The Morning Call
12/19/22
The
Market
Technical
I don’t need to
tell you that stocks had a really bad week.
The S&P finished below its 100 DMA for a second day; if it remains
there through the close today, it will revert from support to resistance. The next support level is the 38.2% Fibonacci
retracement level [~3817]. Were it
to trade down to that level and hold, it would be a double positive because that
would also close that 11/10 gap up open.
In my opinion, investors seem way too confused at the moment to make any
predictions about where the S&P trades next.
Stay patient.
As you can see, the
long bond hugged the uptrend line off it 10/24 low for most of the week, then
fell below it on Friday. In doing so, it
created a small gap down open which will need to be filled. Also positive is that it remained above its
100 DMA. Still upward momentum has been
lost; and with Fed members beating the ‘higher for longer’ drum, TLT may not be
able to recover it.
Like just about
everything else, GLD had a bad week: (1) it failed to hold the uptrend off its
11/3 low and (2) challenged its 200 DMA and failed. All the while creating two gap opens---one up,
one down. So, it has clearly lost its upward
momentum. Its future is tied to
inflation, interest rates and dollar, all of which are showing signs of
investor uncertainty.
The dollar looks
like it is trying halt its downward momentum.
It has crept above that downtrend off its 11/3 high and is clinging to
its 200 DMA (though it is slightly below it).
It remains within short, intermediate and long term uptrends and still has
those three huge gap down opens which need to be filled. We need more positive pin action before assuming
that UUP’s short term downward momentum has been halted.
Friday in the
charts.
https://www.zerohedge.com/markets/hawkish-fed-horrible-data-hammer-stocks-bonds-black-gold-bounce
Fundamental
Headlines
The
Economy
Review last week
Last
week the US stats were negative as were the primary indicators (one up, two down).
The good news is that it appears that the
economy has passed peak inflation. The bad news is that Powell continues to
insist that the fight to return inflation to the two percent level will be a
long and painful, meaning a slim probability of a ‘soft landing’---his
professed wishes notwithstanding. The Market played ‘deal or no deal’ with the ‘soft
landing’ scenario for most of the week---first refusing to believe that the Fed
would really break the economy then turning on a dime and running for the hills.
Of
course, Powell can change the narrative anytime he wants---as he has proven
time and time again. So, I don’t think a
‘hard landing’ is necessarily the final outcome. Indeed, as you know, I believe this crew in
the Fed is too cowardly to really go through with the necessary policies to push
the inflation rate back to two per cent.
Bottom
line, I believe that inflation has
peaked but rather than a Fed visibly determined to quell inflation, I think we
get more of the same old ‘fine tuning bulls**t’ that has characterized the Fed
narrative since Bernanke’s days.
The
sad result is that…..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 easy. 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.
I
don’t believe that …..our ruling class have the courage to do that. 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.’
Counterpoint.
Jeffrey
Snider believes that a ‘hard landing’ is already in the cards. However, that doesn’t mean that inflation is
going back to two percent and he doesn’t address the policies needed to get it
there.
Unfortunately,
even if the Fed wants to push inflation back to two percent, it faces an uphill
battle due to the reckless, irresponsible nonpartisan spendthrifts in congress.
Emasculated republicans.
US
International
The December German
business climate index came in at 88.6 versus estimates of 87.4.
Other
Update on big four economic indicators.
The
Fed
Focus on the labor numbers not the CPI/PPI.
This analyst looks at the labor numbers.
https://www.capitalspectator.com/will-the-tight-labor-market-keep-the-us-out-of-recession/
I love Barry
Ritholtz’s thought process but it seems like he and a lot of other Wall Street
gurus are focused on inflation peaking and the danger a ‘tighter for longer’
Fed policy will have on economic growth (and to be sure, I recognize that ‘tighter
for longer’ will lead to recession) and less on the job of bringing inflation (and
all the associated ills---too much debt, the misallocation of assets, the
mispricing of risk) back to acceptable levels.
https://ritholtz.com/2022/12/what-the-fed-gets-wrong/
Recession
Massive wave of auto repossessions and loan
defaults coming.
Bottom
line
The latest from
BofA.
https://www.zerohedge.com/markets/hartnett-event-will-mark-big-low-2023
News on Stocks in Our Portfolios
What
I am reading today
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