The Morning Call
12/20/21
I am off for the
holidays. See you in January.
The
Market
Technical
Try
as it might, the S&P just couldn’t make it back to old highs. Before
reading too much into it, remember that Friday was quad witching which usually
introduces idiosyncratic volatility into the pin action. That said, if the
S&P can’t quickly return to a challenge of the recent highs, then we have
to start (1) looking at support levels---the obvious one being the 100 DMA
which the index bounced off of in early December, (2) considering the
possibility that we just witnessed a double top, especially given the horrible
breadth numbers. One final note. For the next two weeks, a big chunk of Wall
Street will either be on vacation or, in the case of the hedge funds, have
closed their books for the year. That likely means that through year end less
volume but more volatility if there is a big news event.
Treacherous
undercurrents.
https://www.ft.com/content/d248d1af-261e-47c8-9a5f-0d264cb9f83b
Levels to watch.
https://www.zerohedge.com/the-market-ear/chib7f6qlv
TLT blew off the
Powell tapering announcement, closing basically flat on the week after an
initial dip. That leaves it in (1) in very short term uptrends off its March
and October lows as well as its intermediate and long term uptrends and (2)
above both DMA’s. This is supportive of the notion that inflation will not be
the problem many think but rather it is that ‘Powell waited too late to get
hawkish and now the Fed will be tightening into a weaker economy---thereby
making it even weaker.’
GLD
rallied substantially during last week. While one might expect it to do so on
the prospect of higher inflation, the long bond (see above) and the dollar (see
below) are suggesting otherwise. Of course, gold is a much less liquid market
than either bonds or the dollar, so this contrary performance could be a
function of other factors weighing on gold investors’ minds. Setting aside the
fundamentals of GLD, it is behaving just as one would expect technically. In
last week’s Monday Morning Chartology, I introduced the notion of a developing
pennant formation (the two straight red lines). As you can see, it traded down
to the lower boundary of that formation and bounced immediately. That suggests
the gold will trade in an ever narrowing price range until it breaks up/down
which would then be indicative of future price direction.
The dollar had a
see saw week but ended higher. It remains near the upper boundary of its short
term uptrend and above both DMA’s---not indicative of a higher inflationary
environment.
What is bothersome
to me is these charts are suggesting that the Fed has timed the tapering
perfectly, that is, soon enough to slow the growth of inflation with just
enough tightening to assure continued economic strength. As you know, I am
coming around to the notion that inflation may be at or near its peak but not
because of anything positive that the Fed is done. Indeed, I believe that if it
is peaking, it is because the enormous burden that irresponsible money and
fiscal polices have placed growth prospects for the economy. In short,
inflation may not prove an enduring problem but a struggling economy made worse
by tightening monetary policy could be.
Friday in the
charts.
https://www.zerohedge.com/markets/turbo-taper-send-stocks-bond-yields-lower-week
Fundamental
Headlines
The
Economy
Review of Last Week
The US stats were negative
last week as were the primary indicators (two negative, one positive). Overseas,
the data were overwhelmingly negative for the second week in a row, putting to
rest any doubt that a recovery was in sight.
One thing to mention
is that the indicators of growth were mostly below expectations, the inflation
readings were also less than forecasts. In other words, economies are
struggling but inflation seems to be lessening. Now, one week does not a trend
make, but, but, but I have I noted previously that the markets appear to be
discounting an easing in inflationary pressures. Again, one week of data
doesn’t mean this will prove the case; but it clearly something to watch.
Jeffrey Snider
agrees with the markets.
And so does Ed
Yardini.
https://www.linkedin.com/in/edward-yardeni/detail/recent-activity/
In the first
instance that makes sense given that the Fed (and Bank of England) elected this
week to become more hawkish on inflation. As you know, the FOMC announced that
tapering would begin in earnest in January and that rate hikes would likely
commence later in 2022. The problem is, as I have tried to document, economic growth,
following a post Covid snapback, is again slowing. Begging the question, has
the Fed once again waited far too long to begin tightening and then elected to
do so at the very point that it should be easing? Stay tuned.
Bank of Japan
shuns tightening.
My take on the
economy remains unchanged---it is struggling to grow, hampered by increasingly
irresponsible monetary and fiscal policies, getting no support from the global
economy and threatened by seemingly mounting inflationary forces---though I am
beginning to question the latter point.
US
International
Other
Bottom line.
Desperately
seeking the Fed put.
Should you be
raising cash?
https://www.zerohedge.com/markets/screaming-dislocation-we-must-raise-cash-any-rally-here
More on
valuations.
News on Stocks in Our Portfolios
What
I am reading today
A
few questions.
https://www.collaborativefund.com/blog/i-have-a-few-questions/
Using game theory to find extraterrestrials.
https://politicalcalculations.blogspot.com/2021/12/using-game-theory-to-find.html#.YbzTT2jMKUk
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