The Morning Call
6/23/17
Our daughter and her family
arrive this afternoon for a weekend visit.
So no Closing Bell.
The
Market
Technical
The indices
(DJIA 21397, S&P 2434) drifted down in another slow day. They retain their upward momentum as defined
by their 100 and 200 day moving averages and uptrends across all
timeframes. At the moment, I see
nothing, technically speaking, to inhibit the Averages’ challenge of the upper
boundaries of their long term uptrends---now circa 24198/2763. Volume declined; breadth continued to weaken.
The VIX (10.5) was
off 2 ¾ %, leaving it between the lower boundaries of its intermediate and long
term trading ranges on the downside and its 100 and 200 day moving averages on
the upside.
The long
Treasury was strong again, finishing above its 100 and 200 day moving averages
(now support) and in a short term trading range---continuing to reflect bond
investors’ doubts about a strong economy/rising inflation.
The dollar rose
slightly ($0.01), ending in a very short term downtrend and below its 100 and
200 day moving averages---also lending little support to the strong
economy/rising inflation scenario.
GLD was up, closing
below the upper boundary of its short term trading range, back above its 100
day moving average (if it remains there through the close Monday, it will
revert to support) and above its 200 day moving average. Its price action around the moving average
seems to indicate that some level of support has been found.
Bottom line: the
Averages meandered through another day, either apparently unimpressed with the
pin action in bonds and the dollar, the implications of falling oil prices,
another step in achieving fiscal reforms or suggesting that these factors are
already discounted. Whatever the reason,
technically speaking, the indices seem set to challenge the upper boundaries of
their long term uptrends.
Please
be aware that today is Russell rebalancing day (the company rebalances the
weightings of each stock in all its indices).
That historically has meant a day of huge volume and some volatility.
Fundamental
Headlines
Yesterday’s
economic data was mixed: both weekly jobless claims and the May leading
economic indicators were reported in line with consensus while the June Kansas
City Fed manufacturing index was ahead of expectations.
Nothing
overseas. However, there was several
events that bear comment:
(1)
the decline in oil prices remain a matter of concern to
investors (medium):
Though Citi is a bit more hopeful for an end to the pain (medium):
And the ongoing
strife in the Middle East could quickly change that picture (medium):
(2)
the senate revealed its version of healthcare reform. To be clear, this proposed legislation isn’t
even out of committee, so it has to do that, then get approved by the full
senate ,then get reconciled with the house version. So the timing and final shape of this
potential reform remains uncertain.
Here is a good
summary of the major provisions of the legislation along with the complete
text---if you want to spend the rest of your summer doing so (medium):
But there is GOP opposition
(medium):
All that said.
[a] it is clear
that in spite of all the Trump/Comey/Russia/emolument’s clause distractions,
the GOP is still attempting to push through the dems delay and postpone
tactics. To be sure, this news was
greeted with the usual DOA remarks from both parties as well as the media. Indeed, I have been skeptical that the GOP
could ultimately be successful in implementing its fiscal program. That said, I voiced my doubts when the house repeal
and replace legislation was introduced; and look what happened---it managed to
produce a bill. So it is not
unreasonable to assume that the same may occur in the senate. No doubt the reconciliation process will be
just as difficult. But as Rick Santelli
said, passing a major piece of reform legislation is like passing a kidney
stone---it’s painful but it happens. In
short, the fact that progress continues in spite of distractions is a positive,
[b] as I read
the narrative on this bill, it sounds more reasonable to me than the house
version. So, my takeaway is that time has
improved the product. That hopefully
means that the final senate version and reconciled end product will be even better---the
operative word being ‘hopefully’. To be
clear, I am not tiptoeing through the tulips; but credit where credit is due.
(3)
the Fed released the first phase of its latest stress
test. The results showed that all major
banks passed and their capital was comfortably above minimum levels. As you know, one of the risks to the economy that
I have focused on regularly in the Closing Bells is a vulnerable global banking
system. However, over time as US
regulators took firmer control of the financial system, the odds of any
weakness occurring in our banks have diminished and with it the dangers of a 2008/2009
type financial crisis. The same can’t be
said for most of the rest of the globe, so the risk remains. But the magnitude of any potential negative impact
on the US banking system has lessened considerably.
Bottom line: I
thought yesterday was a positive one in terms of the long term outlook for the
economy. We received further assurance
that our banksters aren’t the risk to the economy that they were ten years
ago---now if the political class can resist the bank lobbying effort for a major
overhaul to Dodd Frank. But just to be
clear, this does nothing to improve the growth prospects of the economy; it
means that when the pain comes, it will not likely be as intense as experienced
in 2008/2009.
In addition,
there was another step forward in the Trump/GOP fiscal reform, however small it
may be. This GOP fiscal program theme
had faded into the background recently as the Washington third world political
circus held center stage; many thought that the dems may be able to severely delay
or dismantle the reform progress (including yours truly). While I am sure their efforts will only
redouble, I will take any step forward by the GOP as a plus. I am not revising our long term secular
growth rate assumption; but at least I can hold to the possibility that it
could occur. The bonus for the short
term is that if (operative word) the reform effort can gain some momentum, the
psychological effect on investors could contribute to a pickup in economic
activity.
But back to
reality. However positive an impact
passage of the Trump/GOP agenda would be on the long term secular growth rate
of this country, its complete enactment is more than adequately reflected in
stock prices. And I add the caveat that
if its complete enactment were to mean higher national debt/deficits, then it
would likely be a negative.
Update
on dividend cuts in Q2 2017 (short):
My
thought for the day: you don’t have to be an expert to be good investor. But as Dirty Harry said, you have to know
your limitations and develop an investment strategy that reflects those
limitations.
Investing for Survival
Thinking
through a change in asset allocation.
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
May leading economic indicators were up 0.3%, in line.
The
June Kansas City Fed manufacturing index came in at 11 versus the May reading
of 8.
Other
Dubious
lending by the government (medium):
More
on Fed policy choices (medium):
At the risk of appearing
to ‘pile on’, here is further analysis of how the Fed has once again missed the
opportunity to normalize monetary policy (medium):
Chinese
regulators cracking down on serial acquirers (medium):
Politics
Domestic
International War Against Radical
Islam
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