The Morning Call
1/5/18
The
Market
Technical
The indices
(DJIA 25075, S&P 2723) continued their relentless drive upward. Volume was down
but still high; breadth 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 (9.2) was
up slightly (somewhat unusual on a strong up day), but still closed below its
100 and 200 day moving averages (both resistance), in a very short term
downtrend but above the lower boundary of its long term trading range.
The long
Treasury was down slightly, ending above its 100 and 200 day moving averages
and the lower boundaries of its short term trading range and long term uptrend
and right on the lower boundary of its very short term uptrend. So bond investors remain unconvinced that
rates are rising or they are looking for a safety trade.
The dollar resumed
its downward trend, finishing below its 100 and 200 day moving averages (now
resistance), in a short term downtrend and near the lower boundary of its long
term trading range. Dollar investors
also aren’t anticipating higher rates/economic strength nor the need for a
safety trade.
Gold
was up, remaining above its 100 and 200 day moving averages (now support),
within a short term trading range and is developing a very short term uptrend.
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 continued to reflect the belief that the economy that is less
strong and/or that there is less upward pressure on interest rates than
consensus. I remain confused and uncomfortable with the
overall technical picture.
Fundamental
Headlines
Yesterday’s
economic continued the trend of improvement: the December ADP private payroll
report, the December Markit services PMI and December retail chain store sales
were better than expected, while weekly jobless claims rose.
Overseas, the
December EU composite PMI, the UK services PMI and the Chinese Caixin services
PMI were all above forecasts.
***overnight,
December EU inflation came in at 1.4% versus 1.5% in November.
Bottom line: the
synchronized global recovery thesis was front and center yesterday. And that is understandable; the numbers look
great. The question is how sustainable are
they? This growth is occurring at a time
when (1) the global recovery, however, subpar it may have been, has reached an
historical old age, raising the question of how much demand is left to be filled
and (2) this recovery has been driven by an extraordinary expansion in debt
which has to be serviced, raising the question of how any unfilled demand will
be paid for.
Plus, stock
valuations leave little room for a shortfall.
Clearly, my
skepticism based on equity valuations has been wrong to date. That said, I believe it is much too late to
repent and increase my Market exposure.
The good news is that our Portfolios are still 50% invested.
Enjoy the ride
while it lasts, but be sure your portfolio has some protection like cash.
Investing for Survival
Doug
Kass’s 15 predictions for 2018---Part 2:
News on Stocks in Our Portfolios
Economics
This Week’s Data
The
December Markit services PMI came in at 53.7 versus forecasts of 52.4.
December
retail chain store sales improved on a year over year basis.
December
nonfarm payrolls were up 148,000 versus expectations of up 191,000.
The
November trade deficit was $50.5 billion versus estimates of $50.0 billion.
Other
EU
regulations on paying for equity research and trading are changing. You need to be aware of the possible
consequences (medium):
This
is a 2018 forecast from my favorite optimist.
I think that he makes a number of very good points with respect to the prospects
for economic growth; and certainly, he could be right. But I think that he wrong on a key point,
which is the reinvestment of funds distributed to shareholders being a source
of economic growth. That would be true
if investors put that money in private equity deals that are the primary source
of funding new businesses. As it is, the
money gets reinvested in the same set of stocks of companies that are buying
back stock and upping their dividends, which only results in driving equity prices
higher---something he skips over. In any
case, he provides a good counterpoint to my outlook that is worth considering.
Politics
Domestic
International War Against Radical
Islam
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