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Daily State of the Markets Good morning. Lots of folks are talking about the idea that the stock market is experiencing a case of d?j? vu all over again at the present time. Given the similar chart patterns seen over the past two summers, the eerily familiar soft patch facing the economy once again, the similarities in the factors driving the action, and the general feeling that for the third summer in a row the outlook doesn’t look very bright, I can’t really blame anyone who might be looking ahead to the next month with some trepidation. The bottom line is that August is coming and if memory serves, last year’s results were downright ugly. However, I’m going to take off my bear cap for a moment on this fine Wednesday morning and try to look at the current macro picture as objectively as possible. Remember, Ms. Market doesn’t give a hoot what any of us think, so we might as well check our egos and our opinions at the door and try to see things as they are instead of how we’d like them to be. Sure, things in Europe aren’t going to get better any time soon. Yes, the economies of China and the U.S. are slowing at the moment. No, the boys and girls in Washington aren’t going to suddenly start playing nice or accomplish anything on the fiscal front before November. And yes, earnings may have peaked for the time being. However, in listening to Mr. Bernanke’s Q&A with the Senate Banking Committee yesterday, it occurred to me that the path forward is now fairly clear. No, the Fed Chairman most definitely did not provide the little boyz playing with their computer toys any hints that another fix of QE was on the way. And not surprisingly, traders did throw a temper tantrum when they didn’t get what they wanted – to the tune of about 150 Dow points to the downside. (And as a quick aside, the fact that the computers can manipulate the market as quickly as they do these days continues to disturb me.) However, Mr. Bernanke did make it clear that he and the rest of the FOMC cavalry most definitely will ride again – if needed. Thus, the key (well, to me anyway) is that there is no uncertainty as far as the Fed is concerned. Unlike last year at this time, there aren’t any big glaring question marks hanging over the market’s head. Greece is not going to leave the EU in the near future. The Eurozone is working on shoring up their banking system. In addition, there is no debt ceiling to worry about at the moment (the projections I’ve seen suggest that the earliest the U.S. would bump into its limits on borrowing again is early October). And China is going to do something, sometime to stimulate growth (however, officials may want to wait a few more months for the new leaders to take office). The point is that with the path of the Fed now crystal clear, maybe, just maybe, the “Tepper Trade” is making a comeback – yes, right here, right now. Of course, I reserve the right to be wrong. However, as I’ve been saying lately, the market hasn’t acted all that terribly bad given all of the purportedly bad news that’s been thrown at it over the past couple of months. Therefore, traders who invest in the markets for more than 11 seconds at a time might just be invoking David Tepper’s summer of 2010 game plan. If you will recall Mr. Tepper said that stocks were a buy (in fact, he opined that “everything” was a buy) because if the economy worsened, the Fed would come in with more QE. And as we’ve learned, when the Fed starts buying bonds, the now famous “risk on” trade tends to go into effect immediately, which pushes stocks, emerging markets, and commodities (especially gold and copper) higher. And what if the economy improves you ask? Well, as long as there is visible improvement in the economy, earnings would likely to improve as well – which, of course, would be a good thing for stocks. The only scenario that could muck up the works is if things simply muddle along at what is currently being called “stall speed” in the economy. The thinking is that the Fed won’t “come in” under this scenario. So, if the economy were to simply remain stagnant for any length of time, this could throw a bit of a monkey wrench into the “Tepper Trade.” But given the impatience Mr. Bernanke appears to be exhibiting toward the rate of unemployment, my bet is that the Fed wouldn’t sit on its hands for very long in this situation (as long as inflation remains low, of course). So, while the HFT-Algos can and will do anything they darn well please on an hourly basis in the stock market, I’m of the mind that from a big-picture perspective, the path forward is fairly clear. So, if you agree, you will want to use market volatility to your advantage and take an opportunistic approach to the current stock market ride. Because while the path may be clear, the road is sure to be bumpy! Turning to this morning… Some weakness in Asia and Intel’s cut in their revenue forecast (which suggests weakness in PC sales going forward) is keeping some pressure on U.S. futures in the early going. On the Economic front… In addition to another round of Bernanke testimony before the House, we’ll get Housing Starts and the Fed’s Beige Book today. Thought for the day… “Happiness is when what you think, what you say, and what you do are in harmony.” — Mahatma Gandhi Pre-Game Indicators Here are the Pre-Market indicators we review each morning before the opening bell… !========>
Positions in stocks mentioned: none Follow Me on Twitter: @StateDave!========> 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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