The Morning Call
4/24/23
The
Market
Technical
The S&P sold
off a bit last week; but there was nothing significant about the pin action. It remains above both DMA’s and has made a
higher low. The only real technical negative is that gap up open made back on
3/28. That aside, I see no reason that
the index won’t attempt a challenge the 50% Fibonacci retracement level (~4200).
Until/unless that occurs, the S&P is in a trading no man’s land which
likely reflects investors uncertainty about the direction of the economy.
I still believe
that we have not seen the worst regarding the economy or inflation and by
implication, therefore, the Market. But clearly, at the moment, I am on the
wrong side of the trade.
Sell in May?
https://www.zerohedge.com/the-market-ear/sell-may-really
While the long
bond did little in terms of price movement, it still reset both its 100 and 200
DMAs from support to resistance. That suggests more weakness, though clearly it
hasn’t happened yet. The question being,
will it ever? The answer lies in how the
issues of recession and inflation get resolved.
And there is nothing clear about that.
So, we wait.
Rate hike fears continue to negatively impact the price of gold. Technically speaking, the resistance power of its all-time high along with the need to close all those big gaps up opens are continuing to have their effect. Until (unless) GLD can overcome those forces, it will remain a stagnant asset.
The dollar did absolutely
nothing last week. So, it remains within
a trading range, which like stocks, bonds and gold, likely reflects current
investor uncertainty.
More on
de-dollarization.
Friday in the
charts.
https://www.zerohedge.com/markets/stocks-bonds-gold-crypto-slide-us-sovereign-risk-roars-record-high
Volatility
is set to rise.
https://www.zerohedge.com/markets/volatility-set-rise-we-enter-recession-event-horizon
Fundamental
Headlines
The
Economy
Last Week Review
The
US stats last week were slightly positive with the primary indicators again evenly
divided (one plus, one neutral, one negative). So, the longer-term pattern of an
economy struggling but not going off the cliff is still intact. I continue to feel comfortable with my below
average long term secular growth rate forecast. Near term, however, the
question remains whether or not we will experience a recession and if so, how
deep it will be. As you know, I am not
an optimist on this count; but to date, we are still lacking sufficient evidence
to back up a recession forecast.
https://www.capitalspectator.com/us-recession-appears-imminent-but-thats-been-true-for-months/
The
other factor in play here is the Fed, its perception of the economy’s strength
and its determination to whip inflation (which the majority of observers believe
is much less than current rhetoric implies).
And since these guys have proven time and again that they have no clue
about what they are doing, small wonder that perplexity reigns supreme. This is the real wild card in trying to come
up with a short-term forecast.
Bottom
line, irrespective of what happens over the next year, we are still faced with
a struggling economy growing at well below its historic secular rate.
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
The March Chicago
national activity index was reported at -0.19 versus consensus of -0.02.
International
The April German business climate index came in at 93.6 versus
estimate of 94.0.
Other
The Fed
The Fed is again fighting
the wrong battle.
Recession
Term
spread recession probabilities.
https://econbrowser.com/archives/2023/04/plain-vanilla-term-spread-recession-probabilities
More
Q1 GDP nowcasts.
https://www.calculatedriskblog.com/2023/04/q1-gdp-tracking-around-2_0600679164.html
More
Americans falling behind in car payments.
The Banking System
Three lessons from
Silicon Valley Bank.
https://www.ft.com/content/adb0ca9e-010b-4861-a2b5-ec0e30916956
A
corporate credit crunch is coming.
https://www.zerohedge.com/markets/fairly-severe-corporate-credit-crunch-harbinger-more-stress-come
News on Stocks in Our Portfolios
What
I am reading today
The most dangerous international treaty
ever proposed.
https://www.zerohedge.com/geopolitical/most-dangerous-international-treaty-ever-proposed
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