Hope Springs Eternal

Daily State of the Markets
Monday Morning – August 28, 2011

Publishing Note: I am traveling Tuesday morning and will not publish a morning missive. Daily State of the Markets reports will return on Wednesday.

Good morning. It is said that the markets travel in cycles that are driven by fear, hope, and greed. During the late-summer swoon, it was clear that the fear of what could be happening to the economy and to the global banking system was driving the action. However, it would now appear that traders have put fear aside and are functioning in a more hopeful mode in response to the commentary coming out of Jackson Hole over the weekend.

So here we go again. Since Friday morning, traders have been provided with hope that the Fed, the ECB, the EU, and the IMF will do something more than just talk and perhaps finally put the fear the fear of what might occur to bed. And while we wait for the talk to materialize into something meaningful, traders are adjusting their expectations (to the upside).

Let’s review. As expected, Mr. Bernanke didn’t say much of anything on Friday. However, analysts note that the text of his speech wasn’t too terribly different from last year. Thus, with the FOMC deciding to expand their September meeting from one day to two, the hope is that those dissenting voters on the committee might be more dovish by the time the meeting ends and that some new form of stimulus will be announced.

Lest we forget, Mr. Bernanke has thus far been adamant about not allowing a deflationary spiral to begin in the U.S. And although Bernanke admitted that there is only so much the Fed can do, you can rest assured that he will indeed fire every bullet the FOMC has access to in this particular fight.

Next up is the situation in Europe. while there is still a fair amount of angst that the Greece bailout deal could fall apart during the country-by- country approval process (at issue here is the collateral demands being made by Finland and a handful of other countries) scheduled to be completed before the end of September, commentary from the EU, the ECB, and the IMF in Jackson, WY over the weekend is also providing traders with hope this morning.

Newly elected IMF Chief Christine Lagarde told the gathering that the world economy is in a “dangerous new phase.” Not mincing words, Lagarde suggested that now is the time for action and that central bankers can only do so much.

Speaking of central bankers, the ECB’s Jean-Claude Trichet spoke of “non-standard monetary policy” during his time at the podium and suggested that the ECB is not afraid to use the tools it has at its exposure.

And finally, there is talk of a new “radical plan” being readied by the EU to backstop Europe’s banks. While the details are not yet entirely clear, it would appear that the EU is talking about providing guarantees for the debt of European banks.

So there you have it. With some big talk coming out of Jackson Hole it would appear that hope does indeed spring eternal at this time. But with resistance looming, it will be interesting to see how far hope can take stock prices.

Turning to this morning… Traders continue to hope that the ECB/EU/IMF will indeed come up with something meaningful this time around. Markets around the globe are higher (save Shanghai) and the futures are pointing to more green screens at the open.

On the Economic front… Personal Incomes rose by +0.3% in July, which was below the consensus expectations for an increase of +0.4%. Personal Spending (now called “Consumption”) for the month rose by +0.8%, which was above the expectations of -0.2%. The Core PCE (think inflation) came in up +0.2%, which was in line with expectations for +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: +1.47%
    • Shanghai: -1.37%
    • Hong Kong: +1.44%
    • Japan: +0.61%
    • France: +1.85%
    • Germany: +1.52%
    • Italy: +2.03%
    • Spain: +2.51%
    • London: Closed

  • Crude Oil Futures: +$1.33 to $86.70
  • Gold: +$17.20 to $1815.90
  • Dollar: lower higher agains the Yen, lower vs. Euro and Pound
  • 10-Year Bond Yield: Currently trading at 2.234%
  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • SP 500: +13.80
    • Dow Jones Industrial Average: +118
    • NASDAQ Composite: +23.68

Wall Street Research Summary

Upgrades:

  • Granite Construction (GVA) – BBT
  • Barnes Group (B) – BBT
  • IntercontinentalExchange (ICE) – CLSA
  • O’Reilly Auto (ORLY) – ISI Group
  • AMR Corp (AMR) – Ticonderoga Securities

    Downgrades:

  • Staples (SPLS) – ISI Group
  • Overseas Shipholding (OSG) – Estimates cut at Morgan Stanley
  • Nordic Amer Tankers (NAT) – Estimates cut at Morgan stanley
  • Adobe Systems (ADBE) Estimates and target cut at UBS

    Long positions in stocks mentioned: none

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

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