The Morning Call
6/17/16
Our daughter and family arrive
this afternoon for Dad’s day weekend. No
Closing Bell. Back on Monday. Remember today is Quad Witching.
The
Market
Technical
The indices
(DJIA 17733, S&P 2077) did another intraday turnaround, opening down big
and then closing up strongly. Volume was flat.
Breadth improved, rebounding from an oversold condition. The VIX was down 4%, but still finished well
above its 100 day moving average, now support.
And:
The Dow closed
[a] above its rising 100 day moving average, now support, [b] above its rising 200
day moving average, now support, [c] within a short term trading range
{17498-18726}, [c] in an intermediate term trading range {15842-18295} and [d]
in a long term uptrend {5541-19413}.
The S&P
finished [a] above its rising 100 day moving average, now support, [b] above
its rising 200 day moving average, now support, [c] within a short term trading
range {2037-2110}, [d] in an intermediate term trading range {1867-2134} and
[e] in a long term uptrend {830-2218}.
The long
Treasury was up, ending above its 100 day moving average and within short, intermediate
and long term uptrends.
GLD (122.4) got
whacked. It is closed above the lower
boundary its 100 day moving average; however, intraday it traded above the
upper boundary of its short term trading (124.2) and reached the upper boundary
of its intermediate term trading range (125.6) but fell back below the former by
the final bell.
Bottom line: it
is tough to know if yesterday’s bout with schizophrenia was related to the news
flow (central bank disappointment, the murder of the British MP), today’s quad
witching, a bounce off an oversold condition or just noise. I don’t expect to get an answer to that
today; but we will know more early next week.
Still, best to do nothing---unless you want to take profits.
The TLT chart
couldn’t get much more bullish; though if this is a reflection of recession or coming
economic/political turmoil, it is not a plus for stocks.
GLD’s reversal
was concerning; but like equities, it is difficult to know how much of this is
options/futures related.
Fundamental
Headlines
Yesterday’s
economic data was mixed to slightly upbeat: May CPI was below forecasts, ex food
and energy, it was in line (the numbers I reported yesterday were incorrect due
to a reporting error at Barron’s); weekly jobless claims rose more than
projections; both the first quarter US trade deficit and the June housing
market index were fractionally better than expected while the June Philly Fed
index was very strong.
The
central banks remained in the headlines.
The Fed continued to take flack for yet another tangled explanation of Fed
policy which could have been delivered by the Cowardly Lion. The saving grace for Yellen was that overnight
the Bank of Japan, which is only central bank whose policies are more oblique
and f**ked up than our own, announced that it had also left rates unchanged.
The
Fed chickened out again (medium):
Janet
whiffs again (medium):
EU
parliament members urge Draghi to implement helicopter money (medium):
Late
in the day, a British MP was assassinated by a deranged Brexit supporter and
rumors flew that next week’s vote might be postponed---which perversely enough
seemed to lighten investors’ hearts.
EU
peripheral bond risk soars (medium):
***overnight,
Greece receives new E7.5 billion loan.
Of course, there is a price. (medium):
Bottom line: central
banks have led to the excessive mispricing and misallocation of assets; and in
the last week, investors seemed to indicate than they have had enough. It may be that yesterday’s dramatic intraday
reversal reflects that investors have decided to again give the benefit of the
doubt to the Fed. Who knows; but
investors’ opinions are different from the facts. Zero interest rates haven’t, aren’t and are
not likely to have any positive impact on the global economy. Sooner or later that policy gets reversed. When it does, asset prices will respond and
it is not apt to be pretty.
The Brexit vote
at last count was near a tossup. It may
be that the tragic death of the British MP will really change the vote of the
electorate. I am certainly no expert on
the British voter. But I can’t think of
an issue in this country on which I would change my mind based on the senseless
killing of an advocate on one side or the other.
In short, I can’t
come up with a good fundamental reason for yesterday’s surprising pin
action. However, I can think of two
technical explanations: quad witching and/or an oversold market. But I have an open mind. Let’s get through the options expiration and
then reconsider.
My thought for
the day: I recently cautioned against chasing yield because that extra yield
comes with a price, i.e. higher risk.
Yet my whole investment strategy is based on buying dividend paying
stocks. I don’t own a single stock that
doesn’t pay a dividend. So if I am
chasing dividends, aren’t I chasing yield?
No. How do I reconcile those
seemingly inconsistent factors?
Because the strategy
involves buying dividend growth not yield.
Not only that but it involves buying dividend growth by companies with
sound balance sheets and good investment returns that have a long history of
growing their dividends. In other words,
I am not focused on yield but on the combination of yield plus the long term
rate of dividend growth.
For instance, the
hurdle rate for inclusion in our universe is a minimum yield/dividend growth
combination of 11% for the Dividend Growth and High Yield Portfolios and 15%
for the Aggressive Growth Portfolios. The
reason is simple. I want to create an
income stream that grows every year irrespective of what happens into stock
prices.
Unfortunately,
it isn’t quite that simple because, as with chasing yield, if I chase yield
plus growth, I can still incur too much risk for the price I pay. That is where our Price Disciplines come into
play. But I have already covered that
topic with some frequency.
Investing for Survival
Tips
for advisors.
News on Stocks in Our Portfolios
Revenue of $10.6B
(-1.0% Y/Y) beats by $130M.
Economics
This Week’s Data
The
June housing market index came in at 60 versus expectations of 59.
May
housing starts fell slightly, though much less that estimates; while permits
rose much less than anticipated.
Other
More
on student loans (medium):
Politics
Domestic
CIA director
Brennan warns of increasing attacks by ISIS (medium):
International War Against Radical
Islam
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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