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The Bullish Test Comes As Earnings Season Begins 07-03-20

The Bullish Test Comes As Earnings Season Begins 07-03-20

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In this issue of, “The Bullish Test Comes As Earnings Season Begins:”

  • A Breakout Of Consolidation
  • Updated Estimates As Earnings Begin
  • A Quick Note On The Jobs Report
  • Portfolio Positioning
  • MacroView: The Fed Has Inflated Another Asset Bubble
  • Sector & Market Analysis
  • 401k Plan Manager

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Catch Up On What You Missed Last Week


Note:

I am on vacation this week for a quick break. However, I did want to post a short market and portfolio positioning update.

If you have any questions, I will continue to answer every question, every day. That is between sleeping on the beach, fishing, skiing, or eating. 

A Breakout Of Consolidation

Over the last few week’s we have noted the continuing consolidation of the market since the June peak.  When markets are overbought short-term, that condition is resolved through a correction or consolidation process. Such is what occurred during the last part of June and completed last week.

As shown below, the market broke out of that consolidation and triggered a “buy signals” across multiple measures. This breakout will give the “bulls” an advantage in the short-term with a retest of the June highs becoming highly probable.

The bulls will also gain some additional support from the “Golden Cross” (when the 50-dma crosses above the 200-dma). That “bullish signal” will likely occur over the next week or two depending on market action.

The “bullish supports” for the market are currently in play. Such keeps our portfolio allocations weighted towards equity risk. However, there are many fundamental and economic headwinds that could quickly derail the bullish thesis.

Seasonality In Play

In the short-term, the bulls remain in charge currently, and as such, we must be mindful of those trends. Also, the month of July tends to be one of the better performing months of the year.

As noted last week:

“With the sell-off on Friday, the short-term oversold condition, a reflexive rally next week would not be surprising.”

That rally reversed much of the short-term oversold condition. While the bulls are in control of the market currently, the upside is somewhat limited. However, the downside risks are reduced with the improvement in the technical underpinnings. Such puts the risk/reward dynamics to a more equally balanced, than opportunistic, positioning. As such, risk controls and hedges should remain for now.

  • -1.4% to breakout level vs. +2.4% previous rally peak. (Neutral)
  • -5% to 50/200 dma support vs. +4.9% to January peak (Neutral)
  • -7% to previous consolidation peak vs. +6.5% to all-time highs. (Neutral)
  • -13.4% to previous consolidation lows vs. +6.5% to all-time highs. (Negative)

Earnings Estimates Update

Over the next two weeks, we will enter the earnings season for all publicly traded corporations. Of course, we will mostly hear about those companies which comprise the S&P 500 index. I am writing a more comprehensive report on the earnings estimates for Tuesday’s “Technically Speaking.” Still, I did want to make a quick comment about what is coming.

As with every quarter, we are about to play “Millennial Soccer.” Such is where Wall Street analysts continually lower earnings estimates for the quarter until companies can beat them. When you see the analysis that 70% of companies beat their estimates, just remember analysts lowered the bar to a point where “everybody gets a trophy.” 

What will be important to pay attention to is “revenue,” which happens at the top of the income statement. Companies can do a lot to fudge bottom-line earnings by using accruals, “cookie jar” reserves, share buybacks, and a variety of other accounting gimmicks. It is much more difficult to manipulate revenue.

However, the market will focus on reported earnings. As stated, the estimates have fallen sharply over recent weeks, and are far lower than where they were set previously.

Importantly, while Wall Street has dramatically lowered estimates for the coming quarter, expectations remain for a rapid recovery in the economy. Given the rise in COVID-19 cases as of late, states pausing reopening, and depressionary levels of unemployment, it is highly likely those future estimates will ratchet sharply lower.

Such makes the mantra of using 24-month estimates to justify paying exceedingly high valuations today even riskier.

“Price is what you pay, value is what you get.” – Warren Buffett

A Quick Note On The Jobs Report

While the BLS reported a massive 4.8 million in employment for June and a drop in the unemployment rate to 11.1%, these numbers remain distorted by bad data gathering and analysis.

As Mish Shedlock noted on Thursday:

“I question both the strength of the rise in jobs and the decline in the unemployment rate based on claims data and the reference week.”

I agree.

It’s hard to reconcile a 4.8 million increase in jobs in a month where you added over 4-million to initial jobless claims and continuing claims continued to remain near the highest levels on record.

All Continued Claims in 2020 July 1

More importantly, as noted by Zerohedge, there is a problem in the data when you have more people getting unemployment benefits than there are unemployed workers.

“As the DOL reported todaythere were 19.29 million workers receiving unemployment insurance. And yet, somehow, at the same time, the BLS also represented that the total number of unemployed workers is, drumroll, 17.75 million.

If you said this makes no sense, and pointed out that the unemployment insurance number has to be smaller than the total unemployed number, you are right. And indeed, for 50 years of data, that was precisely the case.”

The main point here is that employment is what drives earnings, corporate profits, and GDP. Given the exceedingly high level of unemployment, in real terms, the recovery to earnings will much slower than expected.

Such suggests that expectations for the bull market to continue “to infinity and beyond,” will likely prove disappointing.

Portfolio Positioning Update

Let me restate our position from last week:

“With our portfolios almost entirely allocated towards equity risk in the short-term, we remain incredibly uncomfortable.”

Such remains the case this week.

As noted last week, with the market having gotten very oversold short-term, the reflexive rally off of support came as expected and achieved our first rally target.

Given that we are not yet to more extreme short-term overbought conditions and expectations of future earnings, the market can still retest the June highs. 

As noted last week, we used the counter-trend bounce to rebalance exposures. We took profits in CLX and UPS and rebalanced our “core positions” by reducing DIA and adding SPY. Our focus remains on capital preservation for the next couple of months, so our hedges in fixed income remain.

With the virus resurfacing, the potential risk of disappointment to the earnings and economic recovery story has risen. Our job remains the same, protect our client’s capital, reduce risk, and try to come out on the other side in one piece.

While we are certainly more bullish on markets currently, as momentum is still in play, it doesn’t mean we aren’t keenly aware of the risk.

Pay attention to what you own, and how much risk you are taking to generate returns. Going forward, this market will likely have a nasty habit of biting you when you least expect it.


The MacroView

If you need help or have questions, we are always glad to help. Just email me.

See You Next Week

By Lance Roberts, CIO


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Spread & Containment

License Plates Could Be Printed On McDonald’s Bags To Stop Littering

License Plates Could Be Printed On McDonald’s Bags To Stop Littering

There’s been talk about McDonald’s in southwest Great Britain could print…

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License Plates Could Be Printed On McDonald's Bags To Stop Littering

There's been talk about McDonald's in southwest Great Britain could print car license plates on drive-thru bags to prevent customers from littering. 

"It's not clear exactly how the number plate would be printed on packaging, but it could be scanned onto the brown bags that contain the food," Daily Mail noted. 

Chris Howell, Swansea Council's head of waste, parks and cleansing, told a climate change corporate delivery committee meeting: 

"The Welsh Government has explored with McDonald's, or their franchises, whether or not they could print number plates of cars collecting takeaways from their drive-throughs with a view that that would discourage people from discarding their materials (litter)."

Howell said one of the biggest hurdles with fast-food companies is that if one chain adopts the climate initiative, customers will go to competitors that don't print license plates on bags. 

"If McDonald's do it, then people will just go to Burger King instead of McDonald's, because nobody wants to have their private details printed on that packaging." He added: "I think it's a really good idea but at the minute it's fraught with some difficulties." 

The nationalist political party in Wales, Plaid Cymru, first proposed the idea more than two years ago during the pandemic lockdown when party leaders noticed a spike in fast-food trash along city streets and highways. 

Welsh Government spokesperson told MailOnline:

"There are no current plans to introduce a requirement for drive-through restaurants to add vehicle registration details to fast food drive-through packaging.

"We are continuing to support Keep Wales Tidy with other initiatives to tackle roadside litter including their No Regrets campaign and their Adopt a Highway initiative."

Now 'the cat is out of the bag'. It's only a matter of time before governments start forcing fast-food companies to print license plate numbers on drive-thru bags. The dangers of this could be more surveillance, and who knows what corporations would do with license plate data if such a system were implemented. 

Tyler Durden Sat, 11/26/2022 - 18:00

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Energy is the master resource but it could be Bitcoin that reigns supreme

Nothing shines a light on the importance of energy as much as a fast-approaching winter.
The post Energy is the master resource but it could be Bitcoin…

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Nothing shines a light on the importance of energy as much as a fast-approaching winter. When the temperature drops, the scarcity of energy becomes obvious and global efforts to preserve it begin.

This year, the fight for energy is more aggressive than it’s ever been.

The fiscal and monetary policies set in place during the COVID-19 pandemic caused dangerous inflation in almost every country in the world. The quantitative easing that set out to curb the consequences of the pandemic resulted in a historically unprecedented increase in the M2 money supply. This decision diluted the purchasing power and led to an increase in energy prices, sparking a crisis that is set to culminate this winter.

CryptoSlate analysis showed that the E.U. will most likely be the one hit the hardest by the energy crisis.

The European Central Bank (ECB) has been struggling to keep core inflation down this year. The Core Consumer Price Index (CPI) began to increase substantially in 2021 due to the pandemic both in the U.S. and the E.U.

The U.S. has seen its Core CPI decrease sharply since its culmination in February and posted better-than-expected results last month. However, Core CPI in the Eurozone has continued to increase throughout the year and currently shows no sign of stopping.

Graph showing the Core CPI in the U.S. and the Eurozone from 2017 to 2022 (Source: The Daily Shot)

A similar increase in Core CPI can also be seen in Japan and the U.K. One of the factors that may have contributed to their monetary instability is a lack of investment and support for commodities like oil and gas. Widespread efforts to switch to renewable sources of energy led to a decrease in oil and gas purchases in the E.U. and the U.K.

In contrast, the U.S. and Russia have been investing heavily in oil and gas and promoting innovation in the field.

Looking at the value of fiat currencies against the U.S. dollar further confirms this impact.

The Russian Ruble and the DXY have both increased in value in the past two years, while the euro, British Pound, and Japanese Yen have all seen their Dollar value decrease.

global fiat currencies
Graph showing DXY, GBP, EUR, JPY, and RUB and their value against the U.S. dollar (Source: TradingView)

With rising inflation and a seriously weakened currency, the E.U. will have a hard time competing for oil and gas on the global market. Natural gas producers warned that almost all long-term contracts for natural gas coming out of the U.S. have been sold out until 2026. Until then, when a new wave of natural gas supply is expected to come, the E.U. will have to compete with Asia for the limited supply and swallow the high gas price.

All of this uncertainty could have a positive effect on Bitcoin. While the broader crypto market struggles to remain afloat after the FTX fallout, Bitcoin has positioned itself as a pillar of stability in a market plagued with bad actors. Devalued fiat currencies could push retail investors away from safe-haven assets like gold and commodities and towards an asset like Bitcoin.

The post Energy is the master resource but it could be Bitcoin that reigns supreme appeared first on CryptoSlate.

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Government

‘Forgetful’ Fauci Could Not Recall Key Details Of COVID Crisis Response During Deposition: Louisiana AG

‘Forgetful’ Fauci Could Not Recall Key Details Of COVID Crisis Response During Deposition: Louisiana AG

Authored by Zachary Stieber via The…

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'Forgetful' Fauci Could Not Recall Key Details Of COVID Crisis Response During Deposition: Louisiana AG

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

Dr. Anthony Fauci said he could not recall key details about his actions during the COVID-19 pandemic, according to one of the officials who questioned him on Nov. 23.

Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, speaks in Washington on May 11, 2022. (Alex Wong/Getty Images)

Fauci, the director National Institute of Allergy and Infectious Diseases (NIAID) since 1984 and President Joe Biden’s chief medical adviser, was deposed by Louisiana Attorney General Jeff Landry and Missouri Attorney General Eric Schmitt, both Republicans.

“It was amazing, literally, that we spent seven hours with Dr. Fauci—this is a man who single-handedly wrecked the U.S. economy based upon ‘the science, follow the science.’ And over the course of seven hours, we discovered that he can’t recall practically anything dealing with his COVID response,” Landry told The Epoch Times after leaving the deposition. “He just said, ‘I can’t recall, I haven’t seen that. And I think we need to put these documents into context,'” Landry added.

“It was extremely troubling to realize that this is a man who advises presidents of the United States and yet couldn’t recall information he put out, information he discussed, press conferences he held dealing with the COVID-19 response,” Landry added later.

Fauci and NIAID did not immediately respond to requests for comment.

Landry declined to provide more details about the deposition until it is made public, which will happen at a future date. But he said officials would be able to take some of what they learned to advance their case.

Landry and Schmitt sued the U.S. government in May, alleging it violated people’s First Amendment rights by pressuring big tech companies to censor speech. Documents produced by the government in response bolstered the claims. U.S. District Judge Terry Doughty, the Trump appointee overseeing the case, recently ordered Fauci and seven other officials to testify under oath about their knowledge of the censorship.

Doughty concluded that plaintiffs showed Fauci “has personal knowledge about the issue concerning censorship across social media as it related to COVID-19 and ancillary issues of COVID-19.”

While Fauci qualified as a high-ranking official, the burden of him being deposed was outweighed by the court’s need for information before ruling on a motion for a preliminary injunction, Doughty said.

Wednesday was the first time Fauci testified under oath about his interactions with big tech firms, including Facebook founder Mark Zuckerberg.

Before the deposition, Landry said in a statement, “We all deserve to know how involved Dr. Fauci was in the censorship of the American people during the COVID pandemic; tomorrow, I hope to find out.”

“We’re going to follow the evidence everywhere it goes to get down to exactly what has happened, to get down to the fact that our government used private entities to suppress the speech of Americans,” Landry told The Epoch Times.

Louisiana Attorney General Jeff Landry (C) speaks during a press conference at the U.S. Capitol in Washington, on Jan. 22, 2020. (Drew Angerer/Getty Images)

Great Barrington Declaration

Jenin Younes with the New Civil Liberties Alliance, another lawyer representing plaintiffs in the case, said that Fauci claimed he did not worry about a document called the Great Barrington Declaration.

Penned in October 2020, the document called for focused protection on people most at-risk from COVID-19 while rescinding the harsh restrictions that had been imposed on children and others at little risk from the disease. Two of its authors, Dr. Jay Bhattacharya and Martin Kulldorff, are plaintiffs in the case.

I have a very busy day job running a six billion dollar institute. I don’t have time to worry about things like the Great Barrington Declaration,” Fauci said, according to Younes.

Fauci, though, has spoken multiple times about the declaration.

In internal emails that were later published, Fauci and Dr. Francis Collins, Fauci’s former boss, both criticized the declaration. “There needs to be a quick and devastating published takedown of its premises,” Collins wrote, prompting Fauci to send him a Wired magazine article he claimed “debunks this theory.”

In another missive, obtained by The Epoch Times through a Freedom of Information Act request, Fauci said the declaration reminded him of AIDS denialism.

Fauci also talked about the declaration in public, including defending his criticism during a congressional hearing in May.

I have come out very strongly publicly against the Great Barrington Declaration,” Fauci wrote to Dr. Deborah Birx in another email.

Other Depositions

The government moved to block some of the depositions, but not Fauci’s. It just won an order blocking the depositions of Surgeon General Vivek Murthy, Cybersecurity and Infrastructure Security Agency Director Jen Easterly, and Rob Flaherty, a deputy assistant to Biden.

Similar efforts to block the depositions of former White House press secretary Jen Psaki and FBI official Elvis Chan have been unsuccessful.

Chan is scheduled to answer questions next week. Psaki is scheduled to be deposed on Dec. 8.

Chan was involved in communicating with Facebook, LinkedIn, and other big tech firms about content moderation, according to evidence developed in the case and public statements he’s made. Psaki publicly said while still in the White House that platforms should step up against alleged mis- and disinformation.

Plaintiffs have already deposed several officials including Daniel Kimmage, an official at the State Department’s Global Engagement Center.

That center worked with Easterly’s agency to create a coalition of nonprofits called the Election Integrity Partnership, which pushed social media companies to censor speech.

Kimmage was also responsible for meetings during which censorship was discussed, with State Department official Samaruddin Stewart acting on his orders, according to documents produced by LinkedIn.

Read more here...

Tyler Durden Sat, 11/26/2022 - 13:30

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