The Morning Call
10/5/16
The
Market
Technical
The indices
(DJIA 18168, S&P 2150) had a rough day.
Volume was up off a low base; breadth deteriorated. The VIX was up fractionally, but still closed
below its 100 day moving average and in a short term downtrend---which remains
supportive of stocks. Nonetheless, it is
still in a very short term uptrend---a negative.
The Dow ended
[a] above its 100 day moving average,
now support, [b] above its 200 day moving average, now support, [c] within a
short term uptrend {18158-19882}, [c] in an intermediate term uptrend
{11437-24282} 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
{2139-2375}, [d] in an intermediate uptrend {1955-2557} and [e] in a long term
uptrend {862-2400}.
The long
Treasury had a very bad day on heavy volume.
Indeed, the entire debt complex suffered some severe whackage. This all appears related to mounting concerns
of tightening central bank monetary policy (ECB tapering; a December Fed rate
hike)---the economic data notwithstanding. It closed below its 100 day moving average; if
it remains there through the close on Thursday, this MA will revert from
support to resistance. It did manage to
finish within very short term, intermediate term and long term uptrends. So TLT’s chart is getting even more
squirrelly.
GLD got pounded,
down 3 ½%, finishing below a key Fibonacci level, below its 100 day moving
average (if it remains there through the close on Thursday, it will revert from
support to resistance) and below the lower boundary of its a short term trading
range (if it remains there through the close on Thursday, it will reset to a
downtrend). As I note yesterday, this is
not a healthy chart and it is getting more unhealthy.
As I also noted yesterday, GLD opened down
big, so the Aggressive Growth Portfolio Sold its holding of GDX. Remember this was a trading position, betting
on a flight to safety. While I see
plenty of reasons to want such an investment, clearly the Market disagrees; and
I am not going to argue with the Market on a trading position. That doesn’t mean our Portfolios may not Buy
GDX back.
Bottom line: the
Averages moved lower again on low volume.
But the pin action was in the fixed income and precious metals Markets;
and I noted above, it was not good. I am
not sure what this means, though it would appear central bank policy related. But we will likely see the reasons fairly
soon---one of which, by the way, may be Market noise.
Fundamental
Headlines
Only
one minor datapoint yesterday: month to date retail chain store sales were
stronger than in the prior week.
On
the other hand, the Atlanta Fed revised down its third quarter estimates for US
GDP growth; and the IMF revised down its 2016 forecast for US GDP growth.
Overseas,
Japanese September consumer confidence came in above forecasts; the central
bank of India cut key interest rates.
***overnight,
the EU Markit September Composite PMI was the weakest since January 2015; the UK
Markit September services PMI was below forecasts.
And speaking of
central banks (and I wish that I wasn’t), the Fed members are making headlines
suggesting that not only is the probability of a December rate hike increasing
but also that there is likely to be more to follow.
And the ECB upped the ante, suggesting that it may be considering
tapering QE before it is due to end (medium):
A
look at the consequences of that move (medium):
Plus,
don’t forget the linked article yesterday regarding the increasingly precarious
position of BOJ head because of the failure of Japanese monetary policy. The point here is that central bankers appear
to be seriously considering a move to monetary normalization. As you know I think that this should have
happened years ago; although given the central bankers obsession with growing
their respective economies, I am surprised that it is occurring in the face of
such crappy economic numbers both here and abroad.
That
said, as you also know, if these guys
are really and truly intent on normalizing monetary policy, I don’t believe
that higher interest rates and/or tighter money will be a negative for the
economy because easy money and low rates haven’t done diddly to improve it. On the other hand, having created a gross
mispricing and misallocation of assets, the absence of easy money and low rates
is apt to painfully reverse that process.
Of
course, this is all speculation based on a couple days of central bank chatter
and some increased volatility in the securities markets. There is a lot more to be said and, more
importantly, done before monetary normalization is anything but a gleam in my
eye.
More
on Deutschebank (medium):
http://www.minyanville.com/business-news/markets/articles/2524DB-2523systemicrisk/10/4/2016/id/58462
Bottom line: it
is way too soon to know whether or not the central bankers are indeed finally
realizing that the whole QE, NIRP, ZIRP policy has been an abject failure. Further, even if they have, we don’t know if
they have the cojones to follow through when Market prices start to unwind the
aforementioned asset mispricing and misallocation. Further, we don’t know how Markets will react
if the central bankers chicken out and restart QE, NIRP, ZIRP or take it one
step beyond and start buying corporate stocks and bonds. In fact, we don’t even know if yesterday was
just Market noise.
My opinion is
that (1) the global economy is struggling and may be slowing, (2) QE, NIRP,
ZIRP have been failures, (3) if the central banks reverse those policies, it
will have little impact on the economy but a dramatic effect of securities
prices, (4) if they don’t reverse those policies, it will have little impact on
the economy and, in the absence, of a reality check, securities will continue
to get overvalued.
The
latest from John Hussman (medium):
Demographics
don’t support a bull market thesis (medium):
http://www.advisorperspectives.com/commentaries/2016/10/04/don-t-blame-baby-boomers-for-not-retiring
My thought for the day: it is highly unlikely
that you will get rich quickly investing in the Market. Historical long term returns are 6-8% annual
returns for stocks and a 3-4% annual return for bonds. So curb your greed/fear, be patient and take
advantage of the power of compound interest.
If not, you end up buying after
stocks have soared and selling after they plunge.
News on Stocks in Our Portfolios
Economics
This Week’s Data
Month
to date retail chain store sales rose substantially from the prior week.
Weekly
mortgage applications rose 2.9% while purchase applications fell 0.1%.
The
September ADP private payroll report showed job increases of 154,000 versus
expectations of increase of 170,000.
The
August US trade deficit was $40.7 billion versus estimates of $39 billion
Other
Let’s
make entrepreneurship even harder (short):
The
creators of bubbles should be made to pay (medium):
A
quarter of all Chinese companies can’t pay the interest on their debt (medium):
A
thought on economic growth (short):
Politics
Domestic
PC coming to a
football team near you (short):
Where is the
concern about equality? (short):
Bill Clinton on
Obamacare (short):
International War Against Radical
Islam
Syria keeps getting worse (short):
A letter to Obama (medium and a must
read):
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