The Morning Call
1/3/23
The
Market
Technical
BORING. That was the pin action of the last two weeks
in which the S&P went nowhere. The
bad news is that it remained (1) within its short-term downtrend and (2) below its
100 DMA and 200 DMA. It was also stuck
at the 38.2% Fibonacci retracement level, pretty much destroying the chance of
a Santa Claus rally. The good news (limited
as it maybe) was that it filled the 11/10 gap up open. Clearly, the bulls and bears have been
fighting it out at that 38.2% Fibonacci level.
Await a resolution of this standoff.
TLT was stand out chart
of the last two weeks, suffering some serious whackage in the first week then
attempting to gain traction in the second.
Clearly that uptrend off its 11/7 low was voided with prejudice. In
addition, it reset its 100 DMA from support to resistance. The only good news is that several gap down opens
were created---which need to be filled.
In the end, like equities, I will be watching for a directional
resolution of last week’s backing and filling.
Unlike stocks and
bonds, gold had a good two weeks---good but not great. It managed to (1) reset its 200 DMA from
resistance to support, (2) re-established the uptrend off its 11/3 low and (3)
closed two previous gap opens [one up and one down]. That makes sense given the weakness in the
dollar (see below) but not so if interest rates should continue to rise---which
leaves questions about its ability to hold the current uptrend.
The dollar continued
its fall, resetting its 200 DMA from support to resistance and maintaining the downtrend
off its 11/3 high. On the other hand,
(1) it remains within short, intermediate and long-term uptrends and (2) still has
those three huge gaps down opens which need to be filled. The lower boundary of its short-term uptrend
will be the next test.
Friday in the
charts.
Fundamental
Headlines
The
Economy
Review last two weeks
12/19
We
got a lot of datapoints that week. In
the US, the negative stats outweighed the positive almost two to one and the
primary indicators were four plus, six minus.
Overseas the numbers were upbeat.
12/26
The
stats reversed last week with a majority in the US registering positive (no primary
indicators) and minus datapoints outnumbering pluses overseas.
In
short, the last two weeks stats provided little guidance on the economy’s
direction. Which fundamentally, like
technically, leaves us pretty much where we were pre-Christmas:
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.
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, 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---last week’s passage of a grotesque pork laden 2023
budget bill exemplifies the problem. And
years of irresponsible monetary expansion have led to the misallocation of
resources and the mispricing of risk.
At
least some in the ruling class are fed up.
https://www.zerohedge.com/political/speakership-major-doubt-mccarthy-caves-key-gop-rebel-demand
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.
Unfortunately,
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.’
Headlines
The
Economy
US
International
The December German
manufacturing PMI came in at 47.1 versus forecast of 47.4; the December EU
manufacturing PMI was 47.8, in line; the December UK manufacturing PMI was 45.3
versus 44.7; the December Chinese Caixin manufacturing PMI was 49.0 versus 48.8.
The December
German unemployment rate was 4.4% versus estimates of 5.6%; December CPI was
-0.8% versus -0.5%.
Other
This analysis is a
bit dated but it still provides a decent picture of the current state of the economy. This author, as always, is of the ‘glass half
full’ variety.
http://scottgrannis.blogspot.com/2022/12/a-quick-look-at-gdp-and-corporate.html
On the other hand,
Fiscal
Policy
New taxes for you and for me in 2023.
https://www.zerohedge.com/political/heres-list-biden-tax-hikes-which-take-effect-jan-1
New regulations for you and for me in 2023.
https://cei.org/blog/this-week-in-ridiculous-regulations-295/
The
coronavirus
Covid and the Salem witch trials.
Bottom line
The benefit of
bonds in the coming investment environment.
News on Stocks in Our Portfolios
What
I am reading today
Hangover
cures.
https://www.wired.com/story/wired-tested-miracle-hangover-cures/
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for Survival’s website (http://investingforsurvival.com/home)
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