The Morning Call
9/7/17
The
Market
Technical
The indices
(DJIA 21807, S&P 2465) bounced back yesterday on lower volume but better
breadth. Both remain above their 100 and
200 day moving averages and are in uptrends across all time frames---including
the S&P which ended above the lower boundary of its short term uptrend. But both are still below the resistance
offered by their former all-time highs.
The VIX (11.6) fell
5%, leaving it below the upper boundary of its short term downtrend, right on its
100 day moving average (it reverted to resistance on Friday which is now up to
question), above its 200 day moving average and the lower boundary of a
developing very short term uptrend. The question as to whether or not the VIX
has bottomed clearly remains open.
The long
Treasury declined, finishing above its 100 and 200 day moving averages (both
support), the lower boundaries of its short term trading range and its long
term uptrend but back below the resistance level marked by its August high.
The dollar fell,
closing in a short term downtrend and below its 100 and 200 day moving averages,
in a series of six lower highs and below the lower boundary of its short term
trading range for the second day (if it remains there through the end of
trading today, it will reset to a downtrend.
GLD was also down, ending above the lower
boundaries of its short term and very short term uptrends and above its 100 and
200 day moving averages (both support).
Bottom line: long
term, the indices remain strong viz a viz their moving averages and uptrends
across all timeframes. Short term, they
have moved sideways since early August.
That is not necessarily bad; after all, stocks can’t go up every day. Still, I am watching the indices’ August
highs as resistance and the lower boundaries of their short term uptrends as
support. A break in either one would
provide directional information.
Yesterday’s pin
action notwithstanding, the unambiguous performances of TLT, GLD and UUP continue
to point at a weakening economy. I
continue to be uncomfortable with the overall technical picture.
Fundamental
Headlines
Yesterday’s
economic data was mixed: weekly mortgage and purchase applications, month to
date retail chain store sales and the July trade deficit were better than
forecasts while the August Markit services PMI and the August ISM services
index were below consensus.
Overseas,
August German factory orders were disappointing.
***overnight,
German industrial output slowed.
There
was no shortage of news elsewhere.
(1)
Trump cut a deal with the dems to raise the debt
ceiling for three months that includes the initial tranche of Harvey relief
funding. Clearly this has the GOP
pulling their hair out. Tough sh*t. The guys have a majority in both houses and
have delivered nada to date. So, Trump’s
actions are not surprising. Short term,
he accomplished two things: [a] some funding for Harvey and [b] he took the immediacy
of a debt ceiling vote off the table, so that congress can focus on tax
reform.
Generally, I avoid political commentary because [a]
this blog concerns the Markets, not politics and [b] I am not a practiced
political observer. So feel free to skip
the next couple of paragraphs. Having
said that, my take on the move by Trump is that he has altered the political
calculus in DC.
For the last sixteen years, Washington has become
increasing polarized with political ideology trumping compromise and ‘getting
things done’. Apparently, no one
thought that ‘draining the swamp’ included taking apart the ‘business as usual’
mentality, meaning a lot of ideological back and forth and little else. The
GOP congress followed that model in the healthcare debate. It dwelled on ideological details and missed
the big picture---that some healthcare reform was better than none. Unfortunately, that has been the narrative on
the debt ceiling, Harvey funding and tax reform---too much to do in too short a
time with too much internal disagreement among the GOP; hence nothing happens.
Well, the Donald just blew that operating model apart.
With the debt ceiling and Harvey funding no longer on the schedule, Trump has
now put himself in position to reach another compromise with the dems on tax reform. Which leaves the GOP congress facing the possibility
of going home at Christmas with either [a] Trump reaching a compromise with the
dems on the debt ceiling, Harvey funding and most importantly, tax reform or
[b] cutting the esoteric debates over the fine points of conservative economics
and reaching an agreement that can then be pushed through congress without the
dems.
The media is now yukking it up that the dems rolled
Trump on this deal. But if this latest
move yields the aforementioned results, then Trump will have pushed the GOP
into not only tax reform but on passable compromises on the debt ceiling and
the budget resolution that will now occur in December. So if the GOP reaches its own agreement on
those issues, then Trump will have rolled the dems.
Having said all that, what Trump didn’t change was the
math of a deficit spending. What this
country needs, in my opinion, is a revenue neutral tax reform and
infrastructure package. Were Trump and
the dems to agree on a tax reform package that blows up the budget, dramatically
increasing the deficit and debt, it would be a negative for the long term
secular growth of the economy.
Clearly, I could be 100% wrong on this thesis, i.e. Trump and dems can’t reach a compromise on
tax reform or they do but the dems roll Trump again or nothing gets done. But politically, one thing is for sure, in my
opinion---the prior political operating model no longer exists.
(2)
the Fed:
[a] Stanley Fischer, vice chairman of the Fed,
resigned reportedly for personal reasons.
Whether true or not, the bottom line is that he was a bit more hawkish
than many members of the FOMC, so whatever pressure he may have contributed to
the move toward monetary normalization will be absent. Frankly, if I were him, I would abandon ship
too. In my opinion, nothing good is
going to come of QEInfinity; and I would not want to be there when the bill is
presented,
[b] the White House released a notice that Gary Cohn
would not be considered for Yellen’s position, supposedly because he pissed
Trump off over his public comments on Charlottesville. I don’t believe that is a negative for
monetary policy because there are several other potential candidates with more
experience with monetary policy and who would likely give Fed policy a tilt
towards a less accommodative posture.
That said, it could be a negative for tax reform since
Cohn has the lead on this issue working with congress. If he sees his shot at the Fed chair {which
is his dream job} as over, he could resign in a huff.
[c] the latest Beige Book was released yesterday
afternoon. It was chocked full of the
usual ‘on the one hand, on the other hand’, ‘not too hot, not too cold’
narrative, signifying nothing. There was
some expression of concern over weakness in the auto industry. The survey predated Harvey, so one has to
wonder what the survey will reveal after the Harvey, Irma one, two punch. Ahhh, but we already know---economic stimulus
squared.
***overnight,
Draghi/ECB leaves rates and bond buying program unchanged. Some experts believe that ECB QE will last
through 2019. (short):
(3)
North Korea. The
Donald is maintaining his composure with North Korea, even following the
underground nuclear test. His is working
the phones trying to gain agreement on additional sanctions.
And:
While he is
not getting a very positive verbal response, China did close one border
crossing point with North Korea
Bottom
line: there is a lot to digest following a busy day for events across several
important areas. The most notable item
is that Trump continues to act like a different person---more presidential,
less the impetuous, ill tempered, factually challenged narcissist. He basically told the GOP leadership to take
a hike if they couldn’t work with him to accomplish his objectives. That is what he promised to do---kick ass and
take names---change the way Washington works.
So for me, that is potentially a major positive. Plus he dropped the bombastic rhetoric on North
Korea which I believe could have led to unintended consequences. It is too soon to know if he has really
adopted a new persona; but so far, he is at least working towards the goals of
his agenda without personally insulting everyone that disagrees.
That said,
nothing the Donald does will alter the extreme overvaluation of stock prices.
August
dividends report (short):
More
on valuations.
Investing for Survival
The
Market never has to do anything.
News on Stocks in Our Portfolios
Revenue of $660.1M (+11.2% Y/Y) beats by $25.73M.
Economics
This Week’s Data
Month
to date retail chain store sales grow was up slightly from the prior week.
The
August Markit services PMI was reported a t 56.0 versus expectations of 56.9.
The
August ISM services index came in at 55.3 versus projections of 55.8
Weekly
jobless claims rose 62,000 versus forecasts of up 5,000.
Revised
second quarter productivity increased 1.5% versus consensus of up 1.3%; unit
labor costs advanced 0.2% versus estimates of +0.3%.
Other
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