M12 BARRON’S July22,2019
Market View
A Sampling of Advisory Opinion
Hooray for the Consumer
Yardeni Research Morning Briefing
Yardeni Research
http://www.yardeni.com
July 18: The U.S. consumer continues to
keep the bull market moving forward. This
week saw bank earnings bolstered by con-
sumer lending, retail sales up strongly, and
airline earnings kept aloft by travelers
willing to spend...All of the S&P 500 Con-
sumer Discretionary industries’ stock
price indexes—with the notable exceptions
of Department Stores and Housewares &
Specialties—are up strongly year to
date...Of the 22 Consumer Discretionary
industries with gains, 21 are up by double
digits. This week’s news reports have con-
firmed investors’ bullish expectations for
consumer-related stocks. —EDYARDENI
All Eyes on the VIX
Momentum Strategies Report
Clif Droke Market Analysis
http://www.clifdroke.com
July 18: One of the most important charts
that traders should be watching in the
days and weeks ahead is the CBOE Vola-
tility Index (VIX). Normally I don’t advise
paying much attention to this gauge of
broad market volatility. As we’re about to
enter the heart of earnings season, how-
ever, volatility is likely to increase if only
due to several upcoming earnings surprises
among some market-moving compa-
nies...You’ll notice that VIX has been un-
able to generate a two-day higher close
above its 15-day moving average since
May. This was the last time there was any
meaningful volatility in the broad market,
and since then volatility has substantially
subsided. It’s more than likely, however,
that we’ll witness a pickup in the level of
turbulence in the market in the coming
weeks as earnings continue to pour in. So
let’s be prepared for some periodically brief
periods of choppy trading conditions ahead.
A higher close above the 15-day moving av-
erage...in the VIX would technically con-
firm that volatility is once again on the rise.
—CLIFDROKE
An Uptick in Downgrades
Cumberland Advisors Market Commentary
by Cumberland Advisors
http://www.Cumber.com
July 17: S&P Global, in its June 27 report
“Trade Tensions Cloud the Outlook,” notes
that downgrades, defaults, and negative
ratings bias are up slightly. In contrast to
state governments, which have not in-
creased bonded debt levels, corporations
have increased leverage; and some are ex-
periencing declining margins, which have
led to downgrades and could lead to more.
For example, Oracle was downgraded by
S&P to A+ from AA on continuing ele-
vated leverage as a result of a large in-
crease in share buybacks. And IBM was
downgraded by Moody’s to A2 with its ac-
quisition of Red Hat, which is expected to
be strategically positive but represents in-
creased leverage. Low interest rates and
changes from the Tax Cuts and Jobs Act
are helping to spur corporations to in-
crease leverage. —PATRICIAHEALY
The Bears’ Case Thins
Phases & Cycles
by Phases & Cycles Inc.
http://www.phases-cycles.com
July 16: The first half of July saw the S&P
500 get to and stay above the 2,960 level,
move through 3,000 and make several more
new all-time highs. The platform for further
advance that we spoke of is under construc-
tion. The Nasdaq and Dow Industrials also
caught up and made their own new all-time
highs. The advance/decline line and upside/
downside volume indicators remain very
positive. Sentiment is getting slightly more
positive (the latest AAII and Investors In-
telligence figures are showing modest in-
creases in bullish outlooks, and put/call ra-
tios are declining) but the bullish “wall of
worry” is still well in place. As the summer
proceeds, the evidence that the bears use
to make a case that New York is nearing a
major top is getting thinner and thinner.
This remains a powerful bull market that
wants to go higher.
—DAVIDTIPPIN,RONMEISELS
Guessing Game
The Value View Gold Report
by Schmidt Management Company
valueviewgoldreport.com
July 15: Chairman Powell testified before
Congress, and demonstrated why thermo-
stats have numbers. That device allows us
to set temperature to our desired comfort
range. Without the numbers, we would be
just guessing. Chairman Powell demon-
strated that [the] Federal Reserve is just
guessing. They have no idea if a rate cut
will increase U.S. economic growth. An as-
tronomical rate of 2.5% on federal funds did
not cause [the] U.S./China trade war and
certainly did not cause massive flooding in
[the] Midwestern U.S. So, how will cutting
U.S. interest rates fix those two problems?
Powell does not know. He and his pals are
just guessing. —NEDW.SCHMIDT
Party Time for Tech, Again
Nolte Notes
by Kingsview Asset Management
http://www.kingsview.com
July 15: Just when we thought a diversified
portfolio was the ticket this year, investors
have moved back to the largest stocks
within the markets. The second quarter
saw over one-third of the returns in the
S&P 500 come from the five largest stocks
within the index. Large-cap tech has re-
gained the performance lead from real es-
tate and utilities...Once again, the S&P 500
reigns as the top asset class year to date.
That is not to say the returns are terrible
elsewhere. No one should sniff at a 10%
gain after six months in the international
markets, but compared with a 20% gain in
the S&P 500, it pales by comparison. The
same is true when looking at growth.
We saw signs that value was finally(!)
taking the performance mantle from
growth at the end of 2018, but that has re-
versed at this point of 2019. Throwing cau-
tion to the wind seems to be the best way
to invest these days. The markets seem to
be bending the will of the Fed and main-
taining historically low interest rates to
keep the party going. The hangover will be
a doozy whenever it hits. —PAULNOLTE
Monetary Policy Hits a Wall
Market Commentary
by Jack Ablin
cressetcapital.com
July 15: Low yields have turned the global
banking system upside down. Despite the
proliferation of generously low interest
rates, banks aren’t benefiting. This is
largely due to a widespread reluctance
among borrowers to take on more debt.
U.S. mortgages outstanding, for example,
the largest component of household debt,
have expanded at a tepid 2.5% annualized
rate over the last five years, shrinking as
a share of GDP. Home-equity loan balances
have contracted 5% annually in the interim.
While student-loan balances have expanded
6% per year since 2014, that market is
dominated by the federal government.
Despite global central banks’ best ef-
forts, monetary velocity—aka the “money
multiplier”: the number of times a dollar
circulates through the banking system an-
nually—has collapsed since the financial
crisis, as borrowing has stagnated. Before
the financial crisis, monetary velocity was
between 2.5 and 4.0. It has been below one
since December 2009; we now estimate it
to be 0.9. The inability of central banks to
stimulate borrowing with low rates is the
definition of “pushing on a string.”
—JACKABLIN
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”Chairman Powell testified before Congress, and demonstrated why thermostats have numbers. That
device allows us to set temperature to our desired comfort range.” —NEDW.SCHMIDT,THEVALUEVIEWGOLDREPORT