The Morning Call
4/16/15
The Market
Technical
The indices
(DJIA 18112, S&P 2106) continued to rise yesterday. They both closed above their 100 day moving
averages. The Dow ended above the upper
boundary of a very short term downtrend (a finish above that boundary today
will negate the 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
(16973-19750, 1984-2965), intermediate term (17086-22212, 1796-2567 and long
term (5369-18873, 797-2129).
Volume rose; but
breadth was mixed. The VIX fell 6%,
closing back below the lower boundary of the pennant formation; a finish below
that boundary today will negate that formation.
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, but remained within a very short term and short term trading
range, intermediate and long term uptrends and above its 100 day moving
average.
Why interest
rates won’t rise soon (medium):
GLD’s price increased,
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.
Oil appears to
have made a bottom and then broken a resistance level on the upside.
Bottom line: despite
yesterday’s rally, the indices closed mixed with respect to the upper boundaries
of their very short term downtrends. We
will likely know today which is the outlier.
As I have opined, both need to get through this trend line as well as their
February highs before assaulting the upper boundaries of their long term
uptrends which I believe will prove impossible to challenge in any meaningful
way.
More
on sentiment (short):
Stock
market performance around April options expiration (short):
Fundamental
Headlines
Yesterday’s
US economic stats were again largely disappointing: negatives: mortgage and
purchase applications, industrial production, capacity utilization and the NY
Fed manufacturing index; positive: homebuilder confidence; Casper Milquetoast:
Fed Beige Book. After last week’s
dearth of data, clearly the numbers are backing our recent call of a slowdown
in the rate of US economic growth.
Overseas,
multiple datapoints from China showed a significant slowdown in its growth rate. These numbers don’t assuage my concerns about
a global economic slowdown.
***overnight, EU March
auto sales rose 11%.
Not
surprisingly, the ECB kept interest rates unchanged.
And last but not
least, S&P lowered Greece’s bond rating to CCC+ and the Greek PM met with a
sovereign debt (‘restructuring’) lawyer.
As the probabilities of a Grexit mount, a large portion of the
investment and economic worlds spent yesterday professing little to no concern. They may be correct but I would be unwilling
to bid stock prices up until I knew.
Bottom line: at
the risk of sounding like a broken record, the economic outlook continues to
deteriorate both here and abroad. True
we haven’t seen any economic data this week from Europe---which has been the
only bright spot in the global economy of late.
That said, the Chinese growth numbers were at seven year lows and that
won’t help global trends---as can be seen in Tuesday’s WTO trade forecasts and declining
US GDP figures.
Further, actions
by the Greek government suggest the rising odds of an exit from the EU. Not that such an event hasn’t been well publicized
or that all the experts aren’t correct in poo pooing any negative impact of
such an occurrence. But given past
history, it seems to me that in this case, discretion is the better part of
valor. (must read):
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.
Subscriber Alert
The
stock price of Lorillard (LO) has risen above the upper boundary of its Buy Value
Range. Therefore, it is being Removed
from the High Yield Buy List. The High
Yield Portfolio will continue to Hold this stock.
Company Highlights
Caterpillar is
the world’s largest producer of earth moving equipment serving the road
building, mining, logging, agriculture, petroleum and general construction
industries. The company has earned a 12-20%
return on equity over the past ten years growing earnings and dividends at a
10-19% annual rate. While the CAT ’s profitability is economically sensitive,
longer term the company should prosper as a result of:
(1) strict cost
controls.
(2) strength in
real estate and transportation markets,
Negatives
(1)
declining backlog,
(2)
weak mining market,
(3)
rising R&D expenses,
(4)
restructuring costs.
Statistical Summary
Stock Dividend Payout # Increases
Yield Growth Rate Ratio
Since 2005
Ind Ave 1.6 4 22 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2005 Margin Rating
Ind Ave 37 15 NA 7 NA
Chart
Note:
CAT stock made initial good progress off its March 2009 low, surpassing the
downtrend off its May 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 a trading range (purple lines). Short term it is a downtrend (brown
lines). The wiggly red line is the 100
day moving average. The High Yield
Portfolio owns a 50% position in CAT, having Sold Half in early 2011. The upper boundary of its Buy Value Range is
$39; the lower boundary of its Sell Half Range is $123.
4/15
Investing for Survival
Learning
how to be wrong (medium):
News on Stocks in Our Portfolios
Blackrock (BKN)
·
Q1 adjusted net income
of $830M or $4.89 per share vs. $762M and $4.43 one year ago. Adjusted
operating margin of 41.2% down 20 basis points.
·
AUM of $4.77T up 8%
year-over-year.
·
Retail net inflows of
$14.17B brings AUM to $551B. iShares inflows of $35.5B brings AUM to $1.07T.
Institutional inflows $20.8B brings AUM to $2.8T.
Q1 EPS of $3.07 misses by $0.04.
- Revenue of $2.44B (+2.1%
Y/Y) misses by $20M.
- Paint segment profit
rate increased 130 bps to 12.1%.
- Sales in the consumer
segment were up 8.1% to $352M.
- Consumer segment profit
rate +10 bps to 15.8%.
- The company missed on
EPS due in part to foreign exchange swings which negatively impacted EPS
by $0.04 during the quarter and weak end market demand in some markets.
- Guidance;
Sherwin-Williams expects sales to increase 6% to 8% in Q2 and EPS to fall
in a range of $3.70 to $3.90 vs. $3.70 consensus. For the full-year, a
high single-digit sales growth rate is seen and EPS of $10.90 to $11.10
vs. $11.22 consensus.
- Revenue of $6.62B (-4.3%
Y/Y) beats by $490M.
Economics
This Week’s Data
March
industrial production fell 0.6% versus expectations of a decline of 0.3%;
capacity utilization came in at 78.4 versus estimates of 78.7.
The
NAHB builders’ confidence index came in at 56.0 versus forecasts of 55.0.
The latest Fed Beige Book
was released and it contained the usual thin gruel of ‘on the one hand/on the
other hand’ comments designed to make everyone comfy. For those counting, weather was mentioned 71
times.
March housing starts rose
2% versus consensus of up 16%; building permits fell 6% versus expectations of
1% decline.
Weekly
jobless claims climbed 12,000 versus estimates down 1,000.
Other
Update
on big four economic indicators (short):
Update
on US macro surprise index (short):
The
collapse of the petrodollar (medium and a must read):
Politics
Domestic
International War Against Radical Islam
Another
red line crossed (medium):
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