Wednesday, March 21, 2012

The Morning Call - China reminds investors that all is not well, sort of


The Market
Technical


The indices (DJIA 13170, S&P 1405) experienced a mild decline yesterday. However, both the Dow and S&P remained with in their short term up trends (13099-14819, 1367-1479).

Volume was light; breadth weak. The VIX rallied and closed above the lower boundary of its intermediate term trading range. This negates for a second time the break below that lower boundary.

GLD fell, closing right on the secondary support level. That leaves GLD in a narrow range between the declining upper boundary of its short term down trend and the secondary support level. A break of one of these trend lines will provide good directional evidence.

Bernanke’s argument against the gold standard (medium):
http://www.businessinsider.com/ben-bernanke-murders-the-gold-standard-2012-3

Bottom line: both of the Averages are solidly within both their short term and intermediate term up trends, though yesterday’s VIX performance is a bit of cognitive dissonance. Barring a break of the 13099/12919, 1372/1369 levels, the trend will remain up.


Fundamental

Headlines


Yesterday’s economic reports had both good and bad news: acceptable weekly retail sales numbers and some iffy housing figures. Nothing to give me second thoughts on our Economic forecast.

Paul Ryan introduced the GOP’s 2013 budget proposal. It contains some promising spending and tax reductions measures. However, given the 0% probability of passing, I only mention as a headline item not something that bears analysis.

Representative Ryan on his budget plan (medium):
http://online.wsj.com/article/SB10001424052702304636404577291221193908272.html?mod=WSJ_Opinion_LEADTop

What really received investor attention were releases by BHP and Rio Tinto commenting that Chinese demand for their products (metals) was flattening. That reminded investors that there are potential risks in the prevailing Goldilocks mindset. Of course, a four point loss in the S&P isn’t exactly indicative of a major shift in investor sentiment. So it isn’t likely to snowball into anything other than a brief correction. It is, nonetheless, a reminder that the economy doesn’t exactly have clear sailing whatever the degree of investor obliviousness.

Bottom line: the economy is improving though I see little evidence of anything robust; our political class continues to screw us at every opportunity (check out ‘An in depth look at Obama’s energy policy’ below); the Europeans are doing a masterful impression of an ostrich and bullets are flying across the Middle East.

Try as I might I can’t get the S&P valuation over 1350-1400. So I am stuck with being wrong but not immobilized by it.

The cost of avoiding Armageddon (short):
http://www.zerohedge.com/news/presenting-high-cost-armageddon-avoidance

The latest from Doug Kass (medium):
http://www.thestreet.com/story/11461242/1/kass-the-market-is-overvalued.html

Don’t worry about the bond vigilantes (short):
http://pragcap.com/the-bond-vigilantes-are-coming

Subscriber Alert

The High Yield Portfolio continues to move out of lower quality stocks. At the open, it will Sell its position in Verizon.



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.