September 6, 2010 Even The Best Laid Plans
Saturday morning, I got up and grabbed my Barron’s and was not disappointed. Great issue. I had a feeling that with the decent week in the market we would get some positive message and we did and we didn’t. Sentiment of the articles were all over the board.
Kopin Tan had the most negative column, but he was balanced in his presentation of the top 10 Strategists that Barron’s survey’s from time to time. Some see another 7% to the upside by years end and some say flat. He points out the shift in GDP expectations dropping from 3.7 in Q1 to the current 1.6 as a dampener on the market. He then goes into specific strategies and specific companies which I won’t review as I cannot do it with out plagiarizing and making recommendations about stock I have not done the homework on. Here are few he mentioned positively which we do own. CVX, MCD, and IBM. I recommend reading the article in its entirety.
Alan Abelson was trying to be clever and implied that value research and technical analysis has no place in today’s market. While this is a goofy as hell market, he writes this article facetiously. He seems frustrated with the market as so many other are. Then Alan goes into a few paragraphs explaining why China number are not as sound as we might think. (This blog did a little on that subject a couple of weeks ago as to how they count engineering graduates.) He insists that China might be expanding too fast, spending too much on infrastructure projects and issuing too much debt. Good article and he brings to the table a lot to think about.
Like I said, it was great issue, but one more article worth mentioning is Michael Santoni’s “Apapthy Trade” article. The article attempts define a direction for this market (good luck with that) and he does so by looking at historical records for September and October, (You know I don’t like reading tea leaves.), he also notes recent surveys from the AAII (American Association of Individual Investors) and there current pessimistic sentiment, similar trends from Ned Davis Research (Schwab clients know and love Ned Davis), VXX future contracts, and the most interesting data point he brings up and the is the balance of Buys/Holds/Sells recommendations. What makes it interesting is that sell recommendations at near an all time low and holds are near an all time high. Trades are being done with a total lack of conviction. It too is a great article.
The week ahead
We enjoyed a nice week last week with a 3.8% bump in the S & P 500. For our new readers, it is easy to JUST look at the Dow Jones Industrial Average. My personal feeling is that in this volatile moribund internationally influenced market, that index is narrow in scope because it only has 30 components. Now these are the companies we all know and love, from Alcoa to Disney, from 3M to Chevron, you know them all. I prefer the broader Standard’s and Poor’s 500. This index has a diversified basis to which to judge the market. You will hear me compare company stats to the S & P 500 more so than any other index. But I digress.
So as I said we had a good week, will this sentiment continue into the 4 day week ahead? Let's take a look.
Tuesday is a very quiet day for economic news. Even searching the horizon for international economic announcements, Tuesday seem to be all quiet.
Wednesday, we have a report no one pays any attention to but it is important. It is called the Bank Reserve Settlement Statement and it is a measure of commercial banks liquidity as required by the Federal Reserve. If the banks are comfortably with in their reserve requirement the more freely the will lend money, which is good for the economy.
On Wednesday we also see mortgage application reports. Obviously this is a tell for new and existing home sales. It is a weekly report and last week’s showed a slight improvement. When you boil down last weeks report ZZZZZZ, sorry dozed off there, you would find that there is a lot of re-fi activity in the mortgage app report. My guess is the trend will continue and the apps number sill show some gain, but the report will indicate its people taking advantage of some of the lowest interest rates since ? at 4.43% on a 30 year note.
Wednesday The Bank of Canada also announces its prime interest rate. If you follow the Loon (Canada’s dollar not the bird.) you would know it hot as is their economy so look for another .25% aka 25bps aka 25 basis points to 1.00%.
And to wrap thing up for Wednesday we will have the consumer credit report. As it sounds it is the credit card or debt spending habits of consumers. If you have been reading the blog we have explained that during the height of the economic crisis, consumers savings rates (which determine how much they put on their credit cards) was reaching 7.2% the highest since World War II. In Q 1 2010, this eased back as consumer felt better about eh economy and saved less and charged more. In the last few months that rend reversed and people were saving more and charging less. We will probably see that trend continue with Wednesday’s report. The consensus say a drop of consumer credit of 3/5 Billion. I feel that it will be down but not that much. Look for 2.5-2.75 Billion. Which, if we get close to two, it should be good for the market.
Thursday the Bank of England announces interest rate changes. Don’t look for any. It will stay at .5%
Thursday will see the International Trade gap report and we should see the trade balance improve a bit as we import more. Look for a trade gap of 46 billion which is what the analysts say. I do not completely understand all of the components of the report, all I know is if our economy is strong, we import more because we have a better global trading power.
Thursday will see the weekly initial jobless claims. I am sure a lot of folk will be focused on this report. The consensus of 470,000 new claims is only a tiny bit down from last week. I’m going to go out on a limb and say we will see a drop of 25,000 new claims. Look for 447,000 which will be a nice kick to the market.
Friday we have a Wholesale trade report which tracks inventory levels at merchant wholesalers. This is how the shelves behind the shelves are looking. If the number is down, retailers have to start putting together holiday orders which will drive the economy forwards. If the shelves are full, the retailer are not moving inventory and will scale back their purchases.
I know that this stuff is boring and most don’t pay attention to all the weekly data, but if you have an interest in it I highly recommend a book called The Economist Guide to Economic Indicators: Making Sense of Economics. It is one of the best basic explanations of economic indicators from an investors point of view.
Earnings calls this week.
Well I went a looked at what’s ahead and there is vast wasteland of earnings calls this week. There are definitely no movers and shakers this week. At best you have a few retailers reporting which MIGHT be tells of retail at large. Men’s Warehouse reports Wednesday and look for a beat of 77 cents a share. I’ll go and say 80 cents. Manny Moe and Jack also look for 19 cents a share in earnings this Wednesday and again we are thing a beat to the upside of 3 cents to 22 cents a share. Other than that, ain’t nothing to get excited about.
By next Friday I am thinking the market will be up another point and half. Time will tell.
The Best Laid Plans
You’ll notice that this did not get posted until 11:00 at night. My intention was good but then we had some interruptions. There was the dog chores, homework review, I did some swimming, had an unexpected trip to the movies with the family (Saw Inception, great movie but I’ll warn you don’t head off to the lieu or you will loose the plot), had a nice dinner, and got into a “We” discussion. (WE has many meanings at our house. There is the we her, the we me, or the we we. It is very confusing and I got one of the we her confused with a we me so we me did not do what I thought was a we her.) But I digress. All is good now and it time to say good night John Boy.
From the early days at the Whitehouse Archive