The Morning Call
3/15/18
The
Market
Technical
The indices
(DJIA 24758, S&P 2749) made a third attempt to challenge their prior highs
and failed again. That keeps the very
short term momentum to the downside.
Although both Averages are still making higher lows. Volume was down and remained at a low
level. Breadth was negative. That said, the indices are above both moving
averages and within uptrends across all major timeframes. The technical
assumption is that long term stocks are going higher. However, the indices are now stuck in a
narrowing range defined by lower highs and higher lows. In addition, they need to overcome their
former all-time highs before we have an all clear signal.
Yesterday
in charts:
The VIX was up
another 5 ½ %, but remained within its newly reset trading range. I was
surprised that it was not up more than it was, given the big down day; and I am
even more surprised that it has remained a docile as it has in the past three
days. So it would seem that it is not
anticipating a return to the early February levels.
The long
Treasury rose another ¾ %, penetrating the upper boundary of its very short
term downtrend; if it remains there through the close today, the trend will be
negated. I think that yesterday’s upbeat
performance reflected the weak retail sales number (see below). Longer term the momentum remains to the
downside, but the whole economic growth/inflation scenario that the bond boys
have been betting on of late maybe about the shift toward my slow growth
forecast. ‘Maybe’ being the operative
word. A lot more upside is needed to
reflect such a change in attitude.
The dollar was up
slightly, apparently unconcerned by the economic news or the pin action in
stocks and bonds. But it remains an ugly
chart.
GLD was down
fractionally, like the dollar, impervious to the going on’s in stocks and
bonds. Still momentum remains to the
upside, though it is fighting a very short term downtrend.
Bottom line: the
technicals of the equity market point higher for the long term; though very short
term the pin action suggests some more downside. Bond investors seemed to have reacted to the
weaker retail sales data, while UUP and GLD didn’t care.
Fundamental
Headlines
Yesterday’s
stats were negative: weekly mortgage and purchase applications were up, February
PPI was in line, February retail sales were very disappointing as were January
business inventories/sales. Plus the
Atlanta Fed lowered its first quarter GDP growth estimate. While the aforementioned numbers seem to confirm
my concern that the tax bill did not provide the boost to economic growth many
hoped for, the rest of the week will be data filled including several primary
indicators. So yesterday may prove to be
a one off. That said, it fits the
pattern of the last eleven weeks.
The
other news was Trump’s referral to a second round of tax reform, the primary
provision being to make the individual tax rate reductions incorporated in the first
bill permanent (they are now scheduled to expire in 2025). That, of course, will just take the projected
budget deficit/national debt up another notch barring a significant increase in
economic growth that would ‘pay for’ those tax reductions. As you know, I am very skeptical of such an
outcome based primarily on the fact that there is already too much debt to
service to allow any room for growth.
Certainly, I could be wrong. But
the math just doesn’t seem to work; so I am less than enthusiastic about this
proposal than I would like to be.
Finally, the senate
passed the new improved Dodd Frank bill, rolling back some of the provisions
that inhibited bank risk taking. As you
know, another round of bank insolvency has been on my list of major risks to
the economy. With passage of Dodd Frank I
opined that the risk had lessened in the US but remained in the global banking
system (EU, Japan and China). Our ruling
class now appears to be reintroducing bank balance sheet risk in the US. As I observed last week, none of the players
responsible for the 2007 financial crisis have been punished in any way; so why
should we expect them to act any differently this time around? The bad news is that while the house hasn’t
acted on this measure yet, it wants an even more extensive revision of Dodd
Frank.
Bottom
line: the economic data continue to belie the ‘global synchronized growth’ thesis. It could always occur; but at this moment, it
doesn’t seem to be. That is not a positive
for the economy especially if the Fed continues to insist that all is right. Making matters worse, Trump/GOP want to
further abandon the long held platform of keeping budget deficits within
reason. As you know, I believe that
increasing the debt from the current historically high levels will hinder not
help economic growth. So I am not
enthusiastic about this development, however well it may play in November.
Cash
is not a bad thing to own.
Estimating
future stock returns (short):
News on Stocks in Our Portfolios
Economics
This Week’s Data
US
January
business inventories rose 0.6% versus expectations of up 0.5%; but sales fell
0.2%.
Weekly jobless claims
fell by 4,000 versus estimates of down 2,000.
The
March Philadelphia Fed manufacturing index came in at 22.3 versus forecasts of
23.0.
The
March NY Fed manufacturing index was reported at 22.5 versus consensus of 15.0.
February
import prices were up 0.4% versus projections of up 0.3%, while export prices
were up 0.2% versus expectations of up 0.3%.
International
Other
Atlanta
Fed lowers first quarter real GDP growth estimate to 1.9% from 2.5%.
Draghi/ECB
tip toes toward ending QE (medium):
Fourth
quarter real household net worth (medium):
What
I am reading today
Hugh Hewitt on
Tillerson’s firing (medium):
Game theory and
the Un/Trump talks (short):
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