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Daily State of the Markets Good Morning. I continue to get questions as the reason behind the current run for the roses in the stock market. What about Greece, they ask. Aren’t there huge problems with the bailout deal that was finally arranged on Tuesday? What if the private bond holders don’t go along with the debt swap? Isn’t there a risk that the Germans won’t approve the deal? And won’t we eventually see a default? What about the rest of Europe? And what about those big problems in Portugal? And on and on and… Unfortunately, the answers to the questions make those asking them even more befuddled. Yes, there are problems with the bailout deal. Yes, there is a risk that the private bond holders might just walk away after taking it in the shorts yet again. Yes, there is the risk that the Germans and Fins may vote no when asked to approve the money for Greece’s bailout loans. And yes, there are other debt bombs lurking in Europe and all over the world, for that matter. However, the point I try to make to those asking these very good questions is that the focus on the stock market is constantly moving. Sure, the questions are valid, I say. But, I proceed to add that the stock market has moved on – and so should they. It’s not that the issues at hand don’t matter; they do – just not to the guys and gals running the big money around the world. If you’ve been paying attention, the action in the stock market for the better part of the past three months has made this clear. No longer does a rumor out of Nicolas Sarkozy’s office move the market 1%. No longer does the German’s insistence on more austerity ruin the mood of a good day. Nope, it appears that the days of the Dow moving hundreds of points in a matter of minutes based on news out of Europe may be behind us. In order to drive the point home, I toss in the idea that the big declines seen in the stock market in 2010 and again in 2011 were the result of worries that a credit event in Europe would create another “Lehman moment” and put the global banking system at risk. So, given that there is no imminent risk of a credit event and that the banks of the world are now stronger than they were last year (and the year before that), stocks have moved on to more mundane things like earnings, valuations, economics and the rest of the basic fundamentals. My final point to those seeking an opinion or two from yours truly is that the big money is accumulating stocks – and that perhaps they should be doing the same (but only on dips, of course). Remember, hedge funds, which are arguably the biggest driving force in the market these days, came into 2011 underinvested. I saw a report Tuesday that as of the end of November, hedge funds held about 50% less equity exposure than normal (80% vs. 130%). And with the probability of the much feared Lehman moment dwindling this year, the hedgies appear to be moving their equity exposure back up towards more normal levels. According to Hedge Fund Research, after the third worst year on record in 2011, hedge funds are making money again this year – not quite as much as the market mind you, but the momentum of returns seems to be building. Does this mean that stocks won’t encounter a pullback anytime soon or that the current relentless move higher will continue for weeks to come? Of course not. Stocks are extended and are certainly ripe for a setback in the near-term. However, unless there is something meaningful behind the next pullback in stock prices, investors who find themselves underinvested may want to think about doing what the hedgies are doing – moving on. Turning to this morning… Weaker than expected Flash PMI data out of Europe and China and another downgrade of Greece have put the futures modestly in the red so far this morning. On the Economic front… We will get the report on Existing Home Sales at 10:00 am eastern. Thought for the day… Try not to let success go to your head or defeat into your heart… 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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