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The Morning Call---Something Is Wrong With This Picture

Sep. 17, 2019 8:51 AM ET
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The Morning Call


The Market


The Averages (27076, 2997) sold off yesterday on the news of the attack on Saudi oil production. However, just like I was surprised last week that stocks didn’t react more positively to the trade and ECB headlines, I was equally amazed that prices weren’t down more on the Middle East news. That suggests investor caution which can also be seen in the persistently low volume. However, clearly that caution is tempering optimism versus pessimism. Witness that the indices are above both MA’s and in uptrends across all timeframes. As a reminder, the gap up opens from twelve days ago still have to be closed.

The VIX was up 6 ¾ %, but still ended below both MA’s (now resistance), I continue to watch this indicator for any deviation from its (inverse) symmetry with the Averages as a sign of a Market reversal.

The long bond was up 1 ¼ %, but did not reverse the downward trajectory of its price trend since the recent sharp decline began. Nevertheless, it remains above both MA’s and in uptrends across all timeframes. So, the long term trend in rates remains to the downside. And that gap down open nine days ago still needs to be filled.

Is the Bond Rally Over or is This a Correction in a Downtrend in Treasury Yields?

The dollar was up slightly, remaining the most stable of the indicators that I watch. It closed above both MA’s and in short and long term uptrends. I think that this at least partially reflects the global dollar shortage problem which I frequently refer to; and that is largely a result of lousy monetary policy---which is not apt to change.

Something Just Snapped: Chaos Hits Repo Market As "Dollar Funding Storm" Makes Thunderous Landfall

GLD was up 7/8 %, closing above both MA’s, in very short term and short term uptrends and bouncing off that minor support level that I referred to on Friday. It still needs to fill the gap down open from twelve days ago.

Bottom line: long term, the Averages are in uptrends across all timeframes; so, the assumption is that they will continue to advance. Short term, they have regained upward momentum; though it is somewhat confusing to me that their pin action has been muted to both good and bad news at the same time that there are gap opens, increased volatility and low liquidity in other indices and individual stocks. That said, they are only a short hair away from their July all-time highs (27398, 3027).

Monday in the charts.

Oilmageddon: Surveying The Aftermath



Only one US datapoint yesterday: the September NY Fed manufacturing index was one half of expectations.

Judd Gregg: The recession snowball may be rolling

More on a recession probability.

Déjà vu 2000 or Flashback 2007? (Part II) - Evergreen Gavekal

Still more from Lance Roberts.

Something Just Snapped: Chaos Hits Repo Market As "Dollar Funding Storm" Makes Thunderous Landfall

Overseas it was worse. August Chinese fixed asset investment, industrial production and retail sales were below forecast.


Of course, investor attention was mainly focused on the attacks on Saudi oil facilities, Two questions

  1. how long will production be impacted? Most of the analysts on the news channels say that [a] production had been running ahead of demand and [b] there are enough supply sources to fill in the gap left by the lost Saudi production, at least in the short term. So, consensus appears to be that there will be little further upward price pressure resulting supply/demand imbalance,

  1. what will the response be? This is the big kahuna. So far, the rhetoric has been very cautious. Nothing to suggest war is coming. However, I can’t believe this attack will go unanswered.

Latest on the attack upon Saudi Arabia.

US Officials: Aramco Attack Came From "Iranian Soil"; Pompeo To Release 'Evidence'

Oil prices and the stock market.

JPMorgan Quant Guru: Here Is Where Oil's Price Spike Starts To Slam The Stock Market

Bottom line: with all deference to the Market, the economy is not improving.

Higher oil prices won’t help.

While a half assed deal with China would almost surely improve the short term outlook for the US economy, it will do little for the long term. Crazy me, I don’t think the Chinese are about to compromise on industrial policy and IP theft.

The US budget deficit will run at $1 trillion this fiscal year. Trump wants to cut taxes and the dem’s want to give away your money to anyone who walks, talks and has one. That is not good for the long term growth of the economy.

The Fed has completely overstepped the boundaries of its congressional mandate and in the process has created the gross mispricing and misallocation of assets which are a burden on the economy.

Where is the growth going to come from? The hard work of American business and labor. But they can’t grow the economy any faster than they already have because the fiscal and monetary policy makers keep increasing the economic burden they must bear just to stay even.

If all these issues were priced into stocks that would be one thing. But stocks are near their all-time highs. Something is wrong with this picture. It is a time for caution.

News on Stocks in Our Portfolios


This Week’s Data



The September EU economic sentiment index came in at -22.4 versus expectations of -32.2; German economic sentiment index was -22.5 versus -37.0.


The economics profession needs a recession.

The Economics Profession Desperately Needs A Recession Of Its Own

Another case of fraud from our ‘fortress’ bank.

DOJ Accuses JPMorgan's Precious Metals Trading Desk Of Being A Criminal Enterprise

More turmoil in Italy.

Italian Bonds Tumble As Matteo Renzi Quits Democrats To Form New Party

What I am reading today

Poverty accelerates aging.

Repeated periods of poverty accelerate the ageing process

This day on Wall Street 99 years ago.

Wall Street Bombed 99 Years Ago Crossing Wall Street

The power of passion and purpose.

Key Perspectives in Trading Psychology - 3: The Power of Passion and Purpose

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