The Morning Call
3/18/20
The
Market
Technical
The Averages (21237, 2529) rallied yesterday as the Fed
and the White House joined forces to throw everything but the kitchen sink at
solving the coronavirus problem. Still,
it wasn’t enough to alter a lousy technical picture. The
S&P remained in its newly reset intermediate term trading range. The Dow
ended below the newly reset lower boundary of its short term trading range for
a second day; if it remains there through the close today, it will reset to a downtrend. In short, it is
going to take a lot more enthusiasm from investors to brighten the indices’
charts.
Market bottom
indicator #1.
Market bottom
indicator #2.
TLT, GLD and UUP continued
their volatility. TLT staged another big reversal, ending back below
the upper boundary of its intermediate term uptrend. GLD bounced hard off its 200 DMA, though it is
still below its 100 DMA. The UUP spiked,
closing back above its 100 and 200 DMA---the third reversal in as many days.
The question remains,
are TLT, GLD and UUP starting to forecast a major change/incident in the
economy as they did from late 2018 to their recent peak (low)?’ ---for instance, a
Market rattling credit/liquidity event which would explain higher yields, lower
gold prices and a strong dollar.
Tuesday in the charts.
Fundamental
Headlines
Yesterday’s dataflow
was mixed. Month to date retail chain
store sales, the January JOLTS report and February industrial production (primary
indicator) were better than anticipated while January business inventories, February
retail sales (primary indicator) and the March housing index were worse.
A less optimistic
view.
Update on big four
economic indicators.
Overseas, the
stats were not as good. While January
Japanese industrial production was above forecasts, January UK unemployment and
average earnings along with March
EU and German economic sentiment were disappointing.
Everyone was
manning the battle stations yesterday.
The
Fed
The Fed initiates liquidity to the commercial
paper market.
https://www.zerohedge.com/markets/lehman-playbook-back-fed-announces-bailout-commercial-paper-market
It also unveils additional $500 billion
injection in repo market.
The case for a Fed/Bank of China swap line.
What the Fed still
needs to do (must read):
The White House
White House announces $850 billion bailout of
US economy (consumer).
The coronavirus
***overnight
update.
A positive opinion on the progress of the
coronavirus in the US.
A word of caution
from Ron Paul (must read):
Bottom line. the price of oil continues to decline; but as I
opined in last week’s Closing Bell, I think that the damage is quantifiable and,
therefore, largely reflected in valuations.
The
coronavirus remains a big unknown, though the actions of the Fed and the White
House are likely to hasten the peak in the infection/death rates. Once that occurs we have the experience of
China and South Korea to draw on as a guide to quantifying the economic
consequences. I am not suggesting that
the results will be pretty; I am saying that more certainty will enter the
picture and, at least, discounting can be begin in a half- way intelligible manner.
That
leaves the one risk that I have been harping on for the last five years still
hanging out there---the unwinding of the mispricing and misallocation of
assets. Evidence so far suggests that
the Market has finally come to the realization that Fed put which drove this
process did more harm than good. If it
is dead, then the process of repricing risk will move forward. To be sure, the equity markets have born the
brunt of this adjustment so far. Not
that it is over, because it probably is not.
What
hasn’t happened is the unwind in the credit markets. As you know, they were the problem in the
Financial Crisis and the Fed has allowed them to remain so---and by problem, I mean
inefficient companies/ companies with major liability issues (think unfunded
pension liabilities)/companies whose management wanted to borrow heavily and buy
back stock to enhance their bonuses/hedge funds were given access to cheap
credit which they gorged on and that debt has to be repaid sooner or later. Has the day of reckoning arrived? If it has, can the Fed pull another rabbit
out of its hat? I am not smart enough to
know. But the point is there potentially
remains some major negative developments coming from the credit markets.
Is this the moment
of truth?
Those who don’t
learn from history are doomed to repeat it (must read).
Update on valuations.
Reasons to be buying
stocks.
A couple of very
positive thoughts.
The latest from
Jeff Gundlach.
News on Stocks in Our Portfolios
Revenue of $4.18B (-0.5% Y/Y) misses by $30M.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew more rapidly than in the prior week.
The
January job openings report showed an increase of 411,000 job openings versus
estimates of a decline of 76,000 openings.
January
business inventories declined 0.1%, in line.
February
industrial production rose 0.6% versus consensus of +0.4%; capacity utilization
was 77% versus 77.1%.
The
March housing market index came in at 72 versus expectations of 73.
Weekly mortgage
applications fell 8.4% while purchase applications were off 0.9%.
February
housing starts dropped 1.5% versus estimates of -7.6%; building permits
declined 5.5% versus -3.2%.
International
The
January EU trade surplus was E1.3 billion versus projections of E3.9 billion;
February CPI was +0.2%, in line.
The
February Japanese trade surplus was Y1109.8 billion versus forecasts of Y917.2
billion.
Other
What
I am reading today
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