Thursday, February 19, 2015

The Morning Call--The Greek financial crises as well as all future yet to be named crises have been resolved

The Morning Call

2/19/15

The Market
           
    Technical

The indices (DJIA 18029, S&P 2099) basically rested yesterday, ending within uptrends across all timeframes: short term (16611-19383, 1932-2913), intermediate term (16663-21818, 1755-2469) and long term (5369-18860, 797-2093).  They both closed above their 50 day moving averages and their mid-December highs.  The S&P finished above the upper boundary of its long term uptrend for the second day.  That break will be confirmed if it remains above that upper boundary through the close next Monday.

            Volume fell; breadth was mixed.  The VIX declined, ending within its short term trading range, its intermediate term downtrend and below its 50 day moving average. 

            The latest from TraderFeed (short):

            The long Treasury recovered slightly.  It finished below its 50 day moving average but managed to recover the lower boundary of its short term uptrend.  That negates Tuesday’s break.  In addition, it closed well within its intermediate term and long term uptrends.   This bounce was a bit pathetic given the distance of TLT’s decline and the support of good fundamental news.

                And (short):

            GLD’s inched higher, leaving it near but above the lower boundary of its a short term uptrend, below its 50 day moving average and within an intermediate term trading range and a developing a very short term downtrend.  A close below the lower boundary of its short term uptrend will prompt the sale of the remainder of our Portfolios’ positions in GLD.

Bottom line:  despite yesterday’s rest in the pin action, the momentum remains to the upside.  The levels to watch in my opinion are the upper boundaries of the Averages long term uptrend.   The S&P is already challenging its upper boundary, though a break won’t be confirmed unless it remains above that level through the close next Monday.  The Dow hasn’t even started yet.  So even if the S&P’s challenge is successful, the indices will be out of sync.  The last time the S&P assaulted its upper boundary, the Dow failed to get even near to its own and the S&P just bumped along its boundary and eventually sold off.  That is not a prediction, it is history. 
      
    Fundamental
   
        Headlines

            The trend in subpar US economic news continued yesterday: mortgage and purchase applications were abysmal, January housing starts and building permits came in below estimates, January PPI was weaker than expected as was January industrial production and capacity utilization.  The one positive stat was the month to date retail chain store sales.  

In addition, the Fed released the minutes of its last FOMC meeting which I thought had a more dovish tone than the statement it issued immediately following that meeting  (lots of whining about all things that they didn’t know and all the reasons why they couldn’t act until they did know).   The yellow light is flashing, perhaps a bit faster.

            This author asks a great question, if QE has been so great, why all the gnashing of teeth over a 0.25% increase in rates?   You probably won’t be surprised by the answer. (medium):

            Overseas, UK jobless claims declined.  The Japanese restated their undying devotion to QEInfinity.  Why don’t I feel better?

            In Ukraine, it appears that the rebels (Russia) now has control of the one bit of territory they needed to assure territorial integrity and logistical simplicity within the new ?? what…land/country/province/vassal.  In any case, as I opined yesterday, Putin seems to have this situation in hand.

            Greece continues to dominate the news coverage with the primary event yesterday being a statement from the ECB that it would OK the disbursement of additional funds to Greece.   More fodder for those assuming that all is and will be well?  I have no clue.

                        ***overnight, apparently all is not or will be well (short):

            The author’s conclusion may be a touch too dramatic; but his point is, that the Greek/EU showdown contains elements that have not been dealt with in previous EU ‘financial crisis’ and hence the outcome may not be as predictable as many think (medium):

Bottom line:  if you are looking for something positive in the economic data to boost your bullish case, you are out of luck.  I ain’t happenin’.  If you are looking to our ruling class to rein in taxes, spending and regulation, you are also out of luck.  They are on another vacation (see below). 

If you are looking for endless ‘money for nothing’, then you have got to be wee weeing in your pants over yesterday’s announcements from the Bank of Japan as well as our own beloved Fed.  It was like ground hog day---they saw their own shadow, scampered back into their hole and we now know that we have (at least) six more weeks of the easiest global central bank monetary policy in recorded history---wait, I am being told that I am wrong, the Weimar Republic and Zimbabwe still have the record.  The only problem is all that money hasn’t done jack shit for the global economy except to promote massive misallocation of investment---but who is counting when you are a Master of Universe, can borrow billions for free, invest in Greek bonds and make all that money with which to chase skirts, drink whisky and tell each other how smart you are? 

If you are looking for positive news from the Greek/EU standoff….well, you are just wasting your time; because the investing universe has already made up its mind that the problem is solved.  In fact, it appears to have made up its mind that any future as yet unnamed problems have also been solved.

So obviously the next thing to do is be sure that you are fully invested, on margin; then go to the beach and have great life.

Just kidding.

I can’t emphasize strongly enough that I believe that the key investment strategy today is to take advantage of the current high prices to sell any stock that has been a disappointment or no longer fits your investment criteria and to trim the holding of any stock that has doubled or more in price.

Bear in mind, this is not a recommendation to run for the hills.  Our Portfolios are still 55-60% invested and their cash position is a function of individual stocks either hitting their Sell Half Prices or their underlying company failing to meet the requisite minimum financial criteria needed for inclusion in our Universe.
               
            The distortions created by market cap weighted funds (medium):

      Company Highlights

United Parcel Service (UPS) is the world’s largest integrated air and ground package delivery service, operating in over 200 countries. The company also offers specialized transportation and logistics services. UPS had grown its dividends and profits at a 7-11% pace in the last ten years earning a 20%+ return on equity.  UPS should be able to generate above earnings growth as a result of:

(1) new, innovative delivery solutions,

(2) price increases,

(3) its continued investment in technology and service enhancements,

(4) acquisitions,

(5) an ongoing share repurchase program.

Negatives:

(1) it is in a highly competitive industry,

(2) approximately 60% of its work force in unionized subjecting it to the risks of work stoppages and slowdowns,

(3) its international exposure increases the risks of economic difficulty from both the EU and the more volatile emerging markets,

(4) rising pension and healthcare costs.

UPS is rated A by Value Line, has a 64% debt to equity ratio and its stock currently yields about 2.6%.

   Statistical Summary

                  Stock      Dividend         Payout      # Increases  
                  Yield      Growth Rate     Ratio       Since 2005

UPS           2.6%           7%               50%              10
Ind Ave      1.4             10                 20                 NA 

                Debt/                        EPS Down       Net        Value Line
                Equity         ROE      Since 2005      Margin       Rating

UPS           64%           67%           2                 8%            A
Ind Ave      48              19            NA                8             NA

*many companies in UPS industry do not pay dividends

       Chart

            Note: UPS stock made great progress off its March 2009 low, quickly surpassing the downtrend off its October 2007 high (straight red line) and the November 2008 trading high (green line).  Long term, the stock is in an uptrend (blue lines).  Intermediate term, it is in an uptrend (purple lines).  The wiggly red line is the 50 day moving average.  The Dividend Growth and High Yield Portfolios own 50% positions in UPS, having Sold Half in late 2013.  The upper boundary of its Buy Value Range is $73; the lower boundary of its Sell Half Range is $100.
    


02/15

      Investing for Survival

            Active investing is a zero sum game (long):

    News on Stocks in Our Portfolios
·         Hormel Foods (NYSE:HRL): FQ1 EPS of $0.69 beats by $0.05.
·         Revenue of $2.4B (+7.1% Y/Y) misses by $70M.
·         EOG Resources (NYSE:EOG): Q4 EPS of $0.79 misses by $0.23.
·         Revenue of $4.65B (+24.0% Y/Y) beats by $510M.
·         Western Gas Partners (NYSE:WES): Q4 EPS of $0.42 misses by $0.12.
·         Revenue of $354.41M (+21.9% Y/Y) beats by $6.44M.

Economics

   This Week’s Data

            January industrial production rose 0.2% versus expectations of up 0.4%; capacity utilization came in at 79.4 versus estimates of 79.9.

                The Fed released the minutes from its latest meeting.  It left the ‘patience’ language (code for a rate hike is at least two meeting away) in the summary and generally sounded a bit more dovish than the official statement issued immediately following the meeting---the rationale for that judgment being that a lot of ink was spilled worrying about all the economic indicators that they are unsure of and all the reasons that they need more data before they can be sure.  In short, in an environment where ‘beggar thy neighbor’ is the prevailing central bank dogma, the Fed has no desire to swim against the current.

                Weekly jobless claims fell 21,000 versus forecasts of a 14,000 decline.

   Other

            Seven charts that suggest investors should be less sanguine (medium):
           
            The conundrum of retail sales (medium):

            The US cannot remain insulated from the global economy indefinitely (medium):

            A new study from the IMF on asset bubbles (medium):

Politics

  Domestic

Quote of the day (short):

  International War Against Radical Islam







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