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Daily State of the Markets Good Morning. Well, here we go again. It’s another month, it’s another Friday, and yes, we’ve got yet another make-or-break EU Summit meeting on our hands. To hear the EU leaders tell it, the meeting holds huge promise as this time – yes, this time – the powers-that-be have a plan to put an end to this sovereign debt crisis that is now more than 18 months old. This time, really? Haven’t we heard this a time or two (or, maybe four) times before? And yet, like moths drawn to a flame, investors continue to buy into the hype. I promise not to rehash the four prior EU summits that, if memory serves, have been held this year (or is it five?). But since the last one wasn’t that long ago, it might be worth remembering what transpired. If you will recall, market participants waited with baited breath (and program trades loaded) first for any and all leaked versions of the draft that would summarize the meeting, then the draft itself, and then finally the actual summary of what had been accomplished at the meeting. But in the end, the result of all prior EU summits has been the same: The leaders agree to do something that doesn’t actually happen. From a stock market perspective, each prior EU summit has been met with similar emotions and market reactions. First there is hope that the summit will be able to produce a solution to the age-old problem of too much debt and too little income. Stocks have tended to move up nicely in this hopeful phase. Next comes trepidation as inevitably some leader from some country says something that pours cold water on all the hope. Not surprisingly, this has led to periods of consolidation in the market. After the trepidation phase comes the hysterical reaction phase, which is ultimately followed by the disappointment phase. Remember all the consternation about the EFSF? Remember all the questions of how best to lever up the thing? Do you recall the fits and starts the market had in relation to the various approaches and strategies that were thrown out regarding the best use of the bailout fund? And do you also recall what happened after the leaders finally agreed to a plan? Oh yes, that’s right, nothing. At the end of the day, nobody wanted to invest money in the fund. Would you? This brings us to the crux of the matter. From where I sit, the bottom line would appear to be that the EU leaders are desperately seeking someone to lend them a hand. However, given what just recently happened to bondholders in Greece, investors are less than enthusiastic about lending money to anyone in the Eurozone. Recall that conntries such as China, Brazil, Russia, and even the U.S., as well as institutions such as the IMF have offered financial assistance to Europe. But there is always one catch; these investors want to see Europe put some more skin in the game. And yet, Germany, which, in conjunction with France, is the top dog on the EU block, has adamantly and consistently said “nein” to putting up any more cash. Heck even the ECB isn’t interested in buying up bonds or lending money to the member states. So, why on earth should any other country pony up capital that is becoming more dear with each passing day? (After all, you never know when S&P, Moody’s or Fitch might come to call.) So, given that this EU summit is designed to create a “fiscal compact” to which either all 27 EU nations or at the very least, all 17 Eurozone nations are supposed to agree to hand over their fiscal sovereignty to some bureaucrat in Brussels, I’m wondering if this summit isn’t going to wind up like all the rest. Yes, we will likely see Team Merkozy smiling and hugging for the cameras (again) on Friday (and for the record, do we really need to see another photo of these two whispering in one another’s ear?). But with the daunting task of obtaining approval to rewrite a treaty as important as the EU ahead, I wonder how on earth this is going to help alleviate the debt crisis anytime soon. Well, unless the ECB does exactly what Mario Draghi said yesterday that the central bank won’t do, that is. So, if you want to boil this miserable situation down, ask yourself a simple question: Would you lend them the money (and if your answer is yes, at what rate)? Turning to this morning… Although the full roster of EU countries could not agree on a new treaty (Britain vetoed the treaty and three other countries need to check with their parliaments), word that the 17 Eurozone leaders have reached an agreement on the “fiscal compact” has brought some buying back to the markets. However, it remains to be seen if the ECB will follow up with additional measures to fight the crisis. As such, the celebration is clearly restrained in the pre-market. On the Economic front… We will get data on the U.S. Trade Deficit as well as the University of Michigan’s confidence index this morning. Thought for the day… Best of luck on this Friday and be sure to enjoy the weekend! Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell…
Positions in stocks mentioned: None For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment. Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided. The analysis provided is based on both technical and fundamental research and is provided “as is” without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed. The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer. Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice. Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results. |
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