The Morning Call--So maybe inflation isn't transitory

 

The Morning Call

 

9/30/21

 

 

The Market

         

    Technical

 

            Wednesday in the charts.

            https://www.zerohedge.com/markets/debt-ceiling-doubts-spark-dollar-demand-bitcoin-bullion-dive

 

I add:  (1) the S&P lifted slightly, putting a little extra room between it and its 100 DMA,

 

(2) the long bond rallied but not enough to recover the lower boundary of its very short term trading range [negating that trend] or its 100/200 DMA’s,

 

(3) the dollar continued to soar.

 

            Is the recent rise in yields noise or a signal?

            https://www.capitalspectator.com/is-the-recent-rise-in-interest-noise-or-signal/

 

            The dollar is breaking out.

            https://www.zerohedge.com/the-market-ear/dollar

 

            Key levels to watch.

            https://www.zerohedge.com/the-market-ear/caycro7f1w

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Weekly jobless claims were 362,000 versus projections of 335,000.

 

Final Q2 GDP growth was +6.7% versus estimates of +6.6%; the GDP price index was +6.2% versus +6.1%; corporate profits advanced 10.5% versus +4.5% in Q1; final Q2 PCE prices were up 6.5%, in line; final Q2 core PCE prices were up 6.1%, also in line.

 

                          August pending home sales rose 8.1% versus forecasts of +1.4%.

                          https://www.advisorperspectives.com/dshort/updates/2021/09/29/pending-home-sales-recover-in-august

 

                        International

 

Final Q2 UK GDP growth was 5.5% versus estimates of 4.8%; business investment was +4.5% versus -10.7% in Q1.

 

August Japanese retail sales were down 4.1% versus +1.0% in July; August YoY construction orders were off 3.0% versus -3.4% in July; August industrial production was -3.2% versus predictions of -0.5%; August YoY housing starts increased 7.5% versus +9.5%.

 

August EU employment was 7.5%, in line.

 

The September Chinese manufacturing PMI was 49.6 versus expectations of 50.1; the September Caixin (small business) PMI was 50.0 versus 40.5; the September nonmanufacturing index was 55.2 versus 47.5 I August.

 

The September preliminary German CPI was 0 versus estimates of +0.1%.

 

                        Other

 

            The Fed

 

              Uh, oh, so maybe inflation isn’t transitory.

              https://www.linkedin.com/in/edward-yardeni/detail/recent-activity/

 

              Just ask Dollar Tree.

              https://www.zerohedge.com/markets/dollar-tree-forced-sell-more-items-above-1-amid-amid-soaring-inflation

 

              The risks of a policy mistake are massive.

              https://www.zerohedge.com/markets/blain-risks-central-bank-policy-error-are-escalating

 

              Warren is right, Powell is dangerous.

              https://www.zerohedge.com/markets/rabobank-warren-right-powell-dangerous-so-whole-fed

 

            Fiscal Policy

 

              The $3.5 trillion ‘infrastructure’ bill increases ‘crony capitalism’.

              https://thehill.com/opinion/finance/574137-the-dc-swamp-is-back-and-its-swampier-than-ever

 

Where are the fact checkers when Biden says his $3.5 trillion package won’t cost anything?

              https://www.zerohedge.com/political/fact-checkers-replaced-unicorns-after-biden-tweets-my-build-back-better-agenda-costs-zero

 

It looks like deadlock.  Score one for the good guys.  Let’s hope Manchin holds his ground.

                          https://www.zerohedge.com/political/senate-will-vote-avert-shutdown-pelosi-reschedules-infrastructure-vote-after-progressives

                          

 

              Property rights, bureaucracy and the fall of great societies.

              https://www.realclearmarkets.com/articles/2021/09/29/what_causes_great_societies_to_rise_and_then_fall_796468.html

 

            China

 

              China’s housing conundrum.

              https://www.advisorperspectives.com/commentaries/2021/09/29/chinas-housing-conundrum

 

     Bottom line

 

            Your portfolio is your problem.

            https://allstarcharts.com/i-just-dont-care/

 

More advice on what to do in an overvalued market.  To refresh your memory, my solution is the construct of a Valuation Model that creates a ‘value envelope’ for a stock that is bordered by the historical extremes in valuation; that envelope ‘moves’ as earnings/dividends increase.  When a stock hits the upper boundary of that ‘valuation envelope’, I sell half of my position.  This, of course, is a hedged approach, forcing me to take money off the table at price highs but leaving me with a position if the stock continues to advance.

            https://get.ycharts.com/overvalued-markets-big-decisions-and-cherry-picking-with-nick-maggiulli/

 

                Still more advice.

            https://ritholtz.com/2021/09/one-sided-markets/

 

    News on Stocks in Our Portfolios

 

What I am reading today

 

            Insider trading is pervasive and no one is doing anything about it.

            https://www.bloomberg.com/news/features/2021-09-29/is-stock-market-rigged-insider-trading-by-executives-is-pervasive-critics-say?srnd=premium&sref=loFkkPMQ

 

 

            America’s car crash epidemic.

            https://www.vox.com/22675358/us-car-deaths-year-traffic-covid-pandemic

 

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

 

 

 

The Morning Call---Stocks, the long bond and the dollar at critical technical levels

 

The Morning Call

 

9/29/21

 

 

The Market

         

    Technical

 

            Tuesday in the charts.

            https://www.zerohedge.com/markets/dangerous-jerome-doomsaying-janet-spark-bond-stock-bullion-bitcoin-battering

 

To add to the above, (1) the S&P, after a one stay above the downtrend off its 9/2 all-time high, is back below it and near to challenging its 100 DMA,

 

(2) the long bond is now below [a] the lower boundary of its very short term trading range {if it remains there through the close today, it will reset to a downtrend}, [b] its 100 DMA {if it remains there through the close on Thursday, it will revert to resistance} and [c] its 200 DMA {if it remains there through the close on Friday, it will revert to resistance}and

https://www.zerohedge.com/the-market-ear/c7x7le4cw2

 

(3) the dollar made a ten month high yesterday. 

 

In short, important technical support levels are being tested across multiple markets.

 

            October has a history of big swings.

            https://quantifiableedges.com/october-has-a-history-of-big-swings/

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

Weekly mortgage applications fell 1.1% while purchase applications were down 1.0%.

 

September consumer confidence came in at 109.3 versus consensus of 114.5.

                          https://www.advisorperspectives.com/dshort/updates/2021/09/28/consumer-confidence-down-again-in-september

 

The September Richmond Fed manufacturing index was reported at -3 versus +9 recorded in August.

 

                        International

 

                          August UK mortgage approvals were 74,500 versus estimates of 73,000.

 

The September EU consumer confidence index was -4, in line; the economic sentiment index was 117.8 versus 116.9; the industrial sentiment index was 14.1 versus 12.5; the services sentiment index was 15.1 versus 15.5.

 

                        Other

 

                          The trend in new home sales.

                          https://politicalcalculations.blogspot.com/2021/09/falling-trend-for-new-home-sales.html#.YVNZ2rhKiUk

 

                          Regional Fed bank manufacturing indices overview.

                          https://www.advisorperspectives.com/dshort/updates/2021/09/28/september-regional-fed-manufacturing-overview

 

                          Environmental demands and energy prices.

                          https://www.wsj.com/articles/investors-bet-environmental-fears-will-crunch-commodity-supply-lifting-prices-11632350186?st=n6mpufey2itn7qx&reflink=desktopwebshare_linkedin

 

                          Also.

                          https://www.bloomberg.com/news/articles/2021-09-27/oil-holds-above-75-a-barrel-as-energy-crunch-rattles-markets?sref=loFkkPMQ

 

                         And power crisis deepens in Europe and Asia.

                        https://www.zerohedge.com/markets/power-crisis-deepens-asia-and-europe-what-it-means-shipping

 

                                Evergrande to default on second offshore bond issue.

                        https://www.zerohedge.com/markets/evergrande-default-second-offshore-bond-after-15-billion-bank-stake-sale

 

            The Fed

 

              Are we entering a new global tightening cycle?

              https://www.zerohedge.com/markets/we-are-entering-most-aggressive-global-hiking-cycle-decade

 

            The coronavirus

 

              Covid versus Spanish flu stats.

              https://scottgrannis.blogspot.com/2021/09/covid-vs-spanish-flu-chart.html

 

     Bottom line.

 

            Estimating future stock returns.

            https://alephblog.com/2021/09/25/estimating-future-stock-returns-june-2021-update/

 

            The delusion of control.

            https://www.evidenceinvestor.com/the-control-delusion/

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

            The enduring relevance of Mises/Hayek’s critique of socialism.

            https://www.aier.org/article/the-enduring-relevance-of-mises-and-hayeks-critique-of-socialism/

 

            Quote of the day.

            https://cafehayek.com/2021/09/quotation-of-the-day-3661.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

 

 

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

 

 

 

The Morning Call--The only charts that matter

 

The Morning Call

 

9/28/21

 

 

The Market

         

    Technical

 

            Technically speaking.

            https://www.advisorperspectives.com/commentaries/2021/09/27/technically-speaking-stocks-bounce-off-the-lows-time-to-buy

 

            The only charts that matter.

            https://www.zerohedge.com/the-market-ear/cvsaioszlw

 

            Charts to put on your wall---2021 edition.

            https://compoundadvisors.com/2021/put-these-charts-on-your-wall-2021-edition

 

            The dollar’s golden cross.

            https://www.zerohedge.com/the-market-ear/cnq5msslfp

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Month to date retail chain store sales grew slower than in the prior week.

 

                          The July Case Shiller home price index was up 1.5% versus +2.0% in June.

 

                          The August trade balance was -$87.6 billion versus -$86.3 billion in July.

 

August durable goods orders rose 1.8% versus estimates of +0.7%; ex transportation, they were up 0.2% versus +0.5%.

https://www.zerohedge.com/economics/core-durable-goods-orders-disappoint-august

 

The September Dallas Fed manufacturing index was reported at 4.6 versus 9.0 recorded in August.

https://www.advisorperspectives.com/dshort/updates/2021/09/27/dallas-fed-manufacturing-expansion-continues-in-september

 

                        International

 

July Japanese leading economic indicators came in at 104.1 versus predictions of 104.2.

 

August Chinese YoY industrial profits advanced 49.5% versus 57.3% in July.

 

October German consumer confidence was +0.3 versus expectations of -1.8.

 

                        Other

 

                          Turmoil in the energy markets.

                              https://www.zerohedge.com/markets/all-hell-breaking-loose-energy-markets

 

            Biden’s Plan

 

Under Biden’s tax plan, the number of corporations paying no taxes may actually go up.

https://www.zerohedge.com/political/list-companies-paying-no-taxes-might-increase-under-bidens-tax-plan

 

            Inflation

 

              You are going to lose 5% of your purchasing power this year.

              http://scottgrannis.blogspot.com/

 

              What to do in the case of sustained inflation.

              https://www.gmo.com/americas/research-library/part-2-what-to-do-in-the-case-of-sustained-inflation/

 

              Not the kind of inflation that the Fed wants.

              https://www.zerohedge.com/markets/theres-inflation-central-banks-want-and-theres-inflation-we-get

 

            China

 

              Forget Evergrande, China has bigger problems.

              https://www.advisorperspectives.com/commentaries/2021/09/27/connecting-the-dots-in-china

 

            Bottom line.

 

The author makes a great case for equity overvaluation.  The one problem with the analysis is his statement that the Fed is not responsible for lifting stock prices; then later on he laments (1) that Fed policy drives bond valuation which is a key determinate of equity valuations and (2) all the ‘free money’ in the system which to my way of thinking is what helps push stock prices higher.                               

              https://americanconsequences.com/dan-ferris-the-curtain-always-drops-on-the-kabuki-play/

 

                  What do you do when rates are rising?

              https://allstarcharts.com/whos-ready-for-rising-rates/

 

    News on Stocks in Our Portfolios

 

FactSet Research Systems (NYSE:FDS): Q4 Non-GAAP EPS of $2.88 beats by $0.15; GAAP EPS of $2.63 beats by $0.07.

Revenue of $411.89M (+7.4% Y/Y) beats by $6.97M.

 

Hormel Foods (NYSE:HRL) declares $0.245/share quarterly dividend, in line with previous.

 

What I am reading today

 

            Quote of the day.

            https://cafehayek.com/2021/09/quotation-of-the-day-3660.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

 

 

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Monday Morning Chartology--early

 

 

The Morning Call

 

9/27/21

 

I am back but still travelling.  I won’t be home until Tuesday, so I am taking a pause this weekend to catch up.

 

The Market

 

    Technical

 

As you can see, the S&P recently successfully challenged its short term uptrend and reset to a trading range.  Subsequently, it attempted to break below its 100 DMS but failed (good news) and is now pushing above the very short term downtrend off its September 2^nd high.  The key to watch this week is whether it can hold above that downtrend line.  If so, then the worst may be over; if not…………

 

 

After what looked like an upside breakout from a developing wedge pennant formation, TLT did an abrupt about face and plummeted last week to close right on the lower boundary of that pennant formation.  So, like the S&P, the long bond is at a technical junction---which we must wait to see how it responses directionally.

https://www.ft.com/content/7200b459-265a-44fc-a31c-3843e4802f75

 

 

While GLD remains in a downtrend off its August 2020 high and has reset both DMA’s to resistance, it remains in uptrends across all timeframes.  Its first trendline challenge will be its very short term uptrend about seven points lower.  In other words, the short term trend is clearly down, the long term trend is clearly up; but gold is nearing an inflection point.

 

 

 

The dollar has rallied in the last couple of weeks, continuing the upward bias off the January/May double bottom and remaining above both DMA’s.  I see no reason to doubt more upside. 

 

Investors appear to be discounting a strong economy and higher rates.  I have my doubts at least about the former.

 

Friday in the charts.

https://www.zerohedge.com/markets/taper-tantrum-sparks-bond-bloodbath-3rd-straight-weekly-loss-nasdaq

 

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        Review of Last 3 Weeks 

 

Week of 9/6:  Not much US data released.  What was reported was slightly negative with one minus primary indicator.  Overseas, the numbers were evenly divided. 

 

Week of 9/13: US stats were overwhelming positive including two primary indicators.  Overseas, the data was abysmal.

 

Week of 9/20: US data in aggregate was negative; however, primary indicators were a net plus (two to one).  Overseas, the numbers were horrible, again.

 

In sum, the US continues to grow but at a diminishing pace.  Overseas, conditions are decidedly worse---which won’t help our own progress.

 

The big economic news last week was the FOMC meeting and the subsequent narrative.  While rates were left unchanged, Powell stated that tapering will likely conclude by mid-2022, implying that it needs to start pretty quick to meet that objective.  Consensus is that means that it will be formally announced at the November FOMC meeting. (Note that has nothing to do with actually reducing the monstrous size of its balance sheet.)

 

Powell emphasized that rate hikes are a totally different matter, meaning don’t expect anything anytime soon. However, the ‘dot plot’ (forecasts for growth, inflation and interest rates by individual FOMC members) suggests otherwise.

https://www.ft.com/content/719c11ec-fb24-40b3-a661-518aa3bc6028

 

Finally, Powell did sound a bit more concerned about inflation than he has of late, suggesting that fears of stagflation may be increasingly well founded. 

 

In sum, it appears that QE is at least temporarily coming to an end; the risk being that it is too little, too late---a mistake that the Fed has consistently made in the past.  But for the moment, it is too soon to make that call.

 

Bottom line. ‘As you know my opinion is that following an initial snapback (which appears to be over), the US economy will likely return to its former subpar secular growth rate, stymied by an irresponsible mix of  fiscal/monetary policies.’

                           https://www.zerohedge.com/markets/coming-reversion-mean-economic-growth

 

 

                                US

 

                        International

 

                        Other

 

                          Household net worth to disposable income hits record high.

                          https://www.zerohedge.com/markets/has-be-mistake

 

                          Wrangling over the debt ceiling is a charade.

                          https://www.pragcap.com/its-time-to-break-the-debt-ceiling/

 

            The Fed

 

              Lessons not learned.

              https://www.realclearmarkets.com/articles/2021/09/24/central_bankers_refuse_to_learn_qes_obvious_lessons_795956.html

 

            Biden’s Plan

 

              Watch what they do, not what they say.

              http://gregmankiw.blogspot.com/2021/09/a-magic-trick-from-bidens-economists.html

 

            Inflation

 

              Inflation in the shadow of debt.

              https://www.project-syndicate.org/onpoint/us-inflation-debt-must-be-addressed-before-too-late-by-john-h-cochrane-2021-09

                       

 Mohamed El Erian rightly points out the potential danger of stagflation.   The only problem I have is his comment about congress passing Biden’s plan for improving productivity via physical and human infrastructure spending.  He ignores the preponderance of evidence that points to slower economic growth in the presence of high national debt as well as the fact that ‘human’ infrastructure spending is political parlance for social spending for which there has been very little return on investment.

                          https://www.project-syndicate.org/commentary/global-stagflation-risk-and-policy-response-by-mohamed-a-el-erian-2021-09

 

                          The coronavirus

 

How much longer are we going to tolerate the Constitutional abuse by our ruling class?

              https://americanconsequences.com/buck-sexton-bidens-authoritarian-covid-19-battle/

 

                  Another victory for truth by Project Veritas.

              https://www.zerohedge.com/covid-19/fda-official-busted-joking-about-blow-dart-forced-vaccinations-jewish-star-registry-mark

 

 

          Bottom line.

 

Josh sure had it right that the beginning of tapering will bring psychological relief; but he glosses over the valuation adjustment that will likely accompany it.

            https://thereformedbroker.com/2021/09/20/the-taper-when-it-comes-will-feel-like-a-relief/

 

            More optimism.

            https://ritholtz.com/2021/09/what-if-things-go-right/

 

         News on Stocks in Our Portfolios

           

What I am reading today

           

               

            What we really know about climate change.

            https://lawliberty.org/what-we-really-know-about-climate-change/?utm_source=LAL+Updates&utm_campaign=a25b8d84fe-LAL+Updates&utm_medium=email&utm_term=0_53ee3e1605-a25b8d84fe-72558837

 

                Why do we sleep?

            https://aeon.co/essays/a-quantitative-theory-unlocks-the-mysteries-of-why-we-sleep

               

 

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