Thursday, February 20, 2020

The Morning Call--Good news is good news and bad news is good newss

The Morning Call


The Market

The Averages (29348, 3386) recovered yesterday.  The S&P made another new high; the Dow didn’t but still closed back above its former high (29337).   My assumption is that the indices are going higher, possibly enough to begin to challenge their uptrends (first stop at 32301/3583).  I would feel stronger about that notion if the Dow would catch up to the S&P.  Not helping my conviction is the VIX holding at levels higher than the pin action in the Averages would suggest.

GLD and UUP maintained their strong move as safety trades.  TLT was down but just fractionally; so, I do not see this as challenge to its performing as a safety trade.

                There remains an apparent dichotomy between the economic expectations of equity investors and those in GLD, TLT, and UUP.  Somebody is going to be wrong.

            Wednesday in the charts.



Yesterday’s numbers were mixed.  Month to date retail chain store sales, weekly mortgage and purchase applications and January PPI and core PPI were disappointing while January housing starts (primary indicator) and building permits were better than anticipated.

            Ditto overseas. December Japanese machine tool orders and December EU construction output were less than expected; the January Japanese trade deficit and the January UK CPI were better.

            Yesterday’s other headline was the Fed’s release of the minutes from the last FOMC meeting.  The bottom line being (1) rates are at the appropriate level, (2) certain sectors of the equity market are getting pricey, (3) the Fed continues to worry about the impact of the coronavirus, (4) really and truly, pinky swear, NotQE is not NotQE but (5) it will wind down NotQE at some point.  The minutes for those who care to read them:

            Building pressure for another rate cut?

            How much should we blame the Fed?
            Bottom line: if you believe the Chinese, the growth rate in infections and deaths from the coronavirus is slowing.  That fits with my expectations but the operative phrase is ‘if you believe the Chinese’; and I don’t.  So, I think it too soon to get optimistic.

            That said, the Fed’s expressed concern about equity valuation notwithstanding, there is no doubt in my mind that bad news on the coronavirus will bring an increase in QE not just from the Fed but from virtually every other central bank in the world.

            So, for the moment, good news (a retreat of the coronavirus) is good news and bad news (coronavirus getting worse) is good news (another liquidity injection).

            How long can you handle underperforming?

            Dividend cuts as of mid Q1 2020.

            ***overnight, infection and death rates from the coronavirus rise outside of China.

    News on Stocks in Our Portfolios
Genuine Parts (NYSE:GPC): Q4 Non-GAAP EPS of $1.35 beats by $0.05; GAAP EPS of $0.06.
Revenue of $4.71B (+2.4% Y/Y) beats by $10M.

Sherwin Williams (NYSE:SHW) declares $1.34/share quarterly dividend18.6% increase from prior dividend of $1.13.

Hormel Foods (NYSE:HRL): Q1 GAAP EPS of $0.45 misses by $0.01.
Revenue of $2.38B (+0.8% Y/Y) beats by $10M.


   This Week’s Data


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

            Weekly jobless claims came in at 210,000, in line.

            The February Philadelphia Fed manufacturing index was reported at 36.7 versus consensus of 12.0.


            January UK retail sales were up 0.9% versus estimates of +0.7%; ex fuel, they were up 1.6% versus +0.8%.

            January Chinese loan growth rose 12.1%, in line.

            January German PPI was +0.8% versus forecasts of +0.2%; it March consumer confidence reading was 9.8, in line.


The public debt is no burden; so says this author.  I guess I am missing something here.  The author says the debt wouldn’t be a burden if the money was spent wisely; but then concedes that isn’t.  Which in my logic system says therefore it is a burden.  He also ignores that the future generation must repay the principal and interest.  So, the interest is an additional burden.  Making matters worse, if rates go from 2% to 5%, 6% or even 7%, none of which are out of the question, the burden is made even more onerous.

            Who bought the $1.3 trillion the US added to its national debt in 2019?

            Architectural billings continue to grow.

What I am reading today

            A critical analysis of health care costs (must read):
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