The Morning Call
5/8/23
The
Market
Technical
While the S&P was
down for the week, Friday’s rally (1) lessened the pain of the sell-off and (2)
prevented the index from making a lower low. In short, the S&P remains in a
trading range, fostered by the continuing uncertainty surrounding the odds of
recession, inflation and the Fed’s policy reaction to either or both. How is
that for confusing?
I do not think
that the Market goes anywhere until those issues are resolved---and as you
know, I don’t think that they will be resolved in manner positive to either the
economy or the Market.
The long bond ended up on the week. And like the prior week, it zigged and zagged though both DMA’s and continued to develop 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 was up but
tempered by a rough Friday price action. Confusingly, it pushed through its all-time
on Thursday only to make a huge gap down open on Friday. While it remains in
long, intermediate and very short-term uptrends and is above both DMA’s, I
wouldn’t buy or add to position until it can maintain some follow through to
the upside.
While the dollar declined last week, the pin action was enough to push it through the upper boundary of that developing pennant formation---though certainly not in a convincing manner. Still the lower boundary of that formation should provide support. That said, it has both DMA’s overhead that must be overcome to set it on an upward course.
Friday in the
charts.
https://www.zerohedge.com/markets/eod-3
Fundamental
Headlines
The
Economy
Last Week Review
The
US stats last week were the mirror image of the preceding week; that is, they
were down substantially. Even more so because while the primary indicators were
evenly split (2 & 2) but the two positive indicators were the strong jobs
numbers which is really a negative if you want the Fed to ease up on the rate
hikes.
HOWEVER,
there were also big adjustments to prior reports which negate the whole strong
employment narrative.
Those
revisions leave us where we started---a mixed picture for the economy but with
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, 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.
Those
looking for a soft landing are in for a rude awakening.
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 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.
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.
Though
Jeffrey Snider disagrees with me.
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.
https://www.zerohedge.com/markets/why-our-national-debt-rises-good-times-and-explodes-higher-bad
The
Economy
US
International
March German industrial
production fell 3.4% versus consensus of -1.3%.
Other
The latest Atlanta Fed Q2 GDP
nowcast.
https://www.atlantafed.org/cqer/research/gdpnow
The Fed
Powell’s Bernanke
moment.
https://paulrlamonica.substack.com/p/jerome-powells-bernanke-moment
Recession
Credit card debt explodes.
The Banking System
Banking outflows
continue.
https://www.zerohedge.com/markets/deposit-outflows-continue-foreign-banks-bleeding-most
Bottom line.
The latest from BofA.
https://www.zerohedge.com/markets/hartnett-fed-hiked-until-it-broke-regional-banks
Profit margins improved again
in Q1 (but to continue a soft landing is needed)
Highlights from the Berkshire
Hathaway annual meeting.
https://www.zerohedge.com/markets/buffett-turns-gloomy-incredible-period-us-economy-coming-end
The coming changes in investment strategy.
https://www.zerohedge.com/markets/we-are-seeing-huge-soak-capital-skilled-labor-its-reverse-qe
News on Stocks in Our Portfolios
Illinois
Tool Works Inc. (NYSE:ITW) declares $1.31/share quarterly dividend,
in line with previous.
What
I am reading today
******************************************************************************
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
No comments:
Post a Comment