The Morning Call
3/13/23
The
Market
Technical
Between Powell
reiterating ‘higher for longer’ and the Silicon Valley bank bankruptcy, there
was no joy in stock land last week---the fear of recession suddenly crippling
the Market. The S&P plunged through
both DMA’s and is fast approaching the 38.2% Fibonacci retracement level.
(~3817). If it can’t hold that level
then there is not much support until the 50% Fibonacci retracement level
(~3507). Clearly, if the DMA’s reset to
resistance, the momentum will have turned markedly to the downside.
TLT’s Friday gap
up open is suggesting that the economic events of last week are pointing to
recession. How many times have I said in
these pages that the Fed has never successfully gone from an easy money regime
back to normal. Rack one up for
history. The long bond sailed through
its 100 DMA with ease and will reset to support tomorrow if it remains above
it. Like stocks, if this upward trend
continues then hello, recession.
GLD performed as
you would expect it to if recession, rising bond prices and a declining dollar
were all on the front pages. That huge
gap up open could be a problem short term; but longer-term gold is above both
DMA’s and in both intermediate and long term uptrends. So, as I noted last week, it is positioned to
rebound if either economic or geopolitical landscape were to turn sour.
The dollar’s chart
only makes sense if you think that the rest of the world is in better shape
than the US. Of course, Friday’s sell
off may just be the rest to the world joining the US in waking up to fact that
a recession could be imminent here. However, I doubt that if the US economy
rolls over, others won’t follow. So,
even though UUP couldn’t push through either DMA and bounced down off the upper
boundary of its short-term uptrend, I wouldn’t rule out further upside.
.
Friday in the
charts.
https://www.zerohedge.com/markets/worst-lehman-banks-break-world-again
Fundamental
Headlines
The
Economy
Last Week Review
Note:
I could just delete the following and write ‘I told you the Fed would f**k up
the unwinding of the massively irresponsible multiple QE’s’. At this moment, we know the government will
bail out the banks (as they always have done).
We just don’t know how many more cockroaches will come to light. So, we
don’t know how bad the news is going to get. Clearly, our cash position will help us weather
what is coming. Remember in the midst of
the carnage is a buying opportunity.
**********************************************************
The
stats last week were positive (the primary indicators one positive, one
negative). But like the prior week, 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.
Meanwhile,
as a result of Powell’s congressional testimony the Fed ‘higher for longer’ scenario
continued to gain momentum.
I
remain skeptical as to how long ‘longer’ is.
As you know, my view is that the Fed will ‘chicken out’/move the
inflation goalpost.
In
the midst of the turmoil in equity land, the long Treasury remained calm,
perhaps suggesting that bond investors are starting to discount a recession. Contributing to the notion that a recession
is upon us was the ‘run’ on the Silicon Valley bank (recent economic downturns
have witnessed a severe credit event in their early stages).
https://www.ft.com/content/6943e05b-6b0d-4f67-9a35-9664fb456504
Things
to know about the Silicon Valley bank collapse.
https://www.zerohedge.com/the-market-ear/things-know-about-collapse
The
recession is upon us.
No,
it is not.
http://scottgrannis.blogspot.com/2023/03/swap-and-credit-spreads-say-no-recession.html
That
would certainly match up with history, i.e., the Fed has never successfully
negotiated the transition from easy to normal monetary policy. It would also bring into play my Fed ‘chickens
out’/moves the goalpost forecast. However,
it is too soon to be betting on that scenario.
Add
to that Biden’s DOA 2024 budget proposal and you have increased economic/Market
uncertainty.
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 scenarios are that the Fed/fiscal policies don’t change, meaning
continuing irresponsible fiscal and monetary policies, i.e., slower secular growth,
higher secular inflation and lower multiples.
Headlines
The
Economy
US
International
Other
Q4 household net worth.
Credit card debt at all-time high.
Bottom line
Markets will be
stuck on the Fed until a recession appears.
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investment decisions.
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