Market Update January 17th, 2020
The market soars higher. Who doesn't love a bull market? How crazy has this market become??
There's one company that..... Oh wait...
Compliance won't let me tell you, but they have only grown 5% in sales in the last year and it soared. How about yesterday? Big miss for the retailer, the consumer! Ugh.... Wait. How about the car of the future? They've never made money. They sell a tenth of the two largest car manufacturers. You look at CNBC.....
It's puppy dogs and dandy lions. But what are the fundamentals showing us? UGH! I hate to spoil the party..... Yes, I know everyone thinks I'm Mr. Bear, not the case. But the fundamentals are telling us something completely different. Then the talking heads on CNBC. Who's right? Who's wrong? Let's dig into it!
First up, this is a new chart,
So you've got cycle one, two, three, four. The year before, actually fourth quarter 2018, we were in the fourth part of the cycle. Growth was slowing. Inflation decelerates. Fed was very dovish. Markets were deflating, right. 2018 fourth quarter, down almost 20%. Now, we made a move in the fourth quarter of 2019 to the third part of the cycle, which is where growth continues to slow. We're going to show you that these are the things you're not seeing on CNBC. Inflation accelerates, and how do we take advantage of that as part of our process? Fed is neutral. No doubt market stagflation well..... we're not quite seeing that right now.
When you look at earnings...
growth is slowing. Now, this is only twenty four companies. Keep in mind, the street is looking for 4 to 5% increase. Now we've gone from growth being 24 to 12, 1, 1, and then negative in the third quarter. Fourth quarter right now through those twenty four companies is -4.83%. So how about tech? Everyone loves tech, right? -42% with four companies so far, that's not particularly bullish. So, there is your growth story.
This was the biggest story of 2019...
And still the biggest story of 2020. What is actually going on here? The federal debt, the repo program. Starting in September of last year, the Fed started pumping money into the system for liquidity, which had dried up. Now we had gone up quite a bit. I talked about being in a 400 billion range. Last Friday, they did 89 billion dollars in one day, which was oversubscribed, by the way. So we have now added over 500 billion dollars each 1% growth in the federal debt, has equaled 1% growth in the S&P. One of the Fed chairs yesterday admitted it might be driving the market.
How about commercial loans?
If there is liquidity, how can loans be going down? That's the point of liquidity to loan money out. We're not seeing it.
The key right!?! Jobs and also the key, hit our lowest number in 14 months, 47.2 below 50 is contracting. Everyone keeps on saying that we're hitting a bottom. Not yet folks! We really have to continue to look at that.
How about continuous claims on jobs?
Now, you look here going back to 1970, the Grays are the big spikes, which are recessions. Now you look here, we've slowly gone up. Well, guess what? There's your fourth quarter, 2018. When you zoom in on that data, it's getting worse. Month after month. We're not talking about this. I am! I'm looking at it as part of our process.
CPI, inflation... So we talked about this as part of the cycle
Inflation continues to go up. So can we take advantage of that? Absolutely! We'll talk about that in a second.
Now, real GDP will come in at about 2% right now.
But, our research is saying a negative number, below zero or around zero with a little bit of wiggle room of about a 1/2%. So how do you have that unemployment report like you did last week, and have GDP going up? Something's wrong.
Let's do something new here, Book of the month! I do a lot of reading, a lot of research, of course, love my charts, but sometimes you have to go a little bit deeper. This month the big story is what, China? Right..... Or I like to call it the no deal in China. It's all about soybeans. Does it mean anything over time? You've heard me say consistently, we're never going to have a deal that the administration's talking about that has come from reading this book, The Hundred Year Marathon China's Secret Strategy to Replace America as the Global Superpower. Michael Pillsbury is the author. Great book. You read this. You will understand why China is not going to make a deal because they want to be number one, local clients, I'm here at Bethany Beach Books. You can pick it up looking at the beach in the background. For those not local, we'll have a link below.
Next up, let's go to the big charts!
Everything continues to go up, you've got a lot. This is called Basey, a big breakout. You know, the only thing and I've talked about this constantly is negative divergence. Relative strength is really down and the market's up. That is not a good sign. But despite that, we are positive.
Obviously positive. Taking off, 1.73 for the week. Right now, this charts live on Friday morning.
Now on to the Daily..
What do I see here, if anything? So positive Long term, positive mid-term. Obviously positive in the short term. The only thing that's surprising to me with this kind of breakout is that the VIX volatility index hasn't broken below 10. It stayed above 12, which is highly unusual with this type of run. So everything here bullish, right? Positive, no question about it.
So let's take a look underneath the hood and the reason why I continue to have concerns.
So you've got the S&P in black, obviously, that goes straight up there. Behind the scenes, there is a histogram, the gray, which is new highs, minus new lows. On the New York Stock Exchange, which, of course, is the broad market, and you can look at last year and we've talked about this. When you're hitting highs, you're hit in pretty decent numbers. We're just not seeing that, the push that you would expect.
This chart shows why this market is so grossly over bought....