The Morning Call---How deficits inflate profitability and valuations

 

The Morning Call

 

1/15/26

 

The Market

         

    Technical

 

            Wednesday in the charts.

            https://www.zerohedge.com/markets/bullion-bonds-and-crypto-jump-tech-dumps-amid-constant-geopolitical-chaos

 

Note: the S&P closed right on its all-time high. Recall that it broke above that barrier last Friday. Under my time and distance discipline, it needed to remain above it through the close yesterday. However, in a situation where it ends neither above nor below a boundary, the clock stops. It will restart today. So, if the index finishes back above the high, the break to the upside will be confirmed; if below, then the break will be negated. Where the latter to occur, near in support exists at the 50 DMA (~6816). I also note that breadth was decent despite the fall in the Average.

 

            Wednesday 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

 

            The latest from Goldman’s trading desk.

            https://www.zerohedge.com/markets/room-run-tighter-leash-goldman-hedge-fund-honcho-reflects-highly-kinetic-start-2026

 

            Whispers of trouble.

            https://www.zerohedge.com/the-market-ear/range-highs-bite-back-ndx-triple-top-vvix-and-skew-whisper-trouble

 

            More than an excuse to sell.

            https://talkmarkets.com/content/stocks--equities/more-than-excuse-to-sell?post=550230

 

            Oil and silver tumble after report of no immediate US action in Iran,

            https://www.zerohedge.com/markets/oil-precious-metals-tumble-after-report-signaling-no-imminent-action-against-iran

 

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Weekly jobless claims totaled 198,000 versus estimates of 212,000.

                          https://www.zerohedge.com/personal-finance/initial-jobles-claims-plunge-back-near-record-56-year-lows

 

December existing home sales were up 5.1% versus expectations of down 1.6%.

 

The January NY Fed manufacturing index came in at 7.7 versus consensus of 1.0; the January Philadelphia Fed manufacturing index was 12.6 versus -4.

                       

                        International

 

November UK GDP grew 0.3% versus predictions of -0.1%; November industrial production was up 1.1% versus -0.3%; the November trade balance was -L6.1 billion versus -L3.5 billion.

 

November EU industrial production was up 0.7% versus forecasts of up 0.2%; the November trade balance was +E9.9 billion versus +E19.5 billion.

 

December Japanese PPI was up 0.1% versus projections of up 0.2%.

 

December German PPI was down 0.2% versus estimates of +0.2%; 2025 GDP grew 0.2%, in line.

 

                        Other

 

                          YoY retail sales could spell trouble.

                          https://bonddad.blogspot.com/2026/01/monthly-retail-sales-sharply-higher-in.html

 

                          Highest Q4 layoffs since 2008.

                          https://mishtalk.com/economics/2025-challenger-highest-q4-layoffs-since-2008-lowest-hiring-since-2010/

 

            Monetary Policy

 

              The Fed has missed its inflation target on ten different measures.

              https://mishtalk.com/economics/the-fed-has-missed-its-inflation-target-on-ten-different-measures/

 

            Fiscal Policy

 

              Credit card rate caps are bad news.

              https://www.realclearmarkets.com/articles/2026/01/14/credit_card_rate_caps_are_bad_news_for_individuals_and_businesses_1158562.html

 

              Blowback builds against Powell subpoena.

              https://www.nytimes.com/2026/01/13/us/politics/jerome-powell-investigation-blowback.html

 

            Inflation

 

              A long term look at CPI.

              https://www.advisorperspectives.com/dshort/updates/2026/01/13/inflation-cpi-since-1872

 

            Tariffs

 

              Here are Trump’s options if the Supreme Court rules against his tariffs.

https://www.bloomberg.com/news/articles/2026-01-14/trump-s-supreme-court-tariffs-test-what-are-his-options-if-ieepa-levies-illegal?srnd=homepage-americas&sref=loFkkPMQ

 

 

     Investing

 

            Killing the goose that lays the golden egg.

            https://behaviouralinvestment.com/2026/01/13/killing-the-goose-that-lays-the-golden-egg/

 

            The confidence paradox.

            https://larryswedroe.substack.com/p/the-confidence-paradox-d7a

 

            Instability in the Market.

            https://www.ft.com/content/44adb246-ac64-4b56-9254-67f0f943d2dc

 

How deficits inflate profitability and valuations. John Hussman made this exact point in a recent post. However, it is so important that I am emphasizing it again. If you didn’t read the Hussman article, please read this.

https://www.researchaffiliates.com/content/dam/ra/publications/pdf/1101-financialization-how-deficits-inflate-profits-and-equity-valuations.pdf

 

 

            The Market premium for the 10 year Treasury near fair value.

            https://www.capitalspectator.com/market-premium-for-10-year-yield-holds-near-fair-value-estimate/

 

    Investor Alert

 

In my quarterly review of our Universe, Kroger (KR) failed to meet the minimum financial criteria for inclusion. Accordingly, it will be Removed from the Dividend Growth Universe and will be Sold from the Dividend Growth Portfolio at the Market Open.

 

    News on Stocks in Our Portfolios

 

BlackRock press release (BLK): Q4 Non-GAAP EPS of $13.16 beats by $0.95.

Revenue of $7B (+23.2% Y/Y) beats by $330M.

 

BlackRock (BLK) declares $5.73/share quarterly dividend, 10% increase from prior dividend of $5.21.

 

Automatic Data Processing (ADP) declares $1.70/share quarterly dividend, in line with previous.

 

Automatic Data Processing’s (ADP) board approved a new $6B authorization to repurchase its common stock.

 

What I am reading today

 

            The tyranny of complainers.

            https://marginalrevolution.com/marginalrevolution/2026/01/the-tyranny-of-the-complainers.html

 

 

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---Holiday edition

 

The Morning Call

.

 

12/22/25

 

The economy seems fine, ditto the Market. Much of the world will be hardly working or not working at all.  So I am taking the next two weeks off. I wish you a Happy Holiday.

 

The Market

 

         Technical

 

The S&P closed fractionally higher on the week. It remained below the lower boundary of the former uptrend off its May low (~6998) and its former high (~6920). On the other hand, (1) it bounced off its 50 DMA (2) the seasonal factors are still at work, and (3) that the index is above all three DMAs and in uptrends across all time frames.

 

Still, I remain of the opinion that this is a market to trade not invest in long term. If you do, be sure to have close in stops.

 

 

 

 

Despite being up slightly up on the week, TLT’s chart still looks dismal. It reset its 200 DMA to resistance and is now below all DMAs as well as being in downtrends across all timeframes. Clearly, bond investors are not impressed with the stock boys positive outlook for inflation and further rate cuts. I have repeatedly observed in this note that I believe the bond market is a much better predictor of future economic activity than the stock market---and I am sticking with it. I continue to believe that the only circumstance I can see pushing rates meaningfully lower would be a recession.

 

 

 

 

 

 

 

 

Gold maintained its upward momentum---another reason I remain cautious on the stock market. It is above all three DMAs and in uptrends across all timeframes. I continue to hold my trading position in GDX.

 

 

 

 

 

The dollar had a good week; but like TLT its overall technical performance is not good. About the only positive thing to say about UUP is that it remains within its short term trading range and, optimistically, will continue to do so. Although I don’t think more rate cuts are the answer for its dismal performance.

 

 

 

            Friday in the charts.

            https://www.zerohedge.com/markets/last-full-trading-week-year-record-opex-record-volume-record-gold-price

           

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

 

    Fundamental

 

       Headlines

 

              The Economy

 

US stats last week were negative (though they included a lot of catchup data from October and November), with no primary and one positive inflation indicator. Overseas, the numbers were negative with three negative inflation indicators.

 

So nothing here to alter either my growth (muddle through) or inflation (as good as it is going to get) forecasts. But my yellow light is still flashing.

 

With the Western world preparing for Christmas, the only development worth mentioning is the BOJ lifting in its bank rate. Its impact will affect the Market (negative) more than the economy by precipitating the unwinding of the yen carry trade---a subject I have covered multiple times over the past month. So I won’t waste anymore words here.

 

 

                        US

 

                        International

 

                        Other

 

            Fiscal Policy

 

              A break for small businesses.

              https://www.realclearmarkets.com/articles/2025/12/19/small_business_wins_in_the_house_with_the_red_tape_act_1153818.html

 

              Reversing immigrant welfare.

              https://www.zerohedge.com/political/justice-department-reverses-clinton-era-rule-immigrant-welfare-benefits

 

            2026

 

A word of caution about predictions. A major reason why predictions seldom work out is the constant occurrence of exogenous events. To paraphrase Galbraith ‘when things change, I change my opinion’. The Market does that ruthlessly.

https://www.indexologyblog.com/2025/12/18/cautioning-the-clairvoyant/

 

     Investing

           

            Six ways to improve your investment performance.

            https://awealthofcommonsense.com/2025/12/6-simple-ways-to-improve-your-investment-performance/

 

 

    News on Stocks in Our Portfolios

 

Paychex press release (PAYX): Q2 Non-GAAP EPS of $1.26 beats by $0.03.

Revenue of $1.56B (+18.2% Y/Y) beats by $10M.

 

 

What I am reading today

 

Trump’s most brazen lies. The author is clearly no fan of Trump, so I take his own narrative with a grain of salt. That said, as I listened to the Donald’s speech, I was struck with how outlandish some of his statements were. I kept thinking, this speech has the tone of desperation.

https://www.ms.now/rachel-maddow-show/maddowblog/the-top-10-most-brazen-lies-from-trumps-year-end-prime-time-address

 

 

Reversing Alzheimer.

https://www.zerohedge.com/medical/reversing-alzheimers-forgotten-causes-and-cures-big-pharma-buried

 

 

 

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---Why the Fed reinstated QE

The Morning Call

 

12/19/25

 

The Market

         

    Technical

 

            Thursday in the charts.

            https://www.zerohedge.com/markets/bonds-bid-markets-pumpndump-ahead-biggest-opex-history

 

                Thursday 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

 

            The latest from Goldman’s funds flow guru.

            https://www.zerohedge.com/markets/year-really-made-investors-work-it-goldmans-flow-funds-gurus-wrap-2025

 

            The latest technical look at gold.

            https://www.zerohedge.com/the-market-ear/gold-under-hood-upside-panic-huge

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

The December Kansas City Fed manufacturing index was -3 versus consensus of +11.

                         

                        International

 

                          November Japanese CPI rose 0.4% versus projections of 0.0.

 

November UK retail sales fell 0.1% versus estimates of +0.4%; the December consumer confidence index came in at -17 versus -18.

 

November German PPI was unchanged versus up 0.3%; the January (?) consumer confidence index was -26.9 versus -23.0.

 

                        Other

 

                          Yesterday’s CPI report was missing numbers and magic.

                          https://talkmarkets.com/content/us-markets/the-cpi-for-november-is-little-but-missing-numbers-and-magic?post=545614

 

                          Counterpoint.

                          https://www.calculatedriskblog.com/2025/12/yoy-measures-of-inflation-services.html

 

            Overnight News

 

BoJ raised rates by 25bps to 0.75%, as expected, with the decision unanimous, while it stated interest rates are expected to remain at significantly low levels and will continue to raise policy rate if the economy and prices move in line with forecasts.

 

            Monetary Policy

 

              The return of QE.

              https://thedailyeconomy.org/article/the-return-of-quantitative-easing/

 

              And why.

              https://www.zerohedge.com/markets/jpmorgan-bank-behind-repo-crisis-and-feds-decision-launch-qe-lite-again

 

 

            Fiscal Policy

 

Americans are forgetting what capitalism is. (I agree in theory with the author and share his concern about the softness of the general population’s support of capitalism. However, I don’t know how we can remain competitive globally if the government isn’t involved in the economy when the governments of all our major competitors---both allies and hostiles---are involved in financially supporting and enacting enabling legislation for their industries.)

https://www.realclearmarkets.com/articles/2025/12/18/america_is_forgetting_what_capitalism_is_1154026.html

 

            Inflation

 

              US fiscal crisis will drive the next inflation shock.

              https://talkmarkets.com/content/economics--politics/americas-fiscal-crisis-will-drive-the-next-inflation-shock-debt-qe--the-fed?post=545571

 

            AI

 

              The great AI hype correction of 2025.

              https://www.technologyreview.com/2025/12/15/1129174/the-great-ai-hype-correction-of-2025/

 

              Not a bubble but the easy money has been made.

              https://www.zerohedge.com/the-market-ear/ai-not-bubble-not-free-lunch-either-0

 

            2026

 

              DeutscheBank’s top risks in 2026.

              https://www.zerohedge.com/markets/what-markets-see-top-10-risks-2026

 

              Citadel’s head of strategy on 2026.

              https://www.zerohedge.com/markets/citadels-equity-strategy-head-outlines-5-main-pillars-shaping-early-2026-market-behavior

 

            Tariffs

 

Are tariffs meeting Trump’s stated economic goals? (remember there a lot of unstated goal, i.e., countries assuming more responsibility for their own defense, halting the flow of illegal drugs, halting theft of intellectual property)

              https://reason.com/2025/12/17/trump-said-his-tariffs-would-reduce-the-trade-deficit-and-bring-back-manufacturing-heres-what-the-data-show/

 

     Investing

 

    News on Stocks in Our Portfolios

 

• Nike press release (NKE): Q2 GAAP EPS of $0.53 beats by $0.16.
• Revenue of $12.4B (+0.4% Y/Y) beats by $190M.

 

• FedEx press release (FDX): Q2 Non-GAAP EPS of $4.82 beats by $0.71.
• Revenue of $23.5B (+6.8% Y/Y) beats by $700M.

 

 

What I am reading today

 

           

 

 

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