Tuesday, October 8, 2019

The Morning Call--Trump appears to be holding tough

The Morning Call


This is OU/Texas week, which means I have a lot of non-work related work.  Reporting will be sporadic to nonexistent.  For sure, no Closing Bell.

The Market

The Averages (26478, 2938) rested yesterday.  Volume declined and breadth weakened.  The good news is that they ended above both MA’s.  The bad news is that (1) there was no follow through from Friday spike up; indeed, it made last Friday a lower high and (2) intraday the VIX traded below the lower boundary of a very short term uptrend and its 200 DMA and bounced hard to close above both. 

I still think the pin action supports the assumption that momentum remains to the upside.  But there is enough cognitive dissonance coming from multiple sources that if the indices can’t make a new high, that assumption comes into question.

GLD and TLT were down and the dollar was up, a vote for a stronger economy.

            Monday in the charts.


                One minor datapoint was released yesterday.  August consumer credit grew  more rapidly than expected.

                 Why a manufacturing recession matters.
                Overseas, the numbers continued to disappoint.  The August Japanese leading economic indicators and August German factory orders were well below estimates.

                The news flow elsewhere was quiet.  The biggest headline being a statement out of China that it was not prepared to do an all encompassing trade deal which the Donald is advocating.  So, what does he do?  Fold to get a deal to enhance is re-election odds or hang tough to do the right thing?

               ***overnight, the answer

(1)   US is blacklisting Chinese tech companies  [we should have done this a long time ago, instead of imposing tariffs]

(2)    there is a report that the US is considering soft capital controls on China and that the Chinese may leave the negotiations a day early.

(3)   odds of no-deal Brexit just went up.

   Bottom line:  the economic data is not reading any better.  There is, of course, a perversity to this.  The worst the stats get, the higher the odds of an easier Fed which, as we all know, has to date been the key driver of stock prices.  As long as the investors believe that Fed liquidity will pump up asset prices, bad news is good news for the equity Market.  ‘As long as’ being the operative words.

To be sure, there are factors that could activate those operative words: (1) no trade deal which would threaten to push earnings growth down dramatically, (2) domestic political turmoil which depresses investor psychology or (3) signs that the Fed has lost control of monetary policy [e.g. the current dollar liquidity problem].

                 How capitalism has been distorted (must read).

    News on Stocks in Our Portfolios
            Cummins (NYSE:CMI) declares $1.311/share quarterly dividend, in line with previous.


   This Week’s Data


            August consumer credit grew  $17.9 billion versus estimates of $15.2 billion.

            The September small business optimism index was reported at 101.8 versus forecasts of 104.1.

            September PPI fell 0.3% versus expectations of +0.2%; core PPI was +2.0% versus +2.3%


            August Japanese household spending rose 2.4% versus projections of +2.8%; cash earnings fell 0.2% versus -0.1%.

            August German industrial production rose 0.3% versus consensus of -0.1%.

            The September Chinese Caixin services PMI came in at 51.3 versus an anticipated reading of 52.9.


            The myth of income stagnation.

            The ratio of part time employed.

What I am reading today

            Where is the Sun located in the Milky Way?

            Investment problems that make your head hurt.

            The latest on Turkey, Syria and the US.

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