The Morning Call
4/15/16
The
Market
Technical
The
indices (DJIA 17926, S&P 2082) closed above the upper boundaries of their short
term trading ranges for the second day; if they finish there at the end of
trading today, the short term trends will reset to up. Volume was even lower than Wednesday’s. Bottom line hasn’t changed: stock prices slowly,
plod higher as multiple resistance levels have to be overcome but ultimately,
they fail at their all-time highs (18295/2131) or the upper boundaries of their
long term uptrends (19343/2161).
Fundamental
Headlines
This week’s US
economic data was terrible: above
estimates: month to date retail chain store sales, weekly jobless claims, weekly
mortgage and purchase applications, the NY Fed April manufacturing index; below
estimates: March retail sales, both headline
and ex autos, the March small business optimism index, February business
inventories/sales, import and export prices, the March budget deficit, and both
March PPI and CPI, both their headline and ex food and energy reports. (Note:
industrial production will be reported later today; even if positive, it wouldn’t
change the score). In the last 32 weeks,
seven have been positive to upbeat, twenty four negative and one neutral.
The
Fed released its latest Beige Book which described an economy in which
everything is coming up roses: consumer spending, construction activity and
industrial production are all improving while inflation is subdued except for
some areas of wage inflation. Correct me
if I am wrong, but doesn’t this read like the preamble to a rate hike?
Meanwhile, it held its second
emergency meeting of the week, following Yellen’s tete-a- tete with Obama.
In
addition, US bank regulators are telling banks that their balance sheets need
further strengthening (additional equity).
Overseas,
(1)
OPEC continued to jerk the world’s chain on the
potential outcome of the Doha meeting.
Russia said there was likely to be a production freeze agreement, the
Saudi’s said ‘no way, Melvin’, the Iranians said they weren’t even going to
attend and then Russia backed off its production freeze ‘hope’.
On the other
hand, the IEA forecast the supply/demand for oil would be in balance by year
end,
Meanwhile,
bankruptcies in the energy patch are rising.
And the latest:
(2)
while China churned out some encouraging stats---inflation,
trade numbers [the latter was due primarily to seasonal adjustment factors] and
several GDP components, it still devalued the yuan by the most in three
months. Plus, Singapore lowered key
interest rates. Neither are indicative
of an improving economy.
On the other hand, fabricated or not, these stats are
thrilling investors on the thesis that the Chinese economy isn’t the problem
the world [G20] thought previously. I
include in ‘the world’ Yellen/the Fed whose principal excuse for not raising
interest rates was/is concern over the global economy. So what happens if Chinese growth is suddenly
off the table? And the Fed’s fantasy of
improving US data holds? Does anyone
know how to say ‘rate increase’?
(3)
Italian banks will be getting a bail out,
(4)
the IMF lowered
its global growth forecast for 2016,
(5)
the Bank of Japan suggested that deeper cuts in
negatives rates were likely---just what the doctor ordered; because, you know,
it has worked so well so far.
(6)
Deutschebank admits to rigging the gold and silver
markets and agreed to expose others.
Bottom
line: nothing in the US economy alters our forecast for a recession in
2016. Yes, those Chinese trade numbers
could be a positive; but the Chinese are just so untrustworthy, those stats are
hard to accept at face value. Plus, the
big yuan devaluation belies the data.
But let’s assume
all that data is legit; what excuse will the Fed then use to stay easy? If the answer is none, then investors’
attitudes could take a turn for the worse since monetary ease, which is a major
contributing factor to higher stock prices, could be coming to an end. So the giant conundrum continues---a lousy
economy = easy Fed = free money with which to speculate = higher stock prices
as the global economy collapses or improving economy = tighter Fed = more
expensive money = who is the first out the door?
My thesis has
always been that the Fed would screw up the transition to normalized monetary
policy and investors would pay the price.
Sooner or later, that is going to happen. Even if it is later, given stock prices’ proximity
to their highs, I believe that it is an excellent opportunity to sell a portion
of any stock that is at or near its all-time high.
Five
investor delusions from Bill Gross (short):
Latest on
student debt (medium):
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