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Daily State of the Markets
Monday Morning – July 25, 2011 Good morning. First there was the self-imposed July 22nd deadline for the leaders in Congress to come up with a plan to deal with the debt ceiling and budget deficit.
The thinking was that Congress needed some time in order to get the necessary legislative procedures done before the deadline arrived. Then House Speaker Boehner and Treasury Secretary Geithner made headlines on the Sunday morning news shows with the pronouncement that a deal needed to be reached before the foreign markets opened that evening.
However, both deadlines have now come and gone, leaving investors around the globe wondering (a) if there actually is a deadline, (b) if the parties will bother to find a solution in time, and (c) if we are witnessing another TARP vote moment.
Although everybody who is anybody in Washington has been busy telling us on a daily basis that they will not allow the U.S. to default on its debt, as of this writing, the assurance is beginning to sound a lot like a hollow platitude. From where I sit, I see more of the same on this fine Monday morning. Whereas word was on Friday that Speaker Boehner and the White House were on the verge of announcing an agreement that would cut $3-$4 trillion from the budget and raise some new revenues for the good ‘ol USofA (recall that the NY Times reported as much), this morning our leaders can be found huddling in the safety of their own parties creating yet another round of drafts that their opponents are almost certain to oppose.
So, what is the next step? My guess is that if a deal is not reached in the next day or two, the stock market is going to get the attention of the professional politicians (who all too often appear more concerned with getting re-elected or promoting party politics than doing what is right for the country) in a fashion similar to that seen after the first TARP vote.
While I “get” that this game of brinkmanship is all-important for each party and the President, and that the 2012 elections may be on the line here, what the arguing factions don’t seem to understand is the fragility of the economy at this point in time. You see, I’m of the mind that had the European debt crisis not occurred, the world wouldn’t be so worried about debt. (Yes, debt is a big deal. But the time to deal with it is when the economy has recovered, not when things remain fragile.) I’m of the mind that had Greece not blown up the economy would be growing at a pace greater than it is now. And I’m of the mind that the job market would be improving. However, each new problem/crisis creates more uncertainty, which doesn’t help on any front.
Ben Bernanke’s QE2 was as much about instilling confidence as anything else. Remember, with the American consumer accounting for nearly two-thirds of GDP growth in this country, consumer confidence is everything right about now. It is confidence in the future that pushes folks out the door and to the malls on the weekend. It is confidence that causes small business owners to decide that it is indeed time to expand and to hire some help. And Bernanke & Co. knew full well that if the stock market went up, confidence would follow suit.
However, each and every time something comes along that cause confidence to be shaken, the efforts to get the economy back on track are derailed. Therefore, I see the current debt ceiling debate, which appears to be quickly turning into crisis, and the potential for one of the rating agencies to make a name for themselves by “calling” Washington on their game of finger-pointing and name-calling, as a big problem. And if the stock market needs to tank 1,000 Dow points or so to get the attention of the politicos, well, confidence is likely to go down the drain.
So, my question this morning is simple… No deal, really? What are you guys thinking? In short, somebody in Washington needs to quit worrying about their polls and get this thing done, now.
Turning to this morning… Asian markets fell as the uncertainty over a downgrade in the U.S. is rising. It also doesn’t help that Moody’s cut Greece’s debt rating again, this time to just one notch above default, or that Italian and Spanish yields continue to rise (this is the definition of contagion, by the way). We’re also watching yields in the U.S. with the 10-year currently trading at 3.017% vs. Friday’s close of 2.964% (the
On the Economic front… There is no economic data scheduled for release before the bell today.
Thought for the day… Don’t forget, ego is the real enemy in this game…
Here are the Pre-Market indicators we review each morning before the opening bell…
- Major Foreign Markets: Australia: -1.50% Shanghai: -2.96% Hong Kong: -0.68% Japan: -0.81% France: -0.23% Germany: -0.17% London: -0.20%
- Australia: -1.50%
- Shanghai: -2.96%
- Hong Kong: -0.68%
- Japan: -0.81%
- France: -0.23%
- Germany: -0.17%
- London: -0.20%
- Crude Oil Futures: -$0.69 to $99.18
- Gold: +$14.50 to $1616.00
- Dollar: higher against the Yen, Euro and Pound
- 10-Year Bond Yield: Currently trading at 3.017%
- Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: -9.17 Dow Jones Industrial Average: -88 NASDAQ Composite: -11.15
- S&P 500: -9.17
- Dow Jones Industrial Average: -88
- NASDAQ Composite: -11.15
Wall Street Research Summary
- Calpine (CPN) – BofA/Merrill
- Exelon (EXC) – BofA/Merrill
- FirstEnergy (FE) – BofA/Merrill
- NRG Energy (NRG) – BofA/Merrill
- PPL Corp (PPL) – BofA/Merrill
- Textron (TXT) – Barclays
- Kroger (KR) – Target increased at Credit Suisse, Upgraded at Goldman Sachs
- Time Warner (TWC) – Target increased at Credit Suisse
- Duke Energy (DUK) – Goldman Sachs
- WNS Holding (WNS) – Goldman Sachs
- Motorola Solutions (MSI) – Jefferies
- Starwood Hotels (HOT) – JMP Securities
- Verizon (VZ) – Mentioned positively at Oppenheimer
- Owens Corning (OC) – RBC Capital
- Rockwell Collins (COL) – RBC Capital
- Intuit (INTU) – UBS
- Wisconsin Energy (WEC) – BofA/Merrill
- Revlon (REV) – BMO Capital
- Pan Am Silver (PAAS) – Canaccord Genuity
- Nordic American Tanker (NAT) – Cantor Fitzgerald
- Genco Shipping (GNK) – Cantor Fitzgerald
- CEMEX (CX) – Citi
- Southern Company (SO) – Goldman Sachs
- Safeway (SWY) – Goldman Sachs
- CSC (CSC) – Goldman Sachs
- PepsiCo (PEP) – Goldman Sachs
- Scotts Miracle-Gro (SMG) – Estimates cut at Oppenheimer
- Thomson Reuters (TRI) – RBC Capital
Earnings Before The Bell
Estimate BE Aerospace BEAV $0.54 $0.51 Baker Hughes BHI $0.93 $0.91 Eaton ETN $0.97 $0.95 HCA Holdings HCA $0.51 $0.59 Kimberly-Clark KMB $1.18 $1.15 Lorillard LO $2.05 $2.02 Roper Industries ROP $1.08 $0.99 RPM International RPM $0.54 $0.53 Six Flags SIX $0.62 $0.50 Silicon Laboratories SLAB $0.48 $0.46
* Report includes items that make comparisons to the consensus estimate questionable
Long positions in stocks mentioned: none
For more of Mr. Moenning’s thoughts and research, visit TopStockPortfolios.com
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