Our Summer Of Discontent II

Daily State of the Markets 
Wednesday Morning – July 13, 2011

Good morning. In my humble opinion, Tuesday’s market action epitomized the current up-and-down, news-driven, worrisome market environment. As I told a colleague, stocks don’t usually go straight down for eight or nine days, then straight up, and then straight back down again. But when you combine thin summer trading with a whole bunch of money being controlled by computers, and as much uncertainty as we’ve seen in a while, well, this is what you get.

My son, who did market research for me during his college years and has now been full time on the firing line for more than a year, remarked Tuesday that this volatile period is eerily reminiscent of this same time last year. In response to Tuesday’s news on European stress tests, Greek bailouts, and downgrades of sovereign debt, he asked, “Didn’t we get this exact same news a year ago? And didn’t everything turn out fine?”

realising that his question may have sounded like a bit of an oversimplification, he quickly followed up with the caveat that the Fed’s decision to buy up anything that wasn’t nailed down certainly played a role in the “everything turned out fine” part. But with the release of the June Fed minutes mentioning a debate on the merits of Bernanke and Co. possibly embarking on another round of quantitative easing, this too began to feel like a case of déjà vu all over again.

So, how does one play yet another summer of discontent? How do investors deal with the fear that Italy, Spain, and/or Ireland will trigger a rerun of the credit crisis seen in 2008? How do those without access to supercomputers able to make millions of trades a minute and instantly react to any and all headlines keep from getting beaten up during these down-up-down markets? And how does the average investor deal with the uncertainty surrounding the state of the economy?

For starters, our plan is to always try to “do less” during news-driven environments. Unless your crystal ball is fully operational, it is important to recognise that no one can tell from day to day what the news will hold. Sure, we can make educated guesses. For example, we would expect that the stress tests on Italy’s banks will turn out OK. And unless something new crops up, it is probably a safe bet that Italy won’t destroy the world.

However, when you have the fast-money crowd happily sticking to the sovereign debt playbook and implementing a policy of sell first and ask questions later (this appears to be one of the few things that seems to be working in hedgieland right now as the average hedge fund was underperforming the market by a fair amount as of June 30th), we need to remember that just about anything can happen on any given day. Oh, and it also helps to know that this market has no memory of anything from one day to the next.

When I take a step back from the headlines, the worries, and the hand wringing, I continue to come to the conclusion that although the U.S. economy may not be humming along (and that the health of the economy will ultimately determine the next big move in the market), the debt problem in Europe isn’t likely to cause the financial Armageddon the bears are yammering on about. I go back to the idea that the central bankers of the world know what is at stake and have had ample time to figure out ways to avoid a meltdown. Thus, I’m of the mind the lows of March and June may prove to be decent support levels.

But while my long-term view may be considered optimistic, this does not mean that the news-driven summer of discontent won’t continue.

Turning to this morning… China’s GDP came in at an annual rate of 9.5%, which while down from the Q1 level, was above expectations. In addition, the strong number on China’s Retail Sales in the first half is giving traders reason to be a bit more optimistic about the country’s outlook. Looking across the pond, while Moody’s downgrade of Ireland was a problem for the markets yesterday afternoon, this morning’s announcement by Italian officials that the country will pass austerity measures by Friday is also a positive factor in the early going. Finally, you may want to tune in to Ben Bernanke’s semi-annual testimony on monetary policy at 10:00 am eastern for more clues on what the Fed is planning to do (or not do) next.

On the Economic front… The government reported that Import Prices for the month of June fell by -0.5%, which was above the consensus for an decline of -0.7%. Export prices rose by +0.1%, which was below last month’s revised level of +0.2%.

Thought for the day… Choose to have a mind that is open to anything and everything…

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

  • Major Foreign Markets: Australia: +0.43% Shanghai: +1.48% Hong Kong: +1.22% Japan: +0.37% France: -0.12% Germany: +0.43% London: +0.09%
  • Australia: +0.43%
  • Shanghai: +1.48%
  • Hong Kong: +1.22%
  • Japan: +0.37%
  • France: -0.12%
  • Germany: +0.43%
  • London: +0.09%
  • Crude Oil Futures: -$0.38 to $97.05
  • Gold: +$11.70 to $1573.80
  • Dollar: lower against the Yen, Euro and Pound
  • 10-Year Bond Yield: Currently trading at 2.926%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: +6.06 Dow Jones Industrial Average: +56 NASDAQ Composite: +15.36
  • S&P 500: +6.06
  • Dow Jones Industrial Average: +56
  • NASDAQ Composite: +15.36

Wall Street Research Summary


  • Clean Energy Fuels (CLNE) – BofA/Merrill
  • Arkansas Best (ABFS) – Estimates and target increased at Citi
  • Old Dominion (ODFL) – Estimates and target increased at Citi
  • Apple (AAPL) – Target increased at Citi, Estimates increased at UBS
  • News Corp (MWSA) – Added to Top Picks Live at Citi
  • McGraw-Hill (MHP) – Goldman Sachs
  • MGM Resorts (MGM) – KeyBanc
  • Marriott (MAR) – RW Baird
  • Canadian Natural Resources (CNQ) – Stifel Nicolaus
  • Exco Resources (XCO) – Stifel Nicolaus
  • FedEx (FDX) – Added to Select List at Stifel Nicolaus
  • Amazon.com (AMZN) – Added to Current Better Values List at William Blair


  • Dollar Tree (DLTR) – BB&T Capital
  • Groupo Televisa (TV) – Goldman Sachs
  • Lam Research (LRCX) – Estimates and target cut at UBS

Long positions in stocks mentioned: None

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

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.