Thursday, June 11, 2020

The Morning Call--The Fed versus reality

The Morning Call


The Market

The Averages  (26909, 3190) had a see saw day, finishing down.   However, both of the indices remain in very short term uptrends; the DJIA finished above its 200 DMA for a fourth day, reverting to support; and neither have not even began to fill their 6/5 gap up open.  My assumption remains that the Market’s bias is to the upside, though the pin action of the indices as well as a couple of internal indicators suggest that the retail driven moonshot may be coming to an end.  Meanwhile, (1) the two huge gap opens (5/18, 6/5) remain unfilled, (2) the indices remain solidly in overbought territory and (3) the VIX continues to reflect growing investor uncertainty.

Gold had another good day and is a short hair away from reestablishing its upside momentum.  Ditto with the long bond---price up though it still has work to do to regain upside momentum.  The dollar was down again, ending right on the lower boundary of its short term trading range; its chart getting uglier by the day.

            Wednesday in the charts.



Yesterday’s stats were encouraging.  Weekly mortgage and purchase applications, the March budget deficit and May CPI were upbeat (though some would argue about the inflation number).

           Overseas, April Japanese machinery orders were disappointing while the May Japanese and Chinese CPI’s were positive (again the disagreement on inflation)

The coronavirus

***overnight update.

Update on US stats.


China buying its soybeans from South America.

The Fed

The FOMC completed its latest meeting and the results were pretty much as          expected:

The formal statement:

(1) the economy is in rough shape; a ‘V’ shaped recovery is unlikely---which was not well received by investors,

For the ‘V’ shape recovery doubters; another blistering assessment of the Fed by    Jeffrey Snider (must read).

The economic projections.

Which reflect considerable uncertainty.

(2) rates remain the same and will so for the foreseeable future,

(3) it will continue to support the economy[cough, cough, the Market] with all the available tools at its disposal for as long as necessary.

Powell says that the Fed will never hold back support for the economy even if asset prices are too high

How much more hand holding from the Fed does the Market really need?

            The Fed’s monetary animal house.

            Bottom line. the Fed remains the lead story for the Market.  Powell gave no hint that the Fed would consider shrinking much less eliminating QEInfinity.  As you know, there will ultimately be a significant economic price to be paid for the Fed’s decade long grossly irresponsible monetary policy; and indeed, the country may currently be experiencing a painful social cost for the wealth inequality created by its policy.  Whether this could ignite the correction process in the misallocation and mispricing of assets I think is open to question.  That said, until it does, the most important factor in security pricing will be QEInfinity.

            Rationalizing high valuations won’t improve investment returns.

            We have reached the silly phase of the bull market.

            Worries about a retail investor-led speculative rally.

            An interesting history of rubbish rallies.


    News on Stocks in Our Portfolios


   This Week’s Data


            Weekly jobless claims rose by 1,542,000 versus consensus of 1,550,000.

            The May budget deficit was $399 billion versus forecasts of $625 billion.

            May PPI rose 0.4% versus estimates of +0.1%; core PPI fell 0.1%, in line.



What I am reading today

            What happens when a society loses confidence?

            Congress should reassert its ‘power of the purse’.

                Savings, investing and storage.

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