The Morning Call
1/23/23
The
Market
Technical
While the S&P
was down for the week, on Friday it managed to not only close Thursday’s gap
down open but also commence a second challenge of its 200 DMA (if it remains
there through the close on Wednesday it will reset from resistance to
support). Since it was options
expiration on Friday, there is reason for skepticism about Friday’s pin
action. But, as always, I wait for
follow through before marking a technical change, so I will just have to be
patient, at least through Wednesday.
The bull case is
almost all technical in nature.
https://ritholtz.com/2023/01/bull-or-bear/
The long bond was
down slightly on the week. Importantly
however, it (1) couldn’t muster a challenge of its 200 DMA and (2) made a lower
high. That calls into question the
strength of the upward momentum off last October’s low---clearly the bond crowd
has lost some of its mojo. On the other
hand, as I noted last week, it has made a higher low. That brings direction into question. I await
follow through---whatever the direction.
Bond
markets are embracing risk.
https://allstarcharts.com/bond-investors-embrace-risk/
GLD ignored the
stock and bond markets and continued on its sizz off its November low. Likely, it is a reflection of the renewed uncertainty
over recession, inflation and the debt ceiling.
The dollar is at
last trying to stabilize, hugging the lower boundary of its short term
uptrend. Let’s see if that support level
holds. It is being helped by those huge gap down opens overhead which provide some
magnetic pull to the upside. However, as
I noted last week, if UUP can’t hold the lower boundary of its short term
uptrend, it has a long way to fall to reach the next visible support level (the
lower boundary of its intermediate term uptrend).
Friday in the
charts.
https://www.zerohedge.com/markets/stocks-bonds-drop-commodities-cryptos-pop-hard-landing-looms
Fundamental
Headlines
The
Economy
Last Week Review
The
stats in both the US and overseas were upbeat again last week (the US primary indictors were two plus, three minus).
The US numbers continued to show an economy that is passed peak inflation and perhaps
on the plus side of wage inflation---leaving open the question: will the Fed use this unanticipated positive
as an excuse to back off the monetary tightening process?
(Or will it even matter?)
If
you believed the rhetoric out of Fed members last week, the answer is no. And I
hope they stick with their guns. Because
the rate of inflation subsiding is not the same thing as bringing it back down
to two percent---which is supposedly the goal of the current round of tight
monetary policy.
Of course,
these guys are spineless. With the exception of Paul Volcker, the Fed has never
had the courage to stick with a tight money policy when the Markets tank. And to paraphrase Lloyd Bentsen, Jay Powell
is no Paul Volcker.
What
I believe that means is that the Fed will stay tight as long as it is
convenient to do so. If we/the Fed get
lucky, then the Markets will stay reasonably calm as the Fed pursues its QT---although,
in the fifty five years I have been doing this, I never found that depending on
luck to be a good investment strategy. If not, then expect turmoil.
Bottom
line: there still is always a chance that the Fed could luck out, at least in
the short term. But…. Regrettably, the economy is too deep in the
doo doo for the ‘lucked out’ scenario to prevail long term. 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.
Larry
Summers agrees.
But as I opine
above, the prospects of this occurring seem very slim---meaning continuing
irresponsible fiscal and monetary policies, i.e. slower growth and higher
inflation, for the long term. Short term,
I think that the Fed ‘chickens out’ versus ‘lucks out’ is the operative
scenario; but in either case, stocks will enjoy a push higher.
Counterpoint.
The semi-Goldilocks scenario.
https://thehill.com/opinion/finance/3819601-recession-looks-more-likely-but-less-bad/
Headlines
The
Economy
US
International
Other
The
Fed
Lagarde says ECB will stay the course---yaa,
right!
Recession
Global property market faces $175 billion debt
spiral.
Bottom line
The latest from BofA (must read).
News on Stocks in Our Portfolios
Paychex (NASDAQ:PAYX) declares $0.79/share quarterly dividend,
in line with previous
Kroger (NYSE:KR) declares $0.26/share quarterly dividend,
in line with previous.
What
I am reading today
Six tips on how to live to 100.
https://www.brightonifa.co.uk/six-tips-from-okinawa-on-how-to-live-to-100/
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for Survival’s website (http://investingforsurvival.com/home)
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