The Morning Call
7/12/19
The
Market
Technical
The Averages (27088,
2999) had another good day, though the S&P seems to be having a problem remaining
above the 3000 level. Both are above their MA’s and in uptrends across all time
frames. While volume was up; but just
barely, remaining anemic; breadth was again
mixed, at best. In addition, last
Friday’s gap up open still needs to be closed.
My assumption is that they will challenge the upper boundary of their
long term uptrends (29947, 3191), though the aforementioned conditions could be
an early warning of a reversal.
The VIX fell ¾ %, a
fairly lackluster performance for a 200+ point Dow up day. I have to wonder if its proximity to a twenty
year low isn’t acting as a governor on downside momentum. That said, it finished below both MA’s and in
a very short term downtrend. So,
impetus is lower.
The long bond was
pounded 1 3/8%. While it is above both
MA’s, in a very short term uptrend and has a gap down open last Friday which needs
to be filled, its push higher maybe losing energy. That could mean that bond investors could be worried
about either a stronger economy or that a safety trade loses its importance
when the Fed appears to be implementing QEIV.
Yesterday’s poor
30 year Treasury bond auction.
The dollar was unchanged,
ending above both MA’s and in a short term uptrend---not what I would expect
with Trump crying for a lower dollar and the Fed seemingly accommodating him
with a more aggressive expansion of monetary policy.
GLD was down 7/8
%, not surprising with the long bond getting hammered (higher yields). Still it remains in a strong uptrend---above
both MA’s, in a short term uptrend and in a very short term uptrend. Still, it has made one gap up and one gap
down opens and those need to be dealt with.
Bottom line:
despite being overbought (and getting more so) on weak volume, deterorating
breadth indicators and the need to fill gap up opens from the prior week, my
assumption remains that the Averages are on their way to challenging the upper
boundaries of their long term uptrends.
The other indicators that I report on everyday either experienced
another day of noise or they are in the process of digesting the unexpectedly dovish
Fed narrative presented in the last two days.
All are in solid uptrends; so, they have room for that digestive process
before changing direction. The obvious question is, will they alter their longer
term view of the US/global economy?
Thursday in the
charts.
Fundamental
Headlines
Three datapoints reported
yesterday: weekly jobless claims were lower than anticipated, June inflation
was in line but core inflation was higher than expected and the June budget
deficit was larger than estimates though there were timing factors that had a
big impact on this number.
Overseas,
June German inflation was reported in line.
The
Fed and its new more dovish narrative remained center stage. The article below from the NY Times outlines the
bullish rationale for the Fed pursuing a more aggressive monetary policy. But there are three big problems:
(1) wages haven’t
risen because of the globalization of the industrial supply chain, i.e.
manufacturers have moved production to low wage countries. The only way universal QE changes that is by
elevating the wages of the workers in the low wage countries to the point where
global wages are the same and then all wages increase. But that would be very inflationary.
(2) technological innovation
[read labor saving products] has been and will likely continue to bifurcate the
labor market into highly skilled workers and everybody else; and everybody else
means lots and lots of people who can’t ask for higher wages because they will
have no leverage,
(3) there is
already plenty of money out there to finance any goal the Fed might have. If $4 trillion on its balance sheet and
historically low interest rates at the beginning of a rate cut cycle aren’t enough,
what is? This is the same mistake that
every liberal economist has made since 2009---if only there could be more QE,
conditions would improve. Regrettably,
they haven’t and likely won’t.
Trade war is altering
the supply chain.
One heck of a recession
party.
Bottom line: clearly,
the Fed/Market codependency is alive and well.
With the Fed seemingly joining the Bank of Japan’s and the ECB’s all in
QE policy, it seems the Market will stay bulled up into the foreseeable
future. Unless, of course, investors come
to realize that higher prices don’t mean a higher discounted value of future
cash flows.
***overnight,
China threatens to sanction US defense contractors.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
June
PPI rose 0.1% versus estimates of 0.0%; core PPI was up 0.3% versus +0.2%.
International
May
Japanese industrial production was up 2.0% versus expectations of up 2.3%.
June
German wholesale prices fell 0.5% versus consensus of +0.2%.
May
EU industrial production was +0.9% versus forecasts of +0.2%.
June
Chinese exports declined 1.3% versus projections of -2.0%; imports dropped 7.3%
versus -4.5%; new loans were +Y1660 billion versus +Y1700 billion; social
spending was Y2260 billion versus Y1950 billion.
Other
Is
US shale cannibalizing itself?
The
heavy toll of the US/China trade war continues to grow.
What
I am reading today
Women’s
soccer and the equal pay canard.
New
study from Finnish and Japanese scientists says there is only a minor
relationship between human activity and climate change.
Legalizing
cannabis would make the country safer.
Japanese
spacecraft lands on an asteroid.
More
on Jeffrey Epstein,
The constitution, the
census and citizenship.
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