The Morning Call
5/1/23
The
Market
Technical
The S&P rallied
hard into the end of the week. As you
can see, it made a new higher low---which
is good; and remains above both DMA’s---which is also good. It is approaching that 23.6% Fibonacci
retracement level (~4200)---which has offered pretty stiff resistance. So, we sit back and see if the S&P can
overcome it and generate some follow through or if it just continues in the trading
range it has been for the past year.
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.
While the long
bond ended up on the week, it was a roller coaster ride. More important, it zigged and zagged though both
DMA’s and appears to be developing a pennant formation. Both suggest investor uncertainty which has
been the theme of late in all our indices.
So, at the risk of being repetitious, our only choice is to sit back and
wait for the Market to figure out what it is going to discount next.
Gold went nowhere
last week. Longer term, it remains in
long, intermediate and very short-term uptrends and is above both DMA’s. On the other hand, it has failed to breach
its all-time high on three occasions and it has all those huge gaps up opens
down below that need to be filled. I
have no idea where this thing goes next.
Like the long
bond, the dollar is also developing a pennant formation. The good news is that this pattern offers the
hope of a directional resolution. So
perhaps these two indices will lead the way for all of our indices to break out
of the trading ranges that they have been in.
Friday in the
charts.
Fundamental
Headlines
The
Economy
Last Week Review
The
US stats last week were solidly upbeat as were the primary indicators (four plus, one negative). So, no clear near-term
signs of a recession and certainly no sense of how deep it may be, if it occurs
at all. 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; although
some historically accurate forward-looking indicators like the yield curve are
still predicting one. However, I think time
is running out on the doomsayers. I am
not conceding a no recession/soft landing outcome yet but clearly my conviction
is greatly diminished.
https://www.nytimes.com/2023/04/27/business/economy/gdp-q1-economy.html
That
said, I continue to feel comfortable with my below average long term secular
growth rate forecast.
The
other issue investors must deal with is, of course, inflation. And perhaps more importantly, how the Fed
perceives this problem and even more important, just how firm is its
determination to achieve its 2% target. While the data suggests that inflation
is very much with us, unfortunately the Fed has proven time and again that is
clueless and cowardly---meaning that any sign of economic/financial/Market turmoil
will result in the immediate reversal of any tight money measures.
So,
if we rely on history, the Fed won’t likely be the instrument of 2% inflation. Not that it can’t happen should the economy
stay healthy, there are no more problems in the financial system and the Market
doesn’t nosedive. This is the real wild card in trying to come
up with a short-term forecast.
My
best guess is that there is a recession (though I have no clue regarding its intensity)
and that at the slightest hint of disruption, the Fed folds, leaving inflation
as an ongoing problem.
The
return to QE
https://www.advisorperspectives.com/commentaries/2023/04/28/the-return-of-qe
By
one analysis, the odds of recession now stand at 67%.
https://www.zerohedge.com/personal-finance/us-recession-probability-reaches-67
Jeffrey
Snider (who I deeply respect) thinks it is just the opposite---it is recession
(or worse) that is the problem and that will push inflation back to prior
levels.
Scott
Grannis, who I also respect, thinks that neither recession nor inflation is a
problem (though admittedly he is generally a glass half full kind of guy).
https://scottgrannis.blogspot.com/2023/04/the-economy-continues-to-grow-and.html
Any
wonder that investors, not to mention me, are confused at the moment?
Bottom
line: longer term, 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---which
unfortunately is not apt to happen.
The
Economy
US
International
Other
Real GDP per capita.
The Fed
The Bank of Japan sticks
to negative interest rates.
https://www.cnbc.com/2023/04/28/bank-of-japan-policy-decision-kazuo-ueda-first-meeting.html
The
Fed is wrecking the US economy.
https://www.zerohedge.com/markets/crowding-out-fed-may-be-killing-private-sector-save-government
The problem with Fed speak.
Recession
The eurozone economy continues to stagnate.
https://www.cnbc.com/2023/04/28/euro-zone-gdp-q1-2023.html
The Banking System
How bad is the commercial real estate market?
https://www.ft.com/content/43cc14cf-72dd-4137-8b31-f1ca0731432e
Vultures circling.
Bottom line
The latest from BofA.
https://www.zerohedge.com/markets/hartnett-we-stay-bearish
News on Stocks in Our Portfolios
Paychex (NASDAQ:PAYX) declares $0.89/share quarterly dividend, 12.7% increase from prior
dividend of $0.79.
What
I am reading today
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