The Morning Call---The economy is improving in spite of the Fed

 

The Morning Call

 

1/31/24

 

The Market

         

    Technical

 

Tuesday in the charts.

https://www.zerohedge.com/markets/yields-jolted-higher-stocks-lower-ahead-fedtreasury

 

Are we nearing a correction?

https://allstarcharts.com/when-does-this-bull-market-end/

 

Overshoots.

https://www.zerohedge.com/the-market-ear/overshoots-front-running-and-decoupling

 

JP Morgan warns today’s market similar to Dot com peak.

https://www.zerohedge.com/markets/jpmorgan-warns-todays-market-far-more-similar-one-may-think-dotcom-bubble-peak

 

Counterpoint: It is not just tech that is driving this market.

https://allstarcharts.com/only-tech-driving-this-market/

 

Inverse panic?

https://www.zerohedge.com/the-market-ear/are-we-skipping-fomo-and-going-straight-inverse-panic

 

Despite geopolitical threats, stocks still lean toward risk-on.

https://www.capitalspectator.com/despite-geopolitical-threats-markets-still-lean-into-risk-on/

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

  Weekly mortgage applications fell 7.2% while purchase applications were down 11.4%.

 

                          Month to date retail chain store sales grew slower than in the prior week.

 

The November Case Shiller home price index fell 0.2% versus expectations of +0.2%.

https://www.advisorperspectives.com/dshort/updates/2024/01/30/sp-case-shiller-home-price-index-upward-trend-decelerates-november-2023

 

December job openings (JOLTS) totaled 9.03 million versus predictions of 8.87 million.

https://www.advisorperspectives.com/dshort/updates/2024/01/30/job-openings-jolts-december-2023

 

The January consumer confidence index came in at 114.8 versus consensus of 115.0.

                          https://www.advisorperspectives.com/dshort/updates/2024/01/30/consumer-confidence-hits-two-year-high

 

The January ADP private payroll report showed a total of 107,000 new jobs versus estimates of 145,000.           

                                  https://www.zerohedge.com/personal-finance/adp-employment-report-job-gains-slowing

 

                       International

 

December Japanese preliminary industrial production was up 1.8% versus forecasts of +2.5%; December retail sales declined 2.9% versus +0.5%; the January consumer confidence index was 38.0 versus 37.7; January YoY housing starts were -4.0% versus -6.2%; the January YoY construction orders were up 0.4% versus +1.1%.

 

December German retail sales were down 1.6% versus projections of up 0.7%; the January unemployment rate was 5.8% versus 5.9%; January CPI was -0.2% versus -0.1%.

 

The January Chinese manufacturing PMI was 49.2, in line; the January nonmanufacturing PMI was 50.7 versus 50.6; the January composite PMI was 50.9 versus 50.1.

 

            The Fed

 

              The economy is improving not because of the Fed but in spite of it.

              https://alhambrapartners.com/2024/01/28/weekly-market-pulse-surprises/

 

  Why cut rates in an economy this strong?

  https://www.nytimes.com/2024/01/30/business/economy/fed-interest-rates.html

       

  The Fed is pushing banks to utilize the discount window for liquidity needs.

  https://www.zerohedge.com/markets/fed-prepares-bank-crisis-while-telling-americans-economy-strong

 

            Fiscal Policy

 

              The usurpation of resources.

              https://www.realclearmarkets.com/articles/2024/01/30/the_crisis_is_not_the_debt_reckoning_its_the_extraction_that_leads_to_it_1007447.html

 

              Want more production (Mr. Trump), support free trade.

              https://cafehayek.com/2024/01/want-more-production-support-free-trade.html

 

              Senate republicans cut deal with Biden over immigration/Ukraine funding.

              https://www.zerohedge.com/political/bidens-trojan-horse-immigration-deal-would-allow-another-18-million-migrants

 

            Recession

 

              By this measure, the probability of a recession has increased.

              https://politicalcalculations.blogspot.com/2024/01/probability-of-us-recession-resurges-to.html

 

                  IMF lifts global growth outlook for 2024.

              https://www.bloomberg.com/news/articles/2024-01-30/imf-lifts-world-gdp-outlook-on-us-strength-china-fiscal-support?srnd=premium&sref=loFkkPMQ

 

  Eurozone economy flatlines.

  https://www.nytimes.com/2024/01/30/business/eurozone-economy-gdp.html

 

            War in the Middle East

 

              Will Israel attack Lebanon?

              https://www.nakedcapitalism.com/2024/01/israel-plans-to-attack-lebanon-because-it-is-not-winning-against-hamas.html

 

            Geopolitics

 

The argument for aiding Ukraine: I disagree (1) the well documented wide spread corruption, i.e. stealing US funds, belies the assertion that the Ukrainians are helping themselves [yes, to our money] and (2) part of the deal Gorbachev made with Bush was that in exchange for dismantling the Soviet empire, the US/NATO would not push its borders further east, which it clearly reneged on.  Russia is attempting to put a stop to it. However, I include this for perspective.

              https://econbrowser.com/archives/2024/01/guest-contribution-helping-ukraine-is-a-national-security-no-brainer

 

China

 

  Chinas’ real-estate problems have not touched bottom.

  https://www.nytimes.com/2024/01/30/business/china-evergrande-real-estate.html

 

    News on Stocks in Our Portfolios

 

T. Rowe Price (NASDAQ:TROW) declares $1.24/share quarterly dividend, 1.6% increase from prior dividend of $1.22.

 

Microsoft press release (NASDAQ:MSFT): Q2 GAAP EPS of $2.93 beats by $0.16.

Revenue of $62.02B (+17.7% Y/Y) beats by $890M.

 

Mastercard press release (NYSE:MA): Q4 Non-GAAP EPS of $3.18 beats by $0.10.

Revenue of $6.5B (+13% Y/Y) beats by $20M.

 

 

What I am reading today

 

            Public school bloat.

            https://www.powerlineblog.com/archives/2024/01/the-daily-chart-public-school-bloat-3.php

 

                        Wednesday morning humor.

            https://babylonbee.com/news/10-signs-youre-poor-in-a-capitalist-country

 

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

 

 

 

The Morning Call--Falling inflation raises new risks for Fed

 

The Morning Call

 

1/30/24

 

The Market

         

    Technical

 

            Monday in the charts.

            https://www.zerohedge.com/markets/stocks-bomds-bullion-bitcoin-all-rally-ahead-catalyst-heavy-week

 

            Yields tumble after Treasury lowers borrowing estimates.

            https://www.zerohedge.com/markets/yields-tumble-futures-soar-after-treasury-unexpectedly-slashes-borrowing-estimates

 

            Tracking the bounce in interest rates.

            https://allstarcharts.com/tracking-the-bounce-in-interest-rates/

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

                            

The January Dallas Fed manufacturing index was -27.4 versus estimates of -23.0.

                             https://www.advisorperspectives.com/dshort/updates/2024/01/29/dallas-fed-manufacturing-business-conditions-continue-to-worsen-in-january

                                                        

                        International

 

                          December Japanese unemployment was 2.5%, in line.

 

Q4 German flash GDP growth was -0.3%, in line; Q4 EU flash GDP growth was 0.0% versus -0.1%.

 

The January EU economic sentiment index was 96.2 versus forecasts of 96.1; the January industrial sentiment index was -9.4 versus -8.7; the January services sentiment index was +8.8 versus +5.5; the consumer confidence index was -16.1, in line.

 

                        Other

                             

                              A six pack of charts providing additional insight to the US economy.

                              https://scottgrannis.blogspot.com/2024/01/a-quick-chart-six-pack.html

 

                              Mortgage rates are expected to continue to fall.

https://www.bloomberg.com/news/articles/2024-01-29/mortgage-rates-in-us-to-decline-to-5-5-in-2024-survey-shows?srnd=premium&sref=loFkkPMQ

 

            The Fed

 

              A little easing now could help avoid a lot of easing later.

              https://www.wsj.com/economy/central-banking/fed-interest-rate-easing-timing-4ec5768d?mod=economy_lead_story

 

              From the Fed whisperer: Falling inflation raises new risks for Fed.

              https://www.wsj.com/economy/central-banking/plummeting-inflation-raises-new-risk-for-fed-rising-real-interest-rates-fd2a4f37

 

              The era of an independent Fed is drawing to a close.

              https://www.zerohedge.com/markets/feds-independence-was-nice-while-it-lasted

 

            Inflation

 

              Is inflation dead?

              https://disciplinefunds.com/2024/01/26/weekend-reading-is-inflation-dead-2/

 

Recession

  Businesses and consumers are borrowing again.

  https://www.wsj.com/finance/credit-borrowing-business-loans-charts-0c99e080?mod=hp_lead_pos5

 

            War in the Middle East

 

              The gathering storm clouds.

              https://www.spiegel.de/international/world/spiral-of-vengeance-the-gathering-storm-clouds-in-the-middle-east-a-a18a9bc3-ff55-4e8c-96a0-a7d2f4f79a65

 

              The implications of the Tower 22 strike in Jordan.

              https://www.nakedcapitalism.com/2024/01/the-tower-22-strike-in-jordan-triggers-us-israel-into-all-front-war-the-arabs-and-iran-are-ready-the-russians-too.html

 

     Bottom line.

 

            How to consistently lose money.

            Carl Richards and Josh Brown on the Behavior Gap (downtownjoshbrown.com)

 

            Crypto is going mainstream which means that it is over.

            https://www.bloomberg.com/opinion/articles/2024-01-26/bitcoin-etf-crypto-is-going-mainstream-which-means-it-s-over?sref=loFkkPMQ

 

            Blue chip highflyers and dogs.

            https://www.bespokepremium.com/interactive/posts/think-big-blog/blue-chip-high-fliers-and-dogs

 

    News on Stocks in Our Portfolios

        

UPS press release (NYSE:UPS): Q4 Non-GAAP EPS of $2.47 beats by $0.01.

Revenue of $24.9B (-7.8% Y/Y) misses by $510M.

 

UPS (NYSE:UPS) declares $1.63/share quarterly dividend, 0.6% increase from prior dividend of $1.62.

 

 

What I am reading today

 

            How to spot a liar.

            https://www.theguardian.com/science/2024/jan/24/how-to-spot-a-liar-10-essential-tells-from-random-laughter-to-copycat-gestures

 

Violent crime in the US was down in 2023.

https://jasher.substack.com/p/crime-in-2023-murder-plummeted-violent

 

Visit Investing for Survival’s website (http://investingforsurvival.com/home) to learn more about our Investment Strategy, Prices Disciplines and Subscriber Service.

 

 

 

Monday Morning Chartology

 

The Morning Call

 

1/29/24

 

The Market

         

    Technical

 

The S&P successfully challenged the upper boundary of its intermediate term trading range, resetting it to an uptrend. Accordingly, the only visible resistance is the upper boundaries of its short term uptrend (~4993), its intermediate term uptrend (~6600) and its long term uptrend (too high to even mention).

 

Given the economic/political/social issues that I believe are facing us, it is hard for me to make a call for a dramatically higher Market. But historically, stocks don’t make a new all-time high after a two year hiatus then suddenly roll over. So it seems likely that they will climb the proverbial ‘wall of worry’ for some length of time.

 

Depending on your time horizon, there are several courses of action available. One you can bottom fish for those few stocks that are in a Buy Range (for me Hershey and Best Buy fit that category) or (2) you can as I suggested last week buy a Market oriented ETF as a trade (IWM, IWN, VYM, SPRX, QQQ depending on how aggressive you want to be;  I bought a position in IWN on Friday) 

https://www.zerohedge.com/markets/morgan-stanley-getting-reverse-repo-near-zero-will-be-starting-point-taper

 

On the other hand, this is a Market phase in which many of our holdings start trading into their Sell Half Range. When that occurs, I will act.

 

            Goldman guru so bullish, he’s bearish.

            https://www.zerohedge.com/markets/fomu-back-goldman-flows-guru-so-bullish-hes-turning-bearish-ahead-superbowl-earnings

 

 

 

 

 

 

The long bond meandered about last week. I am sure bond investors are torn between the good economic growth news (suggesting a stronger economy/profits but higher for longer) and better inflation news (rate cuts starting in March). As you know, I believe that the bond market is smarter than the stock market. So with the yield curve now basically flat, if it re-inverts or steepens because short rates decline (sign of recession), I will remain cautious. If it steepens because long rates rise (sign of economic recovery), then I will become more optimistic.

 

The recent decline in bond volatility is a plus for stocks.

https://www.zerohedge.com/the-market-ear/3-charts-bond-volatility-moving-lower-and-its-helpful-bull

 

 

GLD was also trendless last week. The fact that it can’t successfully bust through its all-time high suggests that investors are sanguine about the economic outlook and provides no incentive to dapple in gold.

 

 

While the long term uptrend remains in place, the dollar’s short term technical picture has been wrecked. To be sure, a gap down open of the order of magnitude shown on the chart begs to be closed. But that will likely take a long time. Expect a lot of directionless trading over the short to intermediate term. That said, the recent rally in the dollar accompanying the breakout in equities makes sense.

 

 

 

 

            Friday in the charts.

            https://www.zerohedge.com/markets/bond-yields-black-gold-bounce-economic-animal-spirits-wreck-rate-cut-hype

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        Week in review

 

The stats in the US were overwhelmingly upbeat last week, with the primary indicators more so (four up, two neutral). This is only the second consecutive positive week in some time. So while it is too soon to be altering forecasts, it does suggest that the hard landing scenario is the least likely alternative. And since a soft or no landing are both positive for the economy, one has to be a bit more optimistic.

 

Meanwhile, overseas the data continues to vacillate between positive and negative readings.

 

Bottom line:

 

(1)   I think that the inflation risks are behind us, at least for the short term. However, longer term, I believe that the most important economic factor is the potential [inflationary] impact of a grossly irresponsible fiscal policy which if left unresolved will ultimately push interest rates and inflation to higher levels, risking a tighter monetary policy and impeding the economy’s ability to grow.

                              

(2)   The question of recession [what kind of landing] is gaining some visibility, in my opinion. That is, the continuing lack of consistently in the data is more of an indication of a ‘muddle through’ scenario than it is of a hard landing. So, I a shifting a bit in my outlook---downgrading the likelihood of a hard landing and focusing on whether or not we get a soft or no landing. Clearly that is a more upbeat outlook for both the economy and stocks.

                        

                        US

 

 

                        International

                        

                       Other

 

The Fed

 

  When reverse repos reach zero, QT will start.

  https://www.zerohedge.com/markets/morgan-stanley-getting-reverse-repo-near-zero-will-be-starting-point-taper

 

Recession

 

  Update on big four recession indicators

  https://www.advisorperspectives.com/dshort/updates/2024/01/26/personal-income-economic-indicators-rises-december-2023

 

China

 

  China signals more stimulus to come.

  https://www.bloomberg.com/news/articles/2024-01-26/china-signals-more-targeted-stimulus-to-follow-abrupt-rrr-cut?srnd=premium&sref=loFkkPMQ

 

    News on Stocks in Our Portfolios

 

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.