The Morning Call--The highest P/E ratio in 18 years

 

The Morning Call

 

8/26/20

 

The Market

         

    Technical

               

The Averages  (28284, 3443) turned in a mixed day (Dow down, S&P up), though the Dow’s performance was likely impacted by the negative price action among those components that will be dropped in the coming re-set.  Still there remain a number of negatives (1) volume was weak, (2) on Monday, both of the indices made a gap up open, joining those two gap up opens made three weeks ago, (3) the VIX continues to reflect investor concern and (4) breadth remains in overbought territory. Nonetheless, I am sticking with my assumption that the Market’s bias remains to the upside long term.

 

Gold was up slightly, remaining in the uptrend off its June low.  TLT dropped ¾% on a gap down open, ending back below its 100 DMA (now resistance) and negating the challenge starting last Friday.  The dollar was down, having just made a lower high.   

               

            Tuesday in the charts.

            https://www.zerohedge.com/markets/nasdaq-hits-new-record-high-confidence-crashes-6-year-lows

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

Weekly mortgage applications fell 6.5% while purchase applications were up 0.4%.

 

The June Case Shiller home price index was up 0.2% versus estimates of +0.3%.

https://www.advisorperspectives.com/dshort/updates/2020/08/25/s-p-case-shiller-home-price-index-june-update

 

July new home sales soared 13.9% versus expectations of up 1.3%.

https://www.advisorperspectives.com/dshort/updates/2020/08/25/new-home-sales-up-13-9-in-july-beats-forecast

 

July durable goods orders  were up 11.2% versus an anticipated increase of 4.3%; ex transportation, they were up 2.4% versus 2.0%.

https://www.zerohedge.com/economics/us-durable-goods-orders-smash-expectations-july-thanks-war

 

August consumer confidence came in at 84.8 versus consensus of 93.0.

https://www.advisorperspectives.com/dshort/updates/2020/08/25/consumer-confidence-down-for-second-consecutive-month

 

The August Richmond Fed manufacturing index was 18 versus forecasts of 1.

                          https://www.advisorperspectives.com/dshort/updates/2020/08/25/richmond-fed-manufacturing-strengthened-in-july

 

                        International

 

Q2 German GDP fell 9.7% versus projections of 10.1%; the August business climate index was reported at 92.6 versus 92.2.

 

June Japanese leading economic indicators came in at 84.4 versus estimates of 85.0.

 

                        Other

 

                          Did the US recession end in July?

                          http://www.capitalspectator.com/did-the-us-recession-end-in-july/

 

                          A double dip in small business re-openings.

                          https://www.zerohedge.com/markets/chart-day-number-small-businesses-open-reverses

 

            The coronavirus

 

              ***overnight update.

              https://www.zerohedge.com/geopolitical/france-imposes-new-covid-19-restrictions-marseilles-delhi-outbreak-intensifies-live

 

              UK scientist says lockdown was monumental mistake.

              https://www.zerohedge.com/political/uk-govt-scientist-admits-lockdown-was-monumental-mistake-global-scale

 

                  GOP senators demand FDA explain hydroxychloroquine stance.

              https://www.zerohedge.com/political/gop-senators-demand-fda-explain-hydroxychloroquine-stance-amid-positive-studies-and

               

            The Fed

 

More speculation on Powell’s message (potential policy revisions) from the upcoming Jackson Hole conference.

https://www.zerohedge.com/markets/if-powell-announces-average-inflation-targeting-thursday-rates-will-be-hold-42-years

 

            Bottom line.  The highest P/E ratio in 18 years.

              http://www.crossingwallstreet.com/archives/2020/08/the-highest-p-e-ratio-in-18-years.html

 

    News on Stocks in Our Portfolios

 

 

 

What I am reading today

 

            Greenland’s melting ice sheet is nothing to worry about.

            https://issuesinsights.com/2020/08/24/greenlands-melting-ice-sheet-nothing-to-worry-about/

 

            Is it capital income or labor income?

            https://www.adamsmith.org/blog/is-it-capital-income-or-labour-income

 

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---No easy way out

 

The Morning Call

 

8/25/20

 

The Market

         

    Technical

 

The Averages  (28308, 3431)  had a great day, with the S&P blasting through its former all-time high (the Dow not).  That is a big plus.  However, (1) volume was weak, (2) both of the indices made a gap up open, joining those two gap up opens made three weeks ago, (3) the VIX was down only fractionally on strong up day in the Averages, continuing to reflect investor concern and (4) breadth remains in overbought territory [note: this overbought condition exists only in the indices.  As you can see in the articles below, breadth in the rest of the Market is awful.  This dichotomy makes the technical picture even worse.]  Nonetheless, I am sticking with my assumption that the Market’s bias remains to the upside long term.

 

                        More on negative breadth.

            https://politicalcalculations.blogspot.com/

 

            Even more.

            http://traderfeed.blogspot.com/2020/08/a-different-look-at-markets-weak-breadth.html

 

            Investors versus the newsletters.

            https://sentimentrader.com/blog/mom-pop-sell-while-newsletters-tell-them-to-buy--24-8-2020/

 

Gold and the long bond were down again though only fractionally.  GLD’s chart remains strong---it remains in the uptrend off its June low.  TLT ended above its 100 DMA (now resistance) for a second day (if it remains there through the close today, it will revert to support).  The dollar was up but has made a lower high---a negative.   

           

            Gold still shines.

            https://www.advisorperspectives.com/commentaries/2020/08/24/gold-still-shines-bright

 

            Conflicting Treasury market signals.

            http://www.capitalspectator.com/conflicting-treasury-market-signals-keep-investors-guessing/

 

            US Treasury over dependent on short term maturities.

            https://global-macro-monitor.com/2020/08/22/black-swan-hunting/

 

            Monday in the charts.

            https://www.zerohedge.com/markets/aaplocalypse-now-nasdaq-sp-hit-record-highs-bonds-bullion-slide

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

Month to date retail chain store sales growth was much improved from the prior week.

 

                        International

 

                        Other

 

                          Eight high frequency economic indicators.

                          https://www.calculatedriskblog.com/2020/08/eight-high-frequency-indicators-for_24.html

 

                          Lower investment/production has nothing to do with a dollar shortage.

 https://www.forbes.com/sites/johntamny/2020/08/23/dismiss-the-federal-reserve-alarmism-theres-no-such-thing-as-  dollar-shortages/#7d3fea657fdc

                       

                          No ‘V’ for thee.

                          http://econbrowser.com/archives/2020/08/no-v-for-thee

 

                          Global companies raise record amount of funds in August.

  https://www.reuters.com/article/us-markets-global-fundraising/global-companies-raise-most-funds-for-the-month-of-august-in-a-decade-idUSKBN25K15H

                              

                          Mortgage delinquencies hit decade high,.

                          https://www.zerohedge.com/markets/mortgage-delinquencies-plus-90-days-due-hits-decade-high

 

            The coronavirus

 

              Hong Kong has first documented case of coronavirus reinfection.

              https://www.zerohedge.com/geopolitical/hong-kong-confirms-first-case-covid-19-reinfection-anywhere-world

 

              Sweden’s coronavirus strategy hints at herd immunity.

              https://www.zerohedge.com/medical/swedens-covid-19-measures-hint-herd-immunity-us-experts-rethink-lockdown-strategies

 

            The Fed

 

              Powell to introduce revised Fed policy on inflation.

              https://www.zerohedge.com/markets/previewing-powells-j-hole-jawbone-buy-gold-case-it-all-goes-wrong

 

            China

 

              US/China trade talks back on.

              https://www.zerohedge.com/geopolitical/us-sees-progress-after-call-china-discussing-phase-1-deal-yuan-jumps

 

            Bottom line.  No easy way out.

              https://www.zerohedge.com/markets/its-getting-worse-every-shock-bofa-turns-apocalyptic-coming-end-game

 

              Where to invest for income.

              https://www.morningstar.com/articles/998976/where-to-invest-for-income

 

    News on Stocks in Our Portfolios

 

Medtronic (NYSE:MDT): FQ1 Non-GAAP EPS of $0.62 beats by $0.44; GAAP EPS of $0.36 beats by $0.62.

Revenue of $6.51B (-13.1% Y/Y) beats by $1.03B.

 

Hormel Foods (NYSE:HRL): FQ3 GAAP EPS of $0.37 beats by $0.02.

Revenue of $2.38B (+3.9% Y/Y) in-line.

 

Bank of Nova Scotia (NYSE:BNS): FQ3 Non-GAAP EPS of C$1.04 misses by C$0.07; GAAP EPS of C$1.04 in-line.

Revenue of C$7.73B (+0.9% Y/Y) misses by $210M.

 

Bank of Nova Scotia (NYSE:BNS) declares CAD 0.90/share quarterly dividend, in line with previous.

 

What I am reading today

 

            The 4% rule is dead.  What should retirees do now?

            https://www.zerohedge.com/personal-finance/4-rule-dead-what-should-retirees-do-now

 

            Quote of the day.

            https://cafehayek.com/2020/08/quotation-of-the-day-3262.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.

 

 

 

Monday Morning Chartology

 

The Morning Call

 

8/24/20

 

The Market

         

    Technical

 

Clearly, the S&P is at an important junction---testing its all-time high.  It is not that it has paused right below that level to gather strength for a challenge---that is to be expected.  The issue is, will it push higher or create a double top.  My assumption is the former.  But this would be the point where technical factors could act to halt the current the rise to ever higher overvaluations.

           

Breadth stinks.

https://www.zerohedge.com/markets/horrendous-market-breadth-stinks-high-heaven-screams-imminent-risk

 

            S&P short interest hits lowest on record.

            https://www.zerohedge.com/markets/bears-capitulate-sp-short-interest-hits-lowest-record

 

The long bond spent the week trying to recover from the prior week’s hammering, at which it was barely successful.  The good news is that it is now challenging its 100 DMA, which just recently reverted to resistance.  If it remains there through the close on Tuesday, it will revert back to support.

 

 

Gold had a mixed week.  Early on, it closed that big gap down open; but then immediately sold off.  Still it held above the uptrend off its June low; and as long as it does, then technically speaking, all systems are go.

 

The dollar rallied last week.  However, until it can at least make a higher high/higher low, the trend is firmly down.

 

The VIX continues to mirror stocks directionally but not in order of magnitude.  You can see that it remains well above its February low where the S&P is right on its February high and the Dow is close.

 

In sum, all the indices are hinting of a possible directional change.  But nothing solid.  That suggests a fundamental shift from an easy money, low interest rate/low inflation environment to one with higher rates/higher inflation.

 

            Friday in the charts.

            https://www.zerohedge.com/markets/value-rotation-cancelled-small-caps-slammed-tech-meltup-accelerates

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        Review of last week

 

The data (and primary indicators) last week was upbeat yet again.  Reintroducing the prospect of ‘V’ recovery, or at least something close.  I am not there yet; but the recent improvement in the numbers cannot be ignored.  On the other hand, the international stats remained negative which can’t be a plus for us.

 

Longer term, the economic growth will be influenced by how quickly virus treatments and a vaccine are discovered as well as the permanent impact this disease/government reaction will have on the spending and work habits of the nation. 

 

Whatever the shape of the recovery, I am not altering my belief that long term the economy will grow at a historically subpar secular rate due to the twin burdens of egregiously irresponsible fiscal and monetary policies---which, by the way, are becoming even more egregiously irresponsible as a result of measures being taken by the government and the Fed in dealing with the current crisis.

 

                        US

 

                          The July Chicago Fed national activity index came in at 1.18 versus                                    of 2.73.

 

                        International

 

                        Other

 

                          Three truths that will define the future economy.

                          https://www.zerohedge.com/economics/mauldin-3-truths-will-define-3-part-economy

 

                          The first half of a W looks like a V.

                          https://www.zerohedge.com/markets/broyhill-warns-first-half-w-looks-lot-v

 

                          The risk of a hard consumer landing.

                          https://www.zerohedge.com/markets/taking-away-punch-bowl-risk-hard-landing-consumer-spending

 

                          Global bankruptcies soar.

                          https://www.zerohedge.com/economics/global-jobless-recovery-bankruptcies-soar-despite-trillions-liquidity

 

                          Morgan Stanley projects higher inflation.

                          https://www.zerohedge.com/markets/four-reasons-why-morgan-stanley-believes-covid-recession-triggered-structural-shift-toward

 

    News on Stocks in Our Portfolios

 

            Medtronic (NYSE:MDT) declares $0.58/share quarterly dividend, in line with previous.

 

What I am reading today

 

           

 

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The Morning Call--No bubble is ever the same

The Morning Call

 

8/18/20

 

The Market

         

    Technical

 

The Averages  (27044, 3381) turned in another mixed day (Dow down, S&P up), continuing the consolidation process begun last week and working through (but not resolving) the negative factors that I have been listing over the last two weeks: (1) both of the indices made two gap up opens two weeks ago that need to be filled, (2) the VIX continues to reflect investor concern and (3) breadth remains in overbought territory.  So, some more consolidation seems probable.  Nonetheless, I am sticking with my assumption that the Market’s bias remains to the upside long term.

                        https://www.zerohedge.com/markets/chart-day-bearish-setup-doubles-down

 

Gold spiked over 2%. Likely reflecting the news of Buffett’s new position in Barrick Gold.  Still it did not close last Monday’s huge gap down open.  TLT was up fractionally but remained below its 100 DMA for a third day, reverting to resistance.  While its long term chart is strong, this pin action is the first sign of technical weakness and could potentially be signaling a trend change (i.e. rising rates/inflation).   But it is too soon to make that call.  The dollar was down again, enough so to fill last week’s big gap up open.   So far, there is no reason to question this downtrend.

            https://www.zerohedge.com/economics/china-was-biggest-dumper-us-treasuries-june-foreign-central-banks-resumed-selling

 

                        Corporate bond issuance soars to new highs.

            https://www.zerohedge.com/markets/massively-compromised-corporate-debt-issuance-soars-record-highs

 

            Monday in the charts.

            https://www.zerohedge.com/markets/buffetts-barrick-bid-pumps-precious-metals-dollar-dumps        

 

    Fundamental

 

       Headlines

 

              The Economy

 

                        US

 

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

 

July housing starts spiked 22.6% versus estimates of +5.0%; building permits were up 18.8% versus +5.4%.

                          https://www.zerohedge.com/economics/us-housing-starts-permits-explode-higher-july-multi-family-starts-soar

 

                        International

 

                        Other

 

                          Europe’s fading rebound.

 https://www.bloomberg.com/news/articles/2020-08-17/europe-s-fading-rebound-turns-recovery-from-v-shape-to-bird-wing?srnd=economics-vp&sref=loFkkPMQ

 

                          FHA mortgage delinquency rate soars to all-time high.

                          https://www.zerohedge.com/markets/fha-mortgage-delinquencies-soar-record-60-q2-hit-all-time-high-157

 

            The coronavirus

 

              ***overnight update.

              https://www.zerohedge.com/geopolitical/german-covid-19-cases-continue-surge-pandemic-now-no-3-cause-death-us-live-updates

 

              Minnesota governor reverses himself on use of hydroxychloroquine.

              https://www.zerohedge.com/political/maines-democrat-governor-quietly-reverses-course-hydroxychloroquine

 

            Bottom line.  No bubble is ever the same.

            https://www.advisorperspectives.com/commentaries/2020/08/17/why-soros-just-called-the-market-a-bubble

 

    News on Stocks in Our Portfolios

 

Genuine Parts (NYSE:GPC) declares $0.79/share quarterly dividend, in line with previous.

 

Home Depot (NYSE:HD): Q2 GAAP EPS of $4.02 beats by $0.34.

Revenue of $38.05B (+23.4% Y/Y) beats by $3.41B.

 

Home Depot (NYSE:HD) declares $1.50/share quarterly dividend, in line with previous.

 

What I am reading today

 

            What America can learn from the decline of Rome (must read):

            https://www.vox.com/2019/1/1/18139787/rome-decline-america-edward-watts-mortal-republic

 

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