3/7//20
Statistical
Summary
Current Economic Forecast
2019 estimates (revised)
Real Growth in Gross Domestic Product 1.5-2.5%
Inflation +1.5-2%
Corporate Profits 6-9%
2020
Real Growth in Gross Domestic Product ?
Inflation ?
Corporate Profits ?
Current Market Forecast
Dow Jones Industrial Average
Current Trend (revised):
Short Term Uptrend 25047-37509
Intermediate Term Uptrend 16100-32301
Long Term Uptrend 6860-38078
2019 Year End Fair Value
14500-14700
2020 Year End Fair Value
15100-15300
Standard & Poor’s 500
Current
Trend (revised):
Short Term Trading
Range 2855-3303
Intermediate
Term Uptrend 2756-4256 Long Term Uptrend 1329-4964
2019 Year End Fair Value 1790-1810
2020 Year End Fair Value 1870-1890
Percentage
Cash in Our Portfolios
Dividend Growth Portfolio 56%
High Yield Portfolio 55%
Aggressive Growth Portfolio 56%
Economics/Politics
Spread of the coronavirus and concerns about
its potential impact on economic activity have raised enough questions about
the expected cyclical growth prospects for the US that I am suspending my 2020
economic outlook until the coronavirus’ ‘impact on economic activity’ becomes
clearer.
The total dataflow this week was positive, as
were the primary indicators (one plus, two neutral). I am calling it a positive. Score: in the last 231 weeks, seventy-eight
were positive, one hundred and three negative and fifty neutral.
Update on big four economic indicators..
The latest Q1 nowcasts.
Overseas data was slightly negative; but like
the US numbers, they are likely irrelevant due to the rapid global increase in
the coronavirus infection/death rate and the likely consequences on economic
growth. Unfortunately, at the moment, no
one has a handle on the timing of the containment effort, the extent of the
economic losses associated with combatting the virus, the magnitude of any
fiscal/monetary response and whether or not that response will positively
impact economic growth. Until that starts to happen, making
predictions about the economy, at least over the short term, is wasted
exercise.
For the moment, I am suspending my short term
economic forecast.
Longer term, I am not altering my long term
economic outlook, which is that the economy will continue to grow at a subpar
rate due to the twin burdens of egregiously irresponsible fiscal and monetary
policies.
The
Market-Disciplined Investing
Technical
The Averages (25864, 2972) took investors on another wild
ride yesterday, closing off more than 1% but only after rallying hard in the
last hour’s trading. The technical
highlights were (1) the S&P finishing below its 200 DMA for a
second day [now support; if it remains there through the close on next Tuesday,
it will revert to resistance], (2) both indices traded down to near major resistance
levels [for the Dow, the lower boundary of its short term uptrend {25047}; for the
S&P, the lower boundary of its short term trading range {2855}] and bounced
for a second time. That suggests the possible development of a
bottom.
TLT and GLD aggressively
resumed their push to new highs while UUP was ripped again. So, nothing changed technically.
Friday
in the charts.
The
VIX, the credit bubble and stock prices.
Fundamental-A
Dividend Growth Investment Strategy
The recent decline notwithstanding, the DJIA and
the S&P are well above ‘Fair Value’ (as calculated by our Valuation Model). At the moment, the important factors bearing
on Fair Value (corporate profitability and the rate at which it is discounted)
are:
(1)
the extent to which the economy is growing. I am clueless about the prospects for
economic growth over the next twelve months and will almost certainly remain so
until we have a handle on the peak coronavirus infections/deaths. Until we have that information, the future
rate of economic growth is simply unknowable.
It seems reasonable to me to assume that the Market is currently in the
process of adjusting to that hard reality and likely will continue to do
so until the economic impact of the
coronavirus can start to be discounted in a meaningful way.
(2)
the resumption of QE by the global central banks. The Fed didn’t disappoint this week,
announcing a 50 basis point cut in the Fed Funds rate following an unscheduled
meeting. The importance of such a move
is emphasized by the amount of the increase [25 basis points having been the
norm of late] and that fact that it was done at an unscheduled meeting [the Fed
has only raised/lowered rates following an unscheduled meeting nine times in its
history].
So, the Fed put a major exclamation point on
its preparedness to fight any economic [Market] weakness resulting from the
coronavirus. Unfortunately, there are
several problems: [a] lower interest rates aren’t going to entice businesses/consumers
to reengage in behavior that they stopped due to fear of the virus, [b] the
Market poo pooed the whole Fed maneuver, dropping 500 Dow points on that day,
and most importantly [c] the Fed used up a lot of what is left of its arsenal
to fight economic/liquidity problems.
Having ranted about this all week, I will end
there with the observation that this could mark the beginning of the Market’s
loss of faith in the Fed’s ability to bail it out. If so, expect more downside.
The Fed rate cut was a big mistake.
Bottom line: I believe that Averages are grossly overvalued
[as determined by my Valuation Model], though clearly becoming less so.
Nonetheless, there are certain segments of the economy/Market that have
been punished severely with the stocks
of the companies serving those industries down 30-70%. It is time to start putting our cash to work
in these beaten up stocks. Accordingly,
the Dividend Growth Portfolio bought FedEx (FDX) last week.
As a reminder, my Portfolio’s cash position
didn’t reach its current level as a result of the Valuation Models estimate of
Fair Value for the Averages. Rather I
apply it to each stock in my Portfolio and when a stock reaches its Sell Half
Range (overvalued), I reduce the size of that holding. That forces me to recognize a portion of the
profit of a successful investment and, just as important, build a reserve to
buy stocks cheaply when the inevitable decline occurs.
No comments:
Post a Comment