The Morning Call
3/5/18
The
Market
Technical
The
pin action last week was heartburn inducing.
However, Friday the S&P bounced off its 100 day moving
average---this after bouncing off its 200 day moving average mid-February. In the process, it made a higher low. Of course, it had previously made a lower
high; so there is a narrowing of its very short term trading action. Nonetheless, at this moment, it has more near-in
downside support than it has upside resistance.
So the technically speaking, I think prices are more likely to go higher
than lower.
And:
About
the only positive thing one can say about the TLT chart is that it has bounced
off the lower boundary of its long term uptrend twice; but it is not unusual
for a long term trend to be challenged several times before breaking. Other than that, momentum is clearly to the downside.
Jim
Grant on the bond market (medium and a must read):
The
dollar has at least stabilized, which is to be expected if interest rates are
rising. However, momentum is still to
the downside, though it may be losing steam.
GLD
has held its short term uptrend and remains above its 100 and 200 day moving
averages. That it has also made a recent
lower higher is a little disconcerting; but as long as it holds the uptrend, I am
encouraged.
The
VIX remains above its 100 and 200 day moving averages and tested the lower
boundary of its short term uptrend; however, it also failed to make a new high. So its very short term direction is a little
cloudy. One thing we do know is that
which ever way it breaks, it will likely be a bit stomach churning.
Fundamental
Headlines
Update
on valuations (medium):
The
economic data in the week of 2/19 were generally upbeat though the primary
indicators were negative. I rate it a
neutral. In other news was the releases
of the most recent FOMC minutes whose narrative was more negative than those
from recent meetings. Nonetheless,
investors chose to interpret it dovishly.
Last
week, the stats were poor and the primary indicators were awful. So I call it a negative. Score: in the last 125 weeks, forty-two were
positive, fifty-nine negative and twenty-four neutral. The importance of the latest numbers is that(1)
they continue the trend of slowing/stagnating economic activity, (2) but they are
contradictory to the latest comments by new Fed head Powell, who in his latest testimony
to congress talked up the strength in the economy and hence, the increasing
likelihood of more rate hikes.
When I read his
comments, I couldn’t help wondering what data that he was looking at given that
the last nine weeks of stats has been sub-par.
Jeffrey Snider has suggested in several links in these notes that the
Fed’s consistent misinterpretation of some of the data (1) was a function of the Fed’s faulty Keynesian model and (2) the
Fed’s staff attempt to beat cognitive dissonant numbers so that they fit the
model, however lacking in objectivity it is.
In short, we could be facing a scenario in which the Fed is starting to
rationalize the unwinding of QE---and its impact on the equity market.
And making
matters a bit more dicey, BOJ governor Kuroda hinted that the end of Japanese
QE may be near (medium):
The other
newsworthy item was Trump’s cranking up the rhetoric on steel and aluminum
tariffs and will reportedly impose them this week. I have spent way too much time lamenting the
potential consequences of a trade war to repeat myself. However, the data available on the pricing in steel
and aluminum industries makes the Donald’s threats a bit mystifying; that is, as
explained below, these tariffs impact our allies much more than Trump’s biggest
trade whipping boy, China.
That said, I remain
in the camp of those adamantly opposed to tariffs. Playing out before us is a huge gamble by
Trump: is he right about the extent of price cheating and that there will be
little response or is he about to start a real trade war? I have tried to link to as many opinions, pro
and con, as I could find that might clarify the issue for us. But alas I see no strong indication one way
or the other about how this ends. But it
looks like we are about to find out.
What
happened after Smoot Hawley passed (short):
What
happened when Bush imposed steel tariffs (short):
In
addition (short):
The
WSJ opinion (medium):
Our trading partners’
opinion (medium):
In
addition (medium):
Gary
Cohn’s opinion (medium):
Trump
advisors response (medium):
Then
doubles down (medium):
Café
Hayek on tariffs (short):
And (also short):
*overnight
(short):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
International
***overnight,
the February EU and Chinese composite PMI’s were below expectations.
Other
Goldman
on the ‘synchronized global expansion’ (short and a must read):
What
I am reading today
Quote of the day (short):
When you feel like the world is
coming to an end, take a look at these charts (short):
Italy’s anti-establishment vote
(medium):
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