The Morning Call
5/1/15
I have family business in Houston
this weekend. So no Closing Bell. Be back Monday.
The Market
Technical
The indices
(DJIA 17840, S&P 2085) followed Wednesday’s decline with another stout
selloff. The S&P remained above its
100 day moving average but below its prior high. The Dow closed right on its 100 day moving
average and well below its prior high.
So the trend of lower highs persist in both of the Averages.
Longer term, the
indices remained well within their uptrends across all timeframes: short term
(17072-19869, 2001-2982), intermediate term (17213-22339, 1805-2578 and long
term (5369-18873, 797-2129).
Volume rose;
breadth was terrible. The VIX lifted
another 9% on top of Wednesday’s up 8%, finishing back above its 100 day moving
average and within short and intermediate term trading ranges. Despite a couple lousy Market days, nothing
in the VIX right now suggests anything ominous on the downside for stocks.
The long
Treasury recovered from a couple of rough down days, ending above its 100 day
moving average and the lower boundary of its short term trading range. While avoiding, at least temporarily, more
damage to the downside, TLT is developing a very short term downtrend. So what stability it had established over the
past couple of weeks has been dissipated.
I remain cautious and concerned about the potential that its recent move
could be signaling a major change in the underlying fundamentals. As I noted yesterday, I have no conclusions,
just worries.
GLD was down
again, closing below its 100 day moving average and continuing to build a head
and shoulders formation.
Bottom line: the
trend of lower highs continues. However,
stocks are getting oversold, so no immediate reason to get beared up. It may be nothing more than a reflection of
the Markets acting on the poor short term risk/reward equation which I have
noted several times recently. Longer
term, the momentum remains to the upside and will continue at least until the
lower boundaries of the indices short term uptrends (17072, 2001) are
successfully challenged.
The TLT chart is
again in a state of flux, though yesterday’s rally offered hope that the
Treasury could be trying again to establish some price stability. We need more of that before getting too
comfortable.
Fundamental
Headlines
Yesterday’s
US economic news was mixed: weekly jobless claims fell more than expected but
March personal income and spending were less than anticipated. The more important being the latter since it
is primary indicator. If the week ended at Thursday’s close, this
would be the thirteenth negative data week out of the last fourteen. There are four big numbers that will be
reported this morning but I will be on the road by then. So I will make the final tally Monday
morning.
Update
on big four economic indicators (medium):
Atlanta
Fed just released its forecast for second quarter GDP, drumroll please, at
+0.9%.
Oversea, the
news was no better.
(1) the Bank of
Japan voted to maintain QE but failed to meet expectations of an even greater
commitment [oh, boo whoo]; Russia’s central bank lowered key interest rates
(2) April inflation in the EU was reported flat
versus the March report of -0.1%. Some
investors are pointing at this a sign of inflation; but I think that is a bit
of stretch, at least for the moment,
(3) Moody’s cut
Greece’s credit rating, again.
Meanwhile, the government scrambled to make May pension payments; not
exactly confidence building. In
addition, it began meetings with EU officials in hopes of having a preliminary
deal by May 3rd. Monday
should be fun.
***overnight,
April Chinese PMI was unchanged while the UK number was well below
expectations; Japanese March inflation was 0.2%.
Nothing
illustrates the fragile, schizophrenic mood of investors than the above: (1)
the perpetrator of the greatest expansion of a central bank balance sheet in
history stays the course but doesn’t increase it to even more ridiculous
heights and that prompts whiney butt complaints, (2) inflation in Europe is
flat [i.e. 0], but that generates worries that inflation is surely on the way.
Bottom line: US economic news remains lousy; QE remains the
policy of choice among the central banksters; and investors maybe, just maybe,
starting to realize that (1) those two are somehow related, i.e. that QE,
wherever it has been implemented, has done nothing for the respective economies
and, indeed, have made things worse and (2) all that ecstasy created by QE and
priced into assets [risk] may have been a mistake. When, as and if that happens, the mean
reversion of asset [risk] pricing will begin in earnest.
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
There is no reliable way to
invest in an environment of easy money. I’ve worked in a wide number of
environments and studied many approaches that I don’t use, and I can tell you
one thing: there is no approach that will give you easy money.
The easy money promoters make
money off of subscription revenue. They are not investing alongside you,
as I do with my clients. What I own, they own. 80%+ of my liquid
assets are invested in my strategies, and most of the rest is in cash.
Our interests are aligned. This is like not true of those that
suggest easy money strategies.
When you see books suggesting
that you can flip houses, avoid them. Few make money off that regularly.
If that were true, someone would form a REIT to do it, and do it far
better than you could.
The same applies to books
offering a simple trading strategy. If that worked, there would be a lot
of stupid people losing money. Wait, there are a lot of stupid people
losing money, at least on a relative basis. But that doesn’t mean that
particular simple trading strategy works.
Wherever it appears the lure of “easy money” brings out the
worst in people economically. The love of money is a root of all kinds
of evil. (1Tim 6:10a) Organically, value grows
bit-by-bit, but often prices move in a more volatile fashion. Try to win
by buying stocks that grow value. Winning from speculation is a
crapshoot. Avoid it, the odds are against you.
Imagine for a moment that we did
not have financial markets. Who would do the best? Those that
compounded their economic activities the best — those who were the most
productive. The same is true for us today. Focus on companies that are
productive, growing organically. That is almost always a good road to
profits.
News on Stocks in Our Portfolios
·
V.F. (NYSE:VFC): Q1 EPS of $0.67 in-line.
·
Revenue of $2.84B (+2.2%
Y/Y) in-line.
Economics
This Week’s Data
The
April Chicago PMI was reported at 52.3 versus expectations of 50.0.
Other
The
lower long term economic growth rate (short):
The
real financial crisis that is looming (medium and a must read):
More
on student loans (medium):
Politics
Domestic
International War Against Radical Islam
The
Iranian Foreign Minister speaks at New York University (medium)
Meanwhile,
tensions escalate (short):
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