The Morning Call
3/4/20
The
Market
Technical
The Averages (25917, 3003) failed miserably at any follow
through to Monday’s moon shot. Indeed,
they are starting to remind me of Six Flag’s Texas Tornado. The principal
technical headline was that the S&P fell back below its 200 DMA (now
support; if it remains there through the close on Friday, it will revert to
resistance).
On the one hand,
stocks continue very oversold. So, a
bounce is to be expected. On the other
hand, both of the indices seem likely to challenge their next resistance level.
(1) the Dow, the lower boundary of its short term uptrend [25009], (2) the
S&P, the lower boundary of its short term trading range [2855].
The long bond soared
again on increased volume, making a new all-time high. Ditto with GLD. It is again nearing the upper boundaries of
its short and very short term uptrends---which you will recall offered stiff
resistance the last time this occurred. The dollar continues to get hammered. I remain confused by the dramatically mixed
performance of TLT, GLD and UUP.
Tuesday in the
charts.
Fundamental
Headlines
Yesterday was slow
for economic releases. In the US, month
to date retail chain store sales declined less rapidly than in the prior week. Overseas, January EU unemployment was line while EU January CPI and PPI were less
than anticipated as was
February Japanese consumer
confidence.
Of course, the
coronavirus continued to capture the headlines.
This is a report from the WHO report on the coronavirus.
***overnight,
But the biggest
headline was the Fed (1) cutting rates by 50 basis points (2) following an
unscheduled meeting---both of which were designed to emphasize how serious the
Fed is in doing its part in getting the economy/Market through the coronavirus
crisis.
That
said, this cut will do nothing for the economy short term. No business hire someone and no person is
going to go to a restaurant today because interest rates are lower.
***overnight, it
also did nothing to solve the liquidity problem in the repo market.
What level of interest
rates will incentivize you to risk the health of your family?
Bottom line: more
importantly, since we know the Fed’s unspoken first concern is equity prices, yesterday’s pin action would
have to be rated as one of the all-time raspberries in Market history. Down 800 Dow points on an unscheduled 50
basis point rate cut? Who would have
dreamed of such a response two weeks ago?
I have long contended that the Fed’s QEInfinity policies have been
negative for the economy and that this bull market would end when investors finally
recognized that fact. Yesterday could be
that moment. It is too soon to make that
call; but this will be a major test of my thesis.
The
risks here are that (1) the infection/death rates of the coronavirus haven’t
peaked and until they do, quantifying the magnitude of the economic impact of
the virus is impossible and (2) the Fed ‘put’ is history.
Fed capitulates to
the Market.
Fed impotence
exposed.
The unstable balance
between finance and the economy.
Update on
valuations.
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
Weekly
mortgage applications rose 15.1% while purchase applications declined 2.7%.
The
February ADP private payroll report showed a 26,000 fall in jobs versus expectations
of a 39,000 drop.
International
January
German retail sales were up 0.9% versus forecasts of +1.0%; January EU retail
sales were up 0.6%, in line
The
February Japanese services PMI came in at 46.8 versus estimates of 46.7. the
composite PMI was 47.0, in line; the February Chinese Caixin services PMI was 26.5
versus the January reading of 47.7, the composite PMI was 27.5 versus 47.2; the
February German services PMI was 52.5 versus 53.3, the composite PMI was 50.7
versus 51.1; the February UK services PMI was 53.2 versus 53.3, the composite
PMI was 53.0 versus 53.3; the February EU services PMI was 52.6 versus 52.8,
the composite PMI was 51.6, in line.
Other
Median
household income declined slightly in January.
Proxies
for Chinese economic activity.
What
I am reading today
Planning for when your
spouse dies.
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