Thursday, December 14, 2017

The Morning Call--But CPI says inflation isn't rising and the Fed thinks that is OK

The Morning Call


The Market

The indices (DJIA 24585, S&P 2663) turned in a muted version of ‘sell on the news’ yesterday, as the headlines were all upbeat but the Averages mixed (Dow up, S&P down).  Volume declined modestly while breadth remained strong.  The bottom line remains that both of the Averages continue to trade above their 100 and 200 day moving averages and are in uptrends across all time frames---with the assumption being that stock prices are going higher.
The VIX (10.3) rose 2 1/2 %, closing below its 100 and 200 day moving averages (both resistance) but finished above the lower boundary of its long term trading range.

The long Treasury was up big on volume, ending above its 100 and 200 day moving averages and the lower boundaries of a very short term uptrend, its short term trading range and long term uptrend.   So bond investors apparently viewed the FOMC statement as dovish.

The dollar was down big on volume, finishing below its 200 day moving average (now resistance) but above its 100 day moving average (now support) and back below the upper boundary of its short term downtrend (negating Tuesday’s break).  Dollar investors also aren’t that enthused with yesterday’s Fed (in) action.

            Gold was up big on volume, but remained below its 100 and 200 day moving averages and within a short term trading range.  GLD investors seemed to concur that the FOMC is filled with wimps. 

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. The technical assumption has to be that stocks are going higher.  If you own enough cash to sleep at night, lay back and enjoy it.
Trading in UUP, GLD and TLT were back in sync reflecting an attitude of disdain for a weak wristed Fed.  The VIX seemed to be agreeing while stocks were more neutral in their response.  I remain confused and uncomfortable with the overall technical picture.



            Yesterday’s economic stats were mixed: weekly mortgage and purchase applications fell while November CPI was in line---indeed portraying a much more benign picture of inflation than did the previous day’s PPI number.   I should note that PPI tends to lead CPI; but as long as the Fed’s favorite inflation indicator remains below its stated objective, there is little reason to assume that there is any pressure to speed up the normalization of monetary policy.
            ***overnight, November UK retail sales were better than anticipated; November Chinese industrial output and retail sales were below estimates.

            The lead items of the day were:

(1)   a second round of rumors on an agreement on the tax bill.  While the particulars were almost identical with the first set of rumors, it still provided another opportunity for investors to get jiggy.

Here is what we know so far (medium):

More on the exceeding low tax rate US corporations are now paying (medium):

                  Don’t expect an investment boom if corporate tax rates are cut (medium):

(2)   the conclusion of the December FOMC meeting, its policy actions and outlook.  All was pretty much in line with my assumptions: a quarter point rate hike [everyone expected this] and a bright and shining economic forecast---rising GDP growth, declining unemployment and inflation gradually reaching the Fed 2% objective.  Of course, that doesn’t occur until 2020, so it is nothing to be worried about today and far enough in the future to be rendered useless as a forecast.  As I noted above, most markets judged the action/statement as dovish---rising bond and gold prices and a lower dollar.  In short, the Fed is leaving not upsetting the markets [even though, as I have often observed, not upsetting the markets is not anywhere to be found in its policy mandate] as a priority to the timely unwinding of QE.

                        ***overnight, the ECB met and left rates and its QE program unchanged (short):

                        As did the Bank of England; also leaving policy unchanged (medium):

                        However, China raised rates slightly (medium):

Bottom line: the bulls had another goldilocks news day---tax reform is coming (however, ineffective it may be) and the Fed continues to have the Markets’ back.  At least some of the stock boys think so as did bond, dollar and gold investors.  In other words, buy everything except the dollar---because, you know, who wants to own the currency of a country whose ruling class is more concerned about short term effect of the headlines than their long term consequences. 

I have no idea how or when this ends.  As long as the headlines remain positive and the algos have a dollar left to push prices higher, all will be well.  But at some point, somebody or some event is going to point to the emperor and all the lemmings are going to realize that he has no clothes.  Until then, lay back and enjoy the ride.  However, I would have some cash for the aftermath.

            The latest from Doug Kass (medium):

       Investing for Survival
            The circle of competence.

    News on Stocks in Our Portfolios
            Caterpillar (NYSE:CAT) declares $0.78/share quarterly dividend, in line with previous.


   This Week’s Data

            Weekly mortgage applications fell 2.3% while purchase applications were down 1.0%.

            November CPI rose 0.4%, in line while ex food and energy, it was +0.1% versus expectations of up 0.2%

            Weekly jobless claims fell 11,000 versus estimates of a 3,000 increase.

            November retail sales were up 0.8% versus forecasts of up 0.3%; ex autos, they were up 0.8% versus projections of up 0.4%.

            November export prices increased 0.7%, in line; import prices were up 0.5% versus consensus of up 0.3%.

            Today’s bitcoin entries:



  International War Against Radical Islam

Visit Investing for Survival’s website ( to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

No comments:

Post a Comment