The Morning Call
5/16/16
I am back but not full
speed. Studying is a drag for a 73 year
old and doesn’t go as smoothly as when I was 20. So I will continue to devote time to
studying. The test is Friday. I will produce short Morning Calls through
Thursday. Then nothing Friday and
Saturday. Back on Monday if I am sober.
The
Market
Technical
Monday Morning Chartology
If
a picture is worth a 1000 words, then I needn’t say anymore.
Selling
volume continues to expand (medium):
The
long Treasury (132) ended Friday above the upper boundary of a very short term downtrend. As you can also see, it is not the far away
from the upper boundary of its intermediate term trading range. If it breaks that level, the next stop is the
upper boundary of its long term uptrend (circa 150). Nothing
says recession/deflation quite like falling interest rates.
GLD
(121) continues to act well. It looks
like it is going to have another try at the upper boundary of its intermediate term
trading range. If it breaks that the
next stop is the upper boundary of its long term downtrend (140).
The
VIX continues to mill around the lower boundary of its short term trading range
but has been unable to break below it. A
move out of the very short term trading range that has existed since mid-March
would likely lead me to add to the Aggressive Growth Portfolio’s VXX position.
Fundamental
Although
the economic flow last week was a bit slow, it was nonetheless upbeat: above
expectations: the April small business confidence index, month to date retail
sales, April retail sales, weekly mortgage and purchase applications, April
import/export prices and May consumer sentiment; below expectations: March
wholesale inventories and sales, March business inventories and sales, weekly
jobless claims and April PPI; in line with expectations: the April budget surplus
and April PPI, ex food and energy. There
was only one primary indicator (April retail sales); and it too was up. The score: in the last 35 weeks, eight have
been positive to upbeat, twenty six negative and one neutral.
We
have to take good news anyway we can get it.
But the above performance is hardly a reason to question our forecast.
Overseas,
the data was mixed: above expectations: German April manufacturing orders and first
quarter household spending, April Chinese and EU auto sales; below
expectations: the April Chinese trade deficit, consumer inflation and wholesale
prices and March German industrial production.
Again nothing here to prompt a rethink of our forecast.
***overnight,
April Chinese credit growth, industrial production, retail sales and fixed
asset investment came in below estimates.
In
other matters, I reported that a Japanese official had suggested additional
currency weakening monetary measures; and I suggested that it should be taken
with a healthy dose of skepticism in light of recent warnings from both the US
and Chinese that more competitive devaluations would not be welcome.
In addition, it
is rumored that Abe will delay the implementation of a second (upcoming) sales
tax increase. You may recall that I thought
it absurd to effect the first hike. The
Japanese economy is comatose and the last thing it needs is another rise in
sales tax. The measure makes a lot more
sense than doubling down on zero interest rates, especially since the US and
Chinese suggested that fiscal action taken to improve an economy was perfectly
acceptable. That said, don’t look for
the Japanese economy to lift off anytime soon; but it may help dampen the rate
of decline.
Of course, the
real chuckler of the week came from none other than our beloved Fed chairperson
when she allowed that she wouldn’t rule out zero interest rates as a policy
tool here. This lady is either
delusional or she is considering becoming the head of marketing for the new
Rocky Mountain High cigarettes. She
needs to do a quick check of the success that the Japanese have experienced
with zero interest rates and then shut the f**k up.
Bottom
line: last week’s US economic news was better than a sharp stick in the eye;
though I need a lot more of this kind of data flow before I get too
encouraged. Earnings season is over; and
while reported profits were better than estimates, those estimates had been
lowered considerably. Plus those reported
earnings have been propped up with so much funny accounting, I think that they
only marginally reflect the real numbers.
The overseas stats did nothing to contribute to any improvement in the
outlook; and if you don’t believe me review the dialogue coming out of Japan. Finally, pray that Yellen was just having a
senior moment. If the Fed goes to
negative rates, the mispricing and misallocation of assets will get much worse.
Stock
prices remain in some sort of never never land, which is to say, grossly
overvalued. The best investment strategy
at the moment is to sell a portion of your winners and get rid of the losers.
Another warning from David
Stockman (medium):
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
New York Fed manufacturing index came in at -9.02 versus expectations of +7.00
Other
Quote
of the day (short):
Politics
Domestic
International War Against Radical
Islam
This
makes you stop and think (medium):
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