Tuesday, July 14, 2020

The Morning Call--Lockdown 2.0 and stocks seem ambivalent

The Morning Call


The Market

The Averages  (26085, 3155) had a volatile day but ended basically flat (Dow up slightly, S&P down slightly).  Volume was up; and breadth was OK.  The indices remained out of sync on (1) their 200 DMA’s [Dow below---intraday, it moved above its 200 DMA but failed to hold it; S&P above] and (2) those ‘island tops’ [the S&P filled that gap, the Dow has not].  So, the Averages are now out of sync on two resistance/support levels.  As I have noted previously, stocks will be directionless until those inconsistencies are corrected.

Still, the short term the technical picture has improved.  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.
Gold was up, maintaining its move to ever higher seven year highs. The long bond was also up and the dollar was down.  This collective pin action is consistent with itself and with a weak economic outlook.

            A negative view of gold.

            Monday in the charts.



The economy

Only one datapoint released yesterday.  The US June budget deficit was marginally larger than anticipated.

An improved growth outlook from Wall Street.

Six high frequency indicators of recovery.

The default wave arrives.

            The coronavirus

            US death rate rising; but a third of it is unrelated to the coronavirus.
            The Fed

            The Fed’s $3 trillion coronavirus rescue has created multiple market bubbles.

            The Fed releases its purchase schedule for the next two weeks.

            Dallas Fed chief says Fed purchases will be cut back as economy improves.

            The Fed is trapped in QE.


            Trump planning to scrap audit deal for US listed Chinese firms.

            UK bars Huawei from supplying 5G network.

                China warns of sanctions against Lockheed Martin following arms deal.
            Bottom line.  valuations are extremely generous though (1) the media insists on emphasizing the worst case for the coronavirus which is not being helped by the politicians [California in new lockdown], (2) the macroeconomic data is improving although a ‘V’ shaped recovery is a stretch; indeed, the lockdown which is returning as the preferred anecdote to the coronavirus is wrecking whole segments of the economy (3) Q2 earnings season began yesterday and expectations are abysmal.  And yet, the indices and many stocks are a short hair away from their all-time highs.

            Investors owe it all to QE.  And, at the moment, it appears that they have nothing to fear regarding a reversal of this extraordinarily irresponsible policy.  I sleep well because of my large cash position; but I clearly enjoy higher stock prices.

            This is nuts……..again.

Knowing when you have won.

Don’t fall in love with your stocks.

Wall Street concludes that it is bullish whoever wins in November.

    News on Stocks in Our Portfolios


   This Week’s Data


            The June budget deficit was $864 billion versus forecasts of $863 billion.

            June CPI came in at +0.6% versus consensus of +0.5%; core CPI was +0.2% versus +0.1%.

            The June small business optimism index was reported at 100.6 versus estimates of 92.0.


            May Japanese industrial production fell 8.9% versus expectations of -8.4%.

            The May UK trade balance was +L4.3 billion versus projections of -L0.8 billion; industrial production was +0.6%, in line; GDP grew 1.8% versus 5.5%; manufacturing production was up 8.4% versus 8.0%.

            May EU industrial production was up 12.4% versus predictions of +15.0%; July economic sentiment came in at 59.6 versus 51.0.

            The June Chinese trade balance was $46.4 billion versus forecasts of $58.6 billion.

            The June German CPI was up 0.6%, in line; July economic sentiment was 59.3 versus 60.0.


            The collapse of the oil and gas industry.

What I am reading today

            Yesterday in the interest of political correctness, the Washington Redskins management is renaming the team.  Here are some other more descriptive suggestions: “The Washington Lobbyists.” “The Washington Special Interests.” “The Washington Underpaid Holders of Useless Masters’ Degrees Working at NGOs.” “The Washington Logrollers.” “The Washington Vulnerable Incumbents.” “The Washington Expense Accounts.” “The Washington Blusterers.” “The Washington Anonymous Sources.” “The Washington Backstabbers.” “The Washington Midlevel Bureaucrats.” “The Washington GS-13s.” “The Washington Gridlock.” “The Washington Demagogues.” For my academic friends, “The Washington Rent-Seekers.”

            The anniversary of the Northwest Ordinance.

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