THERE’S NO STINKING TRADE WAR!

“We’re putting the trade war on hold!” With those words, Mr. Mnuchin put a stamp on everything we have been saying  on tv and radio as well as in this column. There’s no stinking trade war. Very simply, these people are not idiots. Well….? Let’s just say at the very least, they probably took a couple of weeks to realize how idiotic tariffs are as well as realizing the Chinese would not blink too much. If they mention again, do not believe a word as it is getting close to the very important mid-terms…and I guarantee you that is all they are thinking about.

Rest assured, after a constructive pullback week, we gather the market will pop on the news, at least in the short term. But we stick with our recent thoughts:

Most indices remain range-bound.

The RUSSELL is in new highs. The NASDAQ/NDX is not as good but better than the DOW/S&P, which are bringing up the rear.

OILS/ENERGY continue to be the big strength but again, very extended and overbought.

BONDS continue the ugly as rates back up. No coincidence that the most interest rate sensitive areas continue lower. (Housing, real estate, utilities)

Because of the higher oil, two of the worst areas are airlines and cruise lines. Again, no coincidence.

Emerging markets act poorly as Brazil and Argentina are basket cases. Other countries are also weak.

We love that so many big growth names are just sitting mostly tight after good moves. They may need some more time.

BIG FINANCIALS…still not happening.

SEMIS…did not like that AMAT reaction. As always, important group to be watched.

We suspect the DOW/S&P will remain range-bound while the NASDAQ/NDX having a chance to follow the RUSSELL as a few mega-cap names have major influence. We also suspect the harsh economic rhetoric will get less harsh as we head towards and get closer to November.

PRE MARKET

AMAT down decently pre market which has led to LRCX down $7 and other SEMIS following suit. Something to watch.

NDX futures down decently but RUSSELL hardly down. Small caps have been leading.

OILS now VERY extended off another strong day yesterday.

RETAIL acts well…a few names breaking out.

With rates higher, UTILITIES, HOUSING, REAL ESTATE worsen but very oversold.

More on the weekend….but also:

Go get Ken Langone’s book “I LOVE CAPITALISM!’ Have every one of your millenials read it before they continue to applaud Bernie Sanders.

 

 

COSTS!

By Gary Kaltbaum- March 17, 2018
We just wanted to alert you to some very important facts. Not opinion…facts! These numbers must be watched as very important costs continue to go up. Cost of energy, cost of borrowing, cost of doing business. All evidence in is that the economy remains in decent shape. After all, markets just held longer term support. (The market is a pretty darn good forecaster.) We just know there continues to be massive debt and deficits (a long term headwind) and not sure the following numbers do not start to affect things shorter term. The good news is that even with these numbers, a bunch of RETAIL names broke out of range yesterday. We doubt the economy gets in trouble when that type of action occurs.

The following are yields from the short to the long term. The 1st number was at the start of the year. The 2nd number is from yesterday. That’s a darn big move in just a few months. Savers are finally doing better but loans, mortgages and cost of capital are all going up. It is not an accident that the most interest rate-sensitive areas (housing, utilities, real estate) are some of the weakest areas in the market.
 3-Mo: 1.39% –> 1.92%

6-Mo: 1.53% –> 2.09%

1-Yr: 1.76% –> 2.32%

2-Yr: 1.89% –> 2.58%

5-Yr: 2.20% –> 2.76%

10-Yr: 2.40% –> 3.09%

30-Yr: 2.74% –> 3.21%

And oil prices. One year ago, the average price at the pump for regular was $2.336. Today, it is $2.902…and counting as we expect another bump in the next week or two. Estimates are that every 10 cents at the pump over a year’s time takes $10 billion out of the consumer’s pocket. You can add up and multiply the numbers yourself. That’s a lot of cake that would otherwise go towards anything but gas. Keep in mind, this does not include the cost to business and businesses that use oil in their manufacturing process. (Many!) And again, by no coincidence, 2 of the worst areas in the market right now are airlines and cruise lines.

PRE MARKET

Futures down modestly on the S&P but down decently on the NDX. CSCO not helping.

NTES whacked. Others to the downside are PLCE, ACXM, TTWO, JACK. On the upside are BZUN, DDS, WMT, MLNX, WWE.

Yesterday was about RETAIL as a few names moving out of range. NKE, M, URBN,come to mind but also good action in ANF, BBY, COST, GOOS, LULU and others. This is happening while rates go higher and oil prices soar. In fact, now above $72. Yields are above 3.1% on the 10 year. Rates have been moving higher all year. Keep in mind every 10 cents move at the pump over a year’s time is $10 billion out of the pocket of the consumer. The national average gas price is now $2.88.

And to give you an idea where rates were starting the year and where they are now…finally, some relief to the saver but higher costs on loans, mortgages and everything else.

3-Mo: 1.39% –> 1.92%

6-Mo: 1.53% –> 2.09%

1-Yr: 1.76% –> 2.32%

2-Yr: 1.89% –> 2.58%

5-Yr: 2.20% –> 2.76%

10-Yr: 2.40% –> 3.09%

30-Yr: 2.74% –> 3.21%

PRE MARKET

Pullback yesterday…no biggie. The thought process coming in was market was tired off of the move off of the lows at longer term support.

We suspect we are going to continue be range-bound…but range-bound is not bad. It elongates bases. It isolates strength.

Of note:

10 year shot through 3% and now at multi-year high. The 3 month treasury is now yielding more than the S&P dividend.

Interest rate-sensitive areas remain bearish. HOUSING hit another relative low yesterday with UTILITIES and REITS remaining in bad shape.

OIL PRICES  remain strong but remain extended. We suspect that sooner rather than later we get a decent pullback. Extended and overbought.

The DOLLAR remains very strong. Good time to fly internationally. This will affect our multinationals…and is affecting GOLD and GOLD stocks. We have not been bullish on this area like others and now, looks like a decent top in place.

PRE MARKET

Over the weekend we said markets were stretched, extended and overbought in the near term. On radio yesterday, we said market felt ready for pullback. Not because anything is bad. It just felt tired along with the overbought conditions along with the action yesterday. Of course, that doesnt mean markets have to pull back. Overbought can get more overbought. That said, nice gap to the downside this morning. Blame is on 10 year yield back above 3% this morning as the dollar rallies against other currencies. A strong dollar hurts our multinationals.

As we also said in the weekend report, the biggest issues for us were oil prices, debt, deficits. We were not as worried about interest rates because central banks are still easy. Oil prices continue higher this morning and to be clear, while we do not believe interest rates being over 3% is a big deal, we would rather see rates NOT go up.

With major indices sticking up from the recent move off of longer term support, we actually welcome a pullback…as long as it is controlled and rotational. (Our guess)

HD has been rallying into earnings. About an hour ago, was down $6 but as we write this, only down $1 and change. Sales did decelerate a bit.