The Morning Call
1/17/23
The
Market
Technical
The S&P had another
good week successfully challenging its 100 DMA (now support) and beginning a challenge of its 200 DMA---if
it remains above that MA through the close on Thursday, it will reset from
resistance to support. That would be a
major plus and set it up for a strong test of the upper boundary of its short-term
downtrend. If those challenges are
successful, that is likely to convert a lot of bears.
https://www.zerohedge.com/the-market-ear/dont-forget-we-are-huge-levels
What does the recent
strength tell us?
https://traderfeed.blogspot.com/2023/01/what-does-recent-stock-market-strength.html
TLT also had a
good week, resetting its 100 DMA to support.
It has (1) taken out the upper boundary of its very short-term downtrend
and (2) made a higher low. To keep the
momentum going it now needs to make a higher high. Let’s see how strongly the bond guys believe a
pivot is in our near future.
https://allstarcharts.com/credit-spreads-contract/
Further easing to follow.
https://www.zerohedge.com/the-market-ear/further-easing-financial-conditions
GLD also had a
good week, signaling that the gold bulls are riding the coattails of the stock
and bond boys. That clearly makes sense
if both interest rates and the dollar are falling (see below).
Of course, the gold market is funky, so its signals are not always
accurate. But clearly, in this case, it
lends support to the ‘pivot’ thesis.
The dollar continued
its fall. It still remains within short,
intermediate and long-term uptrends; though as you can see, it is about to
challenge the lower boundary of its short term uptrend. Were that to be successful, then there is
little support until it gets to the lower boundary of its intermediate term
uptrend (bottom of the chart). It also
still has all those huge gaps down opens which need to be filled. Let’s see how it handles the lower boundary
of its short-term uptrend.
Friday in the
charts.
https://www.zerohedge.com/markets/stocks-bonds-gold-crypto-soar-market-calls-feds-bluff
Fundamental
Headlines
The
Economy
Last Week Review
The
stats in both the US and overseas were upbeat again last week (though a bit
meager in the US with no primary indictors). And the data pattern also remained
positive---lower unemployment, lower inflation.
I
am not going to make too much from a slow week.
Nonetheless, the numbers continued to show an economy that is passed
peak inflation 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?
At
the moment, it is still too soon to know the answer. But the Market clearly has an opinion, i.e.,
that the Fed is about to piss on the fire, call in the dogs and go home. In other words, the ‘Fed lucked out’
scenario.
https://www.wsj.com/articles/the-markets-are-locked-in-a-game-of-chicken-with-the-fed-11673559449
From
my favorite optimist.
http://scottgrannis.blogspot.com/2023/01/why-inflation-has-declined-but-economy.html
Whether
that means that inflation is headed to two percent is another question
entirely. In fact, I think that it is
not. So, while the Powell et al maybe be
wee weeing in their pants because they may not have to stay tight for too much
longer, I don’t believe that the battle against higher secular inflation and
slower secular economic growth has been won.
This
country has too much debt and the Fed’s balance sheet too massive for Goldilocks
to have arrived. Yes, the republicans are
making all kinds promises about curbing spending. Unfortunately, they have proven time and time
again that they can talk a good game about fiscal responsibility but are
woefully inadequate at delivering the goods.
And this Fed has too long a history of hubris for me to believe they control
their inclination to ‘fine tune’.
Bottom
line: there is a chance that the Fed has lucked out short term---that, in fact,
inflation, in particular, wage inflation has peaked short term and that we
could see a period of declining inflation.
Not a return to two percent inflation mind you. But headed that way for a long enough period
of time that the worst could be over for the Market short to intermediate term.
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.
A
slightly different take on the debt problem, though the solution is the same.
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.
Headlines
The
Economy
US
The January NY Fed manufacturing index was
reported at -32.9 versus expectations
of -9.0.
https://www.zerohedge.com/economics/empire-fed-manufacturing-survey-totally-collapses
International
November UK average earnings were up 6.4% versus
consensus of +6.2%.
Q4 Chinese YoY GDP
growth was +2.9% versus projections of +1.8%; December YoY industrial production
was up 1.3% versus +0.2%; December YoY retail sales fell 1.8% versus -8.6%.
December German
CPI declined 0.8%, in line.
The January EU
economic sentiment index came in at +16.7 versus estimates of -17.0; the
January German economic sentiment index was +16.8 versus -15.0.
Other
Globalization isn’t dead; but it is changing.
https://www.wsj.com/articles/globalization-changing-markets-trade-11673627929?mod=economy_lead_story
Part 2.
Signs that the consumer is pessimistic about
the economy.
https://www.wsj.com/articles/signs-consumers-pessimistic-economy-11673624736?mod=economy_lead_pos4
Richest one percent continue to amass most of
the new wealth created.
The Fed
Bank of Japan under pressure as bond yields
surge.
https://www.ft.com/content/d7862cee-aed0-4af5-9673-08240f066d82
The debt ceiling and liquidity.
https://www.zerohedge.com/markets/how-debt-ceiling-fiasco-blew-feds-qt-and-what-happens-next
Bottom line
The latest from
John Mauldin.
https://www.advisorperspectives.com/commentaries/2023/01/14/the-punchbowl-is-gone
News on Stocks in Our Portfolios
BlackRock
press release (NYSE:BLK): Q4 Non-GAAP EPS of $8.93 beats by $0.86.
Revenue
of $4.34B (-15.1% Y/Y) beats by $70M.
What
I am reading today
You know I try
to avoid political commentary in this note; but this video is just too good not
to pass on.
https://www.zerohedge.com/geopolitical/best-video-climate-change-you-will-ever-see
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for Survival’s website (http://investingforsurvival.com/home)
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