Isn’t It Possible?

Daily State of the Markets 
Monday Morning – August 22, 2011

Good morning. Investor sentiment is certainly interesting these days. On one hand, you’ve got the glass-is-half-empty crowd telling us that the sky is falling. Yet on the other hand, the folks sporting the rose-coloured Revo’s are equally adamant that this is the best buying opportunity we’ve seen since March 2009. So, who’s right? Will the nattering nabobs of negativity prove to be right for the third time in eleven years? Or will happy days return once the knights on white horses ride in and save the day again?

As long-time readers know, I am a card-carrying member of the optimists club when it comes to the outlook for the stock market and the economy. Having been in the business of investing since 1980, I have learned that it doesn’t pay (well, not often, anyway) to have a perpetually negative outlook. Although the flaws are becoming obvious these days, the bottom line is we live in the greatest country in the world with the best economic system going. Thus, I am reticent to get overly negative here.

However, in an effort to remain impartial in my outlook, I’d like to submit a few what-if’s for your consideration this morning. For starters, isn’t it possible (not necessarily probable, but possible) that we are seeing the start of a new bear market at the present time? To be sure, the only way to tell whether or not such a beast is present is with a healthy dose of hindsight. But, on more than one occasion over the past two months, I’ve caught myself telling colleagues that the action has been reminiscent of bear market environments. In short, if the next rally isn’t any better than the last one and if the indices then roll over and move to lower lows, it might be time to don the bear hat.

Next, with a slow-to-no growth outlook firmly in place for the economy and the recent confidence shock hitting consumers between the eyes, isn’t it possible that slow-to-no could get worse? I’m not suggesting that the economy is heading for recession, but there are indeed indicators that are. I saw a nifty study over the weekend which combined the University of Michigan Consumer Confidence Survey (designed to indicate the state of the consumer) with the Philly Fed Business Outlook Survey (designed to indicate the state of business activity). The key here is that the current dive in both business and consumer sentiment is in line with recessionary levels. Hmmm…

Yes, I understand that the “confidence shock” produced by the brutal (if not embarrassing) debt-ceiling battle, the downgrade of U.S. sovereign debt, and the 17.5% hit investors have taken in their IRA’s and 401(k) plans, may be responsible for the decline in the sentiment surveys. But, isn’t it possible that it isn’t different this time?

Then there are the issues across the pond. Isn’t it possible that the debt bubble could actually burst in Europe? Yes, I know, the powers-that-be aren’t going to let that happen and everything will be fine. But, come on, let’s be honest; isn’t it possible?

And isn’t it possible that the great stock market values the talking heads (who tend to be long-only mutual fund managers, btw) continue to yammer on about could become even better values? Remember, during bad times, the buyers that are around aren’t usually willing to pay the same multiples they did during better economic times.

Oh, and what about earnings? I will agree that the most recent quarterly parade was impressive indeed. The beat-to-miss ratio was actually a little better than the prior quarter while the revenue picture was surprisingly strong. But isn’t it possible that a slowing economy could wind up putting a big dent in earnings going forward? Let’s not forget that the stock market is a discounting mechanism for the future.

Before you start sending me bear-mail, let me turn the tables and look at the bright side for a moment. So, isn’t it also possible that Mr. Bernanke will come up with something in the shock-and-awe category this Friday? After all, the Fed Chairman has been fairly committed to the idea of keeping the economy out a Japanese-style deflationary spiral. And since the majority of the FOMC still backs its fearless leader, I’m not sure it is a good idea to give up on Helicopter Ben just yet.

Isn’t it also possible that the EU could eventually produce a united front via Eurobonds or that the G-7 could get together and produce some shock-and-awe of their own in an effort to put the European debt mess to bed? Maybe things aren’t quite bad enough for this to occur just yet, but isn’t it possible for the most powerful countries in the world to mount their white horses together and fix this thing once and for all?

Finally, isn’t it possible that the “retest” phase of the waterfall pattern could be playing out as I type? If this is the case, then we should expect a second rally to begin momentarily. In fact, history shows that most waterfall declines do eventually give way to strong upward moves as the bull markets that were often intact prior to the big dives resume their winning ways.

While I’m not sure that any of the above will transpire, I do find it helpful to think about what could happen every once in a while. And until we get some answers, my plan is to continue to utilise my risk management strategies and try to stay on the right side of the important trends. In short, this approach seems to work in almost all environments and requires a lot less pondering about what could/should happen next. After all, isn’t it possible that being “right” may not be the true key to successful investing?

Turning to this morning… The apparent end of Muammmar Gaddafi’s reign has helped put traders in an upbeat mood this morning. In addition, speculation appears to building that Bernanke will announce new measures to support the U.S. economy on Friday. While doubtful, this appears to be what the markets are expecting. Stay tuned.

On the Economic front… There is no economic data scheduled for release Monday.

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…

  • Major Foreign Markets: Australia: -0.51% Shanghai: -0.72% Hong Kong: +0.45% Japan: -1.05% France: +2.72% Germany: +1.54% Italy: +3.51% Spain: +2.54% London: +2.47%
  • Australia: -0.51%
  • Shanghai: -0.72%
  • Hong Kong: +0.45%
  • Japan: -1.05%
  • France: +2.72%
  • Germany: +1.54%
  • Italy: +3.51%
  • Spain: +2.54%
  • London: +2.47%
  • Crude Oil Futures: +$0.83 to $83.09
  • Gold: +$12.80 to $1865.00
  • Dollar: higher against the Yen, lower vs Euro and Pound
  • 10-Year Bond Yield: Currently trading at 2.115%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: +16.02 Dow Jones Industrial Average: +132 NASDAQ Composite: +33.58
  • S&P 500: +16.02
  • Dow Jones Industrial Average: +132
  • NASDAQ Composite: +33.58

Wall Street Research Summary


  • Hewlett-Packard (HPQ) – Auriga
  • SunPower (SPWRA) – Auriga
  • Ecolab (ECL) – Citi
  • Newmont Mining (NEM) – Citi
  • Public Service (PEG) – Citi
  • SLM Corp (SLM) – Credit Suisse
  • Alcoa (AA) – Davenport
  • China Lodging (HTHT) – Goldman Sachs
  • Arctic Cat (ACAT) – RW Baird
  • Polaris Industries (PII) – RW Baird
  • Potash (POT) – Scotia Capital
  • Astoria Financial (AF) – Stifel Nicolaus
  • Provident Financial Services (PFS) – Stifel Nicolaus
  • Susquehanna (SUSQ) – Stifel Nicolaus


  • Agrium (AGU) – BofA/Merrill
  • Intrepid Potash (IPI) – BofA/Merrill
  • Microsoft (MSFT) – Davenport
  • Sterling Bancorp (STL) – Stifel Nicolaus

Long positions in stocks mentioned: none

For more of Mr. Moenning’s thoughts and research, visit


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