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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