• October 21, 2019

ELAM: Really this time we really mean it — probably, maybe - Odessa American: Business

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ELAM: Really this time we really mean it — probably, maybe

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Posted: Sunday, September 8, 2019 5:00 am

China and the United States on Thursday agreed to hold high-level talks in early October in Washington, cheering investors hoping for a trade war thaw as new U.S. tariffs on Chinese consumer goods chip away at global growth.

Reuters

 

The DJIA rose over 400 points on that news.  But markets have been rising and falling in a broad range on positive and then negative news on what might happen trade wise. And there is an entire month left until October. The most encouraging thing is the lack of Presidential tweets threatening this and that across our range of trading partners.  The most reliable indicator is the advance decline line of the New York Stock Exchange index. This is simply a graph of the number of stocks advancing minus the number declining. It rose to a new high which is the technical reason for the market advances this week.

The tariffs have replaced China with Mexico as our largest trading partner. No doubt Chinese leaders want to show something to their people that some progress is taking place. Still, it is hard to believe they won’t wait Trump out until the 2020 elections rather than agree to finally honor intellectual property rights. Until now they have trampled them, refusing to pay royalties on music and movies.

Last week I mentioned that the refiners were worth watching. Indeed I am cautiously optimistic on this sector. The refining ETF is CRAK. It is turning up as its momentum indicator. But it really needs to take out $27.50-28 to turn the trend bullish.  

Valero VLO is a better chart forming a second higher low since June.  Since 2016 it rose from 44 to 120. It has given back half that gain now trading around $75. It is a well managed firm trading at a modest 12.77 price earnings ratio.   And the forward dividend is 4.69 percent, well more than the banks are paying. 

I also suggested looking at Cullen Frost Bank. Lower interest rates have beaten down bank share prices. This past year Frost has fallen from 111.70 to 79.869, now at 83.25.  If the stock market has corrected, it follow that yields on 10-year treasuries should be advancing and indeed they are. 

Surely we are as James Grant put it, at a 4,000-year low for interest rates. Frost pays a 3.42 percent dividend and is quite profitable.  

Our bottom line is to look for a low in interest rates leading to stronger bank stock prices. And in turn, this should firm oil prices.

Gold and silver have corrected a bit after a nice run from multi-year lows. Let’s look for a good re-entry point here. The XAU index of gold miners is holding onto its recent gains.

Odessa, TX

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