An Analysis of Daily Events that Impact Your Money
Wednesday, August 29, 2018
Friday, August 17, 2018
The Morning Call--Pardon my cynicism
The Morning Call
8/17/18
I am off to California for an
extended Labor Day holiday. I will be back on September 4th.
The
Market
Technical
As you know, I have
assumed that the indices would close the gap down opening from last Friday; but
not quite as dramatically as they did yesterday. The Averages (DJIA 25558, S&P 2840) rallied
hard presumably on news that the US/China trade negotiations would resume soon. Volume was up. Breadth improved though not as much as I would
have thought; plus the flow of funds was flat. The indices remain strong
technically; though closing that gap as they did, I wonder if there is much
upside left short term.
In addition,
while the VIX sold off and negated Wednesday’s upside break of its 200 DMA, it
didn’t sell off as much as I think normal for such a powerful up day in the
indices. Finally, the Dow’s 100 DMA
continues to sit right on its 200 DMA. A
cross to the downside would be a negative signal.
Evaluating market
breadth (medium):
All that said, I
believe that the Averages will challenge their all-time highs,
TLT’s battle
with its long term uptrend’s lower boundary remains on hold as it has become a
safety trade while investors try to digest the turmoil in the currency
markets. The question remains, is the
Turkish/emerging markets crisis a short term problem (and the Market’s focus will
return to the earlier dispute over the long term direction of interest rates)
or is it a sign of more dollar funding problems for the global banking system
(in which case it will remain a safety trade)?
As witness to
the concern over the dollar funding problem, the upcoming China/US trade
negotiations, which got the equity boys all hot and bothered, did little to
impress the bond market. TLT continues
to advance (though it was off one cent on the day) and is now above its 200 DMA
for the second day (now resistance; if it remains there through the close next
Monday, it will revert to support). The pennant
formation marked by the declining upper boundary of its short term downtrend
and the lower boundary of its long term uptrend continues to narrow; TLT is
nearing the top of that range. This story isn’t over. Stay tuned.
The dollar was down two cents
but remains very strong, likely reflecting its function as a safety trade---and
like TLT was totally unmoved by the China news.
GLD continues to get hammered---I have to wonder if this is the result
of those countries with dollar funding problems selling their gold reserves to
raise money to defend their currencies.
Bottom
line: trade moved the Market yesterday; but as I read the news release, I am
not sure it is worth 400 Dow points. In
the meantime, the currency problems in Turkey/emerging markets aren’t going
away, at least as far as TLT and UUP are concerned. This remains a very fluid situation whose
outcome is highly uncertain. To be
clear, it could go either way. But until
there is some clarity, most of the indicators that I follow will likely
continue to be effected by the need for safety.
Yesterday
in the charts.
Fundamental
Headlines
Yesterday’s
stats were pretty dismal: July housing starts/permits were quite disappointing and
the August Philadelphia Fed manufacturing index was half of expectations. The bright spot was slightly better than
anticipated weekly jobless claims.
Overseas,
the data was mixed: July UK retail sales were better than forecast while July
Japanese exports declined dramatically.
The
six inch headline of the day was the scheduled restart of US/Chinese trade
talks which investors apparently were thrilled with. To be sure, the whole object of Trump’s
strategy is to revise the current trade regime with China, so this is clearly
good news. That said, the Chinese are
sending low level officials so the best we can likely hope for is an agreement
to talk at a higher level. So nothing
concrete is going to occur near term.
And forgive my cynicism, but the Chinese are having major currency and
capital flow problems all tied to the dollar and what better way to take the
heat off than make nice with trade.
In
the meantime, Turkey’s lira continues to fall (medium):
Turkey
can’t sidestep the IMF for long (medium):
Mohamed
El Erian is not impressed with Turkeys’ move to support the lira (medium):
Don’t
forget Italy’s problems (medium):
Bottom
line: nothing would make me happier than to cut a trade deal with China; but I just
can’t believe that the Chinese will make any concessions at least until the
November elections are over. So I think
that investors may have gotten ahead of themselves yesterday.
In the
meanwhile, the Fed is tightening, so the dollar funding problems in the emerging
markets are not going away. Whether they
become more widespread is the issue. And
I don’t know the answer; although for the moment, the problem seems contained.
This
isn’t over yet (medium):
S&P
2018 earnings estimate (short):
Is
the Fed model a good valuation tool? (medium):
News on Stocks in Our Portfolios
Tiffany
(NYSE:TIF) declares $0.55/share quarterly dividend,
in line with previous.
Home
Depot (NYSE:HD) declares $1.03/share quarterly dividend,
in line with previous.
Economics
This Week’s Data
US
International
July EU CPI was
in line.
Other
The
Fed remains on track to raise rates in September (medium):
Update
on big four economic indicators (medium):
China’s
problems could be worse than Turkey’s (medium):
What
I am reading today
The public pension clock
(medium):
Taking more risk does not guarantee
more reward (medium and a must read):
Quote of the day (short):
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
Thursday, August 16, 2018
The Morning Call--Will trade talks solve the currency problem?
The Morning Call
8/16/18
The
Market
Technical
The Averages
(DJIA 25162, S&P 2918) faded again yesterday as currency issues returned to
center stage. Volume was up; breadth deteriorated. Nevertheless, they remain strong technically;
and as I noted previously, last Friday’s gap down will almost surely be
closed. On the other hand, the VIX spiked
back above its 200 DMA (now resistance; if it remains there through the close
next Monday, it will revert to support) and the Dow’s 100 DMA continues to sit right on
its 200 DMA. A cross to the downside
would be a negative signal.
TLT’s battle
with its long term uptrend’s lower boundary remains on hold as it has become a
safety trade while investors try to digest the turmoil in the currency
markets. The question remains, is the
Turkish/emerging markets crisis a short term problem (and the Market’s focus will
return to the earlier dispute over the long term direction of interest rates)
or is it a sign of more dollar funding problems for the global banking system
(in which case it will remain a safety trade)?
In the meantime, TLT continues to advance and is now above its 200 DMA (now
resistance; if it remains there through the close next Monday, it will revert
to support). The gap (pennant formation)
between the declining upper boundary of its short term downtrend and the lower boundary
of its long term uptrend continues to narrow; TLT is nearing the top of that
range. But this story isn’t over. Stay
tuned.
The dollar was unchanged but
remains very strong, likely reflecting its function as a safety trade. GLD continues to get hammered---I have to
wonder if this is the result of those countries with dollar funding problems
selling their gold reserves to raise money to defend their currencies.
Bottom
line: currency problems in Turkey/emerging markets returned to center
stage. This remains a very fluid
situation whose outcome is highly uncertain.
To be clear, it could go either way.
But until there is some clarity, most of the indicators that I follow
will likely continue to be effected by the need for safety. On a shorter term basis, the downside gap in
the Averages will likely be closed.
Yesterday in the charts.
Fundamental
Headlines
Yesterday’s
economic data was a bit confusing largely because the two primary indicators
included major revisions: (1) July industrial production was lower than
anticipated, but the June number was revised up, (2) July retail sales were
quite strong, but June’s reading was revised down. In addition, Q2 nonfarm productivity rose
while capacity utilization fell significantly but the first quarter figure was revised
equally so; and June business inventories were up slightly but sales were up
much more. The remaining datapoints were
mixed: weekly mortgage/purchase applications declined, the July housing market
index decreased while the August NY Fed manufacturing index was better than
estimates. In other words, a lot of
information, some of it somewhat confusing but none of it pointing to an
accelerating economy.
As
I noted above, Turkey/emerging markets currency problems returned as the center
of investor attention. As of the close,
the news isn’t getting any better
Turkey’s
economy on a collision course with reality (medium):
Turkey has more than a
currency problem (medium):
Hong Kong has a problem
(medium):
Contagion
spreads (short):
***overnight,
China announced that trade talks with the US would resume. Plus it barred banks from lending yuan
offshore. The two moves brought relief
to the yuan,
Bottom line: the issue
remains as to whether or not the current dollar funding shortage is or soon
will spread beyond a couple of small, poorly run countries. I am not smart enough to know the answer. But this is a potential problem that I have
been focusing on for months; and it will probably only get worse, the tighter
monetary policy becomes. That said, it
is way too soon to think ‘major crisis/major sell off’.
Second
quarter corporate results (medium and a must read):
Counterpoint
(also a must read):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
July
industrial production was up 0.1% versus expectations of up 0.3%; however, June
was revised from up 0.6% to +1.0%.
June
business inventories were up 0.1%, in line; but sales were up 0.3%.
The
August housing market index came in at 67 versus consensus of 68.
July housing starts
were up 0.8% versus estimates of up 7.0%; building permits were up 1.0% versus
forecasts of up 2.6%.
Weekly
jobless claims declined 2,000 versus projections of up 3,000.
The
Philadelphia Fed manufacturing index was 11.9 versus an anticipated 22.5.
International
Other
Freight
costs are on the rise (short):
China
has serious trade cards (medium):
China not happy with new US defense
budget (medium):
Reflections
on the small business optimism index (medium):
How close is QE4? (medium):
https://www.zerohedge.com/news/2018-08-15/why-one-bank-thinks-fed-has-no-choice-launch-qe4-next-year
What
I am reading today
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
Wednesday, August 15, 2018
The Morning Call---Getting jiggy with retail sales
The Morning Call
8/15/18
The
Market
Technical
The Averages
(DJIA 25299, S&P 2839) got a bounce yesterday, though volume was flat and
breadth just barely improved. Nevertheless,
they remain strong technically; and as I noted previously, last Friday’s gap
down will almost surely be closed.
Another mildly positive sign is the retreat of the VIX which fell back
below its 200 day moving average, negating Monday’s break. On the other hand, the Dow’s 100 DMA
continues to sit right on its 200 DMA. A
cross to the downside would be a negative signal.
And this on the
VIX.
TLT’s battle
with its long term uptrend’s lower boundary remains on hold as it has become a
safety trade while investors try to digest the turmoil in the currency
markets. The question remains, is the
Turkish (emerging markets; see below) crisis a short term problem (and the
Market’s focus will return to the earlier dispute over the long term direction
of interest rates) or is it a sign of more dollar funding problems for the
global banking system (in which case it will remain a safety trade)? The Turkish lira did manage a bounce
yesterday and TLT declined slightly in sympathy. But this story isn’t over. Stay tuned.
The dollar rose again likely
reflecting its function as a safety trade (must read):
GLD managed a meek rally but
continues in a solid downtrend.
Bottom
line: investors got some relief from the deteriorating currency problems in
Turkey (emerging markets); though at this moment we don’t know if that was just
a dead cat bounce or a sign that investors have decided that this is not such a
big problem after all. Until there is
some clarity, most of the indicators that I follow will likely continue to be
effected by the need for safety. On a
shorter term basis, the downside gap in the Averages will likely be closed.
Yesterday
in the charts.
Fundamental
Headlines
The
US economic indicators released yesterday were mildly upbeat: the June small
business optimism index was ahead of forecasts, while both import and export
prices were below expectations, export prices dramatically so---which makes
little sense in a rising dollar environment.
On the other hand, month to date retail chain store sales grow slowed.
Overseas,
the reverse was true: July Chinese retail sales, industrial production and
unemployment were all disappointing; as was June Japanese industrial
production. In the UK, unemployment was
less than consensus, but home prices fell for the fifth month in a row.
Turkey
remained on investors’ minds yesterday; though clearly the rally in the lira
relieved some anxiety.
The other
development worth mentioning was that the retail sector has started reporting
second quarter earnings; and, so far, they have been positive. While this data is clearly backward looking,
it is still a sign that the consumer is healthy and spending. (however, July retail sales were up; see
below) Given that consumer spending
accounts for a large part of total GDP, this latest data is encouraging. On the other hand, household debt is at
record levels suggesting that the best in spending growth may be behind us. Plus, we already know that most economists
(including the CBO) are looking for slowdown in the second half of 2018,
lasting at least into 2019.
Q2 household
debt and credit report (medium and a must read):
Bottom
line: there is no question that a strong Q2 performance by the retail sector
confirms the good GDP report. This
question is, is this a harbinger of things to come? At the moment, I doubt it because (1) there
are plenty of other datapoints indicating that GDP second quarter got a
one-time boost from the tax cut and that is it, (2) the stats so far in the
third quarter confirm that scenario, (3) as do economists in general, and (4)
those household debt numbers. Remember,
I am not suggesting a recession. I am
simply saying that the second quarter retail earnings in retrospect will likely
appear less positive than they do now.
The
issue remains as to whether or not the current dollar funding shortage is or
soon will spread beyond a couple of small, poorly run countries. I am not smart enough to know the answer. But this is a potential problem that I have
been focusing on for months; and it will probably only get worse, the tighter
monetary policy becomes.
News on Stocks in Our Portfolios
Scotiabank
(BNS +0.8%) agrees to acquire Banco Dominicano del Progreso, a bank with
operations Dominican Republic
BNS's
common equity tier one capital ratio will be impacted by ~10 bps; however the
deal is not financially material to Scotiabank.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew slower than in the previous week.
Weekly
mortgage applications fell 0.2% while purchase applications declined 0.3%.
July
retail sales rose 0.5% versus expectations of +0.1%; however, the June report
was revised from +0.5% to +0.2%. Ex autos
sales increased 0.6% versus forecasts of +0.4%; but again, June was revised
from +0.4% to +0.2%.
The
August NY Fed manufacturing index came in at 25.6 versus estimates of 20.0.
Q2
nonfarm productivity was up 2.9% versus consensus of up 2.5%; unit labor costs
fell -0.9% versus projections of -0.2%; however, Q1 was revised from +2.9% to
+3.4%.
International
Other
An economic cold war with
China (medium):
IMF says a hard Brexit
would slow EU growth (short):
What
I am reading today
Layers of the brain
(medium):
The democratization of information
(medium):
Where in the world is it easiest to
get rich (medium):
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
Tuesday, August 14, 2018
The Morning Call---It will take more than Turkey
The Morning Call
8/14/18
The
Market
Technical
The Averages
(DJIA 25187, S&P 2821) had another rough day on deteriorating breadth but
lower volume. However, they remain
strong technically. Plus as I noted
previously, Friday’s gap down will almost surely be closed. On the other hand, if the Averages continue
to decline, the Dow’s 100 DMA will likely fall below its 200 DMA---and that is
not a positive signal. In addition, the
VIX continues its bounce off the lower boundary of its short term trading range
and has closed above its 200 DMA (now resistance; if it remains there through
the close on Thursday, it will revert to support).
TLT’s battle
with its long term uptrend’s lower boundary remains on hold as it has become a
safety trade while investors try to digest the turmoil in the currency markets. The question remains, is the Turkish (emerging
markets; see below) crisis a short term problem (and the Market’s focus will
return to the earlier dispute over the long term direction of interest rates)
or is it a sign of more dollar funding problems for the global banking system
(in which case it will remain a safety trade)?
Stay tuned.
The dollar rose again likely reflecting
its function as a safety trade. GLD was
once again hammered, apparently having lost all appeal as a safety trade.
Bottom
line: investors again focused on global currency problems as the dollar funding
problem in Turkey appears to be spreading to other markets. Until that issue fades in investors’ minds,
most of the indicators that I follow will likely continue to be effected by the
need for safety. That said, it is way
too soon to be drawing any long term conclusions. On a shorter term basis, the downside gap in
the Averages will likely be closed.
Yesterday
in the charts.
https://www.zerohedge.com/news/2018-08-13/global-stocks-miraculously-brush-emerging-markets-massacre
Fundamental
Headlines
No
economic releases yesterday, though this week will be more active than last.
In
the forefront of investors’ minds was the currency (dollar funding) problem
being experienced by Turkey.
In
addition, contagion appears to be spreading to Latin America (medium):
And
China (medium):
***overnight,
Trump signed the defense portion of the FY2019 budget---an eye popping $700
billion. To be clear, I served in the
Army, I am in favor of a strong defense and I believe the pay raise which was
part of this bill is a plus. But $700 billion? At a time that the US needs to be watching
its nickels and dimes. Clearly, this is
not going to help economic growth---remember, defense spending contributes
nothing to increased productivity because all those goods and services are
intended for destruction.
Bottom
line: I have no idea how long currency/dollar funding crisis will last. I do believe that the central bankers have
proven that they have no idea how to control it. And I believe that the tighter monetary
policy becomes, the more difficult it will be to control. I also believe that equity markets are not
priced to reflect the damage that could be done to the banking system should
this problem get out of control. On the
other hand, Turkey’s problems by themselves are not big enough to do much harm
to the global financial system. It will
only become an issue if the dollar funding shortage starts impacting the big
boys in a meaningful way.
Market risk update
(medium):
The
latest from John Mauldin (medium):
News on Stocks in Our Portfolios
Revenue
of $30.46B (+8.4% Y/Y) beats by $450M.
Economics
This Week’s Data
US
The
July small business optimism index was reported at 107.9 versus estimates of
107.1.
July
import prices were flat versus forecasts of +0.1%; export prices were -0.5%
versus consensus of +0.2%---the latter a bit surprising when the dollar is
rising.
International
July
Chinese retail sales and industrial production were below consensus while
unemployment rose.
June
Japanese industrial production fell less than anticipated.
June
UK unemployment was less than expected, while home prices declined for the
fifth month in a row.
Other
CBO
downgrades growth forecast for the second half of 2018 and projects lower growth
still in 2019.
Larry
Summers on Fed policy (a bit long but worth the read):
Trump’s
trade policy and corporate investment (medium):
What
I am reading today
Five ways to increase
your retirement nest egg (medium):
Private activity bonds as
investments (medium):
The latest from the ayatollah
(medium):
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
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