Wednesday, March 25, 2020

The Morning Call---Houston, we have a deal

The Morning Call


The Market

The Averages  (20704, 2447) mounted a fierce rally yesterday, though little changed technically speaking.  Momentum remains undeterred to the downside with almost no visible support until ~ 15399/1810.  I noted in yesterday’s Morning Call that a bounce would make sense given the extent of stocks’ oversold condition. 

Given the psychological relief from not getting hammered every day, it is somewhat understandable that the ‘narrative of the day’ included speculation that the Market had put in a bottom on Monday.  I think that is a stretch for a number of reasons: (1) as I mentioned, stocks were dramatically oversold, (2) the VIX is not reflecting a reduction in risk adverseness among investors; indeed, the VIX was actually up yesterday, (3) both indices experienced gap up opens [which need to be filled] and (4) some of the most powerful rallies occur during bear markets. 

On the other hand.

That doesn’t mean that the bear market isn’t over.  But I am not going to chase stock prices up.

            The risk premium is expanding.

TLT, GLD and UUP continued their volatility.  TLT fell but remained technically strong. 

            The Market is frontrunning Fed purchases.

When stock and bond prices fall together.

GLD rallied on big volume for a second day, finishing in an uptrend as well as  above its 100 DMA (if it remains there through the close on today, it will revert to support) and the 200 DMA (if it remains there through the close on Thursday, it will revert to support). 

The UUP was off fractionally but that didn’t impact its push higher.  Overall, the message remains that investors are seeking safety.

            Tuesday in the charts.
            Don’t close the Markets.



            Lots of data to digest from yesterday’s releases.  In the US, the numbers were somewhat disappointing: while month to date retail chain store sales and the March flash manufacturing PMI were upbeat, February new home sales, the March flash services and composite PMI’s and the March Richmond Fed manufacturing index were less than anticipated.

Overseas, EU consumer confidence plus the March flash manufacturing PMI’s of Japan, Germany, the EU and UK were better than expected while the Japanese, German, EU and UK flash services and composite PMI’s were less.

            The headlines.

            The coronavirus       

                        ***overnight update.

This time is different.

Why the worst case scenarios for the coronavirus seem unrealistic.

                        Trump wants the country to get back to business.

                        Coronavirus stats from Brookings.

                        What bailouts should accomplish.

                        Taxpayers should benefit from any bailout.

            The Fed         

The benefits of the Fed’s action.
                        Too much debt.

                        The Fed is now the garbage can for all debt.

                        Commodity broker facing margin calls.

                        REIT facing margin calls.

            Bottom line: we now know that the Fed will stop at nothing to ensure that there are no liquidity issues within the financial markets, however detrimental these measures may be to the efficient long term allocation of resources.  But near term, the odds of a credit shock are lower than they were a week ago.

            The big question, at the moment, is what will our elected representatives enact to offset the economic damage being done by the shutdown.  I have less faith that these guys will do what is right than I have in the Fed policies.  Still, like the Fed, the fiscal measures enacted will be so massive that whatever good they do will lead many to ignore the ultimate negative impact of the huge addition to the national debt.

            ***Houston, we have a deal.

            Q1 2020 dividend cuts explode.

    News on Stocks in Our Portfolios
Nike (NYSE:NKE): Q3 Non-GAAP EPS of $0.78 beats by $0.22; GAAP EPS of $0.53 in-line.
Revenue of $10.1B (+5.1% Y/Y) beats by $530M.


   This Week’s Data


            Month to date retail chain store sales grew faster than in the prior week.

            February new home sales fell 4.4% versus estimates of -2.0%.

            The March flash manufacturing PMI was 49.2 versus consensus of 42.8; the services PMI was 39.1 versus 42.0; the composite PMI was 40.5 versus 40.8.

            The March Richmond Fed manufacturing index came in at 2 versus expectations of 9.

                Weekly mortgage applications declined 29.4% while purchase applications were down 14.6%.

            February durable goods orders rose 1.2% versus forecasts of -0.8%; ex transportation, they were -0.6% versus -0.4%.


            February UK CPI was +0.4% versus projections of +0.3%; core CPI was +0.1% versus 0.0%; retail sales were up 0.5%, in line.

            The March German business climate index came in at 86.1 versus estimates of 87.9.


What I am reading today


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