The Morning Call
4/19/23
The
Market
Technical
Tuesday in the charts.
The pain trade is higher.
Another technical indicator giving bullish signals.
https://www.zerohedge.com/markets/signal-flashes-was-bullish-last-nine-times
Note: have you
noticed that growing number of articles that I have linked to on how the
technical setup is getting more positive and expectations are for a run to the
upside---but nothing happens. Is that itself
a signal?
Update on margin
debt.
https://www.advisorperspectives.com/dshort/updates/2023/04/18/margin-debt-up-3-4-in-march
Investors bet the
dollar will continue to fall.
https://www.ft.com/content/c11dca60-fbaa-41f8-bae8-ee287bae9540
The dollar is not
losing its status anytime soon.
Fundamental
Headlines
The
Economy
US
Weekly mortgage applications declined 8.8%
while purchase applications were down 10.0%.
Month to date
retail chain store sales grew more slowly than in the prior week.
International
February Japanese
industrial production grew 4.6% versus estimates of +4.5%.
February EU YoY
construction output was up 2.3% versus predictions of -2.0%; March CPI was
+0.9%, in line.
March UK CPI was
up 0.8% versus consensus of +0.5%; core CPI was +0.9% versus +0.6%.
Other
Arthur Okun’s Misery Index.
https://www.calculatedriskblog.com/2023/04/misery-index.html
The ECB’s Lagarde on
the global economy (surprisingly enough, a must read).
https://www.zerohedge.com/markets/en-lagarde-ecb-president-reveals-what-happens-next
Recession
A more upbeat view of a recession.
https://stayathomemacro.substack.com/p/scary-economists-and-bad-news
The
Debt Ceiling
As I am sure that
you are aware, the US debt will bump up against its legislated ceiling sometime
in the next couple of months. Historically,
this has been more of a media event than an economic one in which both political
parties posture, strut and jive and talk trash, then come to some sort of
compromise. I think the odds of a similar
occurrence this time around are quite high.
But you can never overestimate the capacity of the ruling class to screw
the American people/economy over a problem that they created and continue to
endorse, jointly and severally. So this
issue will be increasingly in the headlines going forward. Here is an initial analysis of the issue:
https://www.capitalspectator.com/how-much-us-debt-ceiling-risk-is-lurking/
The
Banking System
A more upbeat view of the ‘credit crunch’.
https://alhambrapartners.com/2023/04/17/weekly-market-pulse-much-ado-about-not-much-2/
But
some cognitive dissonance: Brookfield defaults on $161 million loan on DC
office buildings.
https://www.zerohedge.com/markets/dominos-falling-brookfield-defaults-161-debt-dc-office-buildings
In an article penned
by Howard Marks (it is too long and covers too many irrelevant subjects to link
to the whole thing), he makes a point about the inefficacy of moral hazard
being applied to banks (e.g., Silicon Valley Bank). I have been an advocate of the concept (i.e.,
let the bank go belly up); but I think that he makes a very good point and is
perhaps right:
Moral Hazard
One problem with government
solutions of any kind – like the so-called “Greenspan put” – is the possibility
that they’ll generate moral hazard. That is, players will conclude that they’ll
be rescued if they make a mistake. This suggests they can freely engage in
high-risk, high-return behavior; if it works, they’ll get rich, but if it
fails, they’ll be bailed out. People sometimes refer to this as “privatizing
profits and socializing losses.”
On March 9, when SVB was
hanging by a thread while experiencing massive withdrawals, people started
talking about a possible government guarantee of all deposits. One of the
arguments against such a bailout was that it would create moral hazard. If
people know they’ll be protected from losses, they’ll have no reason to examine
the solidity of a bank before depositing money, meaning the diligence function
won’t be performed. Consequently, poorly run, poorly capitalized banks will be
permitted to stay in business and grow.
But we simply cannot expect depositors to perform that
function. Since banks’
operations are characterized by mismatched assets/liabilities and a dependence
on depositors’ trust, it’s terribly hard to assess their financial health from
the outside (maybe sometimes from the inside, too, since SVB succumbed to what
in retrospect seem to have been obvious managerial mistakes). In the 28 years
that Oaktree has been in business, we’ve invested in relatively few
deposit-taking financial institutions. Other than in cases where we’ve become
insiders, we’ve generally avoided investing in banks because their complex,
often impenetrable financial disclosures and reliance on trust make them harder
to evaluate than we would like.
Few people are capable of
studying banks’ financial statements and determining whether they’ll remain
solvent and liquid. Expecting
depositors to do so could cause banking to grind to a halt. That’s
why deposit insurance was introduced during the Great Depression. For the same
reason, the government’s decision to fully guarantee SVB’s deposits was quite
appropriate.
Notably, however, management
and shareholders weren’t bailed out; rather, in today’s parlance, they were
“bailed in,” or left with their losses. We can hope their losses will encourage
other investors and bank managers to apply greater prudence in their future
decision-making.
Bottom line
The five most expensive
stocks to avoid now.
https://www.morningstar.com/articles/1150030/the-5-most-expensive-stocks-to-avoid-now
Bloomberg model suggests
that the economy has bottomed out and so to perhaps stocks.
Counterpoint.
This will not be a normal recession.
https://www.zerohedge.com/markets/will-not-be-normal-recession
BofA fund manager
survey shows investor most bearish since 2009 (contrary indicator?).
Four
questions an investor must ask.
https://behaviouralinvestment.com/2023/04/18/the-four-questions-investors-must-ask/
News on Stocks in Our Portfolios
What
I am reading today
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