The Morning Call
8/4/16
The
Market
Technical
The indices
(DJIA 18355 S&P 2163) leveled off yesterday. Volume was down and breadth strengthen just a
tad. The VIX fell 4 ½%, but remained
above the lower boundary of its former short term trading range. I remain (confused and) on the fence on this
directional call.
The Dow closed
[a] above rising 100 day moving average, now support, [b] above its 200 day
moving average, now support, [c] within a short term uptrend {17447-19193}, [c]
in an intermediate term uptrend {11277-24107} and [d] in a long term uptrend
{5541-19431}.
The S&P
finished [a] above its rising 100 day moving average, now support, [b] above
its 200 day moving average, now support, [c] within a short term uptrend {2044-2283},
[d] in an intermediate uptrend {1912-2514} and [e] in a long term uptrend
{862-2246}.
The long
Treasury rose fractionally, ending above its 100 day moving average and well
within very short term, short term, intermediate term and long term uptrends.
And, the existential
question:
The bond market
is no longer reacting to economic data (medium):
Why negative
interest rates will fail (medium and a must read):
GLD declined,
ending above its 100 day moving average and within very short term, short term
and intermediate term uptrends.
Bottom
line: the indices couldn’t generate any
follow through from Tuesday’s decline, which is another plus in the pin action
of the last couple of weeks. The
technical evidence continues to point to more upside.
That said, I
remain bothered by the simultaneous volatility in the VIX and the bond, gold,
oil and currency markets. Something
seems amiss.
The
positive oil/equity correlation is back (medium):
Fundamental
Headlines
Yesterday’s
economic data were mixed: the July ADP private payrolls report was upbeat, the
July Markit services PMI was in line, weekly mortgage and purchase applications
and the July ISM services index were disappointing.
Economy. Five things to focus on (medium):
I
try to stay clear of too much political commentary aside from developments that
directly impact the economy; however, for the last two weeks both political
parties have been doing their best to impose the most self-inflicted wounds as
humanly possible. I believe that The
Donald/RNC is winning this unsavory race if for no other reason than the
mainstream media form a proactive barrier around Hillary/Obama/DNC. But that is beside the point---that being
that if this keeps up then sooner or later the risk is that it will start impacting
the electorate/investor psychology via an increasing unwillingness of consumers
to spend and businesses to invest. These
are problems the economy already has (witness the poor numbers) which will only
be made worse.
Overseas,
this week’s solidly negative flow continued: the July UK and Chinese services
PMI’s declined. In addition, The EU banking system continues under
pressure (short):
***overnight,
the Bank of England lowered key interest rates by 25 basis points and doubled
down big time on QE (medium):
Bottom line: ‘the economies both here and abroad are
struggling. But even if they weren’t, it
would make little difference with respect to Market overvaluation. Stocks are very
expensive by almost any fundamental metric; and a ten percent correction won’t
solve that problem.
The single most important factor sustaining
current valuations is the unquestioning faith the Markets have in the central
banks’ ability to continue to push prices even higher. It is possible that this proposition could
become an eternal truth; but I doubt it for no other reason than that all good
things must come to an end (and logic).
Stocks are grossly overvalued. Investors should accept as a gift the current
opportunity to take some money off the table, be it from banking some profits
from winners or getting rid of their losers.’
Earnings season update: two
thirds of the S&P companies have reported; earnings in aggregate are down
2.8%.
The
latest from Bill Gross (medium):
The
ultimate fate of the quants (short):
My
thought for the day: Many times a big
win early in your career or as an investor can be the worst thing that ever
happens to you. You are young, bullet
proof, devoid of humility and blind to role luck plays in your life and
investment decisions. I have seen
countless investors get really lucky when they were young/new to investing (and
not ready to get lucky). That made them even
more over confident in their abilities, more blind to the role luck played in their
decision making and they give all back and, more often than not, even more.
When
you get lucky, thank God, your lucky stars, the Force, whatever. But recognize that you are not Albert
Einstein and that you have been blessed with good fortune---which does not last
forever. Humility is key in investing. Diversification and discipline get over the
finish line in the long run.
Subscriber Alert
I
can’t stand it any longer. Philip Morris
(PM-$99) which has been a big winner for our Portfolios and to which I have
given more leeway, fundamentally speaking, than is our Discipline, just keeps
adding more and more debt. It makes no
sense to me to be going into a fragile economy owning the stock of a company
carrying that much debt ($2.4 billion and a negative net worth) and a dividend
payout of 92%. Accordingly, at the open
this morning, the Dividend Growth and High Yield Portfolios are Selling their
positions.
News on Stocks in Our Portfolios
Revenue of $1.13B (-13.7% Y/Y) in-line.
Revenue of $3.2B
(+2.2% Y/Y) misses by $10M.
Economics
This Week’s Data
The
July Markit services PMI was unchanged from June.
The
July ISM nonmanufacturing index was reported at 55.5 versus expectations of
56.0.
Weekly
jobless claims rose 3,000 versus forecasts of down 1,000.
Other
Vehicle
sales per capita (short):
Politics
Domestic
Quote of the day
(short):
International War Against Radical
Islam
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for Survival’s website (http://investingforsurvival.com/home)
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