The Morning Call
7/22/19
I am back but must leave again on
Wednesday. Again, I am not sure when I will
return.
The
Market
Technical
The S&P rested
a bit last week---not unusual for its overbought condition. But, there was no technical damage done as it
remains solidly above both MA’s and in uptrends across all time frames. The only worrisome factors to consider are
the low volume and weak breadth.
The long bond had
a decent week, continuing the rally off of a minor support level. Its pin action remains quite strong. It remains a hair a way from its all-time
high (also the upper boundary of its short, intermediate and long term trading
ranges). Given the formidable resistance
offered by such a confluence of trends, it is not surprising that it will take
some work to successfully challenge that level---not that I am suggesting that
it will. That remains to be seen. But I am saying that its latest retreat after
an unsuccessful challenge is fairly tame and suggests another one is coming. Certainly, it is being helped on the
fundamental side by the increasingly dovish rhetoric coming out of the Fed. On the other hand, viewed in the context of
the price action in the dollar and gold, its capacity as a safety trade seems a
likely alternative explanation.
You certainly
couldn’t tell from the dollar’s performance that the Fed was getting more
dovish or that the Donald is vowing the weaken it. Indeed, with it trading very near its twenty
year high, you would likely think that the economy was strengthening (not
happening) and/or the Fed was tightening (also not happening) or the investors
are continuing to view it as a safety trade.
Despite the strength
in the dollar (usually a negative for gold), GLD continues its upward
momentum. The fact that the dollar and
gold are up reinforces my view that the need for safety is increasing among
investors of all stripes---with the exception of the stock boys.
The VIX trended
higher past week as stock prices weakened---which is as to be expected. As you can see, it closed above the upper boundary
of its very short term downtrend on Friday; if it remains there through the close
today, that trend will be voided.
However, it is still below both MA’s.
Of late, it has been performing in the usual inverse trading pattern viz
a viz stocks; so, its pin action is providing
little directional information.
Friday in the charts.
Fundamental
Headlines
The majority of
the datapoints released last week were negative. In addition, there were two primary
indicators that were downbeat and one positive.
I rate the week a negative. Score:
in the last 197 weeks, sixty-three positive, ninety negative and forty-four
neutral. Notwithstanding the comments
from the political class, the economy is not improving and, indeed, may be
getting worse. My forecast (continued
sluggish growth) hasn’t changed but, as you know, the yellow light is flashing.
Overseas,
the stats were only slightly better than our own. Which is not to say that they were positive;
just not as poor as the US’s. Still no
help to our cause.
Other
factors impacting the market:
(1)
the Fed: various Fed officials mouthed off last
week, suggesting that [a] the Fed didn’t need to see bad economic data before
it began lowering rates---it could do so if it thought that the numbers could
turn south {ignoring the fact that they already have} and [b] zero interest
rates were a possibility. Then other
officials scrambled to walk those comments back. But the damage is done---these guys are
clueless and scared sh*tless that they might have failed once again to manage the
economy from ease to normal---which they almost surely have already done.
The Fed flip flops (must read):
And why they have an increasing numbing
effect on Market (also a must read):
Keep an eye on Deutschebank.
Difficulties in the Chinese banking
system.
(2)
fiscal policy: Debt ceiling talks are now making their
way to the front page.
(3)
conditions in the Persian Gulf continue to deteriorate
with multiple seizures of opposing party tankers. Plus, the US shot down an Iranian
drone. The risk here is the impairment
of oil supplies to multiple global economies.
Bottom line: the
economic numbers aren’t getting any better, increasing the odds that my
forecast may be too optimistic. I still
believe that the US economy is not headed for any kind of crisis; however, if
earnings fail to improve, the gap between price and the discounted value of
future cash flow will continue to widen.
As
I have repeated ad nauseum, the Fed has painted itself into a corner via its
irresponsible monetary policy. When
investors come to appreciate it, they will likely come to realize the
price/value disparity. I have also
repeated too often, that as long as they don’t the Fed/Market codependency will
continue. One trigger for that epiphany would
be a loss of confidence in the Fed.
Nothing generates loss of confidence like the constant reversal of
policy/policy forecasts---which has been in abundance since last December. That said, the Market continues to fawn over
every Fed utterance.
News on Stocks in Our Portfolios
Schlumberger (NYSE:SLB):
Q2 GAAP EPS of $0.35 in-line.
Revenue of $8.27B (-0.4%
Y/Y) beats by $160M.
Revenue of $3.52B (-2.5%
Y/Y) misses by $50M.
BlackRock (NYSE:BLK) declares $3.30/share quarterly dividend, in line with
previous.
Revenue of $33.72B (+12.1%
Y/Y) beats by $920M
Genuine Parts (NYSE:GPC):
Q2 Non-GAAP EPS of $1.57 misses by $0.08; GAAP EPS of $1.53 misses
by $0.13.
Revenue of $4.93B (+2.3%
Y/Y) misses by $70M.
Economics
This Week’s Data
US
The
June Chicago Fed national activity index was reported at -0.2 versus
expectations of -0.3.
International
Other
The
new EU.
What
I am reading today
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