The Morning Call
6/26/20
The
Market
Technical
The Averages (25745, 3083) had a roller coaster day, but ended
nicely to the upside. However, they (1)
remain out of sync on their 200 DMA’s [though intraday, the S&P challenged
its 200 DMA but bounced to stay above it---that is a positive], (2) are in very
short term downtrends and (3) still have those ‘island tops’ weighing on them.
The short term the
technical picture remains shaky; but for the moment, I am sticking with my
assumption that the Market’s bias is to the upside---at least until/unless the
Averages revert their DMA’s to resistance.
The Market begins
to internalize reality.
Gold was off again
fractionally again, but remained above its prior (before Tuesday’s) seven year
high. The long bond was up for a second
day, but still has more work to do to overcome the struggle to break out of its
month long soft spell. The dollar was
also up again and is close to resetting last week’s uptrend.
Thursday in the
charts.
Fundamental
Headlines
The
economy
The economic
releases yesterday were weighed to the plus side. The final Q1 corporate
profits, June Kansas City Fed manufacturing index, May durable goods orders and
May wholesale inventories were ahead of expectations; weekly jobless claims and
the final Q1 price index were disappointing; and final Q1 GDP growth was in
line.
So much for the
‘V’ recovery.
Overseas,
the April Japanese leading economic indicators and July German consumer
confidence were better than anticipated.
Historic decline
in April world trade volumes.
The
coronavirus
***overnight
update.
Why re-opening is
not enough to save the economy.
Coronavirus death
rates continue to decline.
Not so in Arizona.
The
Fed
The Fed announced
the results of its latest stress test.
Two important takeaways:
(1)
for the third quarter, it suspended bank stock
buybacks and capped the banks’ ability to pay dividends---the exact impact on
each bank will not be known until Monday when the banks will report their
individual results,
(2)
it will require the banks to submit a second stress
test later in the year incorporating the latest data on the coronavirus
pandemic.
The full press
release.
In another
development, the FDIC eased the restrictions of the Volcker Rule. In an interview on CNBC, Sheila Bair, former
head of the FDIC, said that the net effect is to lower banks’ capital
base. As you probably remember, the
regulators allowing banks to increase their balance sheet leverage is one of
the major causes of the 2008/2009 financial crisis. To be sure, this easing still leaves the
banking system’s capital basis considerably higher than before that financial
crisis. However, adding leverage to the
financial system when the Fed has drastically increased the leverage of its own
balance sheet, just serves to blow the bubble that much larger.
Bottom line. the financial system ruled the headlines
yesterday. The FDIC allowing banks to
increase the leverage on their balance sheet ups the liquidity in the system,
i.e. provides yet more money with which to misallocate and misprice
assets. That, of course, is great news
for stocks.
The
Fed’s actions, while more responsible than the FDIC’s, had the effect of
maximizing the banks’ capital (lending capacity) which is also a plus for the
Market.
More on
valuations.
Still more.
https://www.zerohedge.com/markets/biggest-disconnect-between-prices-and-profits-stock-market-history
News on Stocks in Our Portfolios
Revenue of $6.31B (-38.0% Y/Y) misses by $950M.
Economics
This Week’s Data
US
May personal
income fell 4.2% versus forecasts of down 6.0%; personal spending rose 8.2
versus +9.0%.
The June Kansas
City Fed manufacturing index came in at 2 versus estimates of -8.
International
June
Japanese YoY CPI increased 0.3% versus expectations of up 0.6%; core CPI was up
0.2%, in line.
Other
The
June hotel occupancy rate down over 41%.
What
I am reading today
Saharan
dust storm to raise air pollution in US to dangerous levels.
Scientists
have linked volcano eruptions to periods of political instability.
Time
to take back your ownership.
The most important social
security chart that you will ever see.
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for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
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