The Morning Call--Expensive markets are more dangerous than you think

The Morning Call

 

12/8/20

 

The Market

         

    Technical

 

            Monday in the charts.  Notable, despite being up on the day, the long bond closed below the lower boundary of its very short term uptrend, negating that trend, meaning higher rates ahead.

            https://www.zerohedge.com/markets/bonds-bullion-bid-stocks-skid-stimulusvaccine-stumble

 

            From bond vigilantes to bond zombies.

            http://blog.yardeni.com/2020/12/the-carrie-trade-from-bond-vigilantes.html

 

            The puzzle of low interest rates.

            https://www.nytimes.com/2020/12/04/business/low-interest-rates-puzzle.html

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

                            

Month to date retail chain store sales grow fell dramatically from the prior week.

 

October consumer credit grew $7.2 billion versus estimates of +$16 billion.

https://www.zerohedge.com/economics/consumer-credit-misses-badly-americans-unexpectedly-pay-down-credit-card-debt-october

 

Q3 nonfarm productivity increased 4.6% versus consensus of up 4.9%; unit labor costs fell 6.6% versus -8.9%.

 

                        International

 

The October Japanese leading economic indicators came in at 93.8 versus expectations of 93.2; household spending was up 2.1% versus +1.0%; cash earnings declined 0.8% versus -0.6%; Q3 final GDP growth was 5.3% versus 5.0% with capital spending down 2.4% versus -3.2%.

 

October German industrial production was up 3.2% versus projections of up 1.6%; December economic sentiment came in at 55.0 versus 45.5.

Q3 EU employment rose 1.0% versus forecasts of +0.9%; GDP growth was 12.5% versus +12.6%; December economic sentiment was reported at 54.4 versus 32.0

 

                        Other

 

                          Bracing for Brexit’s financial shock.

                          https://www.zerohedge.com/markets/london-braces-brexits-financial-shockwave

 

            The Fed

 

              BIS issues warning solvency issues are growing.

              https://www.zerohedge.com/markets/bis-issues-dire-warning-we-are-moving-liquidity-solvency-phase-crisis

 

            Fiscal Policy

 

              Indiscriminate stimulus is absurd (must read).

                          https://www.nationalreview.com/2020/12/indiscriminate-stimulus-in-a-pandemic-is-absurd/?itm_campaign=headline-testing-indiscriminate-stimulus-in-a-pandemic-is-absurd&itm_medium=headline&itm_source=nationalreview&itm_content=Indiscriminate%20Stimulus%20in%20a%20Pandemic%20Is%20Absurd&itm_term=Indiscriminate%20Stimulus%20in%20a%20Pandemic%20Is%20Absurd

 

 

            Bottom line.  Expensive markets are more dangerous than you think.

                        https://www.zerohedge.com/markets/expensive-markets-are-more-dangerous-you-think

 

              The fundamental problem with the bullish view.

               https://www.zerohedge.com/markets/roaring-20s-fundamental-problem-bullish-view

 

              Are you a permabear?

              https://allstarcharts.com/permabear/

 

    News on Stocks in Our Portfolios

 

Brown-Forman (NYSE:BF.B): FQ2 GAAP EPS of $0.50 misses by $0.02.

Revenue of $985M (-0.4% Y/Y) beats by $17.24M.

 

What I am reading today

 

            As usual with Traderfeed, his trading advice has applicability to all of our life experiences.

            http://traderfeed.blogspot.com/2020/12/how-to-overcome-self-critical-thinking.html

 

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

 

12/7/20

 

The Market

 

    Technical

 

            The S&P has now solidly challenged its all-time and reset its short term trend to up, putting it in uptrends across all timeframes and above both DMA’s.  But in doing so, it has gotten severely overbought, suggesting some price weakness near term.  But as I have noted, longer term there is no visible resistance for almost 1000 points. 

 

            Bear in mind that the above comments are strictly technical and, therefore, must be weighed against any fundamental (valuation) comments that I may make in the Bottom Line section.

 

            Will there be a Santa Claus rally?

            https://www.bloomberg.com/news/articles/2020-12-04/these-five-charts-throw-cold-water-on-chances-of-santa-rally?sref=loFkkPMQ

 

                        Equity put/call ratio at an extreme.

            https://quantifiableedges.com/equity-put-call-ratio-at-historical-extreme/

 

On Friday, the long bond challenged the lower boundary of its very short term uptrend for a second time in a week.  If it remains there through the close today, the very short term trend will reset to a trading range.  If that happens, having already reset both DMA’s to resistance, the next support level is ~15%.  How fast it gets there will likely have an impact on equity prices---I have noted that at slow rise would suggest increased economic activity (good for stocks) while a quick rise would imply rapidly rising inflation expectations (bad for stocks).

 

Having tested its 200 DMA two Fridays ago, GLD bounced hard last week, negating the break of that moving average.  Longer term, that leaves it in uptrends across all timeframes, above its 200 DMA with the 100 DMA (now resistance) the only technical negative.  However, you can clearly see that gold continues to exhibit weakness in the very short term.  That keeps it a zone of uncertainty---will it push upward out of the downtrend from August or successfully challenge its 200 DMA and trend even lower?  A lower dollar suggests the former, higher yields the latter.

 

The dollar’s chart is what really gets my attention.  UUP had reset both DMA’s to resistance some time ago.  Last week, it reset its short term trading range to a downtrend and its intermediate term uptrend to a trading range.  That is some pretty serious technical damage.  And the next visible support level is down another 5% which is a big move for the dollar.  The investment implications are much like the long bond.  A gradual decline can be good for stocks because it makes US goods cheaper in overseas (hence, better corporate profits).  However, a spike could imply a loss of faith in the US/economy and that would be bad for stocks.  Unfortunately, right now, it appears that a flush lower is happening and that is not good.  But that is somewhat at odds with what is going on in the bond market.  So, color me a bit confused but attentive to these two markets as signals for the equity market.

 

Friday in the charts.

https://www.zerohedge.com/markets/mega-tech-small-caps-surge-dollar-purge-accelerates

 

 

    Fundamental

 

       Headlines

 

              The Economy

 

                         Review of last week

 

The stats were upbeat for the third week in a row---but this time the  primary indicators were tilted to the plus side.  If this trend continues for a couple more weeks, then odds of a follow through to the third quarter rebound improve.  Unfortunately, there remains considerable uncertainty over a stimulus bill and lockdowns are proliferating in the holidays.

 

Risks of a double dip rising?

http://econbrowser.com/archives/2020/12/risks-of-a-double-dip-rising

 

In addition, the Fed released its latest Beige Book report.  However, it provided little in terms of informational value with respect to a recovery.

 

Overseas, the indicators were very positive for a second week in a row.  But we need more consistency in the trend of the data to start getting upbeat.  Regrettably, the renewed lockdowns occurring across Europe don’t give much promise of steady improvement.  Not helpful to our own recovery.

           

Whatever the shape or magnitude of the near term bounce back, I am not altering my belief that long term the economy will grow at a historically subpar secular rate due to the twin burdens of egregiously irresponsible fiscal and monetary policies---which, by the way, are becoming even more egregiously irresponsible as a result of measures being taken by the government and the Fed in dealing with the current crisis.

             

                                US

 

                         International

 

                       

Other

 

  The latest in the Brexit negotiations.

   https://www.zerohedge.com/markets/pound-slides-no-progress-seen-brexit-deal-talks-transition-period-wont-be-extended

 

  Problems with the new OPEC agreement.

  https://www.zerohedge.com/energy/worrying-truth-about-new-opec-agreement

 

            Bottom line.

 

              The rally in oil stocks maybe premature.

              https://www.zerohedge.com/energy/energy-rally-likely-premature

 

    News on Stocks in Our Portfolios

           

 

What I am reading today

           

            Quote of the day.

            Quotation of the Day... - Cafe Hayek

                       

                        Being a reasonable optimist (great read).

            https://www.collaborativefund.com/blog/the-reasonable-optimist/

 

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The Morning Call---Hear no risk, see no risk, speak no risk

 

The Morning Call

 

10/14/20

 

I am gone until next Monday

 

The Market

         

    Technical

 

            Tuesday in the charts.

            https://www.zerohedge.com/markets/banks-bust-bullion-battered-sterling-slammed-stocks-slump

           

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

Weekly mortgage applications fell 0.7% and purchase applications declined 1.7%.

 

The September small business optimism index was reported at 104.0 versus estimates of 99.0.

                          https://www.advisorperspectives.com/dshort/updates/2020/10/13/nfib-small-business-survey-improvement-in-september

 

                        International

                          

August Japanese industrial production was up 1.0% versus consensus of       up 1.7%.

 

August EU industrial production was up 0.7% versus predictions of up 0.8%.

 

                        Other

 

                          The ‘K’ shaped recovery.

                              https://www.zerohedge.com/economics/k-shaped-recovery-v-some-not-most

 

                          October IMF global growth outlook.

                              http://econbrowser.com/archives/2020/10/october-imf-world-economic-outlook

 

                                  Johnson says he won’t walk away from Brexit negotiations.

                          https://www.zerohedge.com/markets/odds-no-deal-brexit-plunge-boris-johnson-signals-he-wont-walk-away-talks-eu

 

            The Fed

 

              Central banks in overdrive.

              https://www.bloomberg.com/news/articles/2020-10-13/central-banks-in-qe-overdrive-to-finance-deficit-spending-chart?sref=loFkkPMQ

 

            The coronavirus

 

              Lockdowns have been a disaster.

              https://issuesinsights.com/2020/10/13/covid-19-lockdowns-have-been-a-disaster-end-them-now/

 

  Global GDP loss due to coronavirus reaches $12 trillion.

  https://politicalcalculations.blogspot.com/2020/10/world-gdp-lost-due-to-coronavirus.html#.X4X03GhKiM8

 

              Patriotism in a contemptible country.

              https://unclenap.com/patriotism-in-a-contemptible-country/

 

It is about time: court rules Michigan’s governor’s emergency pandemic executive powers unconstitutional.

              https://www.zerohedge.com/markets/michigan-supreme-court-denies-gov-whitmer-request-extension-pandemic-executive-powers

 

                          Lilly joins JNJ is suspending coronavirus treatment tests.

              https://www.zerohedge.com/markets/eli-lilly-suspends-covid-19-antibody-therapy-trial-over-potential-safety-concern

 

                          We destroyed the greatest economy in the world for no reason.

              https://www.zerohedge.com/economics/rickards-we-destroyed-worlds-greatest-economy-no-reason

 

            Bottom line.  Hear no risk, see no risk, speak no risk.

              https://www.zerohedge.com/markets/see-no-risk

 

              There is no Smart Money.

              https://www.epsilontheory.com/the-frustrated-money-manager/

 

              Possible outcome of ‘blue wave’ election

              https://www.advisorperspectives.com/commentaries/2020/10/13/global-impact-of-a-blue-wave-election-outcome

 

              Don’t mix politics with your portfolio.

              https://awealthofcommonsense.com/2020/10/dont-mix-your-politics-with-your-portfolio/

 

    News on Stocks in Our Portfolios

 

Procter & Gamble (NYSE:PG) declares $0.7907/share quarterly dividend, in line with previous.

 

Cummins (NYSE:CMI) declares $1.35/share quarterly dividend, 3% increase from prior dividend of $1.311.

 

            ATT: it is about more than just a dividend.

            https://seekingalpha.com/article/4378928-retirement-strategy-and-t-is-just-dividend?utm_medium=email&utm_source=seeking_alpha&mail_subject=retirement-strategy-at-t-is-more-than-just-about-the-dividend&utm_campaign=nl-investing-income&utm_content=link-0

 

What I am reading today

 

            Berlin and the road to socialism.

            https://www.adamsmith.org/blog/berlin-and-the-road-to-socialism

 

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The Morning Call--Cut the crap and fix what you broke

 

The Morning Call

 

10/8/20

 

The Market

         

    Technical

 

            At the moment, the chart of the dollar may be the best directional indicator for the rest of the markets.  Having reset its short term trend from down to a trading range, UUP is holding a developing trend of higher lows.  If that presages a stronger dollar (economy) that would be a plus for stocks but a negative for bonds and gold.  On the other hand, if it fails to hold that very short term uptrend, it may be anticipating a move to safety.  Stay tuned.

 

 

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Weekly jobless claims were up 840,000 versus expectations of up 820,000.

 

                        International

 

The August German trade balance was +E15.7 billion versus estimates of +E18.2 billion.

 

                        Other

 

                          Vehicle sales per capita as of 9/20.

                          https://www.advisorperspectives.com/dshort/updates/2020/10/07/vehicle-sales-per-capita-as-of-september-2020

 

                          Framing lumber prices up 65% YoY.

                          https://www.calculatedriskblog.com/2020/10/update-framing-lumber-prices-up-65-year.html

 

Q3 GDP growth will likely show robust improvement; but Q4 remains a   big question mark.

                          http://www.capitalspectator.com/us-q3-gdp-expected-to-rise-sharply-as-q4-outlook-dims/

 

                          UK threatens to walk away from Brexit talks.

                          https://www.zerohedge.com/geopolitical/uk-threatens-walk-away-brexit-talks-if-no-deal-end-next-week

 

                          Panic in the leveraged loan market.

                          https://www.zerohedge.com/markets/its-civil-war-decade-covenant-lite-deals-leads-leveraged-loan-panic

 

            The Fed

 

The FOMC released the minutes from its last meeting; the most important takeaways being that (1) the QEInfinity/Forever policy through 2023 is not set in stone and (2) it was expecting more fiscal policy stimulus than has occurred to date.  Suggesting that QEForever could be upscaled if fiscal policy fails to deliver.  Here are the minutes.

              https://www.zerohedge.com/markets/fomc-minutes-show-fed-assumed-fiscal-aid-2020-fears-excessive-risk-taking

 

              Another $3.5 trillion?

              https://www.zerohedge.com/markets/top-fed-economist-says-another-35-trillion-qe-needed

 

            Fiscal Policy

 

              Pelosi signals that she would support standalone airline rescue bill.

              https://www.zerohedge.com/political/pelosi-and-mnuchin-open-standalone-airline-relief-direct-payments-americans-left-hanging

             

            The coronavirus

 

              End this recession now.

              https://www.aier.org/article/end-this-recession-now/

 

              How about listening to these scientists?

              https://www.powerlineblog.com/archives/2020/10/declare-this.php

             

              7,000 scientists and doctors call for the end of the lockdown (must read).

              https://www.zerohedge.com/medical/over-7000-scientists-doctors-call-covid-herd-immunity-end-lockdowns

 

            Bottom line.  I am amazed at how tone death our political class is.  Having made what I believe will be recorded as the greatest f**kup in economic history, these guys are debating over angels on a pin head. 

Meanwhile, personal income fell 2.7% in August.  Last week 840,000 workers filed for unemployment bringing total unemployment to around 12 million.  Small businesses are failing a rate higher than during the financial crisis. 

Wolf Richter points out that one of the major results of the PPP program was that it allowed many very small business owners to simply shutter their enterprises, giving them enough to settle with the landlords and other creditors rather than file bankruptcy.  In a recent article he points out:

‘From March through mid-July, over 420,00 small businesses – or 7.1% of all small businesses – permanently and quietly closed their doors, more than typically in an entire year, according to a study by Brookings, released in September.

The analysis found that “many small businesses are financially fragile and not equipped to weather a prolonged period of substantially reduced revenues”:

47% rely on personal funds of the owner to fill a two-month revenue drop.
88% rely on the personal credit score of the owner (such as working capital funded by personal credit cards).
Only 44% have had a bank loan over the past five years.

Small businesses account for about 99% of all businesses in the US and about 47% of jobs in businesses. If these 420,000 businesses are representative of national employment, “this means we have lost at least 4 million jobs that will only return with the creation of new businesses,” the report said.’

Cut the showboat crap and fix what you broke.

              Valuation update.

              https://www.advisorperspectives.com/dshort/updates/2020/10/07/is-the-market-still-overvalued

 

    News on Stocks in Our Portfolios

 

            Exxon.  Buy now

            https://seekingalpha.com/article/4378039-exxon-mobil-buy-now-who-cares-dividend?utm_medium=email&utm_source=seeking_alpha&mail_subject=xom-exxon-mobil-buy-now-who-cares-about-the-dividend&utm_campaign=rta-stock-article&utm_content=link-0

 

            Altria is controversial but resilient

            https://seekingalpha.com/article/4378088-altria-is-controversial-resilient-offers-attractive-income-yield-of-9?utm_medium=email&utm_source=seeking_alpha#alt1&mail_subject=mo-altria-is-controversial-but-resilient-offers-an-attractive-income-yield-of-9&utm_campaign=rta-stock-article&utm_content=link-2

 

            McDonald's (NYSE:MCD) declares $1.29/share quarterly dividend, 3% increase from prior dividend of $1.25.

 

CVS Health (NYSE:CVS) declares $0.50/share quarterly dividend, in line with previous.

 

What I am reading today

 

            Finally, someone gets it.

            https://trendingpolitics.com/nba-walks-back-wokeism-as-finals-ratings-continue-on-downward-spiral/

 

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