The Morning Call
8/11/16
The
Market
Technical
The indices
(DJIA 18495, S&P 2175) moved lower yesterday. Volume was up, just barely; breadth was
mixed. The VIX rose another 3.0%, but
still closed below the lower boundary of its former short term trading range
for the fifth day. I am calling the
short term trend as down (that is a plus for stocks).
The Dow closed
[a] above rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] within a short term uptrend {17535-19271}, [c]
in an intermediate term uptrend {11312-24139} and [d] in a long term uptrend
{5541-19431}.
The S&P
finished [a] above its rising 100 day moving average, now support, [b] above
its 200 day moving average, now support, [c] within a short term uptrend
{2053-2292}, [d] in an intermediate uptrend {1917-2519} and [e] in a long term
uptrend {862-2246}.
The long
Treasury was up, ending above its 100 day moving average and well within very
short term, short term, intermediate term and long term uptrends. However, it continues to trade within a
developing pennant formation (breaking that pattern should provide directional
guidance on bond prices).
GLD rose,
finishing above its 100 day moving average and within short term and
intermediate term uptrends.
Bottom line: the
very low volume and lack of the Market’s response to news events seems to confirm
that it is in the midst of the summer doldrums.
That is OK. Be at ease, smoke’m if you got’m. It is a plus in this environment that prices
are holding near record levels and seems likely to continue in the absence of
some stunning piece of exogenous news.
Still, I remain bothered by the continuing volatility in the VIX and the
bond, gold, oil and currency markets which suggest that something is amiss.
Fundamental
Headlines
Yesterday
was a slow data day in the US, in tune with the seemingly slow and easy mood of
the Market. Weekly mortgage and purchase
application rose.
Overseas,
there were no stats; but the central banks were busy little beavers:
(1)
the Banks’ of China and Japan reported on the success
of their bond buying programs. Maybe it
is just me; but the wording of the Japanese communique sounded a bit more
dovish than prior statements---which if you will recall had the BOJ backing off
of its QEInfinity policies,
***overnight, the Bank of China seemed to walk back yesterday’s
more dovish statement on monetary policy.
Another Fed ‘on the one hand, on the other hand’ copycat?
(2)
the Bank of England stated that it was having a
difficult time implementing its bond buying program due to the lack of offers.
The point here
is that my earlier hoped for recognition by the central banks that QE hasn’t,
isn’t and won’t work and, therefore, there would be less of it may have been in
vain. That likely means more of the same
[struggling economies and rip roaring markets] until acted up on by an outside
force.
(3)
a German economic research institute released a report
saying that Deutschebank had severe capital problems. This fits with my ongoing thesis that the EU
banks have major balance sheet issues that make many of them highly vulnerable
to insolvency.
***overnight,
tensions rise in Ukraine (short):
In addition, the
South Korean central bank left key rates unchanged; July UK existing home sales
declined.
Meanwhile, our political elite
continues make a mockery of the democratic process. While it does have its comedic value, it does
not portend well for the fiscal and regulatory reform our economy so badly
needs.
Bottom line: yesterday’s
actions of the central banks seem a bit inconsistent with their more restrained
narrative of the prior two weeks. Although
the overnight reversal of the Bank of China seems to fit the pattern of our own
Fed---confuse the sh*t out of them. I am not sure why I am surprised by that. In any case, it would seem that central bank
policy remains center stage but perhaps with a Hamlet complex. However, since investors have always given
the central banks the benefit of the doubt, that argues for further price moves
to the upside until such time that investors recognize the economic
ineffectiveness of QE or the gross mispricing and misallocation of assets.
Investors should use this situation to take
some money off the table, either selling a portion of the positions in their
winners or all of their losers or both.’
More
on valuation (short):
My
thought for the day: one of the most misleading
adages in the investment world is that stocks go up 6-7% annually, on
average. Remember the old
saying that ‘you can drown in a river with an average depth of two
inches’? Well, you can wreck your
portfolio assuming an average annual return of 6-7%. Yeah, I know---but ‘my broker/investment
advisor tells me that I can expect to earn 6-7% a year all the time’. I only have one question, do you seriously
think that with the S&P at 2100, the likelihood of attaining a 6-7% annual
return over the next seven years is the same as when it was 700 seven years
ago? Clearly, that 6-7% average has much
to do with the level of the S&P on the start and stop dates of the period
being measured. But, but my broker says
that ‘it will average out over the long term’.
News flash, in the long term, you are dead.
The
point here is that it is a highly questionable assumption that any money
invested today is going to earn a 6-7% annualized return for at least a decade
and perhaps more.
Investing for Survival
How
to take the perfect vacation.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Weekly
jobless claims fell 1,000 versus expectations for a 4,000 drop.
July
import prices rose 0.1% versus forecasts of a 0.4% decline; however, the June
reading was revised from +0.2% to +0.6% (again with the big revisions) making
the two months a wash. Export prices were
up 0.2% versus June’s report of up 0.8%
Other
This
is interesting---Ed Yardini puzzles over Monday’s lousy productivity numbers
(short):
Hillary’s
economy (medium):
The
long term growth prospects for the US economy (medium):
The
Bureau of Labor Statistics just revised first quarter wage growth down---down
big. Remember when it ‘adjusted’ first
quarter seasonal factors because the then current ones were ‘understating’ the
‘real’ numbers. Now the BLS is having to
go back and clean up its mess.
Disturbing signs
in consumer spending data (medium):
Politics
Domestic
International
Thursday
morning humor---taking a page from The Donald’s playbook (short):
Islam and Europe (medium and a must
read):
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