Saturday, November 18, 2017

The Closing Bell

The Closing Bell

11/18/17

I am taking Thanksgiving week off.  If this Market gets squirrelly, I will be in touch.  Otherwise, enjoy your holiday.

Statistical Summary

   Current Economic Forecast
                       
2016 actual

Real Growth in Gross Domestic Product                          1.6%
Inflation (revised)                                                              1.6%                    
Corporate Profits (revised)                                                     4.2%

2017 estimates (revised)

Real Growth in Gross Domestic Product                      -1.25-+0.5%
                        Inflation                                                                         +.0.5-1.5%
                        Corporate Profits                                                            -15-0%

2018 estimates (revised)

Real Growth in Gross Domestic Product                          1.5-2.5%
                        Inflation                                                                          +1.5-2%
                        Corporate Profits                                                                5-10%


   Current Market Forecast
           
            Dow Jones Industrial Average

                                    Current Trend (revised):  
                                    Short Term Uptrend                                 21819-24555
Intermediate Term Uptrend                     19280-26611
Long Term Uptrend                                  5751-24198
                                               
                        2016    Year End Fair Value                                   12600-12800

                        2017     Year End Fair Value                                   13100-13300

2018     Year End Fair Value                                   13800-14000

            Standard & Poor’s 500

                                    Current Trend (revised):
                                    Short Term Uptrend                                     2550-2825
                                    Intermediate Term Uptrend                         2302-3074
                                    Long Term Uptrend                                     905-2763
                                               
                        2016   Year End Fair Value                                      1560-1580
                       
2017 Year End Fair Value                                       1620-1640         

2018 Year End Fair Value                                       1700-1720         


Percentage Cash in Our Portfolios

Dividend Growth Portfolio                          59%
            High Yield Portfolio                                     55%
            Aggressive Growth Portfolio                        55%

Economics/Politics
           
The Trump economy is providing a higher upward bias to equity valuations.   The data flow this week was mixed: above estimates: October housing starts, the November housing index, weekly mortgage and purchase applications, October industrial production/capacity utilization, September business inventories/sales, October import/export prices; below estimates: month to date retail chain store sales, weekly jobless claims, the October small business confidence index, the November NY, Philadelphia and Kansas City Feds’ manufacturing indices, the October budget deficit, October PPI; in line with estimates: October CPI, October retail sales/sales ex autos.
           

However, the primary indicators were upbeat: October housing starts (+), October industrial production (+), October retail sales/ex autos (0).  The call is positive: Score: in the last 110 weeks, thirty-four were positive, fifty-six negative and nineteen neutral.

Perhaps more important, the trend over the last six weeks has been mostly upbeat, likely confirming that the economy is starting to show a little life.  That notion is supported by the most recent read of the big four economic indicators which have been positive for the last eight week.  Accordingly, I am bumping up my 2018 GDP/corporate profit growth forecast.  In qualitative terms, I would characterize this change as an improvement from sluggish to below average growth driven mostly by cyclical as opposed to secular factors.


Overseas, the pattern remains the same: strength in Europe which is likely contributing to a pick in growth here; not so much in the rest of the globe. Indeed, the Chinese data has shown a marked deterioration since the conclusion of the Chinese Communist Party Congress; and that will likely be aggravated by the recent tightening in standards for the financial industry which are being implemented to halt the excessive use of debt.

In fiscal policy, the house and senate passed their versions of tax reform, though the reconciliation process will be a lot more difficult.  To be fair, I do think that some tax bill will be passed but I doubt it will be ‘reform’, ‘simpler’, ‘fairer’ or ‘pro-growth’.  Our (new and improved) forecast:

A pick up in the long term secular economic growth rate based on less government regulation.  This increase in secular growth could be further augmented by pro-growth fiscal policies including repeal of Obamacare and enactment of (revenue neutral) tax reform and infrastructure spending.  But the odds of that occurring lessen daily.  Further, any expected increase in the secular rate of economic growth would likely be rendered moot if tax reform (assuming its passes) increases the national debt and the deficit.

Finally, cyclical growth appears to be turning up though I am not sure whether it is a function of organic or a pickup in international growth. As a result, I have raised our 2018 growth forecast.
                       
       The negatives:

(1)   a vulnerable global banking system.  Nothing new.

(2)   fiscal/regulatory policy. 

I don’t know why I bother even commenting on fiscal policy because it gives it a status that it doesn’t deserve---passage of the house and senate versions of a tax bill notwithstanding.  The truth is that there is no coherent fiscal policy because the ruling class gives no weight to controlling costs/reducing spending.  They just want to either spend more or cut taxes.  The tax legislation in its current form changes nothing.  I hate to beat this horse to death.  There is little more that can be said.

Side by side comparison of the house and senate bills (medium):

You know my bottom line, too much debt stymies economic growth even if it partly comes from a tax cut.

           
Stockman on the tax reform measures (medium and a must read):


(3)   the potential negative impact of central bank money printing:  The key point here is that [a] the Fed has inflated bank reserves far beyond any comparable level in history and [b] while this hasn’t been an economic problem to date, {i} it still has to withdraw all those reserves from the system without creating any disruptions---a task that I regularly point out it has proven inept at in the past and {ii} it has created or is creating asset bubbles in the stock market as well as in the auto, student and mortgage loan markets.  

Little news this week on monetary affairs, though

[a] the Chinese fixed income markets are starting to exhibit signs of heartburn, suggesting something is going within the labyrinth of policy making.  To be sure, nothing may be occurring other than the workings of an inefficient financial system.  Or it could be the results of the aforementioned crack down on speculative lending practices.  Whatever, it bears watching and

[b] Draghi made another of his ‘everything is awesome’ speeches but made no mention of stepping up the unwind of EU QE.
           

You know my bottom line: when QE starts to unwind, so does the mispricing and misallocation of assets.  That thesis is about to be tested.  (also a must read)
           

(4)   geopolitical risks:  little to add.

(5)   economic difficulties around the globe.  The stats this week were in line with recent trends.


[a] German third quarter GDP was strong; third quarter UK inflation was below estimate as was October unemployment,

[b] October Chinese industrial production and fixed asset investment were below consensus while retail sales were above; the Chinese equivalent of the Fed’s Beige Book showed slowing growth throughout the economy,

[c] third quarter Japanese GDP was strong.

The bottom line remains the same: Europe gaining strength, Japan may be improving, China a big question.
                 

            Bottom line:  the US economy growth rate appears to be improving as a result of a combination of the positive impact on its secular growth rate brought on by increasing deregulation and a cyclical component of a late stage recovery helped by a better performance of the EU economy.  Unfortunately, I don’t believe there is much chance of returning to a more normal secular long term rate of growth because of (1) too much debt that will not be assuaged by the recently announced tax bill, in its current form and (2) a failed Fed QE policy that has done little for growth but led to exaggerated moves in asset pricing and allocation.

The Market-Disciplined Investing
         
  Technical

The indices (DJIA 23358, S&P 2578) seem to have entered into some kind of consolidation phase, failing to follow through on Thursday’s strong pin action which in turn had reversed a week of drifting lower.  Volume fell and breadth weakened.  But the bottom line remains that both of the Averages remain above their 100 and 200 day moving averages and are in uptrends across all time frames.  The assumption is that stock prices are going higher.

The VIX (11.4) was down another 3%, but still finished above the upper boundary of its former short term downtrend (now a trading range), above its 100 day moving average (now support), above its 200 day moving average (now support) and above the lower boundary of its long term trading range.  Following its recent pattern of not trading inversely to stock prices, it was down on a down day.  More clarity is needed to get a sense of what is going on.
           
The long Treasury was up ¾ %, ending above its 100 day moving average (now support), above its 200 day moving average (now support) and above the lower boundaries of its short term trading range and long term uptrend.   The only negative is that TLT has not re-established a very short term uptrend.  (economic weakness or a safety trade?)
           
The dollar fell, finishing below its 200 day moving average (now resistance), below the upper boundary of its short term downtrend, but above (though closing in on) its 100 day moving average (now support).  It appears that UUP is confirming its downtrend---which suggests economic weakness or flight from the dollar.

GLD was up 1 ¼%, closing well above its 100 day moving average (remember that it has violated this moving average five times in the last week; if remains there through the close on Tuesday, it will set as support), above its 200 day moving average (support) and the lower boundary of a short term uptrend. 

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. The technical assumption has to be that stocks are going higher.
           
Strength in TLT and GLD along with weakness in UUP suggest a slowing economy---certainly not the narrative from stock land.  That said, the TLT, GLD, UUP trends are all very short term, so it is too soon to be drawing any conclusions.

I remain uncomfortable with the overall technical picture.
           

Fundamental-A Dividend Growth Investment Strategy

The DJIA and the S&P are well above ‘Fair Value’ (as calculated by our Valuation Model).  However, ‘Fair Value’ could be rising based on a new set of regulatory policies which would lead to improvement in the historically low long term secular growth rate of the economy (depending on the validity of Reinhart/Rogoff; also note an improvement in the cyclical growth rate resulting from better growth overseas doesn’t affect the secular growth as calculated in our Model); but it still reflects the elements of a botched Fed transition from easy to tight money and a ‘muddle through’ scenario in Japan and China.

The US economy appears to have picked up a little steam as it reaches the late stage of its anemic recovery.  I have raised my 2018 GDP and corporate growth estimates; but even on that forecast, stocks in general are generously valued.  So this upgraded outlook will do little to alter values in our Model.

The GOP made progress on its tax reform with both the house and senate passing its own separate version.  I am going to give them the benefit of the doubt and assume passage of some sort of tax bill.  However, while I believe it may score political points with the electorate and price points with investors, I also believe that it will do little to promote secular economic growth.  As a result, if stocks fly on tax cuts, they will discount even more future growth that is either not there or so far in the future as to not be really relevant to today’s valuations. 

In short, even if passage is achieved, I believe that Street estimates for economic and corporate profit growth based on the improving economy, fiscal reform narrative are too optimistic.  And when it wakes up from this fairy tale that could, in turn, lead to declining valuations. 

That said, fiscal policy is a distant second where it comes to Market impact.  The 800 pound gorilla for equity valuations is central bank monetary policy based on the thesis that (1) QE did little to help the economy but led to extreme distortions in asset pricing and allocation and (2) hence, its unwinding will do little to hurt the economy but much to equities as the severe perversion of security valuations is undone.  That thesis is about to get tested, albeit at an agonizingly slow pace, as the Fed and other central banks inch their way toward monetary normalization.

Bottom line: the assumptions on long term secular growth in our Economic Model may be beginning to improve as we learn about the new regulatory policies and their magnitude.  Plus, there is a ray of hope (though fading) that fiscal policy could further increase that growth assumption though its timing and magnitude are unknown.  On the other hand, if it raises the deficit/debt, I believe that it would negate any potential positive. In any case, I continue to believe that the current Street narrative is overly optimistic---which means Street models will ultimately will have to lower their consensus of Fair Value for equities. 

Our Valuation Model assumptions may be changing depending on the aforementioned economic tradeoffs impacting our Economic Model.  However, even if tax reform proves to be a positive, the math in our Valuation Model still shows that equities are way overpriced.

                As a long term investor, with equity valuations at historical highs, I would want to own cash in my Portfolio and would use the current price strength to sell a portion of your winners and all of your losers.
               
DJIA             S&P

Current 2017 Year End Fair Value*              13200             1630
Fair Value as of 11/30/17                                13158            1625
Close this week                                               23358            2578

Over Valuation vs. 11/30
             
55%overvalued                                   20394              2518
            60%overvalued                                   21052              2600
            65%overvalued                                   21710              2681
            70%overvalued                                   22368              2762


* Just a reminder that the Year End Fair Value number is based on the long term secular growth of the earning power of productive capacity of the US economy not the near term   cyclical influences.  The model is now accounting for somewhat below average secular growth for the next 3 to 5 years. 

The Portfolios and Buy Lists are up to date.


Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973.  His 47 years of investment experience includes institutional portfolio management at Scudder. Stevens and Clark and Bear Stearns, managing a risk arbitrage hedge fund and an investment banking boutique specializing in funding second stage private companies.  Through his involvement with Strategic Stock Investments, Steve hopes that his experience can help other investors build their wealth while avoiding tough lessons that he learned the hard way.








Friday, November 17, 2017

The Morning Call--One step closer to nowhere

The Morning Call

11/17/17

The Market
         
    Technical

Yesterday, the indices (DJIA 23458, S&P 2585) seemingly put their poor pin action of the last week in the rear view mirror.  Some follow through will cement that call.  Volume was flat and breadth improved.  The bottom line is that both of the Averages remain above their 100 and 200 day moving averages and are in uptrends across all time frames---and with the assumption is that stock prices are going higher.

The VIX (11.7) was down 1%, but still finished above the upper boundary of its former short term downtrend (now a trading range), above its 100 day moving average (now support), above its 200 day moving average (now support) and above the lower boundary of its long term trading range.  I was a little surprised that the VIX wasn’t down more and that fits with my observation yesterday that volatility may just be returning to normal after an unusually placid period.  Still follow through.

The long Treasury was down but remained above its 100 day moving average for a second day (now resistance; if it remains there through the close today, it will revert back to support), above its 200 day moving average (now support) and above the lower boundaries of its short term trading range and long term uptrend.  

The dollar rose, ending below its 200 day moving average (now resistance), below the upper boundary of its short term downtrend, but above its 100 day moving average (now support).  It appears that UUP is confirming its downtrend---which suggests economic weakness or flight from the dollar.

GLD was down, closing below its 100 day moving average for a second day (however, since GLD has violated this moving average five times in the last week, it is not clear at this point whether it is serving as resistance or support), above its 200 day moving average (support) and the lower boundary of a short term uptrend. 

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. The technical assumption has to be that stocks are going higher.
           
Trading in UUP, GLD and TLT remain out of sync with themselves, the VIX and stocks, and seem to be pointing at a change in trends---but in different directions.  I am watching for more follow through in all.

I remain uncomfortable with the overall technical picture.
           

           

    Fundamental

       Headlines

            The economic data releases yesterday were weighed to the plus side: the November Philly Fed index and weekly jobless claims were disappointing but October industrial production, the November housing index and October import/export prices were ahead of estimates.  Nothing overseas.

            ***overnight, in a speech Draghi before the European Banking Congress confirmed what the numbers have been telling us, i.e. that the EU economy is improving. (medium):

            And now this from the morons at the Fed (medium):

            The big news of the day was the house’s passage of its version of tax reform.  Clearly, that is a step toward achieving a tax bill.  Plus the senate is scheduled to pass its version today.  Then the tough reconciliation process begins.  However, this is a step forward.  On the other hand, the more important issue is just how positive the final product, assuming that there is one, will be for individual taxpayers, corporate investment and economic growth.

            Here is what is in the house tax reform bill (medium):

            This is the best that the Weekly Standard can do in praising the current tax reform (medium):

            Not much evidence that a corporate tax cut will boost wages (medium):

            Bottom line: tax reform, if passed in its current form, is not a negative.  Indeed, it may be a mild positive.  However, it is not simpler, fairer or pro-growth and hence is not going to achieve the stated objectives of the GOP.  It will allow republicans to claim that they delivered on a campaign promise.  That might help them in the 2018 elections but when taxpayers realize that they have been duped, it could work against them.

Expected 2017 corporate profits (short):

       Investing for Survival
   
            Ten financial principles.

    News on Stocks in Our Portfolios
 
            Brown-Forman (NYSE:BF.B) declares $0.1975/share quarterly dividend, 8.2% increase from prior dividend of $0.1825.

Tiffany (NYSE:TIF) declares $0.50/share quarterly dividend, in line with previous.

            Kimberly-Clark (NYSE:KMB) declares $0.97/share quarterly dividend, in line with previous.

            Home Depot (NYSE:HD) declares $0.89/share quarterly dividend, in line with previous.

            BlackRock (NYSE:BLK) declares $2.50/share quarterly dividend, in line with previous.

            Nike (NYSE:NKE) declares $0.20/share quarterly dividend, 11.1% increase from prior dividend of $0.18.

Economics

   This Week’s Data

            The November Philadelphia Fed manufacturing index was reported at 22.7 versus expectations of 25.0.

            October industrial production rose 0.9% versus estimates of up 0.4%; capacity utilization came in at 77.0 versus forecasts of 76.3.

            The November housing index was reported at 70.0 versus consensus of 67.0.

                        October housing starts increased 13.6% versus projections of a 5.5% advance.

   Other

            Update on big four economic indicators (medium):

Politics

  Domestic

  International War Against Radical Islam

            Latest from Saudi Arabia.  It’s the money stupid. 

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Thursday, November 16, 2017

The Morning Call--A seminal moment

The Morning Call

11/16/17

The Market
         
    Technical

The indices (DJIA 23271, S&P 2564) started the day as it has the last four days---down big; the difference yesterday was that they couldn’t fight their way back to the (near) flat line.  Tuesday, they were able to get close to neutral, yesterday, no recovery.    Meanwhile, volume was down and breadth remained weak.  Of course, this is the first teeny, weeny bit of cognitive dissonance investors have faced since early September.  So it hardly gives reason to be doubting that stocks are going higher.  We may be seeing the reintroduction of normality in the pin action; and even ‘may be’ isn’t for sure.    The bottom line is that both of the Averages remain above their 100 and 200 day moving averages and are in uptrends across all time frames---and with the assumption is that stock prices are going higher.

The VIX (13.3) was 13%, finishing above the upper boundary of its short term downtrend for the third day, resetting to a trading range, above its 100 day moving average (now support), above its 200 day moving average for the fourth day, reverting to support and above the lower boundary of its long term trading range.  As I suggested above, volatility may just be returning to normal after an unusually placid period.  At the moment, I think that is the most one can say.  Still its divergent behavior over the last four trading days keeps a warning light flashing.
           
The long Treasury was 1%; this time indicating that last Friday’s plunge may have been some one-off occurrence.  It closed back above its 100 day moving average, one day after reverting to resistance (if it remains there through the close on Friday, it will revert back to support), above its 200 day moving average (now support) and above the lower boundaries of its short term trading range and long term uptrend.   Like Tuesday, other segments of the long bond market were down.  And like the VIX, it seems like something could be going on beneath the surface. 
           
The dollar was down again, ending below its 200 day moving average (now resistance), below the upper boundary of its short term downtrend, below the lower boundary of its very short term uptrend, voiding it, but above its 100 day moving average (now support).  It appears that UUP is confirming its downtrend---which suggests economic weakness or flight from the dollar.

GLD was down, closing back below its 100 day moving average (the fifth violation of this moving average in the last week), above its 200 day moving average (support) and the lower boundary of a short term uptrend. 

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. The technical assumption has to be that stocks are going higher.
           
Trading in UUP, GLD and TLT remain out of sync with themselves, the VIX and stocks, and seem to be pointing at a change in trends---but in different directions.  I am watching for more follow through in all.

I remain uncomfortable with the overall technical picture.
           
    Fundamental

       Headlines

            Yesterday’s economic stats were mixed to positive: weekly mortgage and purchase applications were up, September business inventories were unchanged but sales were strong, October retail sales were above estimates but ex autos, they were below, October CPI and CPI ex food and energy were both in line and the November NY Fed manufacturing index was disappointing.

Overseas, third quarter Japanese GDP was above estimates; October UK unemployment hit a 42 month low; the Chinese fixed income markets are in turmoil.

And:

A quick look at our ruling class:

(1)   the much Trump-touted Trump major news announcement was anything but; it mostly consisted of self-praise,

(2)   the GOP congress continues to prove it is incapable of following its own stated agenda.  The latest being a key desertion in the senate on the tax reform bill,

(3)   and perhaps the seminal moment in the tax reform debate, Gary Cohn gets his a ha moment (medium and a must read):

            Bottom line: fiscal policy is a mess and the current versions of tax reform won’t change that.  Monetary policy is a mess and with group in charge now, that isn’t going to change.  The good news is that economy is straining to increase growth, however paltry, in spite of the ruling class’ effort to thwart its effort.   The bad news is that the Market is discounting an economic scenario is that is a wet dream.  I would continue to sell stocks that have achieved their upside price objective---that is the sell high part.  The buy low part is investing in stocks of quality companies that have been cut in half or worse.

            Looking for inflation in all the wrong places (medium):

       Investing for Survival
   
            A little knowledge can be dangerous.


    News on Stocks in Our Portfolios
 
           

Economics

   This Week’s Data

            September business inventories were flat were expectations of a 0.1% increase; sales soared 1.4%.

            Weekly jobless claims rose 10,000 versus an anticipated decline of 3,000.

            October import prices were up 0.2% versus estimates of up 0.4%; export prices were flat versus consensus of +0.1%.
           
   Other

Politics

  Domestic

  International War Against Radical Islam


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Wednesday, November 15, 2017

The Morning Call--Am I missing something?

The Morning Call

11/15/17
The Market
         
    Technical

The indices (DJIA 23409, S&P 2578) started the day as it has the last three days---down big---then spent the rest of the day fighting back.  The only difference is that they couldn’t make back to neutral yesterday.  Still it was a valiant effort and that strong rebound needs to be taken into account.   So I don’t think yesterday’s pin action diminishes ‘the relentless drive higher’ theme.  Meanwhile, volume spiked again; though this could be related to Friday’s options expiration.  The real negative was a decided turn for the worse in breadth.  Still that is one day’s activity; so it is way too soon to be getting uneasy.  The bottom line is that both remain above their 100 and 200 day moving averages and are in uptrends across all time frames. 

The VIX (11.5) was up pennies, finishing above the upper boundary of its short term downtrend for the second day (if it remains there through the close today, it will reset to a trading range), above its 100 day moving average for a third day, reverting to support, above its 200 day moving average (now resistance; if it remains there through the close on today, it will revert to support) and above the lower boundary of its long term trading range.  Even if the VIX is able to reset its short term downtrend, it will remain in a trading range going back five years.  So it is way too soon to be reading too much in its recent pin action.  On the other hand, its divergence from its normal inverse relationship with stocks keeps the warning light flashing.

The long Treasury experienced another day of recovery; though again not enough to suggest Friday was some one-off random occurrence.  It closed below its 100 day moving average for the third day, reverting to resistance but above its 200 day moving averages (now support) and above the lower boundaries of its short term trading range and long term uptrend.   Like the VIX, it seems like something could be going on beneath the surface.  That point was underlined by the battering taken by other segments in the long bond complex, especially the lower quality issues.   We need more follow through; but it looks like the TLT buying is a safety trade.
           
The dollar was hit hard, ending below its 200 day moving average (now resistance), below the upper boundary of its short term downtrend, below the lower boundary of its very short term uptrend but above its 100 day moving average (now support).  It appears that UUP is confirming its downtrend---which is not a safety trade.

GLD was up, closing back above its 100 day moving average (the fourth violation of this moving average in the last week), above its 200 day moving average (support) and the lower boundary of a short term uptrend. 

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. The technical assumption has to be that stocks are going higher.
           
Trading in UUP, GLD and TLT remain out of sync with themselves, the VIX and stocks, and seem to be pointing at a change in trends---but in different directions.  I am watching for more follow through in all.

I remain uncomfortable with the overall technical picture.
           
    Fundamental

       Headlines

            Yesterday’s US economic data was negative: the October small business confidence index and month to date retail chain store sales were disappointing.  PPI was much hotter than expected.  I consider this a negative because I don’t like inflation in any form. However, the dreamweavers may view this as a plus as it suggests a surging economy.

            Overseas, Europe continues to shine---third quarter German GDP was strong and third quarter UK inflation was below forecasts; and China remains iffy---October Chinese industrial production and fixed asset investments were below consensus while retail sales were above.
           
            ***overnight, third quarter Japanese GDP was above estimates; October UK unemployment hit a 42 month low; the Chinese 10 year bond traded at a new high yield (this is potentially very important):

            A deeper look into the Chinese economy (medium):

            The tax reform sausage making continues a pace, though the provisions of both the house and senate versions change hourly. So trying to do analysis is a losing proposition.

            This is a decent argument why the tax bill won’t increase the deficit all that much.  Notice (1) it is a relative argument---it will increase the debt, just not all that much, (2) it fails to address the issues of whether it is simpler or fairer and (3) saying that the debt is growing primarily because of entitlements, is not an excuse for growing it by any other means.

            The good news of the day was that Mohamed El Erian is being considered for the Fed vice chair.  I have linked to many articles by El Erian which have shown him to be a practical economist.  He would be a great addition to Fed and would likely be a force for moving the monetary normalization process along without a lot of the wimpy hand wringing that has characterized the current crew.  That said, El Erian believes that the economy faces huge headwinds and is going to grow slowly, tax reform or not---which is exactly opposite of Trump’s view point.  So the odds of his nomination seem low.

                Bottom line: the most important thing maybe what is occurring on the technical side.  I wish I could provide an astute analysis about the meaning of the aforementioned divergences.  But I can’t except to say something seems to be going on beneath what seems a placid Market surface and I have no idea what it is.

                I wanted to address an issue that might be causing confusion among readers, to wit, how can I be buying stocks when I am so negative on the Market?  And it is a valid point.  First, remember that the Valuation Model for each stock is different from that of the broad market in that it only looks at factors relative to the stock and underlying company. 
So it is perfectly reasonable to have the stock of a company in its Buy Range when the Market is in a Sell Range. 

Second, back in early 2016, investors took industrial stocks out behind the wood shed and shot them.  Many traded into their Buy Ranges.  However at the time, I was so concerned about Market Valuation that I chose to ignore those valuations on the thesis that once the Market rolled over, the stocks would be even cheaper.  Well, I was wrong.  Since then that same pattern has occurred with the stocks of several industries and many individual companies---oil and retail come immediately to mind.  Many stocks in these industries haven’t just been cut in half but they have traded to valuation levels similar to those of 2009.

Which raises the question, is the bear market I have been anticipating going to be a rolling one where each industry/stock gets its time before the firing squad versus a flush of everything at once?   I clearly don’t know the answer to that but when stocks the likes of WW Grainger, Gilead Sciences, Willams-Sonoma endure their own private bear market, I am going to hedge my bets by stepping in irrespective of the lofty levels of the indices.  I may be wrong.  We could have a general wringing out in prices, but the downside to these purchases is considerably less than those trading at or near their highs.


            My thought for the day: the Simmelweis Reflex describes our tendency to scrutinize ideas more critically when we disagree with then than when we agree and to recall supporting data rather than opposing evidence.  This helps explain why it can be so hard to find, admit and respond to our mistakes---why we hang on to bad trades so and even refuse to see them as bad.

       Investing for Survival
   
            Your politics are hurting your investments,

    News on Stocks in Our Portfolios
 
3M (NYSE:MMM) declares $1.175/share quarterly dividend, in line with previous.          

Economics

   This Week’s Data

            Month to date retail chain store sales grew at a slower pace than in the prior week.

            Weekly mortgage applications rose 3.1% while purchase applications were up 0.4%.

            October CPI was up 0.1%, in line; ex autos, it was up 0.2%, also in line.

            October retail sales advanced 0.2% versus estimates on +0.1%; ex autos, they were up 0.1% versus forecasts of +0.2%.

            The November NY Fed manufacturing index came in at 19.4 versus expectations of 26.0.
           
   Other

            In praise of Trump’s deregulation effort (medium):

Speaking of which, moving ahead with health care reform (medium):

            A review of third quarter corporate sales and earnings; plus a look at valuations (medium):

            The latest household debt and credit report from the NY Fed (medium):

            A closer look at auto loans (short):

Politics

  Domestic


  International War Against Radical Islam

            An inside look at the Saudi ‘purge’ (this reads like it was government sponsored):

Miscellaneous

            Dinosaur era shark found off the coast of Portugal (short but interesting):



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