Will Europe Muck It Up?

Daily State of the Markets 
Thursday Morning – June 16, 2011

Good Morning. I’ve been working under the assumption that the powers-that-be in Europe (the EU, ECB, the IMF, and the heads of the various PIGI states) would find a way to eventually “handle” the situation in Greece. Note that I did not say “fix” the situation in Greece, or Portugal, or Spain, or Ireland. No, I have merely been expecting the guys and gals in charge to find a way to avoid a “credit event” that, if not dealt with correctly, could threaten the global banking system all over again.

Given the amount of time that the leaders of the world have had to work on this issue, I’ve assumed that they would figure out some way to make everyone (meaning the Germans) happy enough to kick this ugly can down the road – at least far enough to give the world some breathing room. However, with riots in the streets of Greece and the politicians now getting involved, I am becoming more than a little concerned that the politicos might muck this thing up. And in short, THIS is what Wednesday’s dance to the downside in the stock market was all about.

Sure, there are some not-so minor details to work out, not the least of which is the fact that the rating agencies consider any change in the existing bonds to be a default. Yes, EVEN if the changes are voluntary. Remember, unless the new bonds being offered to the folks holding Greek debt are actually better than the old ones, Fitch says it’s technically a default if somebody chooses to switch. And while there are surely some legal loopholes to play with (which have been a big part of my assumption that things would work out), the key is that any changes, restructuring, reprofiling, etc. must be done right.

There are also plenty of political angles that are likely to play out in this mess. Like the conservatives in Greece suddenly announcing that they are going to demand a renegotiation of the bailout terms. (Huh? Are you kidding me? Which part of “you guys are bankrupt” are you having trouble with?) But again, given what is at stake for the state of the global economy, I REALLY thought this would take care of itself – even if it did take a while and got a little messy in the process.

But with the Germans bickering amongst themselves, the Greeks deciding to toss out the government and the public not-so quietly suggesting that they want no part of this austerity thing, the Irish saying they want the bondholders to pay too, the IMF’s little distraction with hotel maids, and the ECB’s public pronouncement that it won’t stand for any restructuring, reprofiling, etc, I think the markets might be starting to worry about these guys doing the unthinkable – as in mucking this bailout up.

So, until traders can be convinced that this bailout of Greece is actually going to go through, the stock market is likely to remain a volatile place to invest. In case you haven’t noticed, the Euro/dollar/stock correlation trade is back “on” with a vengeance right now. And as such, we’d best keep one eye on the Euro at all times during trading hours.

Looking ahead, once the powers-that-be DO actually ride in on their white horses and save the day, it is a safe bet that stocks will rally ferociously. And THEN traders can return their attention to the state of the U.S. economy. And on that note, if the data doesn’t start improving, we might be in for a very long summer.

Turning to this morning… The situation in Greece remains a focal point with Germany saying they want to delay a second bailout of Greece until September. In addition, another weak report in the UK, this one on retail sales, keeps concerns about the global economy at the forefront. Global markets are lower across the board and the futures in the U.S. are also a little weak before the open.

On the Economic front… Initial Claims for Unemployment Insurance for the week ending 6/11 fell by 16,000 to 414K. This was below the consensus estimate for 422K and last week’s total of 430K. Continuing Claims for the week ending 6/4 came in at 3.675M vs. 3.68M and last week’s 3.696M.

Next up, there is some good news for a change on the housing front. Housing Starts rose 3.5% in May to an annualized rate of 560K. This was above the consensus for 544K. Building Permits for May rose 8.7% to 612K. This was also above the consensus of 556K and last month’s reading of 563K.

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: -1.91% Shanghai: -1.52% Hong Kong: -1.75% Japan: -1.70% France: -1.42% Germany: -1.03% London: -1.43%
  • Australia: -1.91%
  • Shanghai: -1.52%
  • Hong Kong: -1.75%
  • Japan: -1.70%
  • France: -1.42%
  • Germany: -1.03%
  • London: -1.43%
  • Crude Oil Futures: -$0.31 to $94.50
  • Gold: +$3.70 to $1529.90
  • Dollar: higher against the Yen, Euro and pound
  • 10-Year Bond Yield: Currently trading at 2.913%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value): S&P 500: -3.72 Dow Jones Industrial Average: -37 NASDAQ Composite: -5.06
  • S&P 500: -3.72
  • Dow Jones Industrial Average: -37
  • NASDAQ Composite: -5.06

Wall Street Research Summary


  • Conagra (CAG) – Barclays
  • Advance Miicro (AMD) – FBR Capital
  • Yoku.com (YOKU) – Goldman Sachs
  • Brightpoint (CELL) – Jefferies
  • East West Bancorp (EWBC) – Morgan Stanley
  • Altera (ALTR) – Morgan Stanley
  • Xilinx (XLNX) – Morgan Stanley
  • Jarden (JAH) – Mentioned positively at Oppenheimer
  • NVIDIA (NVDA) – Mentioned positively at Oppenheimer
  • Whiting Petroleum (ELL) – Susquehanna


  • SunPower (SPWRA) – BofA/Merrill
  • Regions Financial (RF) – BofA/Merrill
  • Finisar (FNSR) – Credit Suisse
  • Intel (INTC) – FBR Capital
  • General Mills (GIS) – Goldman Sachs
  • Virgin Media (VMED) – Macquarie
  • Korn/Ferry (KFY) – RW Baird

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.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.