Thursday, December 12, 2019

The Morning Call--The art of the deal. Another day, another headline

The Morning Call


The Market

The Averages (27911, 3141) returned to their winning ways yesterday.  But nothing changed with respect to the multiple gap opens or my concern that this is not healthy and could be an indication that the Market is entering or has already entered a blow off top.  Volume declined; breadth improved.  The VIX fell 4 ½ %, finishing below both DMA’s (now resistance) voiding Monday’s break and heading back toward a range indicative of complacency. 

            Fed day performance.

The long bond jumped ¾%, but short term momentum remains down  (1) as it is still well below its 100 DMA which reverted to resistance last Friday and  (2) it continues trade in a trend of lower highs.

The dollar dropped 3/8%, (1) filling Friday’s gap up open, (2) ending below its 100 DMA [now support, if it remains there through the close on Friday, it will revert to resistance] and (3) nearing the lower boundary of its short term trading range.

Gold was up ¾ %, closing both last Tuesday’s gap up open and Friday’s gap down open.  It remains below its 100 DMA (now resistance) and in the trend of lower highs.

All the gap opens in TLT, UUP and GLD have now been filled and are pointing at lower interest rates.

            Wednesday in the charts.



            Yesterday’s data was somewhat mixed.  Weekly mortgage applications were up but purchase applications were down and November CPI was slightly above expectations but core CPI was in line.  There was one disappointing stat---the November budget deficit was larger than anticipated.
            Overseas, one stat: November Japanese PPI came in above estimates.        

            The lead headline of the day was the wrap of the FOMC meeting. In its formal statement, it basically indicated that Fed policy is on hold.  It (1) by a unanimous vote, left rates unchanged, (2) said that there would be no rate hikes in 2020, (3) said that the unemployment rate could go even lower without provoking a Fed response and (4) left its discussion about the economy almost completely unchanged from the prior statement.

            In Powell’s subsequent press conference, he acknowledged that the Fed may take NotQE to Defcom 2, i.e. buying longer dated maturities, if the repo funding problem returns.
            More on the repo funding problem.

            Still more.

           ***overnight, in her first meeting as head of the ECB, Lagarde leaves interest rates unchanged and continues the bank’s bond buying program.

            I reported in yesterday’s Morning Call that Trump’s trade advisor had indicated that no decision had been made regarding the scheduled imposition of Chinese tariffs on December 15th.  Here is the source of that report.

            ***it is a new day, so there has to be a new trade headline.  Reuters reports that Trump will proceed with the December 15th imposition of tariffs on Chinese goods.  China vows to retaliate.

The benefits of NAFTA 2.0 versus a China deal.

            Bottom line: what did we learn yesterday?

(1)   the national debt continues to expand at an unconscionable rate at a time of full employment.  I believe that at the current vaulted level of national debt, it will act as a restraint on economic growth. 

(2)   nobody has a clue about whether or not there will a trade deal with China.  However, even if there is, I believe that it will not address the original reason for starting the conflict in the first place.  On the other hand, Trump is making progress with other trading partners and that will be a plus for the economy going forward.  Though clearly any disruptions in trade volume while revisions are being made will impact the economy in the short term.

(3)   the Fed is entrenched in its QE policy and is, indeed, willing to double down if the repo funding problem resurfaces.  So apparently it is willing to go down with the ship when the mispricing and misallocation of assets exact their toll on the Market.  I am not smart enough to know when that might occur; and until it does, the Market’s bias will remain to the upside.
            Rising dividend expectations for 2020.

    News on Stocks in Our Portfolios
            Altria (NYSE:MO) declares $0.84/share quarterly dividend, in line with previous


   This Week’s Data


            The November budget deficit was $209 billion versus estimates of $196.5 billion.

            November PPI was unchanged versus expectations of +0.2%; core PPI was -0.2% versus +0.2%.

            Weekly jobless claims rose 49,000 versus projections of up 10,000.


            October Japanese machinery orders fell 6.1% versus forecasts of -1.8%.

            October EU industrial production came in at -0.5%, in line.

            November German CPI fell 0.8%, in line.


What I am reading today

            The Mayflower and Plymouth Rock.
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