The Morning Call
5/3/21
The
Market
Technical
For the second
week in a row, the S&P was basically flat.
But given its outstanding performance over the last year, a period of
rest shouldn’t be surprising. On the
other hand, we are in the heart of first quarter earnings season; and so far,
the results have been above expectations, suggesting a positive bias to the
Market. Absent that, it raises the
question, has the good news been priced in?
Of course, this Market has long
since ceased to behave normally given the universal truth since 2010---that the
Fed believes that pumping up asset prices is a benefit to the economy, has
acted on the proposition with a vengeance and if the FOMC minutes last week are
to be believed, there is no end in sight to QE.
So, my bottom line remains:
Notwithstanding deteriorating technicals and nosebleed valuations, my
Market assumption remains: ‘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.’
https://www.zerohedge.com/the-market-ear/c2qpb2sitm
The long bond successfully
challenged its uptrend off the March 18 low, suggesting that it might test that
3/18 low and that investors remain divided over the question about the future
path of inflation. As you know, my long
term forecast is for continued sluggish secular economic growth. Though I have been concerned that inflation
could still raise its ugly head as a result of explosive monetary growth and
unprecedented fiscal stimulus. I remain
in that camp, but I am finding the counter argument increasingly persuasive.
Like the TLT, GLD broke
an uptrend off its March low, opening the way for a resumption of the downtrend
off its August 2020 high. Remember that
high was a twenty year high and that GLD has yet to challenge even its very
short term uptrend. So, more downside is
clearly possible.
After being down
most of the week, the dollar bounced hard on Friday, closing above its 100 DMA
(now resistance; if it remains there through the close on Tuesday, it will
revert to support). This pin action
leaves me a bit uncertain. I want to see
some follow through (in either direction) to get a better feel for a trend as
well as some insight to what fundamentals are being discounted.
Friday in the
charts.
https://www.zerohedge.com/markets/dollar-dumps-april-sp-does-something-its-never-done
Fundamental
Headlines
The
Economy
Review of Last Week
US statistical
releases were positive again last week as were the primary indicators. The economy is now (1) in the midst of
positive YoY comparisons versus 2020’s covid stricken weakness, (2) through the
lousy weather related data from February but (3) still benefitting from Biden’s
initial trillion dollar spending bill. So, the numbers are reflecting a sugar
high, not sustainable growth.
That said, if
Biden can get his new budget busting spending programs through congress, then
these artificially improved growth stats can continue for some time. However, in my opinion, the increased debt needed
to pay for, most of which are, nonproductivity enhancing expenditures will
become an additional burden to an economy already overloaded with growth
inhibiting debt. In other words, ultimately the piper must be paid (slower
secular economic growth).
Overseas, the data
flow was back on the positive side, but just barely so as the EU continues to
struggle.
Bottom line. ‘As
you know my opinion is that following an initial snapback, the US economy will
likely return to its former subpar secular growth rate, stymied by
irresponsible mix of fiscal/monetary policies.’---which are only
getting more irresponsible.
US
International
March German
retail sales rose 7.7% versus estimates of +3.0%; the April manufacturing PMI came in at 66.2 versus
66.4.
The April EU
manufacturing PMI was reported at 62.9 versus consensus of 63.3.
Other
A third of all household income now comes from
the government.
https://www.zerohedge.com/economics/record-34-all-household-income-us-now-comes-government
The
Fed
It doesn’t have a clue.
https://www.zerohedge.com/economics/just-case-you-think-fed-has-clue
Inflation
The cobra effect.
https://www.zerohedge.com/markets/we-are-early-stage-biggest-cobra-effect-history-economics
Bottom line. The drumbeat grows louder.
The latest from Leon Cooperman.
The latest from
Doug Kass.
https://www.zerohedge.com/markets/kass-beware-pulling-forward-sales-profits
The latest from
BofA.
The latest from
Warren Buffett (long but a must read):
The strongest
earnings season on record………but.
News on Stocks in Our Portfolios
W.W. Grainger (NYSE:GWW): Q1 Non-GAAP EPS of $4.48 beats by $0.16; GAAP EPS
of $4.48 beats by $0.18.
Revenue
of $3.08B (+2.7% Y/Y) beats by $30M.
Paychex (NASDAQ:PAYX) declares $0.66/share quarterly dividend, 6.5% increase from
prior dividend of $0.62.
What
I am reading today
Quote
of the day
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