The Morning Call
5/23/16
Even though I have been AOL for
the last two weeks, I have decided that a little beach time is in order. So I will be gone this week, back on
5/31. As always, I will have my computer
and will stay in contact if events warrant.
The
Market
Technical
Monday Morning Chartology
The
S&P is in a very short term downtrend and is hovering above the lower boundary
of its short term trading range which also is very near the neckline of the developing
head and shoulders. As long as that
level holds, my focus is on the upside.
A break and we need to start looking for support.
The
long Treasury continues its sideways trading---likely reflecting investor
uncertainty over the economy and Fed policy.
Gold
took a hit last week as the odds of a June rate hike increased. This chart will change at the close today,
absent a big recovery. The Fibonacci
level immediately below current prices will become an even more important
support level.
The
VIX continues to trade like it has made a bottom---not good for stocks.
Fundamental
Last
week’s economic data was something of a mixed bag; but overall, I score it as a
plus. First, overall, the numbers were
negative: above estimates: April existing home sales, April industrial
production and April housing starts; below estimates: the May Philly and NY Fed
manufacturing indices, weekly mortgage and purchase applications, weekly
jobless claims, month to date retail chain store sales, April CPI and the May
housing index; in line with estimates: the April/March leading economic
indicators and the April Chicago national activity index.
However,
the primary indicators were not only numerous but largely upbeat: April
existing home sales (+), April industrial production (+), April housing starts
(+) and April leading economic indicators (0).
The score: in the last 36 weeks, nine have been positive to upbeat,
twenty six negative and one neutral.
Clearly this was
the strongest week for this data set in the last eight months; and it follows
on another positive week. While this
performance is not enough to alter a forecast, it is certainly sufficient to
put me on alert that the US may avoid a recession after all.
Overseas, April
Chinese credit growth, industrial production, retail sales and fixed asset
investment came in below estimates while housing prices soared (not a good
combination) and first quarter Japanese GDP came in better than expected. So little help for our economy from abroad.
***overnight,
April Japanese PMI was below forecast while the EU flash PMI was the lowest in
sixteen months. In addition, the US
issued another warning to Japan to cease intervening in the currency markets.
Of
course, even if the US does miraculously escape a downturn that still wouldn’t
change the underlying theme of our forecast for the last five years: a sluggish
economy held back by too much government spending, too high taxes, too much
regulation and a Fed that couldn’t find its own ass with a pair deer antlers.
And
speaking of the Fed (and I wish that I weren’t), it did more of its bobbing and
weaving last week with several members emphasizing that a June rate hike was on
the table. I don’t know if you are tired
of the on-the-one-hand, on-the-other-hand unproductive mewing, but I sure
am.
My bottom line
here is that I still don’t think that a rate increase is going to happen: but
even if it does, it will have only a minor impact on the economy. I have said this repeatedly, but I will
again: (except for QE1), all the money that the Fed has thrown at the economy
has done very little to improve it, so its absence will do very little to harm
it.
Even if the
economy does manage to stay on the plus side, (1) it will be more about the
productivity and hard work of American businesses and labor than a bunch of
ivory tower eggheads who have achieved an excessively overrated reputation with
the media and (2) it won’t be a plus by much and will still be unable to grow
at historical rates as a result of all the aforementioned problems, not the
least of which is the Fed.
That said, I
will repeat the second part of my thesis; which is that because all the QE’s
have had an enormously positive effect on the Market (the mispricing and misallocation
of assets), tighter money will likely have an equal and opposite impact on
it. So if the Fed does take another step in June to
normalize rates, fasten your seat belts because the ride is about to get rough. The big question is, will the Market decline
make economic conditions worse?
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