we are in the midst of a topping
process or simply consolidating before another move to the upside. If the latter, I continue to believe that the
upper boundaries of the indices long term uptrends represent formidable
resistance. Long term, the indices remain
solidly within their uptrends; but the lower boundaries of their short term
uptrends are some distance away.
Updated
seventh year and preelection year charts (short):
Fundamental
Headlines
Another
day of virtually no US economic dataflow: weekly mortgage and purchase applications
were up while the speeches of FOMC members and the minutes of the last FOMC
meeting amounted to a whole lot of nothing.
Monitoring
the bubble risk in the market (medium):
However
overseas, there was a flurry of activity:
(1)
the Bank of Japan gave a high five to its QEInfinity
policy. Clearly, a response to the
latest report on its success (that’s a joke) (medium):
(2)
in more currency devaluation bank news, the Swiss
government issued a 10 year note at a negative yield,
And an
affiliated problem---declining liquidity in the EU bond market (medium):
This is
embarrassing---a look at Russia’s central banker who makes Yellen look like
an amateur (medium):
(3)
German factory orders were well below expectations---the
first disappointing news out of the EU in a couple of weeks,
(4)
Saudi Arabia jacked up its oil production, which could
bring an end to the recent stabilization in oil prices. It is also likely to piss off the Iranians
who are hoping Obama will be dumb enough to lift sanctions on their own
production and could prove to be another nail in the US fracking coffin---but
think of all the ‘unmitigated positives’.
***overnight, German March industrial
production rose and February exports improved; plus Greece repaid a loan to the
IMF.
And the Greeks come up with a new theory on
not repaying debt (medium):
Bottom line: it
seems like the only central banker with the balls to raise conduct monetary
policy for the long term good of the country is a woman and a Russian. Of course, she works for a guy that has
plenty of balls---an item that our political class is woefully short of.
Here, our own crowd is either too confused or
too scared to talk straight about its biggest monetary experiment in history
and its potential consequences.
Meanwhile, the rest of world’s central bankers are blindly following behind
like it’s the Pied Piper of Hamlin. No
thoughts on the misallocation of capital, the mispricing of assets and the fact
that QE has brought no extended benefits to their respective economies no
matter how much money they print.
Indeed, the only
long term value to this money for nothing policy has accrued to the bankers,
speculators, prop trading desks and carry traders. Of course, you might consider them worthy of
such largess given their role in the last financial crisis. I consider it deplorable and believe that
eventually all will agree when the experiment finally ends. In the meantime, investors continue to
believe that the easier the monetary policy, the more valuable the future
earnings of corporations. I believe that
they are in for a rude awakening.
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.
Investing for Survival
The
power of not knowing (medium):
Company Highlights
Pepsico Inc. is
a global participant in the soft drink, snack food, ready to eat cereals and
rice and pasta products. Its brand names
include Pepsi, Mountain Dew, Gatorade, Tropicana, Sierra Mist, Aquafina, Lay’s,
Doritos, Tostitos, Cheetos, Ruffles, Walker ’s,
Smith’s and Sabrita’s. The company has
grown profits and dividends at an 8-14% pace over the last 10 years earning a
25-30% return on equity. PEP should continue to grow at an above average
rate because:
(1) a strong brand
recognition,
(2) rapidly
expanding international sales. PEP
is aggressively introducing its products into China , India , the Middle
East , Africa and Latin America ,
(3) improving
productivity by increasing its merchandising effectiveness and lowering costs,
(4)
aggressive marketing and brand building.
(5) new product
innovation,
(6) stock
buyback program.
Negatives:
(1) sluggish
beverage growth in North America ,
(2) rising raw
material costs,
(3) economic
uncertainty impacts consumer spending.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio Since 2005
Ind Ave 2.5 9 50 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin Rating
Ind Ave 36 22 NA 13 NA
Chart
Note:
PEP stock made good progress off its January 2009 low, surpassing the downtrend
off its January 2008 high (straight red line) and the November 2008 trading
high (green line). Long term, the
stock is in an uptrend (blue lines).
Intermediate term, it is in an uptrend (purple lines). Short term, it is in a trading range (brown
line). The wiggly red line is the 100
day moving average. The Dividend and
Aggressive Growth Portfolios own full positions in PEP. The upper boundary of its Buy Value Range is
$79; the lower boundary of the Sell Half Range is $105.
4/15
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
minutes from the last FOMC meeting were released yesterday afternoon. As expected, they included much of the ‘on
the one hand, on the other hand’ wishy washy blather signifying nothing. If you can endure the torture, here are the
minutes:
Weekly
jobless claims rose 14,000 versus estimates of up 17,000.
Other
The
US’s fiscal black hole (medium and today’s must read:
Politics
Domestic
International War Against Radical Islam
Iran
parks two warships next to US aircraft carriers (medium):
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