The Morning Call
2/27/23
The
Market
Technical
The S&P had
another lousy week. It ended below the
lower boundary of its very short-term uptrend; if it remains there through the
close today, that trend will be voided. It also attempted to challenge its 200
DMA but failed. If the very short-term uptrend
can’t be sustained, then this DMA is clearly the next line of defense. It is
still too soon to give up on this rally but we are a short hair away.
The long bond was
down fractionally on the week; though it did, nonetheless, manage to reset its
100 DMA from support to resistance. It
is now in short and intermediate term downtrends and below both DMAs. The next visible support is the lower boundary
of its long term trading range which is so much lower that it doesn’t even show
on this chart. Not a good sign for
bonds.
Bond volatility
sharply higher.
https://www.zerohedge.com/the-market-ear/brutal-moves
GLD continued its
downward momentum which, as I have noted previously, is not surprising given the
rise in both interest rates and the dollar.
Still, it remains in both intermediate and long term uptrends and above
both DMA’s---though it is rapidly approaching the latter. It does have that enormous gap down open three
weeks ago plus another one from last week.
So, it is positioned to rebound if either economic or geopolitical landscape
were to turn sour.
The dollar smoked
again last week. It continues in both
short and intermediate term uptrends and is now within shouting distance of
challenging both DMAs---which represent some pretty stiff resistance. Let’s see if UUP can maintain its upward
momentum.
However,
there are plenty of people who believe that the dollar is headed lower,
Friday in the
charts.
https://www.zerohedge.com/markets/hawkish-rate-re-awakening-triggers-dows-worst-week-sept
Fundamental
Headlines
The
Economy
Last Week Review
The
stats last week were heavily weighted to the plus side, though the primary
indicators were evenly split (3/3), Unfortunately,
the positive indicators pointed to a more robust economy while the negative
data centered around inflation. That
combo is not what the Fed (or the Market) wants to see. Hence, the poor Market reaction.
So,
it would appear that the consensus on the ‘higher for longer’ scenario
continued to gain momentum. But as you
know, I remain a skeptic as to how long ‘longer’ is. My view is that the Fed will ‘chicken out’
and that we will not see 2% inflation unless some exogenous event causes it. I take comfort in that outlook because
history is on my side---these guys in the Fed (except for Volcker) believe that
they are so smart that they can ‘fine tune’ their way to that 2% goal.
Bottom
line: Regrettably, 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.
Unfortunately,
the alternative scenario is the Fed ‘chickens out/moves the goalpost’---meaning
continuing irresponsible fiscal and monetary policies, i.e., slower secular growth,
higher secular inflation and lower multiples.
Has the recession
already started?
Headlines
The
Economy
US
January durable
goods orders fell 4.5% versus consensus of -4.0%; ex transportation, they were
up 0.7% versus 0.0%.
International
The
February EU economic sentiment index was 99.7 versus estimates of 101; the
February industrial sentiment index was 0.5 versus 2.0; the February services
sentiment index was 9.5 versus 12.4; the February consumer confidence index was
-19, in line.
Other
Seasonal adjustments to the economic data can
be potentially misleading.
https://www.axios.com/2023/02/23/retail-sales-seasonal-data-weird
Update on big four economic
indicators.
Housing market posts biggest drop in value
since 2008.
Geopolitics
At last, somebody is waking
up.
https://www.zerohedge.com/geopolitical/western-leaders-privately-admit-ukraine-cant-win-war
Bottom
line
The latest from BofA.
Talk about an optimist. I get his bullish interpretations of the
charts; but if you believe the stats (see last week’s link to Political
Calculations) earnings estimates are coming down.
https://allstarcharts.com/sell-side-analysts-are-chasing/
News on Stocks in Our Portfolios
What
I am reading today
Monday morning
humor.
https://luxurylaunches.com/travel/chinese-man-first-class-lounge-loophole.php
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