Friday, January 13, 2012

The Morning Call-A new beginning or is everybody smoking dope?


The Market
Technical


The indices (DJIA 12471, S&P 1295) were up modestly yesterday, closing within their intermediate term trading ranges (10725-12919, 1101-1372). Technically speaking, there is little to stop the move to the 12919, 1372 level. Support exists at 11741, 1230 as well as the lower boundary of the short term up trend off the October 2011 lows (11923, 1236).

Volume remains light; breadth was mixed. The VIX was down again and continues to point to calmer days and higher prices.

GLD was up for the day, but finished well off its intraday high. A close tonight above the 200 day moving average will confirm the break above that indicator under our time and distance discipline.


Bottom line: this latest advance has been in baby steps versus the volatility of last year; but it is still progress. I continue to believe that prices will work higher, just not a lot higher. The upper boundary of the trading ranges are a reasonable objective; but spread between current levels and those boundaries doesn’t offer enough juice to warrant spending cash except for the aggressive trader. On the other hand, if the prices of any of our holdings trade into their Sell Half Range, our Portfolios will take advantage and make appropriate Sales.

If GLD confirms the break above the 200 day moving average, our Portfolios will Add to this position.

The latest sentiment numbers on individual investors (chart):
http://www.bespokeinvest.com/thinkbig/2012/1/12/bullish-sentiment-nearing-50.html

A look at sector relative strength (short):
http://www.bespokeinvest.com/thinkbig/2012/1/12/big-changes-in-relative-strength.html

Fundamental

Headlines


The economic news yesterday was universally lousy: jobless claims spiked well over expectations, December retail sales were less than anticipated and November business inventories and sales were disappointing. I hate it when all the news is bad; but if my forecast is correct, we had to expect some poor economic reports. So while these stats may throw cold water on a stronger than expected recovery, they give me confidence that our outlook for a slow, sluggish rebound remains on track.

That said, investors didn’t seem to care very much. True, prices were down at the open and traded there for a while; but they weren’t down much and clearly didn’t stay down for the day. The factor that prompted the turnaround in prices was a couple of better than anticipated bond auctions in Europe--and if you think that is a sign of improvement in the EU financial crisis, I have bridge in Brooklyn that I will sell you cheap.

Meanwhile back at the ranch, as a marker on our inept-political-class and the- economy-will-get-no-help-from-this-group-of-clowns thesis, Obama just asked for another $1.2 trillion increase in the debt ceiling--which by previous agreement He will get, republican teeth gnashing notwithstanding.

And speaking of clowns and I wish I weren’t, another thesis in our forecast is that the risk of inflation is higher than most acknowledge because the Fed will be unable to unwind the huge expansion of its balance sheet in time. It has taken two stabs at that process and both have caused considerable indigestion in the credit markets. Here is a description of the latest development (medium):
http://www.zerohedge.com/news/feds-balance-sheet-unwind-about-crash-market-again

As long as I am banging on the Fed, you may recall that one of the primary reasons for the gusher of money thrown at the system in all the QE’s was to entice investors to put their money in risk assets (stimulating investment and raising asset prices making everybody richer). Well, here are the results of that little bit of genius (medium):
http://www.zerohedge.com/news/feds-failure-inspire-trimtabs-shows-where-real-money-going

And this (short):
http://scottgrannis.blogspot.com/2012/01/worlds-biggest-hedge-fund.html

Bottom line: whether the current calm in the Market is the eye of storm or marks the beginning of a significant improvement the global economy, I don’t know; though I suspect it is the former. I feel like collectively investors are smoking pot and just kicking back not worried (i.e. we are in the eye of the storm). Of course, the Market in its infinite wisdom may be spot on and it is me that is smoking pot. However, until I see more evidence that the eurocrats have their situation under control, I continue to believe that discretion is the better part of valor.

The latest from Nouriel Roubini (medium):
http://www.project-syndicate.org/commentary/roubini46/English

The latest from Satyajit Das on the EU financial crisis (medium):
http://www.nakedcapitalism.com/2012/01/satyajit-das-europe%E2%80%99s-the-road-to-nowhere-part-1-%E2%80%93-fiscal-bondage.html

The continuing problems of the EU banks (medium):
http://www.zerohedge.com/news/why-do-zombie-banks-hate-writing-bad-loans-jonathan-weil-explains

For those who appreciate a truly contrary opinion (short/medium):
http://advisorperspectives.com/commentaries/smead_11012.php



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 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.