The Morning Call
11/28/22
The
Market
Technical
The S&P was up
for the week; but not much has changed in the technical picture The minor uptrend off its 10/13 remains
intact and with it the likelihood of a Santa Claus rally. My attention is on resistance not
support. Specifically, (1) its 200 DMA
[~4053], (2) the upper boundary of its short term downtrend [~4136] and (3) the
initial 23.6% Fibonacci retracement level [4200].
Stay patient.
The long bond continued
its rally, in the process, making yet another (third) gap up open. So, at this
point, TLT has a lot to overcome to maintain its upward momentum: (1) the
magnetic pull of those gap up opens and (2) resistance from both DMA’s as well
as the upper boundary of a very short term downtrend. My assumption had been that ‘if he (Powell) means what he says, I can’t
think of a reason for bonds to trade higher, at least until/if higher rates
tank the economy. Further, there continues to be signs of extreme stress in the
credit markets’. But, of course, if you believe last week’s Fed
narrative, then he appears ready to (again) fold like a cheap umbrella. If so, more upside is likely---and those bond
guys who have buying the long bond will be proven correct.
https://www.zerohedge.com/markets/treasury-curve-inversion-has-even-more-come-feared
On
the other hand, this analyst thinks that it is time to short TLT.
https://www.zerohedge.com/markets/russell-clark-it-time-short-30y-treasuries
Gold retreated a bit
last week, but that is likely nothing more than digesting the big gains from
the prior two weeks. Probably more of
that is need, given that those two gap up opens still need to be filled. So, if you want to own GLD, then buy it while
this backing and filling process in going on.
Nothing new: The
bad news is that UUP (1) voided its very short term up trend and (2) reset its
100 DMA from support to resistance. The
good news is that it remains (1) above its 200 DMA, (2) within short,
intermediate and long term uptrends and has (3) made three huge gap down opens which need
to be filled. So, while the strong
upward momentum in the dollar has clearly been broken, I don’t think that it is
clear that it has made a trend reversal.
Friday in the
charts.
https://www.zerohedge.com/markets/dovish-fed-sparks-bond-stock-surge-during-holiday-week
Monday morning
charts.
https://www.zerohedge.com/the-market-ear/ofchasing
Fundamental
Headlines
The
Economy
Review last week
Last week the US stats slightly negative
though the primary indicators (two) were upbeat. Overseas, the data was overwhelmingly
positive. On the one hand, this would
intimate that the Fed (and other central banks) will remain on a path of tightening. On the other hand, it continues to look like
inflation has peaked. So, everybody (including Fed members) is anticipating the
next move in the Fed’s habitual volatile rate hike narrative (action).
Given
the headlines last week, it appears that the ‘pivot’ is upon us.
https://scottgrannis.blogspot.com/2022/11/the-fed-pivotsfinally.html
But
frankly, I don’t think that it matters in the long run. The economy is too deep in the doo doo for
all to end well. Years of fiscal profligacy
have left us with a debt to GDP ratio far in excess of the boundary marked by
Rogoff and Reinhart as the level at which the servicing of too much debt negatively
impacts the growth rate of the economy.
And years of irresponsible monetary expansion have led to the misallocation
of resources and the mispricing of risk.
Correcting
those self-inflicted wounds won’t be determined by whether the Fed Funds rate
is lifted by 50 or 75 basis points. It
will take years of fiscal and monetary restraint to do so. And that means less fiscal stimulus and interest rates staying higher for longer than
many now expect.
The
question is, does our ruling class have the courage to do that? As it currently exists, I believe that the answer
is a resounding NO. That means more
years of below average economic growth and more of same ‘fine tuning’ bulls**t from
the Fed, i.e.., staying too loose for too long then remaining too tight for too
long.
Bottom
line: the Fed may pivot quicker than expected but that won’t lead to any kind
of new era of noninflationary (below 2%) economic growth; or it may stay tighter
for as long as necessary but that likely means a prolonged period of economic
stagnation which may not be politically feasible with the ruling comprised as
it now is.
Bottom
line: inflation may have peaked, but Fed rate hikes likely have not. We are still faced with the twin risks of the
Fed staying too tight for too long (recession) and/or the Fed halting rate
hikes before inflation has returned to the 2% level (i.e., higher inflation for
longer).
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