Wednesday, November 20, 2019

The Morning Call--Stocks finally take a break

The Morning Call


The Market

The Averages (27934, 3120) drifted lower yesterday. Breadth was weak for the first time since late October---something that shouldn’t be surprising given the Market’s overbought condition.  The VIX rose in harmony.  In the short term, more downside should be expected.  Volume rose which is the opposite of what you want in a selloff.  Still, momentum remains to the upside though those nagging October 11th gap up opens need to be closed.

The bond market was rose 7/8 %, finishing right on its 100 DMA (now resistance).  A successful challenge of this level would suggest a weakening economy/flight to safety.

The dollar was 1/8%, holding right on the lower boundary of its short term uptrend.

Gold advanced nine cents, and is that much nearer to challenging both the upper boundary of its very short term uptrend and its 100 DMA which if successful would halt its current downward momentum and point to a weaker economy.

The UUP, TLT and GLD are all nearing support/resistance levels which if successfully challenged would not only mark a change in momentum but also imply a reversal in economic perceptions.  Were TLT and GLD to successfully challenge the aforementioned resistance levels and the dollar hold its uptrend, it would suggest a flight to safety.  If the dollar breaks down, it would imply a weaker economy.

            Tuesday in the charts.



While two of yesterday’s economic releases were negative (the November housing index and month to date retail chain store sales), the one positive number was October housing starts, a primary indicator, and clearly a plus for the economy.

            Overseas, September EU construction output was very disappointing.

            On trade, I found this interesting article discussing how US companies are doing high tech research for China.  In other words, it looks like the US has been actively (and freely) contributing to the technology transfer to China---a circumstance that could easily remedied if Trump is serious about halting that transfer.  Ah, the blessings of a bureaucracy.

***overnight, China threatened retaliation over US legislation supporting protesters in Hong Kong.

            On my favorite subject, I will begin this series of articles with one from Ron Paul deriding the Fed for its irresponsible monetary policy which has led to the misallocation and mispricing of assets.

            The first significant manifestation in the US of the mispricing and misallocation of assets stemming from QEInfinity was in the oil (shale) industry.  Now come the ‘grave dancers’ to rationalize the industry.

            It now appears that the retail market will become the second major casualty.

            And it will only get worse.

            Bottom line: equities are overvalued.  I believe that the current irresponsible monetary and fiscal policies are negatively impacting corporate financial stability and earnings power.  So, that overvaluation will only get worse as long as those policies persist.  At the moment, NotQE is aiding and abetting investors/speculators by convincing them that the Fed has their back.  Herb Stein famously said that something that can’t go on forever, won’t.  While I am not suggesting that investors run for the hills (I am ~50% invested in equities and will remain that way), I am saying that they should have enough cash that will allow them to feel comfortable in a major market sell off.

            A preview of Q4 earnings season.
    News on Stocks in Our Portfolios
BlackRock (NYSE:BLK) declares $3.30/share quarterly dividend, in line with previous.  


   This Week’s Data


Month to date retail chain store sales declined versus the prior week.

            Weekly mortgage applications fell 2.2% but purchase applications were up 6.7%.


            The October Japanese trade surplus was Y17.3 billion versus estimates of Y301.3 billion.

            October German PPI was -0.2% versus consensus of 0.0%.


            This is an interesting take on ‘the burden’ the national debt places on future generations.  I think what the author is missing is that current interest rates are not based on future expectations but on the need to chase yield in low rate environment created by an irresponsible Fed policy.

            Democrats tax proposal would fall disproportionally on blue states.

What I am reading today

            The anniversary of the Gettysburg Address.

            Is bitcoin really an uncorrelated safe haven?

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