The Morning Call---Too soon to buy the dip

 

The Morning Call

 

8/31/22

 

 

The Market

         

    Technical

 

            Tuesday in the charts.

            https://www.zerohedge.com/markets/bad-good-news-batters-big-tech-bitcoin-black-gold-bonds

 

            More technical analysis.

            https://www.zerohedge.com/markets/dow-theory-reasserts-its-cyclically-bearish-signal-bofas-biggest-support-level-looms

 

            The significance of the 200 DMA.

            https://theirrelevantinvestor.com/2022/08/30/its-different-this-time/

 

            NASDAQ now below its 50 DMA.

            https://www.zerohedge.com/the-market-ear/cxk3vlkq1r

 

            Global bonds tumble toward bear market.

            https://www.bloomberg.com/news/articles/2022-08-30/global-bonds-tumble-toward-bear-market-as-powell-pushes-back?sref=loFkkPMQ

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

Weekly mortgage applications declined 3.7% while purchase applications were down 1.8%.

                       

Month to date retail chain store sales grew at a faster pace than in the prior week.

 

The June Case Shiller home price index rose 0.4% versus estimates of +1.3%.

                          https://www.calculatedriskblog.com/2022/08/comments-on-june-case-shiller-and-fhfa.html

 

  The July jobs opening report (JOLTS) showed available jobs at 11.2     million versus expectations of 10.4 million.

https://www.advisorperspectives.com/dshort/updates/2022/08/30/july-job-openings-labor-turnover

 

The August consumer confidence index was reported at 103.2 versus predictions of 97.7.

 

The August ADP private payroll report showed an increase of 132,000 employed versus projections of +180,000.

                          https://www.zerohedge.com/personal-finance/adp-reports-big-miss-jobs-data-ahead-friday-payrolls-print

 

                        International

 

                          The July German unemployment rate was 2.9%, in line.

 

July Japanese retail sales grew 0.8% versus forecasts of +0.5%; July preliminary industrial production was down 1.8% versus -3.5%; July YoY housing starts were off 5.4% versus -4.1% July YoY construction orders were up 2.8% versus +11.0%; August consumer confidence came in at 32.5 versus 31.0.

 

The August Chinese manufacturing PMI was 49.4 versus consensus of 49.2; the August nonmanufacturing PMI was 52.6 versus 52.0; the August composite PMI was 51.7 versus 50.6.

 

August EU CPI rose 0.5% versus estimates of +0.6%; the YoY core rate was +4.3% versus +4.1%.

 

                        Other

 

            Inflation

 

              An early look at August CPI.

              https://www.yardeniquicktakes.com/augusts-cpi-likely-to-confirm-inflation-peaking/

 

              Used car market cools.

              https://www.zerohedge.com/markets/used-car-market-cools-prices-plunge-year-low

 

            China

 

              China’s largest property developer says the real estate crisis is not over.

              https://www.bloomberg.com/news/articles/2022-08-30/china-s-biggest-developer-says-property-crisis-has-yet-to-bottom?srnd=premium&sref=loFkkPMQ

 

     Bottom line

 

            Too soon to buy the dip.

            https://www.morningstar.com/articles/1111480/why-buying-the-dips-could-hurt-your-portfolio-in-a-bear-market

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

           

 

 

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The Morning Call--The truth about lockdowns

 

The Morning Call

 

8/30/22

 

 

The Market

         

    Technical

 

            Monday in the charts.

            https://www.zerohedge.com/markets/stocks-bonds-sink-post-powell-pain-continues

 

            The stock market wrecking ball.

            https://allstarcharts.com/wrecking-ball-22/

 

            Up or down?

            https://thereformedbroker.com/2022/08/29/is-this-chart-going-up-or-down/

 

            Part 2:

            https://www.advisorperspectives.com/commentaries/2022/08/29/the-bear-market-is-over-or-is-it-just-hibernating

 

            A weaker dollar ahead?

            https://www.zerohedge.com/geopolitical/dont-be-fooled-recent-strength-post-dollar-world-coming

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

The August Dallas Fed manufacturing index came in at -12.9 versus estimates of -24.0.

                          https://www.advisorperspectives.com/dshort/updates/2022/08/29/dallas-fed-manufacturing-slows-in-august

 

                        International

 

                          The July Japanese unemployment rate was 2.6%, in line.

 

                          The preliminary August German CPI was +0.3%, in line.

 

The August EU consumer sentiment index was 97.6 versus forecasts of 98.0; the August industrial sentiment index was 1.2 versus 1.5; the August services sentiment was 8.7, in line; the August consumer confidence index was -24.9, also in line.

 

                        Other

 

                          For some perspective on growth and inflation.

                          https://www.themoneyillusion.com/is-it-morning-in-america/

 

Debating whether or not the US is in a recession has all the marks of a similar one about the number of angels dancing on the head of a pin. What difference does it make if the economy grew or shrunk by 0.2% last quarter? The point is that the economy is stalling.

https://www.wsj.com/articles/a-different-take-on-the-u-s-economy-maybe-it-isnt-really-shrinking-11661696041

 

                          Weekly economic growth data.

                          https://econbrowser.com/archives/2022/08/weekly-economic-indicators-thru-august-20

 

                          Demand destruction: two reasons to be skeptical.

                          https://blogs.cfainstitute.org/investor/2022/08/26/demand-destruction-two-reasons-to-be-skeptical/

 

                          Framing lumber prices up YoY.

                          https://www.calculatedriskblog.com/2022/08/update-framing-lumber-prices-up.html

 

                          Update on four high frequency economic indicators.

                          https://www.calculatedriskblog.com/2022/08/four-high-frequency-indicators-for_29.html

 

            The Fed

 

This article was written before Jackson Hole, but it is still a timely review of monetary policy.

https://scottgrannis.blogspot.com/2022/08/m2-says-fed-doesnt-need-to-crush-economy.html

 

            Fiscal Policy

 

              The student loan bailout is a terrible idea.

              https://thedispatch.com/p/the-student-loan-bailout-is-terrible?triedSigningIn=true

 

              And it is even worse than you think.

              https://marginalrevolution.com/marginalrevolution/2022/08/the-student-loan-giveaway-its-much-bigger-than-you-think.html

 

            Inflation

 

              Here is a decent attempt to deal with the magnitude of ‘embedded’ inflation issue.

              https://www.bloomberg.com/news/articles/2022-08-28/-inflation-fever-is-finally-breaking-but-central-banks-won-t-stop-hiking-rate?sref=loFkkPMQ

 

            The coronavirus

 

              Facing the truth about lockdowns.

              https://www.powerlineblog.com/archives/2022/08/facing-the-truth-about-lockdowns.php

 

     Bottom line

 

            Update on S&P revenues and earnings.

            https://www.yardeniquicktakes.com/s-p-500-revenues-earnings-at-record-highs/

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

           

                        Four pieces of wisdom that lead to an enriched life.

            https://traderfeed.blogspot.com/2022/08/four-pieces-of-trading-wisdom-to-turn.html

 

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

 

 

 

Monday Morning Chartology

 

The Morning Call

 

8/29/22

 

 

The Market

         

    Technical

 

            I noted in the 8/24 note that the S&P was following a predictable  technical script. It continued to do so---attempting to recover back above the lower boundary of a very short term uptrend, then stalling at the initial 23.6% Fibonacci retracement level and ultimately rolling over and plunging below its 100 DMA (now support; if it remains there through the close on Tuesday, it will revert to resistance). If that break is confirmed (and I am not saying that it will be) then there is little support between the current level and the initial 38.2% Fibonacci retracement level (~3817) and the lower boundary of its intermediate term uptrend (~3803).

 

            Update on the short interest.

            https://www.zerohedge.com/the-market-ear/cybi1wyybv

 

            The long bond has now made five unsuccessful attempts to break below the lower boundary of its intermediate term trading range. Given the most recent headlines (see below) suggesting a more hawkish Fed (higher rates), that performance seems a bit incongruous. On the other hand, it may mean nothing more than the investors are betting that higher short term rates will precipitate a recession (lower long term rates).

 

            Gold has been in an eighteen month trading range. Given the volatility in the S&P and the TLT in that time period, I am not sure that there is any informational value in GLD’s pin action.

 

            The dollar remains the most consistent performer of the major indices that I follow. And I am sticking with my interpretation---in a highly unpredictable global economy, everyone wants to own the dollar.

 

    Fundamental

 

       Headlines

 

              The Economy

                         

                        Review of the last month

 

The data since I have been gone has done little to alter my forecast (above average inflation, below average growth). The US stats were slightly positive while the global numbers were solidly negative. In other words, nothing that screams at the Fed or the federal government to alter its policies.

 

So, the issues remain the same:

 

1.      how deeply embedded is inflation in our economy?

 

2.      given the answer to 1., how firm will the Fed remain in its policy decisions to bring the inflation rate back to acceptable levels?

 

As I noted last week, the inflation numbers came in below estimates, providing a reason to believe that the economy may have seen peak inflation. While I don’t disagree with that idea, it does not really address the answer to question #1---how deeply embedded is inflation? It is all well and good to be happy that inflation may be going from 9% to 6%. But that is not the issue. The issue is how tough must the Fed remain to get inflation back to 2%.

 

 

Unfortunately, the turd in punch bowl is that the current Fed does not have a well-documented history of toughness. Powell’s narrative following the July’s FOMC meeting, suggested that his bias remained on the dovish side. Subsequently, other Fed members weighed in on a more hawkish note. Then, last week, Powell reversed himself (again) and joined (along with the ECB) their ranks. Confused? Yeah, me too. Indeed, the Fed’s continuing back and forth, on the one hand/on the other hand routine is wearing very thin and inspires little confidence in me. Of course, that has been a common complaint of mine for the last 20 years; and I see no reason that things will change, i.e. don’t believe that the Fed has found religion, that the ivory tower hubris that got us to this point has in any way been tempered or that it will stick to its guns if the Markets dive.

 

In short, there is almost no good reason to make any assumption yet about how deeply embedded inflation is and less reason to suppose the Fed has the cojones to deal with a worst case scenario. Patience remains a virtue. Sitting on the sidelines is a pro-active strategy.

 

                        US

 

                        International

 

The June Japanese leading economic indicators were reported at 100.9 versus consensus of 100.1.

 

                        Other

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

           

 

 

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

 

 

 

The Closing Bell--An update

 

The Morning Call

 

8/24/22

 

I am still not back at work; but I have hit a down period. So, I thought that I would write an update.

 

You may recall that I believe that the critical issues posed to the economy and the Markets over the intermediate term:

 

1.      how deeply embedded is inflation in our economy?

 

2.      given the answer to 1., how firm will the Fed remain in its policy decisions to bring the inflation rate back to acceptable levels?

 

In addressing the latter issue, I noted: Unfortunately, the turd in punch bowl is that the Fed does not have well documented history of courage. Powell’s narrative following the July’s FOMC meeting, suggested that his bias remained on the dovish side. Hardly surprising given that the Fed has been consistently dovish since the Greenspan era even when facing the rampantly inflationary mortgage backed securities moonshot. In short, the turd was still in the punch bowl with the Fed pursuing its unspoken third mandate not let the stock Market plunge [the Fed ‘put’].

 

That said, the Market provided its usual response to a reiteration of the Fed ‘put’ and accelerated to the upside. Unfortunately (for the bulls), comments from other Fed members the following week suggested that a slightly more hawkish take on inflation, which (1) just keeps alive the whole notion that these guys are clueless and (2) gave investors pause.

 

As to question #1, the inflation numbers came in below estimates last week, providing a reason to believe that the economy may have seen peak inflation. While I don’t disagree with that idea, it does not really address the answer to question #1---how deeply embedded is inflation? It is all well and good to be happy that inflation may be going from 9% to 6%. But that is not the issue. The issue is how tough must the Fed remain to get inflation back to 2%.

 

In short, there is almost no good reason to make any assumption yet about how deeply embedded inflation is and less reason to suppose the Fed has any more clarity about dealing with such. Indeed, its continuing back and forth, on the one hand/on the other had routine is wearing very thin and inspires little confidence in me. All that said, patience remains a virtue. Sitting on the sidelines is a pro-active strategy.

 

To give some visual perspective to this commentary, I thought a technical update might be helpful. I have just done the S&P. But as you can see, the post FOMC meeting Powell commentary along with the better inflation numbers help push the index through the initial 23.6% Fibonacci retracement level. But near the 200 DMA and the upper boundary of its short term downtrend, it lost momentum and rolled over. That does not mean that the rally is over or that ‘the’ bottom isn’t in. But it does mean that the index is acting in a predictable way. So, watch the 100 DMA level (`4085) for support and if that fails than the next visible level is the combo of the initial 38.6% Fibonacci level (~3817) and the lower boundary of its intermediate term uptrend (`3796).

 

 

 

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The Morning Call--Patience is still a virtue

 

The Morning Call

 

8/1/22

 

 

Over the past month in my notes, I have posed two questions, the answers to which I believe would likely determine the course of the economy and Market over the intermediate term:

 

1.      how deeply embedded is inflation in our economy?

 

2.      given the answer to 1., how firm will the Fed remain in its policy decisions to bring the inflation rate back to acceptable levels?

 

In addressing the latter issue, I noted: Unfortunately, the turd in punch bowl is that the Fed does not have well documented history of courage.          Given Powell’s narrative (dovish if you have been living under a rock) following last week’s FOMC meeting, I assume that that turd remains in the punch bowl. One can hardly be surprised. But it puts investors back in the same territory that existed when Powell et al were swearing that inflation was ‘transitory’, i.e., buying the dips on the premises that (1) the Fed knew what it was doing and/or (2) its third mandate was to not let the stock Market plunge [the Fed ‘put’].

 

The problem is that we don’t have the answer to 1. To be sure, there is an argument to be made that many of the conditions contributing to the move up in inflation are one off events (China lockdown, Russia/Ukraine conflict) and once resolved, things will return to normal, and we will all live happily ever after. I can’t say that won’t happen. On the other hand, I can’t say that it will.

 

So for me, it is too soon to make an investment call (chasing the current rally) based on the lack of clarity in the fundamentals. Indeed, given history as embodied in the recent ‘transitory’ episode, it makes no sense to me that stock prices are spiking because investors again believe in the Fed ‘put’ when it is not clear that the battle against inflation has been won (i.e., that the Fed knows what it is doing). Because if it hasn’t, investors will eventually have to face either unacceptably high inflation and/or another reversal in Fed policy/narrative, neither of which will likely be good for equity prices.  

 

Further, I have never lived through a bear market that ended with a whimper save the 1973/74 bottom which was a protracted affair that died of exhaustion---which would be the case if indeed THE bottom is now in.

 

Patience remains a virtue.

 

 

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