6/17/24
Sorry
for the delay. I thought the Market was
closed for Juneteenth.
The Market
Technical
The S&P had another good week, remaining above
all DMA’s and in uptrends across all time frames. Adding to the good news is
that there is little visible resistance save the upper boundaries of its
intermediate term uptrend (~6800) and long term uptrend (~7100). The bad news is
(1) on the fundamental side, the economic data read recession while the FOMC
message was higher for longer [see below] and (2) technically, on Wednesday the
S&P made a gap up open---which needs to be filled. All in all, I am left
confused and cautious.
Volatility is about to make a comeback.
Over bought S&P.
https://www.zerohedge.com/the-market-ear/overbought-spx-meaningless-or-misleading
The long bond reversed the prior week’s
disappointing pin action, soaring above its 100 and 200 DMAs (it’s now above
all three), voiding its very short term downtrend (although its remains in
downtrends across all other timeframes), and creating two huge gap up opens. Clearly,
the benign inflation news had its impact. Equally clearly, this doesn’t fit my
outlook (i.e., inflation is as good as it is going to get). However, with only
one week worth of solid contrary data and those two gap up opens, it is too
soon to be changing my forecast.
GLD had a decent week but not decent enough to
regain any solid upside momentum. That said, usually when the long bond and the
dollar are strong, gold takes a licking---which it managed to avoid. The good
news is that a large gap down open remains overhead and it held above that stop
loss line I marked last week. The bad news is that I am confused by GLD’s
performance for a second week and its chart as the eerie appearance of a head
and shoulders formation. I maintain my GDX position.
Gold to $3000?
https://investorplace.com/smartmoney/2024/06/gold-to-3000-why-a-bull-case-just-got-more-bullish/
The dollar staged major reversal intraweek (1) on
major volatility [closing two gap opens but opening a third---this one to the
upside], pushing above its 50 DMA [now support] as well as its 200 DMA [which
will reset to support if UUP stays above that DMA at the close today] and (3) re-establishing
a very short term uptrend. All of which does some serious damage to my case for
a lower dollar (higher inflation). That said, EU politics could have played a
role in the dollar’s advance.
Friday in the charts.
https://www.zerohedge.com/markets/top-tech-trio-melts-record-high-rest-market-europe-burns
Fundamental
Headlines
The Economy
Week
in review
Last week’s stats were sparse. However, three numbers
stood out: (1) jobless claims were up, (2) inflation data was weak and (3) the
Michigan consumer sentiment survey was a bust. In short, a pretty downbeat picture
of the economy. And when juxtaposed against the latest FOMC’s hawkish ‘dot plot,’
together they introduce a bit of confusion (i.e., soft economic results suggest
a dovish Fed). To be sure, Powell had emphasized the ‘data dependency’ of Fed policy
in his presser; but still, there is an incongruity there.
With respect to economic growth, I don’t see any of
this as contradictory to my ‘muddle through’ scenario. though, there is a
growing chorus of economists raising fears of a recession. While not enough to
make me want to change my forecast back to recession, it does suggest that the
risk of one occurring has not gone away.
On the other hand, those employment/inflation stats
do give me second thoughts on my ‘inflation is as good as it is going to get’ call
(although the cynic in me doesn’t rule out the possibility of some pre-election
data manipulation). Not alter it. But enough to raise a question.
The bottom line is that the stats are not providing
a clear picture of the economy’s or inflation’s direction while the Fed is trying
to play hard ball. So until there is more clarity, confusion is apt to reign
within the economic and investor communities. And while I am just as confused
as anyone else, that is no reason to alter my forecast (unchanged, at least for
now):
(1)
as long as the government pursues its current
spend, spend policy, I don’t see us making any further progress in lowering the
inflation rate. Indeed, I don’t think that the Fed has any choice but to
continue monetizing the government IOUs.
(2) the economy seems
to be returning to its pre-covid sluggish growth path---the result primarily of
the ‘crowding out’ effects of irresponsible government spending/financing.
US
The June NY Fed manufacturing index was -6
versus expectations of -9.
International
Q1 EU YoY wage growth was 5.3% versus estimates
of 2.8%.
Other
The latest Q2 nowcasts.
https://www.calculatedriskblog.com/2024/06/q2-gdp-tracking-18-to-31.html
The Fed
Time to consider rate cuts. In reading this analysis,
remember that while M2 growth may have slowed, there is still too much
aggregate M2 funds sloshing around the system. In other words, M2 needs to be growing
slower in order to remove its inflationary bias from the system.
https://www.aier.org/article/consumer-prices-held-steady-in-may-time-to-consider-rate-cuts/
Fiscal Policy
The Pentagon is the only government agency that can’t
pass an audit. I am all for a strong defense, but military spending has become
a bottomless pit fostered by inadequately managed programs that produce fancy
but unworkable weapons. For example:
Tariffs
What Yellen has wrong. I wish the author hadn’t
selected China as the low price offender because there are so many other issues
involved other than the price of goods (i.e., national security, theft of
intellectual property). So just substitute Germany, etc. for China in this
narrative.
Bottom line.
The valuation gap between small and large cap stocks
is growing.
How crypto performs in an inflationary environment.
https://www.zerohedge.com/crypto/how-does-crypto-perform-inflationary-recession
News on Stocks in Our Portfolios
What I am reading today
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