The Morning Call
2/13/18
The
Market
Technical
The indices
(DJIA 24601, S&P 2656) extended their Friday rally. Both are now back above both moving averages
and within uptrends across all major timeframes. However, both are also in very short term
downtrends. To get jiggy about the very
short term, the indices have to negate that downtrend. Volume declined but breadth improved. It is
too soon to alter the technical assumption that long term stocks are going
higher.
The VIX fell another
12%, but is still at elevated levels---continuing to exert a negative impact on
the Market.
The long
Treasury rose ½ %, finishing below both moving averages and in very short term
and short term downtrends. It remains
near the lower boundary of its long term uptrend, a breach of which would
clearly intensify investors’ concern about rising interest rates/inflation
The dollar declined,
leaving it below both moving averages, in an intermediate term downtrend and below
the lower boundary of a developing very short term uptrend. This remains an
ugly chart.
GLD recovered, bouncing
off a minor support level and leaving its chart in relatively good shape.
Bottom line: very
short term, the Averages remain in a downtrend, though just barely; long term,
the trend is up. Last week’s stomach
churning volatility may raise some questions about whether the Market has hit a
high; but so far the answer is no.
Yesterday
in the charts (medium):
The
anatomy of this correction (short and a must read):
For
the bulls (medium):
But
still the correction may not be over (medium):
This
is a good, comprehensive look at the technicals following the recent decline
(medium):
Fundamental
Headlines
The
January budget surplus was less than expected.
While not dramatically so, it is nonetheless emblematic of the mess our
fiscal policy is becoming.
Speaking
of which, Trump released his infrastructure plan. The headline spending number was $1.5
trillion; however, the good news is that only $200 million is coming from the
federal government as ‘seed money’ to encourage state and local governments as
well as private business to ‘invest’ the remainder.
Goldman’s
take (medium):
Trump
also released his FY 2019 budget which doesn’t even pretend to be in balance
over the next ten years. The good news
is that it is believed by many to be DOA.
https://www.zerohedge.com/news/2018-02-12/trumps-4-trillion-budget-unveiled-here-are-main-highlights
Bottom
line: while yesterday’s headlines were not encouraging if you are concerned
about more policy initiatives that will further explode the government
deficit/debt near what appears to be the end of an economic cycle, the new
policy proposals look to be nonstarters.
Cue the applause. That said, it is probably too much to hope for that
nothing will come of an infrastructure spending plan or that somehow the FY2019
budget deficit will not expand further given the previous actions by our ruling
class on taxes and the debt ceiling.
Whatever the
outcome, the combination of an economy operating roughly at full capacity
coupled with a huge increase in the deficit (which we already have irrespective
of the final versions of the infrastructure plan and the FY2019 budget) on top
of a historically high national debt is a recipe for inflation and a potential
nightmare for the Fed.
Of
course, it appears that I am wrong about the impact of the tax bill; so I could
be equally wrong on this score.
The
national debt is speeding out of control (medium):
When
fiscal policy might make matters worse (short):
http://marginalrevolution.com/marginalrevolution/2018/02/fiscal-policy-might-make-matters-worse.html
SocGen
on the likely impact of rising rates on stock prices (medium):
Bias
in action (medium):
News on Stocks in Our Portfolios
Revenue of $19.53B (+0.1% Y/Y) beats by $140M.
Pepsico (NYSE:PEP) hiked its annual dividend by 15% to $3.71
($0.9275/share quarterly), effective with the dividend expected to be paid in
June 2018.
Economics
This Week’s Data
US
The
January Treasury budget surplus was $49.2 billion versus expectations of $51.0
billion.
The
January small business optimism index was reported at 106.9 versus estimates of
105.5.
International
The
January UK inflation rate was 3% versus the BOE’s goal of 2%.
Other
Also
for the bulls (medium):
The
trade deficit is rising (short):
Port
of Long Beach experienced record January traffic (short):
Update
on Chinese monetary policy (medium):
What
I am reading today
Four things homeowners need
to know in filing 2017 taxes (medium):
US air strikes kill over 100 Russian
fighters in Syria (medium):
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