The Morning Call
8/30/21
The
Market
Technical
The S&P had a
good week, topped off by the Friday sprint higher on Powell’s nothingburger
Jackson Hole speech. My only comment is
to repeat my current short term pin action premise: ‘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.’
US investors cut
leverage for first time in over a year.
https://www.ft.com/content/c17db619-b7a7-4501-8983-d86e90ff3721
The ‘pain’ trade
is a melt up.
Despite a strong
advance on Friday, the long bond was down last week. Nevertheless, it didn’t even try to challenge
the lower boundary of its short term trading range or its 200 DMA, which is a
mild plus. However, as you can see, it
seems to be forming a pennant formation---one that, given its current width,
could take a long time to resolve itself.
This pattern portrays some uncertainty among bond investors which really
isn’t that surprising given the current goings on in Afghanistan, congress and
the Fed. For the moment, I am coloring
bond investors uncertain.
Friday’s rocket
ride in GLD was impressive. It pushed
through the downward sloping trend line off its early June high and challenged
both its 100 and 200 DMA’s (both resistance.
If it remains above its 100 DMA
though the close on Tuesday, it will revert to support. If it remains above its 200 DMA though the
close on Wednesday it will also revert to support). Follow through.
The dollar experienced
a major reversal last week, first opening a big gap down open on Monday and
topping it off on Friday by challenging the uptrend off its early June
low. As always, I expect that gap down
open to be filled and we need follow through to Friday’s break.
Bottom line. Investors continue discount the lower
inflation/lower interest rate scenario.
Friday in the charts.
https://www.zerohedge.com/markets/dovish-powell-sparks-most-painful-meltup-52nd-record-high-2021
Fundamental
Headlines
The
Economy
Review of Last Week
The data releases
last week were almost evenly matched but the primary indicators were quite
upbeat (four plus, one neutral, one negative).
That doesn’t fit the ‘slowing from the post Covid bounce back’ scenario;
but this is one week’s stats. There
needs to be follow through to upgrade my forecast.
Of course, the
major piece of economic news was the widely anticipated Jackson Hole speech by
Chair Powell---which not only carried a more dovish tone but also there was no
mention of a timeline for tapering. Just
a vague reference that it will probably occur before year end. Bottom line, this story line is getting a bit
worn---lots of ‘on the one hand, on the other hand’ public rhetoric about
tapering from Fed officials then do nothing when the rubber hits the road.
https://www.zerohedge.com/markets/your-last-minute-j-pow-j-hole-preview
Wall Street
reacts.
https://www.zerohedge.com/markets/wall-street-reacts-powells-dovish-nothingburger-speech
Overseas, the numbers
remained negative. So, no help there.
Bottom line. ‘As
you know my opinion is that following an initial snapback (which may already
be over), the US economy will likely return to its former subpar secular growth
rate, stymied by an irresponsible mix of fiscal/monetary policies.’---which we got in
spades this week as Biden’s ghastly spending extravaganza made progress in the
house and the Fed once again declined to behave responsibly.
US
International
July Japanese YoY retail sales were up 2.4%
versus estimates of up 2.1%.
Preliminary
August German CPI was 0.0% versus expectations of +0.1%.
August EU economic
sentiment was 117.5 versus consensus of 117.9; industrial sentiment was 13.7
versus 13.4; services sentiment was 16.8, in line; consumer confidence was -5.3,
also in line.
Other
Real disposable income per capita inches up in
July.
Update on big four economic indicators.
Drawdown analysis can be useful for economic indicators.
http://www.capitalspectator.com/drawdown-analysis-is-also-valuable-for-economic-indicators/
Bottom line
My favorite optimist
makes the case for a Market that is not overvalued. The problems I see with the analysis is that
(1) GAAP profits are fairy dust. They
included every imaginable adjustment that will positively impact the reported
number. Compare that profit figure with
those reported on corporate tax returns which are significantly lower. True those figures are also subject to
creative accounting. But using GAAP
profits as the ‘E’ in ‘P/E’ overstates corporate earnings and (2) the Fed/QE
has destroyed the pricing of risk. Using
a discount factor based on current interest rates fails to recognize this
enormous anomaly.
http://scottgrannis.blogspot.com/2021/08/corporate-profits-are-impressive.html
News on Stocks in Our Portfolios
What
I am reading today
This is amazing.
NASA has a gun that can be fired at asteroids to either break them up or deflect
their path.
https://www.nytimes.com/2021/08/25/science/asteroid-deflection-collision.html
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