Thursday, August 02, 2012

The Morning Call--With the Fed, hope springs eternal


The Market
Technical


The indices (DJIA 12976, S&P 1372) drifted lower again yesterday, but remain well within their primary trends (1) short term trading ranges [12022-13302, 1266-1422] and (2) intermediate term uptrends [12081-17081, 1273-1853].

Volume rose; breadth continued weak. The VIX declined slightly but was still above the lower boundary of its intermediate term trading range (and the neckline of the developing head and shoulders formation).

GLD fell but remains above the lower boundary of its intermediate term trading range but below the most recent lower high.

Bottom line: the last couple of days of fractional moves down leaves the Averages in the upper quadrant of their short term trading ranges. Our Portfolios are not buyers in this zone. However, a further move up will focus our attention on possible Sell candidates.


Strategists most bearish on equities since 1985 (short):
http://www.ritholtz.com/blog/2012/08/strategists-most-bearish-on-equities-since-1985/

Fundamental

Headlines


Yesterday’s economic news was neutral:

(1) three indicators were reported and they all were virtually in line with estimates and/or their prior month’s reading: July domestic vehicle sales, June construction spending and the July ISM manufacturing index. Clearly as one who believes that there will not be a recession, this was a bit disappointing after a couple of days of reporting strong data to the upside. On the other hand, mixed is not negative; so there is very little to threaten our forecast.

Goldman’s take (short):
http://www.zerohedge.com/news/fomc-goldmans-take

(2) the FOMC meeting ended and its accompanying statement showed very little change from the prior one. In other words, no QEIII. To be sure, the Fed left open the possibility of additional easing---but they always have.

The Market reacted very little to the absence of any new more aggressive Fed posture. As you know, I thought that at least of portion of the fuel for last week’s rocket shot was the prospect for an easier US central bank monetary policy and certainly expected a more volatile reaction if it didn’t occur. Apparently, that was wrong. I guess that is what I get for thinking.

So now the question is, was all the last week’s price spike a function of a perceived improvement in EU/ECB fiscal policy? or will I be equally wrong about that as well? We will know soon enough. ***Draghi is starting to speak as this is being published.

Update on Spain (short):
http://www.ritholtz.com/blog/2012/08/spain-update/

Bottom line: whatever the eurocrats do won’t alter the strategy I laid out in last week’s Closing Bell. If Draghi has been bloviating, then my interest in putting cash to work remains dormant until prices hit the S&P 1250-1300 level. On the other hand, if the eurocrats actually come up with a plan for a fiscal union strong enough to backstop the bank and sovereign insolvency problems, then at current price levels (Fair Value as calculated by our Valuation Model), our Portfolios will likely start nibbling on stocks in our Buy Lists.

Just to be clear, the latter case is our ‘muddle through’ scenario and as such describes a decade of little to no economic growth as the continent delevers and cut costs---in other words, not an economy that is going to add anything to our own attempts to improve our rate of growth.

Update on Doug Short’s valuation model (short):
http://advisorperspectives.com/dshort/updates/Market-Valuation-Overview.php

The Libor cartel continues to emerge (medium):
http://www.zerohedge.com/news/liebor-cartel-emerges

Investing legend gives clients their money back (short):
http://www.zerohedge.com/news/investing-legend-louis-bacon-has-had-enough-algos-and-central-planners-calls-it-quits

The latest from Stephan Roach (medium):
http://www.project-syndicate.org/commentary/america-s-other-30

The latest from David Rosenberg (medium):
http://www.zerohedge.com/news/david-rosenberg-headless-chickens-topless-americans-and-bottomless-europeans

Charles Biderman and Jim Bianco discuss the current (depressing) state of affairs (9 minute video):
http://www.zerohedge.com/news/bianco-and-biderman-earnings-ennui-and-obama-ultimate-risk-trade


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.