The Morning Call
3/25/20
The
Market
Technical
The Averages (20704, 2447) mounted a fierce rally yesterday,
though little changed technically speaking.
Momentum remains undeterred to the downside with almost no visible
support until ~ 15399/1810. I noted in
yesterday’s Morning Call that a bounce would make sense given the extent of stocks’
oversold condition.
Given the
psychological relief from not getting hammered every day, it is somewhat
understandable that the ‘narrative of the day’ included speculation that the
Market had put in a bottom on Monday. I
think that is a stretch for a number of reasons: (1) as I mentioned, stocks
were dramatically oversold, (2) the VIX is not reflecting a reduction in risk
adverseness among investors; indeed, the VIX was actually up yesterday, (3) both
indices experienced gap up opens [which need to be filled] and (4) some of the
most powerful rallies occur during bear markets.
On the other hand.
That doesn’t mean
that the bear market isn’t over. But I am
not going to chase stock prices up.
The risk premium
is expanding.
TLT, GLD and UUP continued
their volatility. TLT fell but remained
technically strong.
The Market is
frontrunning Fed purchases.
When stock and
bond prices fall together.
GLD rallied on big
volume for a second day, finishing in an uptrend as well as above its 100 DMA (if it remains there through
the close on today, it will revert to support) and the 200 DMA (if it remains there
through the close on Thursday, it will revert to support).
The UUP was off
fractionally but that didn’t impact its push higher. Overall, the message remains that investors
are seeking safety.
Tuesday in the
charts.
Don’t close the
Markets.
Fundamental
Headlines
Lots of data to
digest from yesterday’s releases. In the
US, the numbers were somewhat disappointing: while month to date retail
chain store sales and the March flash manufacturing PMI were upbeat, February
new home sales, the March flash services and composite PMI’s and the March Richmond
Fed manufacturing index were less than anticipated.
Overseas, EU
consumer confidence plus the March flash manufacturing PMI’s of Japan, Germany,
the EU and UK were better than expected while the Japanese, German, EU and UK flash
services and composite PMI’s were less.
The headlines.
The
coronavirus
***overnight
update.
This time is
different.
Why the worst case
scenarios for the coronavirus seem unrealistic.
Trump wants the country to get back to
business.
Coronavirus stats from Brookings.
What bailouts should accomplish.
Taxpayers should benefit from any bailout.
The Fed
The benefits of
the Fed’s action.
Too much debt.
The Fed is now the garbage can for all debt.
Commodity broker facing margin calls.
REIT facing margin calls.
Bottom line: we now
know that the Fed will stop at nothing to ensure that there are no liquidity
issues within the financial markets, however detrimental these measures may be
to the efficient long term allocation of resources. But near term, the odds of a credit shock are
lower than they were a week ago.
The
big question, at the moment, is what will our elected representatives enact to offset
the economic damage being done by the shutdown.
I have less faith that these guys will do what is right than I have in
the Fed policies. Still, like the Fed, the
fiscal measures enacted will be so massive that whatever good they do will lead
many to ignore the ultimate negative impact of the huge addition to the
national debt.
***Houston, we
have a deal.
Q1 2020 dividend
cuts explode.
News on Stocks in Our Portfolios
Revenue of $10.1B (+5.1% Y/Y) beats by $530M.
Economics
This Week’s Data
US
Month
to date retail chain store sales grew faster than in the prior week.
February
new home sales fell 4.4% versus estimates of -2.0%.
The
March flash manufacturing PMI was 49.2 versus consensus of 42.8; the services PMI
was 39.1 versus 42.0; the composite PMI was 40.5 versus 40.8.
The
March Richmond Fed manufacturing index came in at 2 versus expectations of 9.
Weekly mortgage
applications declined 29.4% while purchase applications were down 14.6%.
February
durable goods orders rose 1.2% versus forecasts of -0.8%; ex transportation,
they were -0.6% versus -0.4%.
International
February
UK CPI was +0.4% versus projections of +0.3%; core CPI was +0.1% versus 0.0%;
retail sales were up 0.5%, in line.
The
March German business climate index came in at 86.1 versus estimates of 87.9.
Other
What
I am reading today
Visit Investing
for Survival’s website (http://investingforsurvival.com/home)
to learn more about our Investment Strategy, Prices Disciplines and Subscriber
Service.
