The Morning Call
12/12/22
The
Market
Technical
The S&P fought
with its 100 DMA all week. The good news
is that remains above it; the bad news is that it does so just barely. The pin action suggests that I more attention
to support rather than resistance levels; the former being (1) the 100 DMA
[~3930] and (2) the 38.2% Fibonacci
retracement level [3817].
Stay patient.
The long bond had
another good week, resetting its 100 DMA from resistance to support and voiding
its very short term downtrend. That
strengthens its upward momentum and sets it up for an assault on its 200
DMA. That said, last week’s data argues
against much further upside,i.e., upbeat economic numbers and a PPI that came
in above expectations.
Talk about hugging
a trend line. GLD spent the week advancing at the same rate as the uptrend off the
lower boundary of its long term uptrend.
I view that as a plus. In addition,
it is a short hair away from a challenge of its 200 DMA---a reset of which
would really alter gold’s momentum and as I noted last week leave little
resistance until it hits the upper boundary of its intermediate term uptrend.
Little 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 [and holding above
it as it did last week is a bonus], (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.
The dollar and
stock prices.
https://allstarcharts.com/i-dont-know-i-really-dont/
Friday in the
charts.
https://www.zerohedge.com/markets/bonds-stocks-black-gold-battered-week
Sentiment remains bearish.
https://www.bespokepremium.com/think-big-blog/sentiment-staves-off-lower-readings/C
Though some
technicals are bullish.
https://www.yardeniquicktakes.com/technicals-remain-bullish/
Fundamental
Headlines
The
Economy
Review last week
Last
week the US stats were positive as were the primary indicators (two up, one negative).
The good news is that the economy continues
to grow. The bad news is that the aforementioned
negative indicator was PPI which suggests a ‘tighter for longer’ Fed. So, it still appears that the rest of the world
is ahead of the US both in terms of inflation peaking and an economic slowdown.
Nonetheless, I continue to believe that
inflation has indeed seen its high in the US---though clearly this latest PPI number
calls that opinion into question.
The
counter argument.
https://scottgrannis.blogspot.com/2022/12/ppi-inflation-plunges.html
And
a strong inflation number goes hand in hand with the lack of evidence that the
US economy is slowing---the continuing upbeat data flow gives testament to that.
However,
this analyst sees signs of deceleration.
https://econbrowser.com/archives/2022/12/deceleration-through-12-3
All of which begs the question, why is the Fed pursuing
its current ‘fine tuning’ bulls**t narrative (instead of going balls to the
wall in its inflation fight). The answer,
of course, is that monetary tightening precedes its impact on the economy by
twelve to eighteen months; and hence, the Fed is worried about staying too
tight for too long---its statements to the contrary notwithstanding.
A
recent survey of economists shows that they believe what the Fed says.
And
this indicator points to a 100% probability of a recession.
On
the other hand, the Fed never seemed to worry about staying too loose for too
long which is a big part of the reason that we are in the mess we are in right
now.
And
as Jeffrey Snider points out, these guys aren’t sure how to measure monetary
policy.
The
sad answer to this dilemma is that there is no easy way out, no positive
outcome that ‘fine tuning’ monetary policy can accomplish. 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 would mean 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.’
Or taking the
coward’s way out and raise the target from 2% to 4%.
https://www.zerohedge.com/markets/39-trillion-reasons-why-fed-will-raise-its-inflation-target
US
International
October UK GDP grew
0.5% versus expectations of +0.4%; the October trade balance was L-1.78 billion
versus L-3.2 billion; October industrial production was flat, in line.
November YoY Japanese
machine tool orders fell 7.8% versus estimates of +1.5%.
Other
2023 housing forecast.
https://calculatedrisk.substack.com/p/2023-housing-forecasts
Leading index for commercial real estate rises
in November.
https://www.calculatedriskblog.com/2022/12/leading-index-for-commercial-real.html
Q3 household net worth declines.
https://www.calculatedriskblog.com/2022/12/feds-flow-of-funds-household-net-worth.html
The Fed
Problems
in the EU banking system.
Is
the Fed trying to kill the ‘Fed put’.
https://www.zerohedge.com/markets/what-does-feds-jerome-powell-have-his-sleeve
Bottom line
The latest from BofA (must read).
https://www.zerohedge.com/markets/hartnett-last-hike
Lessons from the ‘nifty fifty’.
https://www.advisorperspectives.com/commentaries/2022/12/09/lessons-from-the-nifty-fifty
Top money managers
see global stocks rising in 2023.
News on Stocks in Our Portfolios
What
I am reading today
US scientists make breakthrough in
nuclear fusion.
https://www.zerohedge.com/energy/net-energy-gain-us-scientists-makes-breakthrough-nuclear-fusion
Scientists propose new faster means
of interstellar space travel.
https://www.vice.com/en/article/7k8ava/scientists-propose-new-faster-method-of-space-travel
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