The Morning Call
3/31/17
I will be out of town on family
business this weekend. No Closing
Bell. See you on Monday.
The
Market
Technical
The indices
(DJIA 20728, S&P 2368) had a decent day.
Volume rose slightly; breadth improved.
The VIX (11.5) was up 1 ½ %, ending back above the lower boundary of its
very short term uptrend (voiding the break), below its 100 day moving average (now
resistance), below its 200 day moving average (now resistance) and in a short
term downtrend. Its rebound leaves complacency
on the table, barely.
The Dow closed
[a] above its 100 day moving average, now support, [b] above its 200 day moving
average, now support, [c] in a short term uptrend {19202-21498}, [c] in an
intermediate term uptrend {11884-24736} and [d] in a long term uptrend
{5751-23298}.
The S&P
finished [a] above its 100 day moving average, now support, [b] above its 200
day moving average, now support, [c] within a short term uptrend {2244-2577},
[d] in an intermediate uptrend {2077-2681} and [e] in a long term uptrend {905-2591}.
The long
Treasury was down .75%, remaining above its 100 day moving average (now
support), below its 200 day moving average (now resistance), below a minor
resistance level, in a very short term downtrend and in a short term trading
range.
GLD fell .75%, but
still closed above its 100 day moving average (now support), below its 200 day
moving average (now resistance) and within a short term downtrend.
The dollar increased
.5%, ending below its 100 day moving average (now resistance), above but near
its 200 day moving averages (now support) and in a short term uptrend.
Oil has turned
in three back to back to back strong daily price performances, though it
remains in a very short term downtrend. The
driver seems to be comments that OPEC would extend its production cuts---which
we already knew.
Bottom line: while
the indices were up, they are still within very short term downtrends; so the
question remains, was the recent downdraft part of a consolidation move or
marked a change of direction. Bonds,
gold, oil and the dollar all supported the recent rebirth of the Trump
(reflation) trade.
Fundamental
Headlines
There
were two economic datapoints released yesterday: weekly jobless claims fell less than
expected; by far the more important was the final fourth quarter GDP growth
revision which came in slightly better than first stated.
***overnight,
the March EU CPI came in lower than anticipated; March Japanese industrial
production was better than expected and March Chinese manufacturing and
nonmanufacturing PMI were the highest in five years.
Other
developments worth mentioning:
(1)
the politics of fiscal policy don’t seem to be
improving, notwithstanding Ryan’s recent encouraging comments. Trump first expressed the willingness to negotiate
with the dem’s---which could be tough given his prior inflammatory comments on
that august body. Ryan responded with ‘no
way, Melvin’. So the Donald has done the
next worse thing---piss off the Freedom Caucus.
And the response.
(2)
the CBO warned of the dangers of sustained debt
growth. Thanks. But Reinhart and Rogoff already told us that
several years ago. Still if the problems
with excessive deficits/debt are finally impinging on bureaucratic
consciousness, then I guess that qualifies as plus. [medium]
And the federal government is not
the only entity with excessive debt (medium):
(3)
trade policy sneaked back into the headlines as the
Donald is reportedly studying ways to penalize ‘currency manipulators’. If he really follows through with this [another
negotiating ploy? see below], it could undo so much of the good generated by
deregulation.
On the other
hand, the White House has also prepared a draft of a letter that would initiate
discussions for changes in NAFTA.
Congress has to accede to the language.
But with that caveat, the major changes [at least as I understand them],
that Trump is trying to implement are [a] to stop non NAFTA countries from
sending their products through a NAFTA country to avoid tariffs and [b] to
level the field on taxes---Mexico and Canada rebate VAT taxes on exports but
the US has nothing to rebate, disadvantaging US companies. Both of those issues seem perfectly reasonable
to me (again assuming I have their intent correct); so this first step in
amending NAFTA is less negative to trade than I had originally feared. At least in this case, it appears that all
that campaign rhetoric was a negotiating position.
Trump also
signed two executive orders ordering a study of similar tax and tariff issues
for all countries. (medium):
(4)
finally, as I noted yesterday, four Fed chiefs spoke
yesterday. Reading their comments, I would
score two dovish and two hawkish, making this week’s aggregate Fed messages [so
far] in perfect symmetry. The tie could
be broken today as two other speakers are scheduled; but it looks to me like
business as usual---blow as much smoke as necessary to keep the unwashed masses
confused and pray they don’t figure out you are just as confused. It appears that the monetary policy factor
that is driving the Trump reflation trade is more related to the very dovish
comments out of the ECB as compared to the Fed’s actions [raising rates, however
wimpy they may be].
Bottom line: I read the
above narrative three times and the only positive I can see is that Trump isn’t
going to trash NAFTA. On the other hand,
he seems to be undermining his own agenda, the CBO stated the obvious, he is
still pushing against China (THE currency manipulator according to Trump) and
the Fed continues oblivious to its massive asset mispricing and misallocation
policies.
The Donald’s
deregulatory efforts notwithstanding, I believe that the risk is that the
economy underperforms expectations and could be made worse by the Fed raising
rates as this disappointment become obvious.
And with stocks at historically high valuations, I want to have cash in my
portfolio---under any economic scenario.
A
subdued eighth birthday celebration (short):
My
thought for the day: however much money
you think you'll need for retirement, double it. Now you're closer to reality.
Investing for Survival
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This Week’s Data
February
personal income rose 0.4%, in line; personal spending was up 0.1% versus
expectations of up 0.2%
Other
Will
tax reform boost economic growth? (medium):
Update
on Italy’s banking crisis (medium and a must read):
Politics
Domestic
Tax reform not
that simple (medium):
Update on Wells
Fargo fraud case (medium):
International
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