The Morning Call
2/20/20
The
Market
Technical
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.
Fundamental
Headlines
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
Revenue of $4.71B (+2.4% Y/Y) beats by $10M.
Sherwin Williams (NYSE:SHW) declares $1.34/share
quarterly dividend, 18.6% increase from prior dividend of $1.13.
Revenue of $2.38B (+0.8% Y/Y) beats by $10M.
Economics
This Week’s Data
US
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.
International
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.
Other
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):
Loss aversion.
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