I update each Saturday with my view of the stock market for the next few weeks. The monthly “Long Term” update will be on a Wednesday soon after the 15th of each month, and this supports investors who want to buy and hold, but want to sell to avoid the bulk of a primary bear market, and buy back in for most of the next bull market. You can always scroll down a few weeks and find the latest “Long Term” update.
If you lose your bookmark to the blog, google “Rich Investing” and it should show up on the first page or so. The more often you google it and hit the link, the higher it will show in your results.
Initial jobless claims, a rough measure of layoffs, declined to 211,000 from a revised 216,000 in the prior week. The final reading for Q4 GDP came in at 2.2% (down from the earlier estimate of 2.6%), and the final read for the year was 2.9%. New-home sales ran at a seasonally adjusted annual 667,000 pace in February, 4.9% higher than January’s rate, but just 0.6% above year-ago levels.
That is a weak Q4 number by historical standards. Q4 is typically a good quarter with holiday sales, and Q1 is typically weak due to bad weather. After stronger quarters in Q2 and Q3 last year, Q4 was a disappointment.
It’s all about China this week. The news looks good for resolution of the trade dispute with the US. It is a long read, but an important one. The issues with China are numerous and complex, and I felt it important to not shorten this article.
“March 29, 2019 – Li cites progress on equal treatment for foreign investors and IPR protection
China will further open up to foreign investors and offer them treatment equal to that of domestic companies with firm protection of their legitimate rights, Premier Li Keqiang said at the Boao Forum for Asia on Thursday.
The country will fully adopt pre-entry national treatment and negative lists for overseas investment, Li said at the opening ceremony of the forum’s annual conference in Hainan province.
By the end of June, China will release the amended negative lists for foreign investment access, he said. “The negative lists will only be shortened. … We will ensure fair competition and common development for Chinese and foreign companies with fair supervision,” Li told more than 2,000 participants.
A negative list shows areas where investment is prohibited; all other areas are presumed to be open.
The government has started formulating matching regulations and rules to support implementation of the Foreign Investment Law, adopted two weeks ago, Li said, adding that supporting regulations will take effect along with the law on Jan 1.
The draft amendment to the patent law has been submitted to China’s top legislators. It sharply increases compensation for infringement to a cost that violators will not be able to afford, he said.
Forced technology transfers are prohibited and violators will receive harsh penalties, Li said. The complaint mechanism for foreign-invested companies will be perfected to improve exchanges and coordination between the government and investors, making it an effective way to protect the legal rights of foreign companies, he said.
China will not resort to massive economic stimulus to boost growth, but will continue to open up and innovate to energize market players, Li said.
The country will further open up its financial sector and accelerate the process to fully lower the market access threshold for foreign investments in banking, securities and insurance, the premier said. Service sectors, including medical care and education, will be opened up along with transportation, infrastructure and energy, he said.
Li said China will further make it easier for foreign companies to set up a venture capital presence and will improve regulations on foreign investors’ strategic investments in listed companies and their mergers with and acquisitions of domestic enterprises.
Also, preferential policies for investments from Hong Kong, Macao and Taiwan will remain unchanged, and greater development opportunities will be offered for them, Li said.
Wang Huiyao, president of the Center for China and Globalization, said he was impressed by Li’s speech to clean up rules and regulations inconsistent with the Foreign Investment Law as well as to launch a more streamlined negative list.
“It shows China’s attitude of further opening-up, which is a higher-level and more concrete commitment of China,” he said.
Leif Johansson, chairman of global biopharmaceutical giant AstraZeneca, said Li’s speech reflects the determination to create a more open, fair and transparent investment environment.
“Such an optimized market as well as a positive and dynamic investment climate will inspire us to expand our footprint in China and promote more cooperation with domestic firms to realize mutual development,” he said.
That is an astonishing level of change for China and it needed to happen. When you read the last paragraph by Mr. Johansson, you realize that it actually could work out well for China. I wrote a piece months ago about how it was not up to the government to halt the practice of forced technology transfer from their company to a Chinese joint venture. It is up to the CEO of the US company to make a determination of what can be shared without costing his company a competitive edge. Apparently, many CEO’s like Mr. Johansson had done the right thing and refused to transfer their IP to China, at the cost of some business in China. Now with greater IP protection from the Chinese, they may be able to attract more foreign investment, which can help their economy expand faster than without the foreign investment. I would guess that the Chinese are looking at it this way. They are not going to act against their own self-interest. The same set of measures that are necessary to support an immature and developing economy can start to work against the country once it is adequately developed. Once it becomes a viable competitor, it is not surprising that foreigners feel the need to change the rules. And when China realizes the choices foreign investors have been making recently, to not invest in China because IP protection is lacking, the Chinese realize the old rules are now working against them, and it is time to change. That is how I see it, and it could be a win – win for China and the US (and the rest of the international players).
That’s a bit long, sorry, but it is important to the stock market. As investors we always need to try and cut through the crap and gain as clear a picture of reality as we can. We need to separate the propaganda from the facts. I take in many data points, I don’t believe any of them at first, then I try to synthesize them into a coherent picture based on human nature and business strategy that nobody usually talks about because it can be ugly to tell the unvarnished truth. I don’t have contacts in Washington DC or all the data that the Wall St. folks have, but they many times won’t tell you the unvarnished truth, either afraid to harm their reputation, or they are “talking their book” and saying things that put their investment positions in the best light. As a blogger, I can afford to tell the truth as I see it because my reputation depends solely on the assistance I provide to you in making a better quality investment decision. The benefit to me is that it imposes a discipline on me to organize the data and formulate opinions that I will act on in the week ahead. My readership grows slowly over time, evidence by my page loads. You are all important to me, and I appreciate you coming by to read! I enjoy the occasional comment that I get on the blog, so don’t be shy! Some of my readers I see once a month at an investor group meeting, so I get their comments in person.
It was a decent week in the market, up 1%. There was no earth shattering news this week.
Technically, the market remains in neutral mode. RSI (Relative Strength Index) at the top of the chart is neutral with a reading of 59. Momentum measured by MACD at the bottom of the chart is moving sideways, also neutral. The price action continues to bounce around 2815, and I don’t see a discernable pattern there. I still don’t see a definitive breakout one way or the other.
I have been focused for a couple of months on the Factset analysts projection that Q1 earnings that start April 8 will be 2% below last year. It is hard to predict a big market breakout to the upside on such weak data, if that is what happens. Perhaps that is what the big correction last fall was all about. Perhaps the big move down already occurred, but the fact that it so easily recovered indicates that poor earnings could take the market back down. One analyst remarked that earnings estimates have been taken down so far that people with be beating estimates and that will support the market.
What am I doing? Still not much. I think the risks are to the downside, more than opportunity to the upside. I hold lots of cash and I look for opportunities to put it to work. This year I am playing “small ball” (in baseball terminology, working on getting base hits and advancing runners a base at a time to score runs, as opposed to “big ball” which is swinging for the fences and trying to hit home runs). I bought some CD’s last fall when rates were higher, that is working well. I won’t take a large position in an index ETF unless the market is oversold. I try to buy quality dividend payers, and I buy smaller quantities of the individual stock. If the market corrects I will add some shares to that position by buying at a lower price. If the stock gets strongly overbought, I will sell 1/3, 1/2 , or all of the shares and look to buy it back at a lower price later. I sell some covered calls and a few puts. Small ball this year so far.
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You can use the hyperlink below the chart of the S&P that will open a larger picture of the chart in a separate window. The reader who suggested this wants to look at the chart side-by-side with the blog text so he can look at the chart while reading the text. To do this in Firefox you can open a “private window” from the browser menu and have two instances of Firefox up, then size each window to about half of your monitor size. If you bookmark the link to the chart you can look at it each day of the week to see how the market is progressing to certain milestones. The picture in this post is a static .jpg so it does not update, but if you bookmark the link to the live chart on stockcharts and look at that daily, it does update.
Rich Comeau, Rich Investing