Thursday, February 13, 2020

The Morning Call--China comes clean

The Morning Call


The Market

The Averages (29551, 3378) resumed their advance yesterday.  The Dow S&P ended above its former all-time high (29373); if it remains there through the close today, it will re-establish a very short term uptrend.  That will put it back in sync with the S&P which is already returned to a very short term uptrend.  In addition, the VIX finally gave up the ghost, closing below both DMA (if it remains below its 100 DMA through the close on Friday, it will revert to resistance; if it remains below its 200 DMA through the close next Monday, it will revert to resistance). 

Barring a retreat today, the indices will be back firmly in uptrends, being above both DMAs and in uptrends across all time frames.  That puts the next resistance levels considerably higher (32301, 3583).

The NASDAQ performance and the ‘complexity factor’.

GLD and TLT were down again and have now marked a lower high and a higher low.  Meaning that they are in uptrends which may be challenged in the near future.  UUP was strong, finishing right on the upper boundary of its short term downtrend.  Meaning that it is challenging a trend.  Their pin action continues to say ‘safety trade’ to me though the message is weakening. 

            Wednesday in the charts.



Yesterday’s numbers were not that great.  The January budget deficit was much larger than expected; and while weekly mortgage applications rose, the more important purchase applications fell.

It’s the spending, stupid.

            Trump’s budget is an economic fantasy.

            How plausible in Trump’s budget forecast.

            There was a bit of good news out of China on the coronavirus (if they are to be believed).  

                        ***overnight, China comes clean on coronavirus data.  Ooops.

                        On the other hand, it is causing economic logjams worldwide.  Bear in mind that none of this has shown up in the data yet.  True, I don’t believe that the ultimate impact of this epidemic will cause sustainable economic damage.  But right now, nobody knows.

                Powell delivered his second day of Humphrey Hawkins testimony, this time to the senate.  Part of his message was that the Fed needs QE going forward and that higher interest rates aren’t really acceptable.  Think about that and what it means for monetary policy and future inflation.

               Speaking of inflation, in yesterday’s Morning Call, I linked to a must read article on the risk of stagflation.  Here is another link that goes at the problem from a different direction, to wit, the Fed’s use of the PCE as its inflation measure, its lack of precision and how this could result in ineffective monetary policy.
            Deciphering the NotQE gibberish.

Bottom line.  between the Fed and the Bank of China, speculators have plenty of firepower to keep the stock market advancing.  Doesn’t matter that fiscal policy has been and apparently will continue to be an obstacle to secular economic growth.  Doesn’t matter that all that monetary liquidity (in addition to propelling security prices higher) is driving up your and my cost of living; and more of the same will likely result in more of the same.

This move higher notwithstanding, I like the cash and gold that my portfolios own.

    News on Stocks in Our Portfolios
            T. Rowe Price (NASDAQ:TROW) declares $0.90/share quarterly dividend, 18.4% increase from prior dividend of $0.76.


   This Week’s Data


            The January budget deficit came in at $33 billion versus estimates of -$11.5 billion.

                January CPI was reported at +0.1% versus projections of +0.2%; core CPI was +0.2%, in line.

            Weekly jobless claims rose 2,000 versus consensus of up 7,000.


            January Japanese PPI rose 0.2% versus forecasts of 0.0%.

            January German CPI declined 0.6%, in line.

            Update on subprime auto loans and delinquencies.

What I am reading today

            Giant skeleton washes ashore in Scotland.

            A photographer goes behind the scene at the Westminster Dog Show.

            Mysterious deep space radio signals repeat at regular intervals.

            Five mistakes that can wreck your retirement.
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