The Morning Call
1/18/17
The
Market
Technical
The indices
(DJIA 19826, S&P 2267) moved lower yesterday. Volume rose, remaining at a high level; breadth
was negative---the overbought condition is now history. The VIX (11.9) was up 6%, but still closed
below its 200 day moving average (now resistance), below its 100 day moving
average (now resistance), within a short term downtrend and remains close to
the lower boundary of its intermediate term trading range (10.3).
The Dow ended
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average, now support, [c] in a short term uptrend {18479-20519}, [c] in an
intermediate term uptrend {11690-24540} and [d] in a long term uptrend {5730-20318}.
The S&P
finished [a] above its 100 day moving average, now support, [b] above its 200
day moving average, now support, [c] within a short term uptrend {2160-2503},
[d] in an intermediate uptrend {2024-2625} and [e] in a long term uptrend {881-2435}.
The long
Treasury jumped 1%, but remained in a very short term downtrend, in a short
term trading range and below the 100 day moving average (now resistance),
falling further below its 200 day moving average (now resistance).
GLD rose 1 ½ %,
but was still in a short term downtrend and below its 100 day moving average
(now resistance) which continues to push further below its 200 day moving
average (now resistance)---though it is now nearing those MA’s.
The dollar fell,
continuing its pattern of acting in reverse of GLD and TLT, finishing
considerably above multiple support levels---so it can fall a lot and not
challenge its 100 or 200 day moving averages (now support) or its short term
uptrend.
Bottom line: the
Averages remain within very tight trading ranges dating back to mid-December. That kind of tight consolidation in which key
support levels are not being challenged, suggests that investor enthusiasm is
only taking a rest. As long as investors
that major positive changes are coming in fiscal/regulatory policies, stock
prices are likely to go higher.
The GLD, TLT and UUP investors are
apparently a bit less sanguine about the ultimate implementation of those
policies. I don’t know how this gets resolved; I am
simply pointing out the disagreement among investor types.
Fundamental
Headlines
There
was only a single datapoint released in the US yesterday: the January NY Fed
manufacturing index was below estimates.
However, the IMF did raise its US GDP growth forecast for 2017 and 2018.
It
was a different story overseas: January German investor confidence soared; UK
inflation rose the most in 2 ½ years; EU auto sales hit a nine year high.
***overnight,
Chinese home prices rose less than anticipated.
The
news continues to be driven by politics, in this case, by the Donald. Over the weekend, he said that
(1)
the dollar was too high. His point was that a lower dollar is better
for trade; and that is true. But a lower
dollar tends to signal of economic or political weakness or both. So he may want to be careful what he wishes
for.
(2)
the Ryan border adjustment tax was too complicated and
that endangered its effectiveness. He is
probably right. I think that this
suggests that the corporate tax policy is one of those issues that gets decided
later rather than sooner,
(3)
NATO is no longer relevant. That will likely tighten some sphincters in
Europe---probably because there is so much truth to it. Only five European countries meet their
financial obligations to NATO---the US foots the bill. Even worse, the whole of Europe is being
invaded by the Middle East. Don’t
interpret that as being anti-muslim. But
these immigrants are making no effort to assimilate; indeed, in many of the
major cities, sharia law prevails, the local police are attacked if they enter muslim
dominated areas and the residents condone if not nurture jihad. My opinion is
that this is an existential threat to the Europeans; and if they are unwilling
to help themselves, then the US needs to change its policies.
http://www.zerohedge.com/news/2017-01-18/trump-was-right-top-nato-general-concedes-alliance-obsolete
Now, if he would just go after the UN.
In other news,
Brazil declined to go along with the OPEC production cut request. This after the Saudis conceded that the
quotas may not extend beyond mid-year.
http://www.zerohedge.com/news/2017-01-17/oil-slides-after-brazil-denies-saudi-production-cut-request
Bottom line: I
noted last Friday that ‘the driving force
behind the recent Market surge has been the anticipated positive changes coming
in fiscal/regulatory policies. However
to date, the hard news that we have gotten is not universally upbeat.’
First, for all
the weekend activity, there is still nothing on tax or infrastructure spending.
Certainly, Trump’s
dollar remarks are way off. When the
rest of the world looks at your country as a source of economic/political strength,
that is, and in my opinion, always will be a plus. Owning a dollar is like owning a stock. How can you complain when the rest of the
world wants to buy it?
I agree with
Trump’s comments on the Ryan border tax plan.
It is too complicated; and when the government does complicated, the result
is generally a snoot full of negative unintended consequences. But disagreeing with your own House leader in
public is not the way to hasten solutions to a problem that you want
corrected.
Trump says that
he will renegotiate NAFTA as soon as he takes office (medium):
Finally, the
Donald’s comments on NATO are spot on and way overdue. The Marshall Plan is over. I have no problem helping on the defense of
Europe as long as it contributes its pro rata share. But the US is not their defense department;
and we definitely shouldn’t be spending our money to protect them from external
threats while they blindly allow their internal threats to metastasize. But, but, but….threatening NATO will likely
cause heartburn here as well as in Europe.
It may be a revolutionary idea whose time has come, but revolutions tend
not to be quiet.
Muni
bonds aren’t risk free anymore (medium):
My
thought for the day: most people in finance don’t have your best interest at
heart. Wall Street attracts some of the
best and brightest individuals. I
suggest that their motivation for seeking these jobs is not help the efficient
allocation of capital; but rather, it is to get rich. The quickest way to do that is not becoming a
Warren Buffett or Carl Icahn---that takes too long and is simply too difficult. No, the easiest way is to find investors
stupid or naïve enough to pay ridiculously high fees or commissions on products
that almost never beat a basic index fund.
Investing for Survival
Facts
about annuities.
News on Stocks in Our Portfolios
Automatic Data Processing (NASDAQ:ADP) declares $0.57/share quarterly dividend, in line
with previous.
Economics
This Week’s Data
Weekly
mortgage applications rose 0.8%, while purchase applications fell 5.0%.
December
CPI was up 0.3%, in line; ex food and energy, it was up 0.2%, also in line.
Other
Wealth
creation and poverty reduction (medium):
Fed
starting to hint at unwinding its balance sheet (medium):
Politics
Domestic
Senate preserves
ban on earmarks (short):
A thought on
Trump’s style (medium):
International War Against Radical
Islam
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