The Morning Call--Blame the Fed

 

The Morning Call

 

9/4/20

 

The Market

         

    Technical

 

The Averages  (28292, 3455) were hammered yesterday on higher volume and very negative breadth.  In the last couple of weeks, I have been pointing to a number factors suggesting that some sort of correction was in the offing: (1) a series of four gap opens over the last month.  Yesterday’s pin action took care of the most recent gap.  Three to go, (2) the VIX was broadly anticipating yesterday’s carnage, (3) despite the weakness in breadth, it remains in overbought territory and (4) historically, September is the worst month of the year for Market performance.

 

The question is clearly follow through.  Short term, the aforementioned technical factors could weigh on prices.  But that would be technically healthy.  This Market needs a rest.   On the other hand, as you know, my operating assumption has been that the Market’s bias is to the upside long term.  At the moment, there is no reason to doubt that.  Both indices are above their DMA’s and, except for the Dow’s short term trading range, are in uptrends across all timeframes.

 

That is not to say that the fundamental day of reckoning, which I also have been predicting, is upon us.  But that remains to be seen.  The good news is that if it is, my cash position will hold me in good stead.

            https://www.zerohedge.com/markets/has-it-begun

 

BofA’s ‘must know’ Market stats.

            https://www.marketwatch.com/story/heres-bank-of-americas-must-know-market-stats-that-show-epic-polarization-11599123575

 

Gold was off again, finishing below the uptrend off its March/June lows for a second day (though it did set a gap down open on Wednesday).  In addition, it has now made a second lower high---so we have a second short term negative.  The key is follow through.  TLT rose again, ending above the uptrend off its March/June low for a second day and above its 100 DMA (now resistance; if it remains there through the close on Monday, it will revert to support).  Clearly, a plus.  The dollar was up fractionally, but its chart remains the ugliest of those indicators that I follow. 

           

 

                        Thursday in the charts.

            https://www.zerohedge.com/markets/we-should-be-concerned-biggest-market-crash-march-frightens-fed

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

The August services PMI came in at 55.0 versus estimates of 54.8; the composite PMI was 54.6 versus 54.7.

                          https://www.advisorperspectives.com/dshort/updates/2020/09/03/markit-services-pmi-strongest-expansion-in-business-activity-since-march-2019

 

The August ISM nonmanufacturing index was reported at 56.9 versus consensus of 57.0.

                                  https://www.advisorperspectives.com/dshort/updates/2020/09/03/ism-services-continued-growth-in-august

 

August nonfarm payrolls rose 1,371,000 versus expectations of 1,400,000;     

the unemployment rate was 8.4% versus 9.8%.

                                  https://www.zerohedge.com/markets/unemployment-rate-unexpedctedly-tumbles-august-payrolls-come-line

 

                        International

 

July German factory orders were up 2.8% versus forecasts of +5.0%; the August construction PMI was 48 versus 49.1.

 

The August UK construction PMI was 54.6 versus projections of 58.5.

           

                        Other

                       

                          The global coronavirus economy.

                          https://www.politico.com/news/2020/09/02/global-coronavirus-economy-depression-408165

 

            The Fed

 

              The Fed abandons the Phillips Curve.

              https://ftalphaville.ft.com/2020/09/03/1599124135000/The-Fed-abandons-the-idea-low-unemployment-stokes-inflation/

 

              Paul Volker turning in his grave (must read).

              https://www.zerohedge.com/markets/albert-edwards-furious-fed-resorts-virtue-signaling-which-will-crush-poor

 

            China

 

              China will sell 20% of its US Treasury holdings.

              https://www.zerohedge.com/economics/chinas-state-media-strongly-teases-nuclear-option-dumping-all-us-bonds-extreme-case

 

            Bottom line  Thank the Fed.

              https://alephblog.com/2020/09/02/only-a-trickle/

 

              August dividends by the numbers.

              https://politicalcalculations.blogspot.com/2020/09/dividends-by-numbers-in-august-2020.html#.X1E2r3lKiM8

 

              The ‘other-side’ argument.

              http://mrzepczynski.blogspot.com/2020/09/smart-investors-not-immune-from-my-side.html

 

                  The coronavirus price compression.

              https://www.pragcap.com/the-covid-price-compression-in-technology/

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

The future is coming.

http://blog.yardeni.com/2020/09/the-future-is-coming-technology.html

           

 

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The Morning Call--Yikes

 

The Morning Call

 

9/3/20

 

The Market

         

    Technical

               

The Averages  (29100, 3580) had a gangbusters day on higher volume and even stronger breadth.  Clearly supporting my assumption that the Market’s bias is to the upside long term.   However, shorter term, a number of factors are at work that could lead to some price weakness: (1) yesterday, the indices gap up opened, adding yet another gap up open to the one that occurred last week and those two gap up opens made four weeks ago, (2) the VIX continues to reflect investor concern [yesterday, it was again up on a strong Market day], (3) the indices’ breadth remains in overbought territory while the rest of the Market weakens and (4) historically, September is the worst month of the year for Market performance. 

                  

This is a little wonky but it explains what is causing this Market melt up---and it is not simply more buyers than sellers.

            https://www.zerohedge.com/markets/epic-battle-raging-beneath-market-surface-between-dealers-and-hedge-funds

 

Gold sold off, finishing below the uptrend off its March/June lows (again); though it did so on a gap down open.  Still, that move is a short term negative.  The key is follow through.  TLT rallied yet another 1%, ending back above the uptrend off its March/June low and right on its 100 DMA (now resistance).  Clearly, a plus.  The dollar rose, but its chart remains the ugliest of those indicators that I follow. 

               

                Wednesday in the charts.

            https://www.zerohedge.com/markets/sp-reaches-critical-resistance-valuation-record-high-liquidity-crashes

               

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

                          Weekly jobless claims rose 881,000 versus consensus of 950,000.

 

                          A dose of reality about the labor market (must read):

                          https://www.zerohedge.com/markets/dose-reality-about-labor-market

 

 

                          July factory orders rose 6.4% versus expectations of +6.0%; ex                                           transportation, they were up 2.1% versus up 4.5%.

 

Q2 nonfarm productivity was up 10.1% versus estimates of +7.5%; unit labor costs  were up 9.0% versus +12.1%

 

The Fed released its latest Beige Book which pointed to modestly improving economic conditions, a mixed labor market and upward pressure on prices.

                          https://www.zerohedge.com/markets/feds-beige-book-finds-some-recovery-economic-activity-well-below-pre-pandemic-levels

                       

                        International

 

                          July EU retail sales declined 1.3% versus projections of +1.5%.   

                                      

The August Japanese services PMI came in at 45, in line; the Chinese services PMI was 54 versus 53.7; the German services PMI was 52.5 versus 50.8; the EU services PMI was 50.5 versus 50.1 the UK services PMI was 58.8 versus 60.1.

 

The August Japanese composite PMI was 45.2 versus forecasts of 44.9; the Chinese composite PMI was 55.1 versus 54.0; the German composite PMI was 54.4 versus 53.7; the EU composite PMI was 51.9 versus 51.6; the UK composite PMI was 59.1 versus 60.3.

 

                        Other

                           

                            An update from my favorite optimist, who isn’t so optimistic.

                                     http://scottgrannis.blogspot.com/2020/08/the-virus-elections-and-fed.html

                           

                            The ‘K’ recovery is alive and well and happening.

                            https://www.bloomberg.com/opinion/articles/2020-09-02/the-k-shaped-recovery-is-real-and-it-perfectly-captures-the-economy?sref=loFkkPMQ

 

                            Update on business cycle indicators.

                            http://econbrowser.com/archives/2020/09/business-cycle-indicators-september-1st

 

                            August heavy duty truck sales down 26% YoY in August.

                            https://www.calculatedriskblog.com/2020/09/us-heavy-truck-sales-down-26-year-over.html

 

            The coronavirus

 

              The coronavirus is no real threat to kids.

              https://nypost.com/2020/09/01/the-numbers-are-clear-covid-is-no-real-threat-to-kids/

 

              Why lockdowns are counterproductive.

               http://coyoteblog.com/coyote_blog/2020/08/a-framework-for-thinking-about-lockdowns-and-why-they-are-counter-productive.html

 

                   Fiscal Policy

 

             CBO projects US debt to hit record high.

             https://www.zerohedge.com/economics/cbo-projects-us-debt-will-hit-record-107-gdp-2023-and-then-explode

 

            Bottom line  Yikes.

              https://www.advisorperspectives.com/commentaries/2020/09/02/yikes

 

              Update on valuations.

              https://www.advisorperspectives.com/dshort/updates/2020/09/02/the-q-ratio-and-market-valuation-august-update

                

              More---S&P hits all time high P/E.

              https://www.zerohedge.com/markets/we-have-new-all-time-high-pe-multiple-sps-valuation-just-surpassed-dot-com-bubble

 

    News on Stocks in Our Portfolios

                   

Donaldson (NYSE:DCI): Q4 GAAP EPS of $0.50 beats by $0.06.

Revenue of $617.4M (-15.1% Y/Y) beats by $6.74M.

 

What I am reading today

 

            Studying the creativity and intelligence of the octopus.

            https://www.cbsnews.com/news/studying-the-creativity-and-intelligence-of-the-octopus-8-30-2020/

 

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The Morning Call---When the irrational becomes rationalized

The Morning Call

 

9/2/20

 

The Market

         

    Technical

 

The Averages  (28646, 3526) rebounded nicely yesterday, maintaining their upward momentum.  As you know, my assumption is that the Market’s bias is to the upside long term.   However, shorter term, a number of factors are at work that could lead to some price weakness: (1) last week, both of the indices made a gap up open, joining those two gap up opens made four weeks ago, (2) the VIX continues to reflect investor concern [yesterday, it was down only fractionally on what was strong Market day], (3) the indices’ breadth remains in overbought territory while the rest of the Market weakens and (4) historically, September is the worst month of the year for Market performance. 

https://sentimentrader.com/blog/massive-surge-in-speculative-trading-again/

 

            Art Cashin on the short term effects of stock splits.

            https://thereformedbroker.com/2020/08/31/art-cashin-on-the-short-term-effects-of-stock-splits/

 

            Robinhood traders are not having that much impact on stock prices.

            https://ofdollarsanddata.com/robinhood-trader/

 

Gold continued to move up, maintaining the uptrend off its March/June lows.  TLT rallied another 1 1/8%; but it was still not enough to undo the damage done in last week’s selloff.  Short term, its chart remains negative.  The dollar rose, but its chart remains the ugliest of those indicators that I follow. 

 

            Tuesday in the charts.

            https://www.zerohedge.com/markets/option-insanity-leads-furious-meltup-apple-above-russell-2000-emini-new-record-high

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

Weekly mortgage applications declined 2% while purchase applications     were off 0.2%.

 

                          Month to date retail chain store sales grew faster than in the prior week.

 

                          July construction spending rose 0.1% versus estimates of +1.0%.

                          https://www.calculatedriskblog.com/2020/09/construction-spending-increased.html

 

                          The August manufacturing PMI was 53.1 versus consensus of 53.6.

                           https://www.advisorperspectives.com/dshort/updates/2020/09/01/markit-manufacturing-up-in-july

 

                           The August ISM manufacturing index was 56.0 versus expectations of                54.5.

                          https://www.advisorperspectives.com/dshort/updates/2020/09/01/ism-manufacturing-index-up-1-8-in-july

 

August light vehicle sales came in at 15.1 million versus forecasts of 14.5

million.

 

The August ADP private payroll report showed job increases of 425,000 versus projections of 950,000.

                                         https://www.zerohedge.com/personal-finance/job-gains-are-minimal-adp-employment-dramatically-misses-expectations-august   

 

                        International

 

                          July German retail sales fell 0.9% versus projections of +0.5%.

 

                          July EU PPI was +0.6% versus estimates of +0.5%.

 

                        Other

 

                          July update on median household income.

                          https://politicalcalculations.blogspot.com/2020/09/median-household-income-in-july-2020.html#.X06OMchKiM8

 

                                                  Framing lumber prices continue to soar.

                          https://www.calculatedriskblog.com/2020/09/update-framing-lumber-prices-up-150.html

                

                

The Fed

 

  The true costs of zombie companies and easy money.

  https://www.zerohedge.com/markets/true-costs-zombie-companies-and-easy-money

 

The coronavirus

 

  How deep is your coronavirus religion?

  https://www.realclearmarkets.com/articles/2020/09/01/just_how_deep_is_your_coronavirus_religion_575883.html

 

              Millions of Americans have had their savings wiped out.

              https://www.zerohedge.com/personal-finance/millions-americans-had-their-emergency-savings-wiped-out-downturn

 

            China

 

              US increases support for Taiwan.

              https://www.reuters.com/article/us-usa-taiwan-dialogue/u-s-increases-support-for-taiwan-says-to-counter-rising-china-pressure-idUSKBN25R2WJ

 

              US/China decoupling is hard to do---this article seems a bit too optimistic.

              https://www.zerohedge.com/markets/us-china-decoupling-hard-do

 

            Bottom line  When the irrational becomes rationalized.

              https://www.zerohedge.com/markets/2020-when-irrational-became-rationalized

 

              The latest from Mohamed El Erian.

              https://www.zerohedge.com/markets/el-erian-warns-retail-face-big-potential-losses-professionals-selling

 

    News on Stocks in Our Portfolios

 

Brown-Forman (NYSE:BF.B): Q1 GAAP EPS of $0.67 beats by $0.37.

Revenue of $753M (-1.7% Y/Y) beats by $61.72M.

 

What I am reading today

 

           

            Lucifer’s hammer.

            https://www.epsilontheory.com/lucifers-hammer/

 

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The Morning Call--Low rates don't justify high valuations

 

The Morning Call

 

9/1/20

 

The Market

         

    Technical

 

The Averages  (28430, 3500) sold off yesterday on higher volume and weakening breadth.  More downside would not be surprising given the negatives overhanging the Market: (1) last week, both of the indices made a gap up open, joining those two gap up opens made four weeks ago, (2) the VIX continues to reflect investor concern, (3) the indices’ breadth remains in overbought territory while the rest of the Market weakens and (4) historically, September is the worst month of the year for Market performance.  Nonetheless, I am sticking with my assumption that the Market’s bias remains to the upside long term.

 

            Panic buying.

            https://www.zerohedge.com/markets/panic-buying

 

Gold bounced, closing above the upper boundary of the pennant formation shown in yesterday’s Monday Morning Chartology and reversing last week’s negative performance.  TLT rallied but not enough to undo the damage done in last week’s selloff.  Its chart remains negative.  The dollar declined, remaining the worst chart of those indicators that I follow. 

 

            The dollar decline is greatly exaggerated.

            https://www.zerohedge.com/markets/lacalle-us-dollar-collapse-greatly-exaggerated

 

            The last time this happened was the day the dot com bubble burst.

            https://www.zerohedge.com/markets/last-time-happened-was-day-dot-com-bubble-burst

 

                Monday in the charts.

            https://www.zerohedge.com/markets/stocks-silver-soar-5th-straight-month-bonds-dollar-dumped     

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

The August Dallas Fed manufacturing index came in at 8 versus forecasts of -2.

https://www.advisorperspectives.com/dshort/updates/2020/08/31/august-dallas-fed-manufacturing-outlook-recovery-continues-in-texas-manufacturing

 

                        International

 

July Japanese unemployment was reported at 2.9% versus estimates of 3.0%; Q2 YoY capital spending fell 11.3% versus -7.2%.

 

August German unemployment was 6.4%, in line; August manufacturing PMI was 52.2 versus 53.0.

 

The August UK manufacturing PMI came in at 55.2 versus expectations of 55.3.

 

The August EU manufacturing PMI was 51.7, in line; August CPI was 0.4% versus -0.2%; August unemployment was 7.9% versus 8.0%.

 

                        Other

           

                          Update on seven high frequency indicators.

                          https://www.calculatedriskblog.com/2020/08/seven-high-frequency-indicators-for.html

 

                          Chinese bank profits crater.

                          https://www.zerohedge.com/markets/challenges-are-unprecedented-chinese-bank-profits-crater-amid-bad-debt-surge

 

The Fed

 

  Monetary policy gone wild.

  https://blogs.cfainstitute.org/investor/2020/08/25/monetary-policy-gone-wild-a-lost-generation-of-us-growth/

 

            The coronavirus

                 

               Latest CDC bombshell.

               https://www.zerohedge.com/medical/ron-paul-cdc-bombshell-only-6-covid-deaths-only-covid

 

              A brief look at the potential for the new Abbott Labs test.

              https://marginalrevolution.com/marginalrevolution/2020/08/the-beginning-of-the-end.html

 

              The state of the American restaurant.

              https://www.nakedcapitalism.com/2020/08/the-state-of-the-american-restaurant-city-by-city.html

 

            Bottom line.  That low rates justify high valuations is a rationalization.

              https://www.zerohedge.com/markets/rationalization-do-low-rates-justify-high-valuations

 

              The new normal.

              https://signalee.com/2020/08/29/new-normal-2-average-inflation/

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

           

 

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