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
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