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Daily State of the Markets Good morning. I got a call from a long-time client on Friday. I hadn’t spoken to Bob for perhaps a year but since we have a history, he didn’t mince words once I answered the phone. After exchanging pleasantries, Bob cut right to the chase. “So, tell me something good, Dave.” He then paused and waited patiently, and anxiously I might add, for his response. I knew what Bob wanted, so I decided to play him along a little. I told Bob that my youngest was starting college in less than three weeks, that my oldest had just celebrated her one-year anniversary with her new husband, that my little lawn here in Colorado was benefitting from all the rain, and that our trip to France was out of this world. I then paused with a fairly big smile on my face, waiting for his head to explode. I quickly took pity on him and added, “Oh, you mean ‘something good’ about your investment accounts – ahh… sorry.” We both got a little laugh out of my game, but I thought Bob was going to come through the phone and hug me when I told him what he wanted to hear; that his account had been in the relative safety of the money market fund since the morning of August 1st. And while I assured my retired client that the market WILL bounce at some point and that not all the portfolios we manage were completely in cash, he quickly cut me off and said, “I don’t care about a bounce, I just don’t want to go through that again.” By “that,” I am assuming he meant the debacle that was 2008. Frankly, I think Bob’s last comment may resonate with a great many investors these days. I’m of the mind that after Greece, Portugal, Ireland, and now Spain/Italy, the debt-ceiling brawl, and now the downgrade from S&P; most individual investors may be far more concerned with the return OF their money than the return on it. To a small degree, this thought process is likely part of the reason behind the plunge seen over the past few days as the public is likely clicking the reallocation button on their 401(k) websites with regularity. And in all honesty, I can’t blame anyone for wanting to get the heck out of the game right now. While the talking heads all seem so darned sure about what is going to happen next (and by the way, if the market drops another 1,000 Dow points AFTER you pronounce that stocks must bounce, you aren’t “right”!) I must say that this market is unlike anything I’ve seen in my 25 years in the biz – with the exceptions of 2008 and 1987, of course. To be sure, there are lots of reasons to be worried and at least a handful of reasons to be de-risking. But the bottom line is we don’t normally see declines of 2,000 Dow points in 12 trading days. We just don’t get drops of -24.1% in smallcaps, -23.4% in midcaps, and -17.2% in the S&P over a month’s time very often – well, not without a darned good reason, anyway. Thus, I will opine that there is something else going on here. First, I believe that the “boys and their toys” are responsible for a fair amount of the intense dance to the downside seen recently. I know that I tend to blame a lot on the black boxes so many of the hedge funds use. However, if you can find the time, read “The Quants” by Scott Patterson and you’ll likely begin to appreciate the power of the computers (and learn who REALLY caused the disaster in the markets during 2008). Next up, there is the issue of margin calls and the chance that a fund or two might be being forced to sell positions. Then there’s the issue with Bank of America, yesterday’s OECD global growth numbers, talk of Unicredit (Italy’s largest bank) and Lehman in the same sentence, the President’s “more of the same” pitch, and word that some of the big macro players actually do believe that the global economy is headed for another recession. And finally, some have opined that the -16.7% drop in the S&P over the past 11 days is the market’s way of getting the attention of the powers-that-be. Like a 4-year old that wants that candy in the checkout lane at the grocery store, it would appear that traders are demanding that Mr. Bernanke tell them something good this afternoon. Turning to this morning… Overnight markets have been exceptionally volatile with the DJIA futures trading in a 600 point range (currently higher by about 100 points). Stocks initially sank as China’s inflation numbers were hotter than expected, thus cooling expectations that the tightening cycle would be coming to an end. However, it would appear that the violent reversal off the lows are in anticipation of the Fed saying something (and preparing to do something) supportive. On the Economic front… The NFIB Small Business Optimism Index fell for the fifth straight month. UK Manufacturing Production was below expectations. And finally, the government reported U.S. Nonfarm Productivity in the second quarter fell by -0.3%, which was above the estimates for reading of -0.7%. On the inflation front, Unit Labor Costs were reported to have risen +2.2% versus the expectations for +2.3%. Thought for the day… Regardless of the color on the screens, try embracing an “attitude of gratitude” today… Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell…
Wall Street Research Summary Upgrades:
Downgrades:
* Report includes items that make comparisons to the consensus estimate questionable Long positions in stocks mentioned: MCD 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. Stocks 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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