The Morning Call
2/22/21
The
Market
Technical
The S&P continues its advance, though the rate of increase is slowing. Still, up is up and will be until it isn’t. As I said last week ‘while valuations continue to reach historical extremes, I can’t see an end to this uptrend as long as the money keeps flowing with abundance and in the absence of any major negative exogenous event.’
The TLT is just
the opposite of the S&P’s. The long
bond continues to decline and rate of decrease is accelerating. The good news is that it is approaching the
lower boundaries of its very short term and short term trading ranges---which should
provide support. Whether that slows the
rate of deterioration or stops it altogether is the big question. The even bigger question is, if it is the
former, at what level do the stock boys bail?
Last week, GLD continued
its decline. The closest visible support
is the lower boundary of its very short term uptrend (upward sloping green
line)---and yes, that is its VERY short term uptrend. Note that it is 20 points lower. In short, GLD got overextended to the upside
and can fall a good deal before any longer term technical damage is done.
https://www.zerohedge.com/markets/whither-gold
The dollar tried
to rally early last week. The bad news
is that it fell back unable to make a new higher high and then retreated to its
prior low. The good news is that it is
nearing the lower boundary of its short term trading range (horizontal brown
line) which acted as support back in early January. My assumption remains that while UUP has made
a bottom, it has a struggle ahead to affect any follow through to the upside.
Friday
in the charts.
Watch oil closely.
https://www.zerohedge.com/the-market-ear/cum-tn3dzd
Fundamental
Headlines
The
Economy
Review of the Week
The US data last
week was positive, including the primary indicators (three plus, one neutral). That keeps the string of upbeat stats alive---long
enough that I think safe to conclude that the worst of coronavirus economic disruptions
are behind us.
That puts two
questions before us. One, will the
recovery accelerate, closing the output gap in a short time or will the economy
continue to struggle to regain its historical secular growth rate? I think that this is the easier question to
answer because I see no reason to alter my assumption that the current grossly
irresponsible monetary and fiscal policies will act as a drag on economic
growth. So, while I expect growth to continue, I do not expect either its rate
of growth to match the levels reached as the economy bounced off the bottom or the
economy to close the existing output gap in the foreseeable future.
How the federal
budget became detached from reality.
Two, will or won’t
the economic recovery be accompanied by an increase in the inflation rate that
will push it to levels that historically have proven problematic for both the
economy and the securities’ markets? This
issue is a bit tougher to analyze.
At first blush, it
seems reasonable to assume that if economic growth remains subpar, then there
will be few upward price pressures aside for those temporarily created by the
dislocations due to coronavirus government restrictions.
On the other hand,
with the vast amount of liquidity sloshing around the global economy, commodity
prices could respond to speculation (as they appear to be doing now). Throw in higher labor costs resulting from an
increase in the minimum wage and there is an argument for upward supply side
pressures. At present, I am not
convinced to the merits of this thesis.
But we have never been in a period in which monetary/fiscal policies
were so recklessly applied. So, I am
hoping for the best (low inflation) but preparing for the worst.
https://www.zerohedge.com/economics/inflation-signals-soar-record-highs-amid-mixed-pmis
That means
lessening my portfolio’s exposure to bonds, continuing to sell a portion of any
stock that reaches its Sell Half range, especially, high multiple growth stocks
and focus any buying on value stocks.
Goldman’s thoughts.
Overseas, the
stats were also positive---which is a plus for the US. Though as I have noted
previously, the recovery in Europe will likely be more anemic than our own.
US
The January Chicago Fed national activity
index came in at .66 versus December’s reading of .41.
International
The February
German business climate index was reported at 92.4 versus consensus of 90.5.
Other
Fiscal Policy
House releases text of $1.9 trillion stimulus
bill.
Coronavirus
Cases, deaths and careers are dropping like
rocks.
https://www.zerohedge.com/covid-19/covid-cases-political-careers-are-dropping-rocks
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