The Morning Call--When the real money runs out

The Morning Call

 

8/7/20

 

The Market

         

    Technical

 

The Averages  (27386, 3344) continued their move up.  But (1) the Dow still hasn’t surpassed its June high, (2) both of the indices have made two gap up opens this week, (3) the VIX continues confirm the directional move of stock prices but not their magnitude, and (4) breadth is in overbought territory.  All in all, this pin action is not indicative of a solid trending Market, just a strong S&P.  Nonetheless, I am sticking with my assumption that the Market’s bias remains to the upside.

                        https://www.zerohedge.com/markets/filling-gaps

 

Gold was up another 1 3/8%, finishing above the upper boundary of its long term trading range for a third day (if it remains there through the close today, it will reset to an uptrend).  The long bond reversed itself yet again, putting it back above the uptrend off its June low but still below its March and April high closes.  It continues to vacillate at this key level.  Follow through. The dollar was unchanged, remaining below the lower boundary of its short term downtrend.  UUP and GLD continue to point to a weak economy but TLT could potentially be a leading indicator calling that scenario into question.

            http://www.capitalspectator.com/pondering-lower-real-yields-and-higher-inflation-forecasts/

 

            Thursday in the charts.

            https://www.zerohedge.com/markets/endless-melt-gold-soars-global-stocks-turn-green-2020-apple-2-trillion-any-second

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

July nonfarm payrolls increased by 1,763,000 versus expectations of +1,600,000; the unemployment rate was 10.2% versus 10.5%

                          https://www.zerohedge.com/markets/trump-was-right-big-payroll-number-smashes-expectations-176-million-jobs-added

 

                        International

 

June Japanese household spending rose 13% versus consensus of +7.5%; June leading economic indicators came in at 85 versus 81.

 

The June German trade balance was E14.5 billion versus estimates of E10.5 billion.

 

The July Chinese trade balance was $62.3 billion versus forecasts of $42.0 billion.

 

                        Other

 

                          Household debt decreased in Q2.

                          https://www.calculatedriskblog.com/2020/08/ny-fed-q2-report-total-household-debt.html

 

                          Global economy shows signs of recovery in July.

                          https://www.markiteconomics.com/Public/Home/PressRelease/b9a1f47a1c714124a1b412da6b637e75

 

            The coronavirus

 

              ***overnight update.

              https://www.zerohedge.com/geopolitical/spains-virus-cases-surge-lockdown-imposed-investors-derisk-stocks

 

              America is headed for an unprecedented wave of evictions.

              https://www.thenation.com/article/politics/rent-evictions-homelessness/

 

              Second wave of layoffs are underway.

              https://www.zerohedge.com/markets/new-survey-confirms-second-wave-us-layoffs-well-under-way

 

            Monetary Policy

 

Bank of England leaves rates unchanged but voted against expanding its bond buying program.

              https://www.cnbc.com/2020/08/06/bank-of-england-holds-rates-steady-and-maintains-bond-buying-levels.html

 

            China

 

              Trump bans use of TikTok and WeChat.

              https://www.zerohedge.com/markets/trump-signs-executive-order-banning-tiktok-wechat

 

              US and China to ‘review’ results to date of Phase one deal next week.

              https://www.zerohedge.com/economics/uschina-phase-one-agreement-good-luck-compliance-review

 

              China helping the Saudi’s build nuclear capability.

              https://www.zerohedge.com/geopolitical/china-helped-saudis-build-secret-nuclear-site-extracting-yellowcake-wsj

 

              China/Russia ‘dedollarization’ reaches break though moment.

              https://www.zerohedge.com/economics/russia-china-dedollarization-reaches-breakthrough-moment-countries-ditch-greenback

 

            Bottom line.  When the real money runs out.

            https://www.zerohedge.com/markets/rabo-everything-can-appear-hunky-doryuntil-real-money-runs-out

 

              More for the optimists.

              https://www.marketwatch.com/story/the-stock-market-will-be-flying-high-in-a-year-for-2-simple-reasons-2020-08-05?mod=home-page

 

    News on Stocks in Our Portfolios

 

C.H. Robinson Worldwide (NASDAQ:CHRW) declares $0.51/share quarterly dividend, in line with previous.

 

Nike (NYSE:NKE) declares $0.245/share quarterly dividend, in line with previous.

 

What I am reading today

 

            Quote of the day.

            https://cafehayek.com/2020/08/quotation-of-the-day-3242.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+CafeHayek+%28Cafe+Hayek%29

 

 

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--Follow through

                                                     The Morning Call

10/26/17

The Market

         

    Technical

The indices (DJIA 23329, S&P 2557) failed to sustain any follow through from Tuesday’s strong performance.  Volume was down, but still high; breadth weakened but is still very overbought.  Both remain above their 100 and 200 day moving averages and are in uptrends across all time frames. 

The VIX (11.2) was up fractionally---surprisingly modest for a big Market down day.  This keeps alive a string of three days in which the VIX acts contrary to expectations.  I am not sure what that means other than major turmoil between the buyers and sellers.  How and when the VIX re-establishes its normal relationship should give us directional information on the Market.  The index remained below the upper boundary of its short term downtrend but above the lower boundary of its long term trading range, above its 100 day moving average for the third day, (reverting to support), right on its 200 day moving average and continues to develop a very short term uptrend.  It still looks like the July low was the bottom.

http://www.realclearmarkets.com/articles/2017/10/25/volatility_may_be_the_worlds_only_undervalued_asset_class_102944.html

            And:

            http://www.zerohedge.com/news/2017-10-25/vxx-short-squeezed-vix-beta-hits-19-highest-september-2008

The long Treasury was down, finishing below its 100 day moving average (now resistance), below its 200 day moving average (now support; if it remains there through the close next Monday, it will revert to resistance), is now developing a very short term downtrend, is a point away from the lower boundary of its short term trading range but remains above the lower boundary of its long term uptrend. 

http://www.capitalspectator.com/2-year-treasury-yield-rises-to-nine-year-high/#more-9398

The dollar declined, ending within in its short term downtrend and below 200 day moving average (now resistance) and back below its 100 day moving average, voiding Tuesday’s break.   

GLD rose two cents, finishing above its 200 day moving average (support) and the lower boundary of a short term uptrend; it ended right on its 100 day moving average for a second day.

 Bottom line: long term, the indices remain strong viz a viz their moving averages and uptrends across all timeframes. Short term, they are above the resistance level marked by their August highs, meaning that there is no resistance between current price levels and the upper boundaries of the Averages long term uptrends. 

I remarked in Wednesday’s Morning Call that Tuesday’s strong pin action was ‘evidence of just how strong the underlying momentum in the Market is’.  It only took one day to make a liar out of me.  Once again, follow through is always a key to the investment importance of new information.   However, I don’t think that negates anything with respect to the overall upward momentum in the Market.  Yesterday’s performance could have been just noise.  The technical assumption has to be that stocks are going higher.

Trading in UUP, GLD and TLT remains inconsistent.  The long Treasury’s poor price action yesterday was indicative of the performance of the entire fixed income complex and seemed to be pointing to a shift in bond investors’ outlook towards higher rates.  Yet the performances of the dollar which normally rises on higher rates and of GLD which normally declines on higher rates, pointed at just the opposite.

I remain uncomfortable with the overall technical picture.

           

    Fundamental

       Headlines

            Yesterday’s economic stats were upbeat: while weekly mortgage and purchase applications were weak, September durable goods orders (primary indicator) and September housing starts (also a primary indicator) were both strong.

            Overseas, the third quarter UK GDP were higher than anticipated and October German business confidence was better than expected.

            ***overnight, the ECB (1) left rates unchanged, (2) will continue current bond buying program through year end, (3) will cut  those monthly purchases in half [E60 billion to E30 billion] from January 2018 to September 2018, (4) will continue to reinvest the proceeds of the maturing bonds that it holds as long as necessary.  While it was pretty much expected, early trading suggests a dovish take by investors.

            http://www.zerohedge.com/news/2017-10-26/ecb-announces-dovish-%E2%82%AC30-billion-qe-taper-through-september-2018-or-beyond-eurusd-pl

            In addition, the Catalan government backed off threats to secede from Spain (medium):

            http://www.zerohedge.com/news/2017-10-26/catalan-government-said-back-independence-push-will-call-elections-spanish-yields-sl

            The main headline yesterday remained Market performance---or the lack thereof.  Specifically, the failure of the indices to follow through on Tuesday excitement over corporate earnings while receiving positive economic news.

            Bottom line: I raised two questions in yesterday’s Morning Call:

(1)   how significant were Tuesday’s earnings surprises?  The Market’s answer appears to have been ‘damn little’.  However, just as important, is the economy.  That is, were they a sign that the economy’s growth rate is picking up?  As you know, I have been lamenting the absence of any indication that a more business friendly regulatory environment and an improving EU economy could be positively impacting US growth.  Well, those better than expected earnings combined with the strong economic numbers several weeks ago hold out hope that the US economy may be getting out of its rut, however, meager any improvement may be. 

To be sure, at this point, ‘hope’ is the operative word.  But at least we have a couple of green shoots that could be augmented by this week’s economic data---which appears to be on the way to another strong one for the primary indicators.  That said, remember I already have some pick up in the economic growth rate in our forecast; so I am not getting jiggy over this potentially better news.

(2)   how will the central banks factor this data [again assuming they are connected and portray an improving economy] into their models, in particular as it relates to the speed and magnitude of monetary policy changes?  The bond market seems to be telling us that these better stats will add support to the central bank motivation to push forward with the unwind of QE.  As you know, I hold the predicative value of bond investors’ action over that of equity investors.  That said, the current move to higher rates is short enough in duration that I think it too soon to conclude the great unwind has begun.  But the yellow light is flashing.

            Goldman on who will be the equity buyers in 2018 (medium):

            http://www.zerohedge.com/news/2017-10-25/goldman-will-be-biggest-buyer-stocks-2018

            My thought for the day:  only invest in products and companies you can explain to a six-year old.  In investing, simple is better.  Make sure you understand exactly why you own a stock, bond or other investment product.  That will help you know exactly why/when you want/need to sell it. 

       Investing for Survival

   

            Physical strength is money in the bank.

            https://startingstrength.com/article/strength-is-money-in-the-bank

           

    News on Stocks in Our Portfolios

 

T. Rowe Price (NASDAQ:TROW): Q3 EPS of $1.45 beats by $0.01.

Revenue of $1.22B (+11.9% Y/Y) misses by $10M.

T. Rowe Price (NASDAQ:TROW) declares $0.57/share quarterly dividend, in line with previous.

W.W. Grainger (NYSE:GWW) declares $1.28/share quarterly dividend, in line with previous.

United Parcel Service (NYSE:UPS): Q3 EPS of $1.45 in-line.

Revenue of $15.98B (+7.0% Y/Y) beats by $360M.

Praxair (NYSE:PX): Q3 EPS of $1.50 beats by $0.06.

Revenue of $2.9B (+6.6% Y/Y) beats by $30M.

Praxair (NYSE:PX) declares $0.7875/share quarterly dividend, in line with previous.

Exxon Mobil (NYSE:XOM) declares $0.77/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

            September housing starts rose 18.8% versus expectations of down 0.8%.

            https://www.advisorperspectives.com/dshort/updates/2017/10/25/september-new-home-sales-jumps-almost-20

                The September US trade deficit was $64.1 billion versus estimates of $63.9 billion.

            Weekly jobless claims rose 10,000 versus forecasts of up 13,000.

   Other

            Who’s economic recovery? (medium):

            http://www.zerohedge.com/news/2017-10-25/economic-recovery-who

Politics

  Domestic

  International

            The political tensions in Spain/Catalonia continue to escalate (medium):

            http://www.zerohedge.com/news/2017-10-25/catalan-separatists-warn-moment-has-come-puigdemont-suddenly-cancels-parliament-appe

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--There is more than just today's trifecta

The Morning Call

6/8/17

The Market

         

    Technical

The indices (DJIA 21173, S&P 2433) lifted yesterday, though, for a third day, the move was small.  However, the Dow remained below its recent high; meaning that it is still not confirming the S&P’s break above its comparable level.  So, the near term technical issue remains which of these divergent trends will change direction and confirm the other.  I still believe that the Dow will ultimately trade above its high and the Averages will make a run at the upper boundaries of their long term uptrends (now circa 24198/2753).   Volume fell slightly; breadth was mixed.

The VIX (10.4) was down pennies, ending above the lower boundary of its intermediate term trading range and the lower boundary of its long term trading range.  However, it is still below its 100 and 200 day moving averages and in a short term downtrend.

               

The long Treasury was down slightly, closing right on its 200 day moving average (if it remains there through the close on Friday, it will revert to support) and finishing above its 100 day moving average and in a very short term uptrend. 

http://www.zerohedge.com/news/2017-06-07/bill-gross-market-risk-highest-2008-crisis

The dollar rallied fractionally, ending in a very short term downtrend and below its 100 and 200 day moving averages.

GLD was down pushing down off the upper boundary of its short term trading range.  This is the second unsuccessful test of that boundary; clearly it needs break above that boundary to keep its current rally in effect. It remained above its 100 and 200 day moving averages and in a very short term uptrend.

Oil took a major hit after a big build in crude inventories (short):

http://www.zerohedge.com/news/2017-06-07/wtirbob-tumble-after-surprise-builds-across-entire-energy-complex

Bottom line: investors of all stripes seemed to take heart from the (nonsmoking gun) narrative in Comey’s prepared remarks for his congressional testimony today---stocks and the dollar were up and safe havens (TLT and GLD) down.  That said, that was just the appetizer for today’s trifecta---Comey testimony, ECB meeting and UK election.

           

            For the bulls (medium):

            http://ciovaccocapital.com/wordpress/index.php/stock-market-us/low-volatility-and-stock-market-risk/

    Fundamental

       Headlines

            Yesterday’s economic datapoints were mixed: weekly mortgage and purchase applications were up while April consumer credit grew much less than anticipated.

            ***overnight, the May Chinese import/export numbers were strong; first quarter Japanese GDP Grew less than expected.

            Overseas, there were no economic releases; but there was lots political news, most of which was positive:

(1)   the failing Spanish bank was bailed out, lowering the risk of any disruption in the EU financial system,

(2)   the EU is apparently set to unveil proposals for a new defense union in which it will, at a minimum, assume more financial responsibility for its defense,

(3)   the US and Mexico reached an ‘agreement in principle’ to avert a trade war over sugar,

The latter two are indications that Trump’s goal of making the US a partner but not a chump for international agreements could be working.  As you know, I believe that this country’s first obligation is to itself, including living within its means.  We can only hope that the Donald will pursue that policy domestically.

           

(4)   the Saudi’s issued an ultimatum to Qatar.  Plus there was a terrorist bombing in Iran [ironically, the globe’s largest state sponsor of terror].  Both of these incidents are examples of the surfacing of the historical Sunni/Shi’a rift, which adds yet another tub of dynamite to the explosive Middle East powder keg.

***overnight, Qatar’s foreign minister will visit Moscow this weekend (short):

http://www.zerohedge.com/news/2017-06-08/pivot-qatar-foreign-minister-visit-moscow-saturday

            And Qatar puts its military on high alert (medium):

            http://www.zerohedge.com/news/2017-06-07/qatar-puts-armed-forces-highest-state-alert-over-fears-imminent-military-incursion

            The day’s top political event was Comey’s release of his prepared remarks to Congress.  I leave it to you to interpret his comments as you wish (medium):

            http://www.zerohedge.com/news/2017-06-07/comey-releases-prepared-remarks-i-hope-you-can-see-your-way-letting-go-i-need-loyalt

            Bottom line: there was plenty about which to be encouraged in yesterday’s news flow: signs that Trump’s foreign/trade policy could be having a positive impact, there is apparently no obstruction of justice charges likely to be brought against Trump and any concerns about turmoil in the Spanish financial system have been stilled.  The first two support our recent increase in the long term economic secular growth rate assumption in our forecast.  The latter keeps the risk to the EU financial system at a tolerable level.

            The mounting problems in the Middle East, especially when they appear to be a part of a much deeper historical sectarian conflict, do raise the risk of and the potential magnitude of conflict in there region.

            The latest from Doug Kass (medium):

            http://www.realclearmarkets.com/articles/2017/06/07/its_a_bohemian_rhapsody_stock_market_nothing_really_matters_102729.html

            My thought for the day: following on yesterday’s thought about not averaging down, this short article from a trader emphasizes that point.

            http://jeffhirsch.tumblr.com/post/161560717563/i-feel-better-when-i-dump-losers

       Investing for Survival

   

            Five universal laws of human stupidity.

            https://realinvestmentadvice.com/5-universal-laws-of-human-investment-stupidity/

           

      

    News on Stocks in Our Portfolios

 

General Dynamics (NYSE:GD) declares $0.84/share quarterly dividend, in line with previous.

Economics

   This Week’s Data

            April consumer credit grew $8.2 billion versus estimates of up $17 billion. 

            http://www.zerohedge.com/news/2017-06-07/consumers-hit-breaks-smallest-increase-consumer-credit-6-years

                Weekly jobless claims fell 10,000 versus forecasts of down 7,000.

   Other

Politics

  Domestic

  International War Against Radical Islam

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--Anticipating tomorrow

The Morning Call

6/7/17

The Market

         

    Technical

The indices (DJIA 21136, S&P 2429) drifted lower again yesterday, though again not by much.  That left the Dow below its recent high; meaning that it is still not confirming the S&P’s break above its comparable level.  So, the near term technical issue remains which of these divergent trends will change direction and confirm the other.  I still believe that the Dow will ultimately trade above its high and the Averages will make a run at the upper boundaries of their long term uptrends (now circa 24198/2753).   Volume rose slightly; breadth weakened.

The VIX (10.1) was up another 4 ¼ %, ending back above the lower boundary of its intermediate term trading range, thereby voiding last Thursday break and remaining above the lower boundary of its long term trading range.  However, it is still below its 100 and 200 day moving averages and in a short term downtrend.

               

The long Treasury was up, closing above its 200 day moving average (if it remains there through the close on Friday, it will revert to support) and finishing above its 100 day moving average and in a very short term uptrend. 

http://www.zerohedge.com/news/2017-06-06/bofa-if-bonds-are-right-stocks-will-drop-20

The dollar was smacked once again, ending in a very short term downtrend and below its 100 and 200 day moving averages.

GLD popped 1 1/8%, closing above its 100 and 200 day moving averages, in a very short term uptrend and is nearing the upper boundary of its short term trading range.

 http://www.zerohedge.com/news/2017-06-06/gold-breaks-major-resistance-trendline

Bottom line:  ‘TLT, UUP, GLD investors are all betting their money on a weaker economy and lower rates.  That is somewhat at odds with the equity narrative; but I am not sure that means anything in the current ‘all news is good news’ atmosphere.  My assumption remains that the indices are headed higher.’

           

            The volume of M&A activity is declining (short):

            http://www.zerohedge.com/news/2017-06-06/citis-scariest-chart-prompts-concerns-about-holding-american-equities

    Fundamental

       Headlines

            There were two datapoints released yesterday: month to date retail chain store sales growth improved from the prior week and the April JOLTS report showed a big increase in job openings---the latter causing a good deal of confusion.

            http://www.zerohedge.com/news/2017-06-06/schizophrenic-jolts-report-reveals-record-job-openings-hiring-crashes

Nothing from overseas.

            ***overnight, Spain’s largest bank is taking over the bank I mentioned yesterday that was in danger of defaulting.

            http://www.zerohedge.com/news/2017-06-07/spains-banco-popular-bailed-acquired-santander-%E2%82%AC100

            The rest of the news flow was also quiet.

(1)   Trump held a news conference in which he touted his fiscal plans.

Ron Paul on Trump’s budget (medium):

                  http://www.zerohedge.com/news/2017-06-06/ron-paul-trumps-budget-projections-bear-little-or-no-resemblance-reality

                  Greg Mankiw on tax cuts (medium and a must read):

                  https://www.nytimes.com/2017/06/02/upshot/a-tax-cut-might-be-nice-but-remember-the-deficit.html?_r=0

(2)   more discussion on the sudden isolation of Qatar (medium)

     http://www.zerohedge.com/news/2017-06-06/forget-terrorism-real-reason-behind-qatar-crisis-natural-gas

***overnight, Saudi Arabia issues ultimatum (short):

      http://www.zerohedge.com/news/2017-06-06/saudi-arabia-gives-qatar-24-hour-ultimatum-analysts-warn-military-confrontation

***overnight, (1) the US and Mexico reached an "agreement in principle" designed to avert a trade war over sugar, setting the course for bigger talks on rewriting NAFTA and (2) the European Union is set to unveil proposals today for a new European defense union. The "nature of the trans-Atlantic relationship is evolving," the EU's executive arm will say in a "reflection paper" on the future of the bloc's defense.

Bottom line:  yesterday was a typical slow summer day with little to drive investor attention.  Rather focus seems to be on Thursday which, as I noted yesterday, will be big for headlines: UK elections, ECB meeting and Comey’s congressional testimony.  Usually these highly anticipated news days turn out to be much less dramatic than are expected.  I see no reason why this one will be any different. 

My assumption is that investors will continue to tip toe through the tulips, pushing equity prices higher.  I continue to monitor our Portfolios for stocks that are near or entering their Sell Half Range and for companies with deteriorating fundamentals.

My thought for the day: it is common for investors to pursue a strategy of averaging down when an initial purchase isn’t working.  However, it can be dangerous to do so.  Not because it doesn’t work; often it does.  But because of what happens when it doesn’t work, i.e. the investor keeps adding to a position that keeps going against him/her.  It could be the fundamentals change, it could be other investors have a different idea of valuation.  Whatever the reason, it doesn’t matter; because the stock is still a loser.  By continuing to buy a stock that is going against him/her, the investor is guaranteeing his/her biggest positions will be losers.

       Investing for Survival

   

            How much can you safely spend in retirement?

            http://www.schwab.com/insights/retirement/beyond-4-rule-how-much-can-you-safely-spend-retirement?cmp=em-QYC

    News on Stocks in Our Portfolios

 

Brown-Forman (NYSE:BF.B): Q4 EPS of $0.38 misses by $0.03.

Revenue of $887M (-4.9% Y/Y) beats by $148.58M.

Economics

   This Week’s Data

            Growth in month to date retail chain store sales improved from the prior week.

            The April Labor Department JOLTS (job openings) report showed an increase of 259,000 job openings versus expectations of a decline of 11,000.

            https://www.advisorperspectives.com/dshort/updates/2017/06/06/job-openings-labor-turnover-clues-to-the-business-cycle

            Weekly mortgage applications rose 7.1% while purchase applications were up 10%.

   Other

            Mark Perry on the trade deficit (medium):

            http://www.aei.org/publication/the-term-trade-deficit-defective-language-and-deficient-thinking-a-stuff-surplus/

            Government insolvency gets harder to ignore (medium):

            http://www.minyanville.com/business-news/markets/articles/6/6/2017/id/60191

            Alabama sees 85% decline in food stamp participation after work requirements reinstated (medium):

            http://www.zerohedge.com/news/2017-06-06/alabama-counties-see-85-drop-food-stamp-participation-after-work-requirements-implem

Politics

  Domestic

  International War Against Radical Islam

            Europe’s response to terrorist attacks (short):

            http://www.powerlineblog.com/archives/2017/06/europeans-respond-to-terrorist-attacks-with-tougher-gun-control-laws.php

           

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