Thursday, May 14, 2020

The Morning Call--Another 'overvalued' call

The Morning Call


The Market

The Averages  (23247, 2820) had another ugly day.  Both of the indices finished below their 4/17 highs but also well above the 4/21 lows.  The good news is that as long as they remain within those 4/17-4/21 trading ranges, I have to assume that momentum continues to the upside.  The bad news is that (1) the Dow is forming a head and shoulders formation and the S&P appears to be making a double top and (2) the VIX broke above the upper boundary of its very short term downtrend off its 3/23 high [the Market low].  So, it is important that the Averages hold above their 4/21 trading lows.

GLD, TLT and UUP rose on strength.  As I continue to note, they shouldn’t be trading in unison to the upside unless investors are nervous---and it is not yet clear that the current two day sell off is anything other than consolidation from an overbought condition.
            Wednesday in the charts.



Yesterday’s data releases were mixed.  Weekly mortgage and purchase applications rose while April PPI continues to point toward deflation.

            The real economy

            Overseas, the March UK trade balance was lower than anticipated but March industrial output, manufacturing production, March GDP, Q1 GDP and business investment were less bad than expected as was March EU industrial production.
            The coronavirus

            ***overnight update.

            Update on US coronavirus stats.
            Sweden’s coronavirus strategy---successful or not?
            Here is a refutation of the above article.  I note that it hardly dispenses with the ‘herd immunity’ argument.  It may be right to question it; but the author doesn’t know any more than those that promote the notion.  Also note that one of the main rebuttal experts is a CNN contributor which is not exactly an unbiased source.  In the end, nobody knows what strategy will ultimately prove the most efficacious.  The good news is that enough countries/states are pursuing enough different strategies that we will have a better sense of how to handle this pandemic a year from now.

                        Why the various narratives are so confusing.

            One final article that accurately reflects my opinion.

                The Fed

                Fed chair Powell gave an online speech yesterday, in which he (1) painted a dismal economic picture, (2) said that the Fed had done a lot to offset the problems caused by the economic shutdown, (3) had the tools to do still more if necessary, but (4) there are measures that the Fed can’t/won’t undertake [like negative interest rates {cough, cough, I pinky swear}]; so, congress and the white house need to do more.  The text of his speech:

The Zimbabwification of Wall Street.

            The Fed’s ongoing destruction of the bottom 90%.

The current need to pay for expansive fiscal policy will generate huge Treasury offerings which will require the Fed to institute another round of QE.

Bottom line.  Investor giants Buffett, Druckenmiller and Tepper all agree that equities are overvalued.

But it does not matter as long as investors believe that Fed supplied liquidity will assure higher security prices.  ‘As long as’ being the operative words.

The latest from David Tepper.

    News on Stocks in Our Portfolios


   This Week’s Data


Weekly jobless claims rose by 2,981,000 versus consensus of up 2,500,000.


            April German CPI rose 0.4% versus estimates of +0.3%.

            April Japanese machine tool orders fell 48.3% versus forecasts of -48.0%.


What I am reading today

            Why some rules don’t work.

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