The Morning Call
4/17/15
The Market
Technical
The indices
(DJIA 18105, S&P 2104) declined slightly yesterday. They both closed above their 100 day moving
averages. The Dow ended above the upper
boundary of a very short term downtrend for a second day, negating that trend;
however, the S&P remained below its comparable trend line.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(16984-19761, 1987-2968), intermediate term (17091-22217, 1796-2567 and long
term (5369-18873, 797-2129).
Volume fell;
breadth was really poor. The VIX dropped
again, closing back below the lower boundary of the pennant formation for a
second day, negating that formation to the downside and implying more upside
for equities. It also ended within its
short term trading range, its intermediate term downtrend, its long term
trading range and below its 100 day moving average. The cheaper this gets, the better its value
as a hedge.
The long
Treasury declined again, but remained within very short term and short term
trading ranges, intermediate and long term uptrends and above its 100 day
moving average. The longer it holds
those short term trading ranges, the better the odds that it has stabilized.
GLD’s price decreased,
closing within its short and intermediate term trading ranges, its long term
downtrend and below its 100 day moving average.
GLD continues to struggle just to stay flat.
Bottom line: the
indices are now out of sync on a very short term basis. However, the performance of the VIX suggests
that this draw will be settled to the upside.
That said, both to the Averages are near the upper boundaries of their long
term uptrends which I believe will provide formidable resistance. Looking at the risk/reward offered by the
upper boundaries of the long term uptrends (reward) and the lower boundaries of
the short term uptrend (risk), risk wins.
Fundamental
Headlines
The
US economic data maintained it downward sloping trend yesterday: March housing
starts and building permits were awful and weekly jobless claims rose versus an
anticipated decline. The good news was the
April Philadelphia Fed manufacturing survey which rose modestly from its March
reading. The most important stat was
housing starts; so our revised forecast appears right on.
Ignoring
the data (medium):
There
were also four Fed speakers yesterday, all but one of whom made dovish mewings---most
of which included references to the lousy economic numbers that we have been
getting for lo these many weeks.
Translated, I think that means that the odds of a rate increase just
took another step down. Which also
provides further confirmation that the Fed has whiffed again on the timing of
the transition from easy to normal monetary policy. Perhaps more important, if the Fed is now
figuring out that the economy is for s**t, how long do we have to wait before
the ‘goldilocks’ true believers suddenly recognize that the emperor has no
clothes? I don’t have the answer; but
when, as and if they do and all their economic and valuation models have to be
revised, cash is probably not a bad thing to own.
Overseas,
EU March auto sales were strong, providing additional evidence that economic
conditions are starting to improve in Europe.
Unfortunately, the EU is facing a couple of geopolitical hot potatoes
that could derail any recovery, assuming that there even is one. I speak of (1) Ukraine where Putin is
beginning to turn up the heat [violence] again as the country struggles to gain
financing from the IMF and (2) Greece whose population from all appearances have
a death wish. The government, whether
because it is too inexperienced or too reckless, still hasn’t met the terms of
the troika to gain ECB financing while at the same time pursuing Russian aid
and the help of a well-known sovereign debt restructuring/bankruptcy attorney.
Meanwhile
back at the ranch, things are going from bad to worse (medium):
And
(medium):
So
it is looking like the pundit consensus that the fallout from a Grexit will be
contained may have to be re-thought (medium):
And:
Bottom line: yesterday’s
events were a rough repeat of Wednesday’s: lousy economic news, more weak Fed
gruel and a Greek government apparently hell bent on self-destruction. The only thing missing was some lousy international
economic stats. Oh well, I guess we are
stuck with only a hat trick. Nevertheless,
investors seemed willing to take it all in stride as long as the fountain of perpetual
QE continues to flow.
And that is the essence
of the Market---ignore everything but global central bank policy. Not that
global monetary policy isn’t important; but global monetary policy has been
pursuing QE with almost no tangible results except in its very early stages;
and we are long passed that point for virtually everyone except the EU. So the question is, when will the Markets
contemplate some factor aside from QE and/or recognize that QE is a fraud on the
global financial system?
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.
Thoughts on Investing from Barry Ridholtz
The Fine Art of Doing Nothing
Don’t
just do something, sit there!
I
love that purposefully juxtaposed Yogi Berra-ism.
I have been
thinking about nothing on this lovely Friday morning. More
precisely, why doing nothing — or at least much less — is better
for your long term investing outcomes than doing something, also known as more.
Don’t.
Don’t do
something, anything, just for the sake of it. If you are
going to do something, you better have a damned good reason for it.
Doing
something feels good. Doing
something creates the
illusion of control. Doing
something responds to the
angst we feel when we are unhappy with current circumstances.
Doing
something is why people dump all of their stock at market bottoms; please-just-make-the-pain-stop-sell
it-I-don’t-care-if-this-is-the-low was
heard quite often in February and March 2009.
I have been
thinking about nothing recently, mostly in the context of time frames (a post I did a few weeks ago,
expanded into a full column for Sunday).
Humans
exist in the here and now, at the intersection of past and future. The present
is all they really know from experience. Contextualizing the long game is not
their forte. What 24/7 media fills their minds with is so much meaningless
detritus, so many useless options — it’s why they often forget that nothing itself is a viable choice. Indeed, nothing is often the best choice available.
Nothing is the enemy of the financial industry. Doing nothing does
not generate any business. You cannot sell a front load mutual fund, an
annuity, or any sort of private placement when people do nothing.
Nothing generates no fees, commissions, costs or taxes.
Nothing doesn’t pay the rent. Nothing is the costly opponent of salespeople
everywhere. They have come up with all manner of clever phrases to taint the
art of doing nothing. “Paralysis by Analysis” is my favorite example.
The
investment industry hates nothing. Just about everything the financial sector
does or says or markets or advertises is designed to get you to do something — anything! And right now, too: Track your portfolio tick by tick!
Get instant updates the second news breaks! Free trading for ETFs! Real time
alerts!
E)
None of the above.
When
confronted with a problem, many people feel obligated to do something, anything — even the wrong thing.
“Well,
at least you tried” they say, when what they really meant was “You did
not think this through or fully consider the options and outcomes to your
decision making. You failed.”
Even Pop
culture references this, obliquely. Yoda was philosophical about nothing
as an option: “Do. Or do not. There is no try.” Hence, Star Wars
recognized that nothing was a viable option.
No, not Seinfeld — it was never a show, as so many
people have mischaracterized it, about nothing. It was actually a show
about the minutia of life.
Nothing is underrated.
Sometimes, nothing is better than something.
What
are you doing when you should be doing nothing?
News on Stocks in Our Portfolios
o Schlumberger (NYSE:SLB): Q1 EPS of $1.06 beats by $0.15.
o Revenue of $10.25B (-8.8% Y/Y) misses by $210M.
Economics
This Week’s Data
The
March Philadelphia Fed manufacturing index rose to 7.5 versus February’s
reading of 5.0.
The March CPI headline
number came as expected (+0.2%); however, ex food and energy, it was up 0.2%
versus expectations of up 0.1%.
Other
Bloomberg’s
economic surprise index (short):
Politics
Domestic
International War Against Radical Islam
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