Wednesday, December 18, 2019

The Morning Call--The hole in Phase One

The Morning Call


The Market

The Averages (28267, 3192) drifted higher yesterday, finishing above both MA’s and in uptrends across all timeframes.  So, momentum is clearly to the upside, at least short term; and that is being aided by seasonal factors.

However, nothing changed with respect to those multiple gap up opens down below 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 was flat; breadth strong and is entering overbought territory.  The VIX was up 1 ¼% (unusual for an up day in the Market), but remained near the lows established last April, July and November---now safely back in territory indicative of complacency. 

The long bond declined 1/8%, ending in the developing pennant formation (with in a trend of lower highs and a trend of higher lows) which is a sign of investor confusion or uncertainty.

The dollar rose 1/8%, lifting off the lower boundary of its short term trading range.

Gold was down three cents.  Like TLT, it is in a developing pennant formation.

The trading pattern of the VIX and the S&P are clearly pointing at a stronger economy, while TLT, UUP and GLD are suggesting uncertainty among its investors.

            Tuesday in the charts.



Yesterday’s stats were very upbeat. The October Jobs Openings report, November industrial production (primary indicator), and November housing starts (primary indicator) were above expectations while month to date retail chain store sales were disappointing.

            Overseas, October UK unemployment and the October EU trade surplus were better than anticipated.
            The only other headline was our ruling class deciding that the FY2020 deficit wasn’t quite irresponsible enough and voted to increase it even more.  Trump is scheduled to sign it on Friday.

            I can’t let a day go by without a dose of criticism for the Fed.
            Plus, this stunning admission from the head of the Boston Fed.

            Bottom line: yesterday’s data notwithstanding, there is no reason to believe that the economy is lifting off.  As you know, the pattern of economic growth for the last decade has been sluggish characterized by fits and starts.  Until there is a sustained period of growth, I am not changing my forecast.  I find comfort in that outlook because (1) the political class continues to load debt on the US economy which has the effect of restraining growth and (2) the distortion in capital investment resulting from the gross mispricing and misallocation of assets stemming from a far too easy monetary policy.  My complaints aside, I still believe that the economy will avoid recession.

            However, at some point, the fiscal and monetary policies adverse impact on corporate profit growth will in time render valuations so absurd that some adjustment in investor expectations seem inevitable.  But probably not until the Fed stumbles.
            The hole in the Phase One trade agreement (must read)

            The latest investment manager survey (must read).

    News on Stocks in Our Portfolios
General Mills (NYSE:GIS): Q2 GAAP EPS of $0.95 beats by $0.07.
Revenue of $4.42B (+0.2% Y/Y) misses by $10M.

   This Week’s Data


            The October Jobs Openings report showed a total of 7.26 million available jobs versus estimates of 7.02 million.

            November industrial production  rose 1.1% versus forecasts of up 0.8%; capacity utilization was 77.3% versus 77.4%.

                Weekly mortgage applications fell 5.0% while purchase applications were down 2.1%.


            October EU YoY construction output was up 0.3% versus expectations of +2.4%; MoM CPI fell 0.3%, in line.

            The November Japanese YoY trade deficit equaled Y82.1 billion versus -Y369 billion.

            November German PPI was 0.0% versus consensus of +0.1%: UK CPI was 0.2%, in line.


            College enrollment skids for 8th year in a row as student loan debt soars.

            Where is the inflation?

What I am reading today

            Some of the most exciting fossil discoveries ever.

            Intangible returns.

            Quote of the day.

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