The Morning Call
11/3/17
The
Market
Technical
The indices
(DJIA 23516, S&P 2579) were up on the day, though the S&P rose pennies (still
the relentless drive higher). Volume was
down (fourth day in a row), but still high; breadth improved. Both remain above their 100 and 200 day
moving averages and are in uptrends across all time frames.
The VIX (9.9)
was down 2 ½ %---finishing below the upper boundary of its short term
downtrend, below 100 day moving average (now resistance), below its 200 day moving
average (now resistance) and now below the lower boundary of a very short term
uptrend. But it remained above the lower
boundary of its long term trading range.
It appears that its narrowing trading range will be resolved to the
downside (meaning to the upside for stocks).
If so, the question is, will it challenge its July low?
The long
Treasury was up, ending above its 200 day moving average (now support), above
the lower boundaries of its short term trading range and long term uptrend, above
the upper boundary of its very short
term downtrend and right on its 100 day moving average (now resistance). It is a short hair away from a trend change.
The dollar was
unchanged, ending below its 200 day moving average (now resistance), very close
the upper boundary of its short term downtrend and above its 100 day moving average
(now support) and continues to develop a very short term uptrend. Again, a trend change could be at hand.
GLD increased,
finishing right on its 100 day moving average (now resistance), above its 200
day moving average (support) and the lower boundary of a short term uptrend. Again, potential trend change.
Bottom line: long term, the indices remain strong
viz a viz their moving averages and uptrends across all timeframes. Short term,
they are above the resistance level marked by their August highs, meaning that
there is no resistance between current price levels and the upper boundaries of
the Averages long term uptrends. Despite
some recent churn, the technical assumption has to be that stocks are going
higher.
Trading in UUP,
GLD and TLT were again out of sync with themselves, the VIX and stocks, but seem
to be pointing at a change in trends.
I remain
uncomfortable with the overall technical picture.
Fundamental
Headlines
This week’s data
continues upbeat: weekly jobless claims fell, third quarter nonfarm productivity
and unit labor costs were better than expected as were October retail chain
store sales.
Not
to pile on, but:
http://www.zerohedge.com/news/2017-11-02/78-us-workers-are-living-paycheck-paycheck-71-them-are-debt
Overseas,
the October EU manufacturing PMI was better than anticipated; October German
unemployment declined.
The
GOP released its tax bill. Let me start
by saying that with all due respect to the Donald, this is NOT a big, beautiful
tax cut. In a tax cut, everybody’s taxes
are cut. This is a tax redistribution,
an element of which is the overall reduction of taxes. That said, I am not sure what it
accomplished. But let me preface my
comments with the declaimer that we don’t know all the details, so some or all
of the following may prove inaccurate:
(1) we don’t know if it is
simpler because there was nothing about reducing the 40,000 pages of the tax
code and all the loopholes they contain,
(2) it is clearly not fairer [a]
some middle income families marginal tax rate will go up, (b] I saw nothing
about eliminating egregious volume of special tax breaks given to special
{corporate} interests, [c] but it manages to reduce the corporate tax rate
substantially, [d] however, it does go after some major individual tax deductions,
like mortgage interest and medical and student loan payments. Let me just say with respect to the exclusion
of medical deductions, these jerkoffs in our ruling class couldn’t come up with
a plan to overhaul Obamacare which is a cancer on our society, but they decided
to prevent you and me from seeking some relief through tax reduction and
(3) last but certainly not least,
it does deliver on its promised $1.5 trillion [$1.487 trillion to be exact] increase
in the deficit/debt. This is on top of
the current handsome sum of our current $20 trillion in national debt. Folks, that is $430 billion in interest
payments on the debt if rates stay at current levels; and those worthless sycophants
of the ruling class over at the Fed have already told us that rates are going
up. What if rates go to 5% [not an
unheard of number] in a ‘booming’ economy, that is $1.1 trillion in debt
service a year. We will be paying taxes
equal to 75% of the current tax cut annually.
I know, I have argued endlessly
that poor fiscal/monetary policy have led to a lowering of the long term
secular economic growth rate of the country. Reinhart/Rogoff gave that thesis some
substance in their study that showed that above a certain debt/GDP level [which
the US has long since passed], economies lost momentum because the high cost of
servicing debt usurped capital from more productive uses.
On the other hand, the geniuses
in our ruling and chattering classes tell us daily that the economy is surging,
and a tax cut is just the thing to push growth even higher. But I ask, why not wait a while and pay down
some of our debt with the taxes that will surely come from this improved
economy? Then implement a tax cut when
we have our fiscal house in order.
The good news is, there were
enough howls of protest over multiple provisions of the bill, which I have to
assume means that what we see, is not what we will get.
Rack one up for the ruling class,
they promised reform and we will probably get. http://www.zerohedge.com/news/2017-11-02/gop-tax-plan-talking-point-highlights-released
The
Bank of England raised its benchmark interest rate then issued a very dovish
narrative that basically apologized for doing it. This may be another step toward the unwinding
of global QE but it is a pretty pitiful attempt.
Bottom
line: so except for the jobs report (today---which was terrible), this week’s big
announcements (new Fed chair, FOMC meeting, BOE meeting, GOP tax bill) are
behind us. The first three were much ado
about nothing. The last leaves taxpayers
facing an additional $1.5 trillion in debt.
Who pays for it may have been shifted around a little, but it is still a
burden on the economy and if Rogoff/Reinhart are anywhere close to be correct,
it will be an impediment to growth.
And
yet, everything is awesome.
Update
on dividends (short):
Update
on valuations.
Investing for Survival
Never
walk by a mistake.
News on Stocks in Our Portfolios
Revenue of $2.65B (+25.0% Y/Y) beats by $160M.
VF Corporation (NYSE:VFC) announces that it signed a deal to
acquire the Icebreaker brand for an undisclosed amount.
The high-performance apparel business generated ~$150M in
revenue on a trailing 12-month basis.
Revenue of $52.6B (+12.3% Y/Y) beats by $1.81B.
Economics
This Week’s Data
October
retail chain store sales rose 0.5%.
October
nonfarm payrolls rose 261,000 versus expectations of 325,000. This is clearly a big ooops. I am sure it will be attributed to the
hurricanes; but didn’t those guys know that there were hurricanes when they
made their estimates?
The
September trade deficit was $43.5 billion versus estimates of $43.4 billion.
Other
Politics
Domestic
International War Against Radical
Islam
What the last dump of the Bin Laden
files shows (medium):
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