The Morning Call
12/13/18
The
Market
Technical
While the
Averages (DJIA 24527, S&P 2651) did manage to close on the upside, (1) when
I heard the China trade news, I thought that the Dow would be up 500-600
points, (2) it did trade up 300+ points but couldn’t even hold that gain. That is not great pin action. They both finished below both moving averages
and have set a second lower high and second lower low. I still believe that some kind of oversold
rally could happen; but yesterday’s price movement suggests that those odds are
going down.
Volume was flat;
breadth improved. The VIX was down 1 ¼%;
but its chart remains positive (bad for stocks).
The long bond was
down ½ %, finishing above its 100 DMA (now support), above its 200 DMA (now
support) but below the upper boundary of its short term downtrend. It needs to take out this downtrend to
convince me that investors are truly shifting their outlook for interest rates
(lower).
Three lessons
from the bond market.
The dollar was down
slightly, ending right on the lower boundary of its very short term up trend but
above both MA’s and in a short term uptrend. So the chart continues to be
technically strong.
GLD rose ¼ %, closing
above its 100 DMA and continues to build strength.
Bottom line: my main take away from yesterday’s
pin action was that stocks didn’t respond as positively to the trade data as I had
expected, given the current highly volatile Market. It once again suggests a complete lack of
conviction among buyers and the likelihood of more downside. Levels to watch are the October lows
(25062/2601) and the February lows (23352/2536).
The
long bond has run into some resistance at the upper boundary of its short term
downtrend. That is not particularly
surprising; but it does need to successfully challenge this level before the
current move up is more than just a rally in a bear market.
The
dollar continues to trade like there are dollar funding (liquidity) problems. And if you think about gold as a safety
trade, then its pin action would support the notion of credit/liquidity
problems are looming.
Wednesday
in the charts.
Fundamental
Headlines
Yesterday’s
stats were upbeat: weekly mortgage and purchase applications were up while
November CPI was in line.
Overseas, the
numbers weren’t so good: EU September/October industrial production were poor.
The
big news of the day was the Chinese announcement of trade concessions; the most
important of which was the agreement to back off of its industrial policy that incorporated
the theft/usurpation of intellectual property.
This is one of those developments the importance of which can be easily
over or understated. So this is my best
try.
The
easier one first. If false, then this is
just the Chinese giving Trump an apparent win in face of his potential domestic
personal problems (impeachment), maneuvering to buy time and develop ways of
getting around the ‘industrial policy’ issue.
The only question would be, does Trump see through it, keep the pressure
on and refrain from his usual ‘this is the greatest thing since the wheel’
tweet storm.
If true, it
would be a big plus for the long term secular growth rate of the economy and
would buy Trump some huge ‘atta boy’ accolades.
Clarifying exactly what this
means will, at best, take time. Clearly,
the Chines definition of industrial policy reform and our definition could
worlds apart. I have said repeatedly in
these pages that the Chinese are skilled negotiators and they tend to lie a
lot. So it is too early to raise a
victory flag. Still, if true, this would
be a great achievement for the Donald.
Leaving aside
the long term implications of this development, the short term cyclical effects
are also a positive and much more easily determined---lowering auto tariffs,
buying more soybeans, etc.---will be apparent soon and should have an impact on
the cyclical growth rate of the US economy.
So at the
moment, I score this a plus for the US and for Trump short term but think it
wise to withhold judgment on the potential longer term benefits until real
action is apparent. It would also help
would revive my hope that he can deliver on his stated goal of revamping the
global political/trade regime.
Now for the not
so upbeat news from yesterday:
National
Inquirer admits role in Trump hush money scheme.
May
survives no confidence vote; but that doesn’t solve any problems.
What
to expect if the government shuts down.
Fed
now has a negative net worth (must read):
Bottom
line: whatever happens to May, the Italians or the outcome of the food fight
over funding the wall, the Chinese resuming their purchases of soybeans and oil
and lowering auto tariffs is probably more important to the near term economic
growth rate of the country and to Market valuation. Longer term, there is reason for hope; but
that is not worth much.
And
not to throw a turd in the punch bowl, let’s not forget the effects (1) on
economic growth of a rising budget deficit and an irresponsibly high national
debt at a time they both should be shrinking and (2) on asset liquidity of a
steady decline in the Fed’s balance sheet.
***overnight,
the ECB confirmed that it was ending its bond buying program.
The
latest from Doug Kass (today’s must read).
Where
money goes to die.
One
constant in the stock market.
The stock market stopped
shrinking in 2018.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Weekly
jobless claims fell 27,000 versus expectations of 3,000 decline.
November
import prices were down 1.6% versus forecasts of -1.0%; export prices were down
0.9% versus consensus of +0.1%.
International
Auto
sales in China decline dramatically.
Other
House
passes $867 billion farm bill.
What
I am reading today
Yellow fever in France.
Russia to withdraw bombers from
Venezuela.
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