The Morning Call
2/2/26
The
Market
Technical
Let me preface by
saying that the Warsh appointment (he is the most hawkish of the four potential
candidates) will likely have an outsized impact on all these indices via
increased uncertainty until we know what his actions will be. I posed the
question below: did Warsh make some kind of Faustian deal
with Trump to lower rates against his better judgment or did Trump pull another
of his classic 180’s on interest rates? Until we know the answer, expect increased
volatility and perhaps some changes in trend.
The S&P re-established its uptrend on
Thursday’s close, then despite what could be interpreted as potentially negative
news (see above), managed to hold that trend. Also notice in the accompanying chart
that the index has made three consecutive higher highs---not dramatically higher,
but higher none the less. I view that as a slight positive at this moment. But
as always, follow through is the key. I will continue on the sidelines until/if
that occurs.
The latest from Goldman.
No shorts, no cash, no protection.
https://www.zerohedge.com/the-market-ear/no-shorts-no-cash-no-protection
Warshed out.
Something bad is lurking beneath the surface.
https://www.zerohedge.com/the-market-ear/something-bad-lurking-under-surface
Like equity
investors the bond boys are in a ‘wait and see’ posture, being only down slightly
on what many interpret as news suggesting a moderation in the Fed’s somewhat dovish
policy. The long bond remains below all three DMAs (and failed to successfully challenge
its 200 DMA) and in downtrends across all timeframes (including a very short
term downtrend I marked in green). I continue to believe that the only
circumstance I can see pushing rates meaningfully lower would be a recession (with
the caveat that a more hawkish Fed near term would bring about lower long rates
long term).
Gold investors
were clearly the most impacted by the Warsh announcement---selling off more
than 10% on Friday. Nonetheless, it still closed above all three DMAs and in
uptrends across all timeframes. Last week, I said that short
term GLD seems a bit overextended---‘a bit’ being an understatement. I also noted
in Friday’s Morning Call that gold could fall 20% and still be above the upper
boundary of its short term uptrend and its 50 DMA. So, potentially
it could fall a good deal further and not challenge either. If it does challenge
those levels and if it is unsuccessful (it bounces), I will almost surely
re-establish my GDX trading position and may do that even before depending on
the pin action. As always, follow through is the key.
Forced selling in gold and silver.
Dip buyers in Asia.
https://www.zerohedge.com/precious-metals/out-stock-lunar-new-year-looms-asiapac-dip-buyers-emerge-gold
The dollar rallied Friday on the Warsh news after bouncing
off the lower boundary of its intermediate term uptrend. While it still holds
the title of the ugliest horse in the glue factory, if Warsh tightens monetary
policy, we may have seen the bottom. We won’t know for a while, but one can
only hope.
Friday in the
charts.
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Silver after the
crash.
https://www.zerohedge.com/the-market-ear/silver-after-crash-no-control-no-conviction
Fundamental
Headlines
The
Economy
Not
much in the way of US stats last week. What there was, was negative with the primary
indicators negative (zero plus, one neutral, one minus); and the inflation data
also was negative (one neutral, one negative). Overseas, the data was extremely
positive with one neutral price indicator.
While the US data were clearly disappointing,
one week of sparse economic reports is certainly not enough to warrant a
rethinking of my economic growth forecast (muddle through).
My ‘inflation is as good as it is going to
get’ prediction is not quite as solid, especially considering Trump named Kevin
Warsh as the new Fed chair---he is the most hawkish of the four candidates. On
the surface, this is a plus for a declining rate of inflation---clearly at odds
with my outlook; but a long term positive for the economy, interest rates, and
the dollar. That said, Trump had to know that Warsh has historically been a
hawk. Which raises the question, did Warsh make some kind of Faustian deal with
Trump to lower rates against his better judgment or did Trump pull another of
his classic 180’s on interest rates? At this point we don’t know; but if Warsh
is true to his historic colors, it would call into question both my short term
economic growth and inflation forecasts. As a side note, it would also
introduce uncertainty into a great many Street pundits outlooks---and Mr.
Market does not like uncertainty.
US
International
December German retail sales were up 0.1%
versus consensus of up 0.5%.
The January German
manufacturing PMI came in at 49.1 versus projections of 48.7; the January EU
manufacturing PMI was 49.5 versus 49.4; the January UK manufacturing PMI was
51.8 versus 51.6.
Other
The week ahead.
ECONOMIC
WEEK AHEAD: February 2-6
Regional Fed services indices point to
continued stagflation.
https://bonddad.blogspot.com/2026/01/economically-weighted-regional-fed.html
Overnight
News
House lawmakers
are returning to Washington today to pass a funding deal that Trump worked out
with Democrats last week. Approval would fund the Department of Homeland
Security for two weeks, and the rest of the government through Sept. 30.
US Senate voted
71-29 to pass the USD 1.2tln government funding deal, and the House is expected
to vote as soon as Monday on the plan after a brief government shutdown.
Trump launches a
strategic critical-minerals stockpile with $12 billion in seed money to
insulate manufacturers from supply shocks.
Iran signaled it
hopes diplomatic efforts to avert a war with the US will bear fruit within
days, after Trump said he is hopeful “we’ll make a deal.”
Kevin Warsh’s
nomination as Fed chair is reigniting debate over the central bank’s $6.6
trillion balance sheet. White House economic adviser Kevin Hassett told Fox
that it should be “as lean as possible.”
Fiscal
Policy
Tax cuts for ‘working families’ does nothing for
economic growth.
Industrial policy keeps failing.
Kevin
Warsh
NY Times.
https://www.nytimes.com/2026/01/30/business/dealbook/warsh-fed-trump.html
Bloomberg and others.
Goldman.
https://www.zerohedge.com/markets/hawkish-surprise-goldmans-first-take-implications-warshs-pick
Financial Times.
https://www.ft.com/content/a08f1b78-4816-4ff1-819c-e67e59c8d767
Stanley Druckenmiller.
https://www.ft.com/content/4ec81de7-eb59-4be8-81db-bff657e6c5d3
Is Warsh the needle for the current stock market
bubble?
The
Financial System
Blackrock loss raises more fear concerning
the private credit market.
Investing
What
will stop the metals bull market?
https://evergreengavekal.com/blog/what-will-stop-the-metals-bull-market/
Software bear
market. (I am somewhat surprised that the author didn’t address ‘why’ software stocks
are down---fear of being replaced by AI.)
https://www.bespokepremium.com/interactive/posts/think-big-blog/software-bear-market
Geopolitical
risks and equity returns.
Treasury
market potential for foreign exits.
https://doubleline.com/wp-content/uploads/DoubleLine_US-Treasury-Market_Jan-2026.pdf
Hedge
funds correlation with equities raising fears of lack of protection.
https://www.ft.com/content/8c1d9cfe-1d8f-45d5-9ab1-57fb203a170c
Why
rebalancing your portfolio is important.
News on Stocks in Our Portfolios
What
I am reading today
Monday
morning humor.
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