The Morning Call
3/27/23
The
Market
Technical
The S&P was up
for the week, but only after a roller coaster ride. In the process, it reset its 200 DMA to
support. On the other hand, it could not
close above a very short-term downtrend (green line). At the risk of lessening the importance of
the 200 DMA reset, volatility has been high but basically nondirectional. It remains stuck in range that includes both
DMAs and the 38.2% and 50% Fibonacci retracement levels. So, I am not convinced
that it is time to tip toe through the tulips.
But it never hurts to have a buy list ready.
The long bond moved
higher on the week as concerns about the banking system persisted despite the
reassurances of the powers that be (though Yellen stepped on her short hairs
then quickly reversed course). I believe
this upward trajectory likely to continue because (1) I don’t think that all
the cockroaches have been flushed out of the banking system and (2) I do think
that the economy will experience a recession, maybe a bad one---which is
clearly at odds with the equity crowd. That
said, TLT remains in both a short and intermediate term downtrends and would
have to move considerably higher to reverse those trends.
Time to look at
bonds.
https://allstarcharts.com/its-time-to-get-bonds-back-into-the-fold/
Interest rate volatility
remains stressed.
https://www.zerohedge.com/the-market-ear/rate-vol-canary
I thought a long
term chart (20 years) of GLD would make sense given that it was now at very
critical technical point, to wit, it is about to challenge a twenty year high
after having bounced off the lower boundary of its long term uptrend. The big negative in the chart is, of course,
those huge gap up opens which suggests that gold will have to do a lot of
backing and filling before it ultimately breaks to the upside---if indeed it
ever does break to the upside. If I wanted to own gold, I would wait to see
how it handles that all time high (~185.20).
The dollar traded
down on the week. It is somewhat
confusing to me though it is likely the result of so many contradictions among
those factors that have a bearing on it: inflation versus recession;
bankruptcies in the US versus bankruptcy in Europe. That said, it bounced off the lower boundary
of its short term uptrend for the fourth time this year and remains in short
and intermediate term uptrends. So, the
bias is to the upside.
Friday in the
charts.
https://www.zerohedge.com/markets/what-lies-beneath-market-headlines-mask-mayhem-below-surface-week
Fundamental
Headlines
The
Economy
Last Week Review
The
US stats last week were parse but slightly weighed to the upside. The primary indicators were one positive, one
negative. So there was no follow through
to the hint in the prior week that we were starting to see some weak economic
data. That leaves us in mystery land on
the direction of the economy and inflation.
Still,
I continue to believe that a recession is in our future especially with the
ongoing turmoil in the banking system---which I don’t think is over. I just don’t see how that can’t have a
negative impact on bank lending and business/consumer confidence.
In
addition, making depositors whole is just another form of QE---which is a major
factor that has us in the current economic mess in the first place. Meaning pumping money into the system however
magnanimous the reason is still inflationary.
The
bottom line being that a slowing economy overlaid by a monetary impulse is way
too reminiscent of what happened after Covid crisis. In other words, this is not the path out of
our current economic problems. Indeed,
it would seem that the only feasible way out of our current circumstance is a
hard landing. And that’s not good for
the economy or the Market.
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.
Headlines
The
Economy
US
International
Th March German
business climate index came in at 93.3 versus estimates of 91.0; the March
current conditions index was 95.4 versus 94.1.
Other
Peace breaks out in the Middle East.
https://evergreengavekal.com/peace-breaks-out/
The
Fed
Collapsing money velocity.
https://www.zerohedge.com/markets/fed-pushing-accelerator-brake-pedals-same-time
The
Banking System
US banks sitting on $1.7 trillion in
Treasuries/MBS’s.
Goldman provides more analysis on the banks’
commercial real estate problem.
How can anyone be shocked---I love Rick
Santelli.
Bottom line.
Stay cautious.
https://www.zerohedge.com/markets/caution-better-part-valor-again
The latest from
BofA.
https://www.zerohedge.com/markets/hartnett-commercial-real-estate-next-shoe-drop
News on Stocks in Our Portfolios
What
I am reading today
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