The Morning Call--Fed policies are part of the problem

 

The Morning Call

 

8/28/20

 

The Market

         

    Technical

 

The Averages  (28492, 3484) continued to climb and for the first time in a number of days, on higher volume.  But there remain a number of negatives (1) on Monday, both of the indices made a gap up open, joining those two gap up opens made three weeks ago, (2) the VIX continues to reflect investor concern [it was actually up yesterday on a stock price up day for the second day in a row] (3) the indices’ breadth remains in overbought territory while the rest of the Market weakens. So, there are good reasons to expect a selloff.  Nonetheless, I am sticking with my assumption that the Market’s bias remains to the upside long term.

           

Gold retreated below the uptrend off its June low---the first negative indicator in a long time.  TLT was hammered (down 1 ¾%), again, on increased volume.  The bad news is that it remains below its 100 DMA (now resistance) and has now made a lower high.  The good news is that on Tuesday, it created a huge gap down open that needs to be filled.  The dollar rallied but not enough break even the very shortest term downtrend.  The cumulative pin action is pointing to an improving economy/higher rates.   

 

            Divergences everywhere.

            https://www.zerohedge.com/markets/correction-watch-divergences-are-developing-between-large-us-stocks-everything-else

 

            Thursday in the charts.

            https://www.zerohedge.com/markets/powell-pelosi-pentagon-pummel-stocks-bonds-bullion

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          July pending home sales rose 5.9% versus forecasts of +3.0%.

                          https://www.advisorperspectives.com/dshort/updates/2020/08/27/pending-home-sales-rise-5-9-in-july

 

July personal income was up 0.4% versus estimates of up0.2%; personal spending was up 1.9% versus 1.5%.

 

The July trade balance was -$79.3 billion versus expectations of -$73 billion.

July wholesale inventories declined 0.1% versus projections of -0.6%.

 

The August Kansas City Fed manufacturing index came in at 23 versus consensus of 2.

                          https://www.advisorperspectives.com/dshort/updates/2020/08/27/kansas-city-fed-survey-manufacturing-activity-rose-in-august

 

                        International

 

August Japanese CPI was up 0.3% versus predictions of up 0.6%, core CPI was up 0.3%, in line.

 

August EU consumer confidence came in at -14.7, in line; economic sentiment was 87.7 versus 85.0; industrial sentiment was -12.7 versus -14.4; services sentiment was -17.2 versus -24.4.

 

September German consumer confidence declined 1.8% versus estimates of +1.2%.

 

                        Other

 

                          America’s coming double dip (must read from Stephen Roach).

                          https://www.zerohedge.com/markets/americas-coming-double-dip

 

                          Hotel occupancy down 30% YoY.

                          https://www.calculatedriskblog.com/2020/08/hotels-occupancy-rate-declined-303-year.html

 

                          Quality adjusted price inflation in much higher than measured.

                          https://marginalrevolution.com/marginalrevolution/2020/08/the-quality-adjusted-rate-of-price-inflation-is-much-higher-than-measured.html

 

            The coronavirus

 

              The latest fatalities stats.

              http://econbrowser.com/archives/2020/08/cdc-covid-19-fatality-count-and-excess-deaths

 

               Most Americans are misinformed on the coronavirus.

              https://www.usatoday.com/story/opinion/2020/08/26/covid-19-misinformed-americans-too-scared-too-careless-column/3430354001/

 

              The Gallup Pool shows public school enrollment will decline by 76%-83%.

              https://nalert.blogspot.com/2020/08/the-gallup-poll-finds-that-public.html

 

I am not sure that the government/single payer approach is the right one for solving the health insurance problem; but the pandemic spotlights a huge problem that has to be addressed.

              https://www.nakedcapitalism.com/2020/08/threadbare-us-system-denounced-as-study-shows-12-million-lost-employer-tied-health-care-during-pandemic.html

 

            The Fed

 

              Summation of Powell’s Jackson Hole address (must read).

              https://www.zerohedge.com/markets/after-inflation-targeting-heres-what-fed-will-do-next

 

              Just how easy has Fed monetary policy been this year?

              https://www.themoneyillusion.com/the-fed-hasnt-done-much-monetary-stimulus-this-year/

 

            Bottom line.  Fed policies are part of the problem.

            https://www.zerohedge.com/markets/one-bank-finally-tells-truth-fed-policies-have-become-part-problem

 

  A bear market still lurks.

              https://www.advisorperspectives.com/commentaries/2020/08/27/march-was-a-correction-bear-market-still-lurks

 

              Ultra rich stockpile cash.

              https://www.advisorperspectives.com/commentaries/2020/08/27/ultra-rich-tiger-21-stockpiles-cash-as-u-s-economy-fears-grow

 

              Lessons from long term Market returns.

              https://novelinvestor.com/peter-bernstein-lessons-from-long-run-market-returns/

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

            Claiming social security during the pandemic.

            https://www.usatoday.com/story/money/2020/08/26/the-smart-way-to-claim-social-security-benefits-during-the-coronavirus-pandemic/113460080/

 

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--FOMC day

The Morning Call

1/29/20

The Market

         

    Technical

The Averages (28722, 3276) staged a comeback yesterday, especially the S&P.  It finished right on the lower boundary of its very short term uptrend (halting the clock on Monday’s break) and closed Monday’s major gap down open.  The Dow did neither; leaving the indices out of sync and the near term pin action directionally in question.  They still ended above both MA’s and in short, intermediate and long term uptrends.  So, there has hardly been a loss in long term momentum. 

https://www.marketwatch.com/story/the-main-reason-for-the-stock-markets-decline-is-not-the-coronavirus-2020-01-27?mod=home-page

            Counterpoint.

            http://nymag.com/intelligencer/2020/01/why-stock-market-worried-coronavirus.html

Volume was down, breadth weak, moving out of overbought territory.  The VIX fell 10 ¾%, but still finished for a third day above both its 100 DMA (reverting to support) and its 200 DMA (now resistance; if it remains there through the close today, it will revert to support). 

The long bond fell ¾ %, but that didn’t impact the ongoing directional momentum change to the upside.  Although there are two gap up opens below that need to be filled. 

http://econbrowser.com/archives/2020/01/back-to-zero

The dollar was unchanged, remaining below both MA’s, in a short term downtrend and is still the ugliest chart on the block.  While it is attempting to close that big gap down open from 12/23, my assumption remains that the dollar will continue to weaken.

Gold declined 7/8%, the first down day in almost two weeks.  It closed within very short term and short term uptrends and above both MA’s.

Tuesday in the charts.

https://www.zerohedge.com/markets/stocks-soar-best-day-4-months-devil-virus-death-count-spikes

Dr. Copper is getting hammered.

https://www.zerohedge.com/markets/doctor-copper-catche-coronavirus-worst-performance-34-years

    Fundamental

       Headlines

Yesterday’s dataflow was upbeat.  The January Richmond Fed manufacturing index, January consumer confidence, month to date retail chain store sales and the November Case Shiller home price index were all positive.  The only negative was December durable goods orders/ex transportation (primary indicator).

The numbers continue to come in ahead of forecast.  My take is that strength will help offset the economic fallout from the coronavirus epidemic but not enough to provide any kind of ‘lift off’ to a higher rate of economic growth.

            In other news:

            Update on coronavirus.

            https://www.zerohedge.com/geopolitical/british-airways-ends-all-flights-china-virus-spreads-middle-east

            The FOMC began its January meeting yesterday; so, we will get the latest on rates and NotQE this afternoon.  And what’s a day without a little Fed criticism?

            https://thehill.com/opinion/finance/480047-prognosis-poor-for-the-feds-2-percent-target?rnd=1580133102

           

Sometime, somewhere, earnings are going to matter even though they haven’t for the last decade.  The current earnings season is coming in line with past history: mediocre reports on reduced estimates.  This is the busiest week of this season and it too has been mixed.   

            Bottom line: I opined yesterday that as long as the NotQE continued that events like the coronavirus epidemic, which likely won’t have dramatic long term negative implications for the global economy, will probably not have that big an impact of the Market.  We will have the Fed’s last thinking on rates and QE this afternoon.  I doubt any major changes policies or investor disregard for valuations.

https://www.zerohedge.com/markets/it-time-buy-dip

            More on valuation.

            https://politicalcalculations.blogspot.com/2020/01/s-500-market-capitalization.html#.XjCIG2hKg2w

            And more.

            https://www.advisorperspectives.com/commentaries/2020/01/27/if-it-quacks-like-a-bubble

            Thoughts on the ETF industry.

            https://thereformedbroker.com/2020/01/28/incumbency/

            Looking at returns in the 2020’s.

            https://awealthofcommonsense.com/2020/01/what-the-2020s-will-look-like-for-the-markets/

    News on Stocks in Our Portfolios

 

C.H. Robinson Worldwide (NASDAQ:CHRW): Q4 GAAP EPS of $0.73 misses by $0.23.

Revenue of $3.8B (-8.2% Y/Y) beats by $50M.

Apple (NASDAQ:AAPL): Q1 GAAP EPS of $4.99 beats by $0.45.

Revenue of $91.82B (+8.9% Y/Y) beats by $3.41B.

Mastercard (NYSE:MA): Q4 Non-GAAP EPS of $1.96 beats by $0.09; GAAP EPS of $2.07 beats by $0.19.

Revenue of $4.41B (+16.1% Y/Y) beats by $10M.

Boeing (NYSE:BA): Q4 Non-GAAP EPS of -$2.33 misses by $0.50; GAAP EPS of -$1.79 misses by $3.87.

Revenue of $17.91B (-36.7% Y/Y) misses by $3.85B.

Automatic Data Processing (NASDAQ:ADP): Q2 Non-GAAP EPS of $1.52 beats by $0.08; GAAP EPS of $1.50 beats by $0.06.

Revenue of $3.67B (+5.2% Y/Y) misses by $20M.

General Dynamics (NYSE:GD): Q4 GAAP EPS of $3.51 beats by $0.07.

Revenue of $10.77B (+3.8% Y/Y) beats by $130M.

McDonald's (NYSE:MCD): Q4 Non-GAAP EPS of $1.97 in-line; GAAP EPS of $2.08 beats by $0.11.

Revenue of $5.35B (+3.7% Y/Y) beats by $50M.

AT&T (NYSE:T): Q4 Non-GAAP EPS of $0.89 beats by $0.01; GAAP EPS of $0.33 misses by $0.30.

Revenue of $46.82B (-2.4% Y/Y) misses by $140M.

T. Rowe Price (NASDAQ:TROW): Q4 Non-GAAP EPS of $2.03 beats by $0.10; GAAP EPS of $2.24 beats by $0.19.

Revenue of $1.47B (+12.2% Y/Y) beats by $20M.

Brown-Forman (NYSE:BF.B) declares $0.1743/share quarterly dividend, in line with previous.   

McDonald's (NYSE:MCD) declares $1.25/share quarterly dividend, in line with previous.

Canadian National Railway (NYSE:CNI) declares CAD 0.575/share quarterly dividend, 7% increase from prior dividend of CAD 0.5375.

Economics

   This Week’s Data

      US

            Weekly mortgage applications rose 7.2% while purchase applications were up 5.3%.

            The December trade deficit was $68.33 billion versus forecasts of $68.75 billion.

            December wholesale inventories fell 0.1% versus consensus of -0.2%; sales also declined.

           

     International

            January Japanese consumer confidence came in at 39.1 versus expectations of 40.8.

            February German consumer confidence was reported at 9.9 versus estimates of 9.6.

    Other

            Global growth without a trade cushion (must read):

            https://www.project-syndicate.org/commentary/global-growth-losing-its-trade-cushion-by-stephen-s-roach-2020-01

            It is what you believe that ain’t so that matters.

            https://www.adamsmith.org/blog/its-what-you-believe-that-aint-so-that-matters

            CBO projects $1 trillion deficit in FY2020 and expects it to grow every year thereafter.

            https://www.zerohedge.com/economics/cbo-projects-budget-deficit-surpassing-1-trillion-year-sees-us-debt-growing-exponentially

What I am reading today

            The secret life of a professional hustler.

            https://www.ozy.com/true-and-stories/the-secret-life-of-a-professional-side-hustler/75902/

           

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--Premature gnashing of teeth

The Morning Call

6/27/17

It is summertime and this year the living isn’t particularly easy in Texas.  It is way too hot.  So I am departing for cooler climates tomorrow and won’t be back to mid-July (yes, I know, it will still be hot).  As always I will have my computer with me and if action is needed, I will communicate via Subscriber Alerts.  Though I will note, that given the extent of equity overvaluation, it will take a hell of a selloff to prompt any action.

The Market

         

    Technical

The indices (DJIA 21409, S&P 2439) rose fractionally on low volume but slightly improved breadth.  They retain their upward momentum as defined by their 100 and 200 day moving averages and uptrends across all timeframes.  At the moment, I see nothing, technically speaking, to inhibit the Averages’ challenge of the upper boundaries of their long term uptrends---now circa 24198/2763. 

The VIX (9.9) fell another 1 ¼ %, ending below the lower boundary of its intermediate term trading range for the second day (if it remains there though the close on Wednesday, it will reset to a downtrend) and right on the lower boundary of its long term trading range.  Remember that it has unsuccessfully attempted to reset both of these boundaries six times since mid-April.  Odds suggests a seventh failure. 

The long Treasury remains in a solid uptrend, finishing above its 100 and 200 day moving averages (now support), in very short term and long term uptrends and in a short term trading range---continuing to reflect bond investors’ doubts about a strong economy/rising inflation.

                https://ftalphaville.ft.com/2017/06/26/2190583/snap-av-yield-curves-and-fed-mistakes/

The dollar rose slightly ($0.04), ending in a very short term downtrend and below its 100 and 200 day moving averages---also lending little support to the strong economy/rising inflation scenario.

GLD declined, closing below the upper boundary of its short term trading range, back below its 100 day moving average, voiding Friday’s break but above its 200 day moving average.   

http://www.zerohedge.com/news/2017-06-26/3-reasons-why-goldman-just-turned-bullish-gold

Bottom line: the Averages meandered through another lazy, low volume summer day, ostensively impervious to the data flow.  That suggests that there are few concerns and, in general, everyone is happy with what they own.  I have no insight into how long this lethargy will last; but it seems reasonable to assume that, technically speaking, the indices next big move will be to challenge the upper boundaries of their long term uptrends.

           

            Yesterday in charts (short):

            http://www.zerohedge.com/news/2017-06-26/bitcoin-bloodbath-leads-tech-stock-tumble-gold-gouged-credit-curve-crushed-new-lows

    Fundamental

       Headlines

            The economic data got off to a very rough start this week: May durable goods, the May Chicago Fed national activity index and the June Dallas Fed manufacturing index were all disappointing---not the kind of follow through you want from last week’s improved stats. 

Overseas, the Italian government bailed out two failed banks---a plan that did not meet EU guidelines and called for the Italian taxpayers to put up $17 billion.  Why is it that the taxpayers are always the one getting screwed?

            http://www.zerohedge.com/news/2017-06-26/italys-newest-bank-bailout-cost-much-its-annual-defense-budget

            ***overnight, the Bank of England raised capital requirements on its banks.

            http://www.zerohedge.com/news/2017-06-27/boe-orders-banks-raise-145-billion-capital-protect-rising-risks

                Plus, Draghi made some hawkish statements; and Yellen speaks today in London.

            In the US, the CBO released its much anticipated scoring of the senate version of healthcare reform.  The major items include (1) 22 million will lose healthcare coverage by 2026 [23 million in the house version], (2) it will reduce the deficit by $321 billion over the next ten years [$119 billion in the house version] and (3) insurance premiums will increase in the first two years, then decline in the third year.  So it is better than the house version but not a perfect bill.  I would expect further improvement in the final senate version and still more when, as and if it reaches reconciliation.  Who knows what the final product will look like; but some progress is better than no progress.  So I think it too soon for the gnashing of teeth and tearing of hair.

Bottom line: the numbers are not improving; and the Fed appears determined in its drive to tighten monetary policy.  As you know, I am not concerned about the economic consequences of the latter but believe that it will impact equity valuations.  As a result, I believe that every investor should have some cash reserves.  It is impossible to buy low if you don’t sell high.

           

            The latest Fed statements (medium):

            http://www.zerohedge.com/news/2017-06-26/feds-third-mandate-official

            The nightmare scenario (medium):

            http://theirrelevantinvestor.com/2017/06/24/this-is-your-nightmare-scenario/

       Investing for Survival

   

            The hardest thing.

            https://pensionpartners.com/the-hardest-thing/

    News on Stocks in Our Portfolios

 

Boeing (NYSE:BA) declares $1.42/share quarterly dividend, in line with previous.

FactSet Research Systems (NYSE:FDS): Q3 EPS of $1.85 beats by $0.01.

Revenue of $312.1M (+8.6% Y/Y) in-line.

Economics

   This Week’s Data

            The June Dallas Fed’s manufacturing index came in at 15.0 versus expectations of 18.0.

           

   Other

            Another lesson from Japan (medium):

            https://www.project-syndicate.org/commentary/advanced-economies-low-inflation-weak-demand-by-stephen-s--roach-2017-06

            This is what a bubble looks like (medium):

            http://fat-pitch.blogspot.com/2017/06/this-is-what-bubble-looks-like-japan.html

            GM raising $3 billion to fund pension plan (short):

            http://www.zerohedge.com/news/2017-06-26/gm-will-raise-3-billion-debt-fund-pensions

            Update on credit markets (medium):

            http://www.zerohedge.com/news/2017-06-26/ed-altman-warns-credit-market-looks-2007-again-could-come-end-very-dramatically

Politics

  Domestic

Supreme Court re-instates temporary travel ban, sort of (short):

http://www.zerohedge.com/news/2017-06-26/scotus-high-drama-ruling-travel-ban-and-potential-kennedy-retirement

  International War Against Radical Islam

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The Morning Call--Deutschebank=Lehman?

The Morning Call

9/27/16

The Market

         

    Technical

The indices (DJIA 18094, S&P 2146) had a rough day.  Volume was up but is still low; breadth weakened.  The VIX rose 18%, closing in a short term downtrend and right on its 100 day moving average. 

Eighth down Friday, down Monday of 2016 (short):

http://jeffhirsch.tumblr.com/post/150976139213/8th-down-fridaydown-monday-warning-of-2016

The Dow ended [a] below its 100 day moving average, now support; if it remains there through the close on Wednesday, it will revert to resistance, [b] above its 200 day moving average, now support, [c] within a short term uptrend {18069-19803}, [c] in an intermediate term uptrend {11420-24247} and [d] in a long term uptrend {5541-19431}.

The S&P finished [a] above its rising 100 day moving average, now support, [b] above its 200 day moving average, now support, [c] within a short term uptrend {2124-2360}, [d] in an intermediate uptrend {1946-2548} and [e] in a long term uptrend {862-2400}. 

The long Treasury was up on volume, ending above its 100 day moving average and well within very short term, intermediate term and long term uptrends. 

http://www.bloomberg.com/news/articles/2016-09-25/u-s-bond-market-s-biggest-buyers-are-selling-like-never-before

GLD fell slightly, finishing above its 100 day moving average and within a short term trading range.  However, it also closed above the lower boundary of its former short term uptrend.  If it can pull away from this trend line, I will likely reinstate the uptrend.

Bottom line: the DJIA chart experienced its first test since mid-June---closing below its 100 day moving average and very near the lower boundary of its short term uptrend.  There is nothing ominous in this pin action---yet.  The break below the 100 day moving average won’t be confirmed until Wednesday and the short term uptrend is yet to be challenged.  At this moment, this is just something that needs to be watched.

           

    Fundamental

       Headlines

            Two US economic stats were released yesterday: the good news is that they both beat expectations, the bad news is that they were still awful---new home sales fell less than anticipated, the Dallas Fed manufacturing index was not as bad as the prior month.

            Overseas, there was one positive datapoint---German business confidence is near a high; but there was also one ominous announcement.  German PM Merkel stated that Deutschebank would not receive any state aid in its battle to stay solvent and that could be a big problem, just not for Deutschebank but for the EU banking system.

            Merkel’s dilemma (medium):

            http://www.zerohedge.com/news/2016-09-26/it-all-has-very-2008-feel-it-deutsche-bank-news-just-keeps-getting-worse

            Update on Deutschebank (short):

            http://www.zerohedge.com/news/2016-09-27/deutsche-bank-stock-crashes-near-single-digits-cds-spike-record-highs

            In addition, the Japanese government bond yield curve is not following the BOJ’s intended script. (medium):

            http://www.zerohedge.com/news/2016-09-26/nightmare-scenario-bank-japan-starting-come-true

            ***overnight, the World Trade Organization lowered its 2016 estimate for global growth from 2.8% to 1.7%; August Chinese industrial profits rose 19.5% year over year (if you believe it).

            Closer to home, the Fed is revamping its bank stress test criteria; and that is apt to make life a bit more difficult for the banks. (medium):

            http://www.zerohedge.com/news/2016-09-26/us-bank-stocks-slide-after-new-fed-tests-suggest-need-significant-increase-capital

            Bottom line: the Averages got banged around pretty hard yesterday as fears of a banking crisis surfaced again, driven by Merkel’s promise to not rescue Deutschebank.  Much has been written about the potential problems lurking not just in the German or EU but the global financial system---and I have covered this pretty extensively.  Of course, we are not going to know how bad the situation is until some trigger mechanism is activated because there are so many variables---we are not sure about the veracity of bank accounting, we have no idea of the true counterparty risks in the huge derivative portfolios of each bank and we only know what the political class is saying not what they will do.  There may be no banking crisis or it may be just a hiccup; but we do know there are problems of the same nature that led to the 2008 calamity.  My only thought is to have some protection in case of a bad outcome---like cash.

            Why negative rates aren’t working (medium):

            http://www.realclearmarkets.com/articles/2016/09/26/negative_rates_arent_working_who_do_central_banks_persist_102363.html

            Stephen Roach on Fed policy (medium):

            https://www.project-syndicate.org/commentary/desperate-central-bankers-by-stephen-s--roach-2016-09

            David Stockman on valuations (medium and today’s must read):

            http://www.zerohedge.com/news/2016-09-26/dangerous-bubbles-plain-sight

My thought for the day: too often investors will opt for a small but immediate payoff over of a larger payoff down the road. Some discounting is rational, but investors consistently take it to the extreme. People who have decades ahead of them to invest trade in and out of the market to avoid small, short-term losses, almost always at the expense of long-term returns.  I avoid this by setting Price Disciplines, buying only when a stock reaches its historic relative and absolute lows, then holding until it achieves historic relative and absolute highs---as long as the underlying fundamentals of the company remain sound.

     

    News on Stocks in Our Portfolios

 

Hormel Foods (NYSE:HRL) declares $0.145/share quarterly dividend, in line with previous.

FactSet Research Systems (NYSE:FDS): FQ4 EPS of $1.69 misses by $0.01.

Revenue of $287.3M (+9.7% Y/Y) misses by $3.13M.

Economics

   This Week’s Data

            August new home sales fell 7.5% versus expectations for an 8.5% decline.

            http://www.advisorperspectives.com/dshort/updates/2016/09/26/august-new-home-sales-down-to-7-6-month-over-month-better-than-forecast

            The September Dallas Fed manufacturing index was reported at -3.2 versus a -6.2 reading in August.

            http://www.advisorperspectives.com/dshort/updates/2016/09/26/dallas-fed-manufacturing-outlook-general-index-increased-in-september-still-negative

   Other

            Thoughts on the estate tax (medium):

            http://scottgrannis.blogspot.com/2016/09/kill-estate-tax.html

Politics

  Domestic

Quote of the day (short):

http://cafehayek.com/2016/09/quotation-of-the-day-1848.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

  International War Against Radical Islam

            Russia responds to Power’s accusations (short and a must read):

            http://www.zerohedge.com/news/2016-09-26/russian-foreign-ministry-responds-us-accusations-real-barbarism-what-you-did-libya-a

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