12/16/24
The Market
Technical
The S&P was flat on the week. But (w)hile
it has not filled the huge gap up open of 11/6 (a negative), it still has a
number of pluses going for it: (1) seasonally, it a positive time of the year,
(2) with Trump’s appointments, the long term economic outlook is improving [deregulation
and lower spending], (3) there has been few post-election disturbances.
So, my conclusion remains ‘the downside risk
to stock prices has been truncated.’
That said, it is early to be getting too
jiggy with a possible improving economic outlook. So, patience is still in
order---unless any purchases are strictly for a trade.
I continue to link to articles outlining (in the
authors’ opinions) the extent of current equity overvaluation. Plus, if you
accept the thesis put forward in the below article on government spending and corporate
profitability, then, your level of angst just went up a notch---I know mine did.
Of course, (1) stocks can always become more overvalued; and given the
favorable technical picture, they probably will and (2) there are a number of
stocks that are currently within my Buy Value Range. But I think that today
discretion is the better part of valor and that the best strategy is to await a
sell off to make any purchases. I am also looking to reduce any holdings that
are at or near their Sell Half range.
The VIX is cheap.
https://www.zerohedge.com/the-market-ear/buying-vix-here-simply-too-attractive-ignore
Not a good week in bond land. TLT was down big time
and on multiple gap down opens---adding to the already multitudinous gap up and
down opens of the last three months. As I noted last week that kind of behavior
simply adds to the already difficult task of figuring out short term direction.
However, from the long term point of view, the trend remains solidly to
the downside; and with growing evidence that inflation either is or may soon be
on the rebound, I see no reason to assume a reversal of that trend.
Gold was up on the week, though by a highly circuitous
route. In the process, it (1) made a slightly higher high which could prove to
be the terminator of a developing head and shoulders formation [though I am hesitant
to make that call] and (2) is challenging its 50 DMA. At this point, I remain
cautious pending follow through.
Watch the charts of gold and silver.
https://www.zerohedge.com/the-market-ear/gold-and-silver-charts-we-are-watching
The dollar rebounded nicely. The question now is
will it make another new high or a lower high. Fundamentals suggest the former.
But it is always prudent to let the Market give you the answer.
Friday in the charts.
Fundamental
Headlines
The Economy
Week
of review
Last week’s US economic stats were slightly
negative as were the primary indicators (zero plus, two neutral, one minus)---not
quite a perfect reading for my ‘muddle through’ scenario. But close enough for
government work.
The relationship between government spending
and corporate profitability. This is extremely important especially if you
think that Musk et al will be successful in reducing government spending.
https://www.advisorperspectives.com/commentaries/2024/12/13/kalecki-profit-equation-coming-reversion
Overseas, the numbers were balanced for a second
week in a row, building on the reversal of a developing trend of downward
momentum. Let’s hope conditions continue to improve---though recent rate cuts
by the ECB and Bundesbank suggest otherwise.
https://www.nytimes.com/2024/12/12/business/european-central-bank-interest-rates.html
The price data was all neutral or negative,
supporting my thesis that higher inflation is in our future. Policy comments
out of the future Trump administration regarding tariffs and tax cuts only raise
the odds that my forecast will come to fruition. To be sure, the cost cutting
proposals could be an offset but (1) Trump has the power to impose tariffs
unilaterally, and (2) it is a lot easier to get congress to cut taxes than it
is to cut spending.
The death of disinflation.
https://www.zerohedge.com/the-market-ear/rip-december-16th-2024-death-disinflation
Bottom line: my outlook remains: (1) the economy
‘muddles through’ and (2) inflation has likely seen its lows. But the level of
economic uncertainty is higher than normal, at least in the short term, and all
economic forecasts (including my own) should be viewed accordingly.
US
The December NY Fed manufacturing index came in at
0.2 versus consensus of 12.0.
International
November Chinese YoY industrial production was up
5.4% versus projections of +5.3%; November YoY retail sales were up 3.0% versus
+4.6%; November YoY fixed asset investment was up 3.3% versus 3.4%.
The December Japanese flash manufacturing PMI was
49.5 versus estimates of 49.2; the flash services PMI was 51.4, in line; the
flash composite PMI was 50.8 versus 50.2; the December German flash
manufacturing PMI was 42.5 versus 43.1; the flash services PMI was 51.0 versus
49.3; the flash composite PMI was 47.8 versus 47.5; the December EU flash
manufacturing PMI was 45.2 versus 45.3; the flash services PMI was 51.4 versus
49.5; the flash composite PMI was 49.5 versus 48.2; the December UK flash
manufacturing PMI was 47.2 versus 48.2;
the flash services PMI was 51.4 versus 51.0; the flash composite PMI was 50.5
versus 50.7.
Other
Unemployment claims as a recession
indicator.
Update on Q4 nowcasts.
https://www.calculatedriskblog.com/2024/12/q4-gdp-tracking-21-to-33-range.html
Another yellow flag.
https://bonddad.blogspot.com/2024/12/good-news-on-real-aggregate-payrolls.html
Fiscal Policy
The
potential power of DOGE.
https://www.realclearmarkets.com/articles/2024/12/13/the_potential_power_of_doge_1078299.html
The
great upheaval.
https://www.axios.com/2024/12/12/trump-elon-musk-great-upheaval-ai-politics
The
bogus accounting of a strategic bitcoin reserve.
https://www.cato.org/blog/tanstaafsbr-or-theres-no-such-things-free-strategic-bitcoin-reserve
Tariffs
China’s
trump cards in the coming trade war.
https://www.ft.com/content/bd3a0377-58a9-4283-b9c4-d7445b7d3df8
Investing
The latest from BofA.
https://www.zerohedge.com/markets/400-days-until-40-trillion-debt-michael-hartnetts-2025-playbook
Economic indicators and the trajectory of earnings.
Economic Indicators And The Trajectory Of Earnings
- RIA
Investing in the post-election optimism
atmosphere.
Trump Election Sends NFIB Optimism Surging - RIA
News on Stocks in Our Portfolios
What I am reading today
Surprising
treasure found after Notre Dame burned.
These are the surprising treasures
archaeologists found after Notre Dame burned
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