The Morning Call
1/24/18
The
Market
Technical
The indices
(DJIA 26210, S&P 2839) turned in a mixed performance amid inconsistent
headlines. Volume was flat; breadth mildly positive. Long term, they remain robust 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 their long
term uptrends. The technical assumption has to be that stocks are going
higher.
And
investor cash level at lows (short):
The VIX rose on
a do nothing day. It did manage to close
back above the lower boundary of its short term trading range, negating Monday’s
break. So the issue of whether or not it is re-establishing its normal inverse
relationship with stock prices remains in question.
Low volatility
could go on for a long time (short):
The long
Treasury was up fractionally, but remained below its 200 day moving average for
a third day; if it remains there through the close today, it will revert to
resistance. While TLT remains in a
technical no man’s land, its recent pin action seems to be pointing to a
resolution on the downside (higher rates, stronger economy).
The dollar had a
bad day, resuming its downhill slide. I remain
of the opinion that a declining dollar is not an economic positive---in that,
ultimately it will require action by the Fed to defend it (i.e. higher interest
rates).
GLD moved higher,
regaining its very short term uptrend.
That puts it in line with the declining dollar but at odds with rising
interest rates.
Bottom line: except
for a few outlier technical signals, there is nothing to suggest price weakness
other than normal backing and filling. The
current weight of technical evidence is that stocks appear likely to go
higher.
I remain
uncomfortable with the overall technical picture.
Fundamental
Headlines
There
was a mixed news flow yesterday.
Dems
appear to be backpedaling from an agreement with Trump on immigration, meaning
the odds of another government shutdown just went up and with it the likelihood
of a government default. Historically,
investors don’t get that bothered by the former but really don’t like the
latter. Plus it would not be supportive
of the dollar which, as you know, I am becoming increasing concerned about.
Trump:
no wall, no DACA (medium):
J.P.
Morgan and Disney join the list of corporations investing in employees and capital
spending. As you know, this is one of
the big developments that I am watching as a result of its potential positive impact
on our long term secular economic growth rate.
Monday, the Donald
slapped tariffs on washing machines and solar panels, posing the risk that this
action could be the precursor to a trade war.
Here is an analysis of the immediate impact.
Then just to keep
everyone on their toes, yesterday, the Donald noted that NAFTA negotiations
were going well, taking some of the sting out of those tariff increases and,
hopefully, indicating that this process is just part of the ‘art of the deal’
negotiation process.
***but overnight, in
Davos Mnuchin said that he thinks a weak dollar is great and Ross said that
there are more tariffs to come.
Bottom line:
every one of the aforementioned developments could potentially impact the
economy in a meaningful way. If no
compromise can be reached on the budget/immigration standoff, then that will
push any government shutdown toward the date when the debt ceiling needs to be
lifted (April); and if it is not, the US technically defaults on its debt. While that clearly is not an immediate threat,
the rancor in DC is such that the ruling class could bicker until the last
minute to reach some sort of compromise.
That will not help an already weak dollar.
The actions by
Disney and Morgan support the notion that the tax cut will be much more pro-growth
than I had imagined. It is still too
soon to be changing my forecast; but clearly, the more companies that increase
hiring and cap spending, the more likely that I will.
Finally trade,
free trade, is, in my opinion, a contributor to economic growth and its absence
acts as a constraint. As I noted, the
headlines around tariffs and leaving NAFTA may just be part of Trump’s act; and
nothing may come of this. Indeed, if his
‘art of the deal’ style works, the results could be quite positive. At the moment, we just don’t know the
outcome.
180
years of market drawdowns (medium):
Slowing
cash flow could be a concern (medium):
Investing
in an overpriced world (short):
News on Stocks in Our Portfolios
Kimberly-Clark (NYSE:KMB) declares $1.00/share quarterly dividend, 3.1% increase from prior dividend of $0.97.
Revenue of $15.68B (+7.0% Y/Y) beats by $280M.
Revenue of C$3.29B (+2.2% Y/Y) beats by C$10M.
Canadian National Railway (NYSE:CNI) declares CAD 0.455/share quarterly dividend, 10.3% increase from prior dividend of CAD 0.4125
Revenue of $8.28B (+8.2% Y/Y) misses by $130M.
Qualcomm slapped with $1 billion
fine (medium):
Economics
This Week’s Data
US
Month
to date retail chain store sales grew more rapidly than in the prior week.
The
January Richmond Fed manufacturing index was reported at 14 versus forecasts of
18.
Weekly mortgage
applications rose 4.5% while purchase applications were up 6.0%.
International
The
December Japanese trade deficit fell while its January composite flash PMI was
the highest since 2104.
The
January EU composite and services flash PMI’s was better than expected while
the manufacturing PMI was below estimates.
Other
An
interview with Ken Rogoff (medium):
Hayek’s
work on monetary policy (medium):
World economic
outlook update (medium):
US
business cycle risk report (medium):
Chemical
industry activity picked up in January (short):
The
other meaning of ECB corporate bond purchases (medium):
Comments
before congress by Fed nominee Goodfriend (short):
What
I am reading today
Honesty as a path to
avoiding failure (medium):
Sustaining retirement income in a
low return world (medium):
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for Survival’s website (http://investingforsurvival.com/home)
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