Yesterday, we looked at the week that was. Today, we preview the upcoming market events that may be stock and market movers.
We have a few economic releases — notably, inflation — coming out this week. On Tuesday, we’ll get producer-price index (PPI) and on Wednesday, consumer-price index (CPI). Also on Wednesday are Housing Starts, and on Thursday, we hear from the Conference Board’s index of leading indicators — its expected to be flat to slightly negative.
On Wednesday, we get Federal Reserve Chairman Ben Bernanke making his semi-annual monetary policy testimony to House Financial Services Committee; He repeats the same show on Thursday for the Senate Banking Committee. The Q&A portion is unscripted, and that’s where we may learn something new.
But all that’s secondary. This week is all about earnings season really kicking into high gear: On Tuesday, we hear from Merrill Lynch (MER), Wells Fargo (WFC) Coca Cola (KO) and Intel (INTC). Also on the docket: Johnson & Johnson (JNJ) and Yahoo (YHOO).
eBay reports Wednesday, along with IBM, JP Morgan Chase (JPM), Pfizer (PFE), United Technologies (UTX), Allstate (ALL) Abbott Laboratories (ABT) and Altria Group (MO).
Google (GOOG) reports on Thursday, as does Microsoft (MSFT), Honeywell (HON), Bank of America (BAC), Motorola (MOT), TD Ameritrade (AMTD) and Nasdaq Stock Market (NDAQ)
Citigroup (C) reports Friday, along with Wachovia (WB), Caterpillar (CAT), Schlumberger (SLB) and Boston Scientific (BSX).
Here’s our preview of the stories that will matter in the coming days and weeks for investors. Pour a cup of joe, strap on your carpal tunnel wrist guard, and get clickin’:
INVESTING & TRADING
• No irrational exuberance in sight None of stubborn optimism typically seen at market tops Does the
stock market have what it takes to mount an impressive encore? The
surprising conclusion of contrarian analysis is, "Yes." Investment
newsletter editors on balance remain quite cautious about the stock
market. Not only are they not overly bullish right now, they in fact
are markedly more cautious than they were earlier this year when the
Dow was a thousand points lower. (Marketwatch)
• Most lucrative college degrees
Nearly nine out of 10 employers reported that they’re seeing more
competition for new college graduates than in past years, according to
a study by the National Association of Colleges and Employers (NACE).
The students who made out the best were chemical engineering majors.
They earned an average 5.4 percent more than last year, bringing their
average to $59,361, according to the survey. (CNNMoney)
• How Low Can the Greenback Go?
The U.S. Dollar Index was crushed this week, breaking a key technical
support. The question now is how bad is it going to get for the
greenback? Still, long-term charts show a good reason why the worst may
be over. (Barron’s)
• The KKR Way:
The deals are just the start. The original "barbarians at the gate" now
command a $107 billion global empire. Here’s how the buyout giant fires
up its companies with a profit-or-perish creed. (Bloomberg magazine)
• The Top Unsung Tech-Stock Leaders:
For the first time in years, the world’s largest computer companies are
strutting across Wall Street with an undeniable swagger, as
second-quarter earnings are likely to come in above expectations and
shares are sweeping to multiyear highs. (TheStreet.com)
• Loan Slump May Crimp Buyout Wave:
It isn’t clear if the loan market will be able to absorb more than $200
billion in new issuance that is planned for the coming months. Over
half of that will go toward funding buyouts, such as Cerberus Capital
Management’s purchase of a majority stake in DaimlerChrysler’s Chrysler
Group and Kohlberg Kravis Roberts & Co.’s plan to buy First Data
Corp. Last month, several debt sales were postponed or banks were
forced to finance deals from their own pockets because of turbulence in
the market. Still, many bankers say they expect to sell the large deals
that are coming up. (free Wall Street Journal)
• How Hot Commodity Investments Burn the Little Guy: More individual investors are rushing these days into
the rough-and-tumble commodities pits, long considered a backwater of
the investment world, as the prices of hard assets have boomed in
recent years. But some are learning a hard lesson in the risks of these
sometimes-volatile investments. One reason commodities can be rocky is the amount of
borrowing used to fund trades. Investors can put down less than 10% of
the value of a commodities contract, compared with a minimum of 50% of
a stock’s purchase price. (free Wall Street Journal)
• Moody’s Blues: Have Days of LBOs’ Future Passed? Moody’s Investors
Service Monday issued a remarkable report in which the ratings agency
highlighted its concerns about private equity’s headlong rush into
LBOs. Remarkable, in that Moody’s looked ahead at the clear and present
danger posed by these risky practices, in contrast to the rating
agencies’ traditional after-the-fact assessment of the damage done by
feckless financings. (Barron’s)
• Talk about late to the party! Moody’s slams private equity: Moody’s, the credit rating agency, will on
Monday launch an attack on the booming private equity industry,
criticising its increasing use of debt to buy companies and questioning
its claims that listed companies are better off in private hands. Moody’s
voice adds to the growing chorus of US critics, which includes trade
unions, politicians of both parties and some company executives. The
critical position of Moody’s comes at a sensitive time for both the
private equity industry and credit rating agencies. The former is
facing a deterioration in debt markets just as a number of buy-out
firms, including Blackstone and Kohlberg Kravis Roberts, have listed or
are seeking to do so. Rating agencies have been criticised by investors
for being slow in spotting credit markets problems such as the crisis
in the subprime sector. (FT)
The Wall of worry continues to build:
• Bernanke on Inflation: Forget volatility, the focus on the Core is about lowering inflation expectations.
• What It Takes to Get the Fed to Move: With Fed policy on hiatus, markets will inevitably obsess
over anything that might indicate the pause could be coming to
an end. What would it take to get the Fed to move rates again? A
fascinating new Fed study provides intriguing clues. The study, which was written by Fed economist Meredith
Beechey and Par Osterholm, an economist at Sweden’s Uppsala
University, has a dull academic title, The Rise and Fall of
U.S. Inflation Persistence, but the contents are anything but
boring. The results might provide the best insight into the
history of Fed thinking of any paper published by the central
• Economic Research and Retail Shopping
The Missus is smart enough to know that when she wants me to go
shopping with her, she best not call it that. So the clever lass has
taken to calling sport shopping "Economic Research." Here is what we
have found . . .
• U.S. Rebound May Be Bumpier Than Fed Expects as Credit Tightens: The U.S. economy’s take-off from a
near standstill in the first quarter may prove bumpier than the
Federal Reserve and many on Wall Street expect as tighter credit
acts as a headwind to growth. What started as a financing squeeze in the subprime-
mortgage market now threatens other parts of the economy.
Borrowing costs for companies are climbing as banks and
investors demand more for their money. Consumers feel the pinch
from rising interest rates and sagging house prices. (Bloomberg)
• In light of the rumors about Buffett taking a stake in a homebuilder, this is timely: Can You Judge a Homebuilder By Its Book Value?
• Yield spread premiums can bite you: The yield spread premium (YSP) is a mystery to most home buyers, but
it would pay them to get more familiar with this little understood
feature of the mortgage business. It’s the basis for the fee a
broker gets for selling a loan above the par rate, or the lowest
interest rate a borrower qualifies for. It’s a standard industry
practice, but it can also be an incentive for abuse. (CNNMoney.com)
• Why Haven’t Home Construction Jobs Disappeared? The number of housing starts and units under construction
have both plunged over the past year, while residential
construction employment fell a scant 3.5 percent. Last month the
number of people at work on homes was unchanged from May at a
little more than 3.3 million, the department said. Federal Reserve officials have been waiting for months for
construction employment to fall, but it hasn’t. Of course, the
decline in housing construction has been a major drag on gross
domestic product growth. (Bloomberg)
TECHNOLOGY & SCIENCE
• Coming Soon: the Touchscreen iPod: I noted Back in January
that I did not think the iPhone would cannibalize the iPod
because Apple would migrate the touchscreen downstream to the smaller
and non iPhone "pods." It was only a matter of time before Apple would
bring out a touchscreen (non-phone) iPod. Well,rumors are already starting to pop up that one is coming, and I expect we will see something perhaps in time for this year’s Christmas season.
• This is what the web looked like in 1994 (Video)
• A Hollywood inventor protests the patent bill: In 45 years, George Margolin has patented 26 inventions, including a
front-screen projection system (1964) that Hollywood used for special
effects in 2001:A Space Odyssey, the James Bond films and Superman. He
patented the folding computer keyboard in 1973, and a new type of
anti-stick medical syringe in 1993. Find out why he so strongly opposes
the proposed patent-reform bill, which includes a change that would
favor inventors who were the "first to file" for patent protection
above those who came up with ideas first. (FORTUNE Small Business)
MUSIC BOOKS MOVIES TV FUN!
• Online Music: 90+ Essential Music and Audio Websites
• How to get an AT&T subsidy on an iPhone: Buy a heavily subsidized phone from AT&T (i.e., a Treo 750). Unlock it, then go back to AT&T, tell them you want to switch to the iPhone. Your contract switches. Sell the Treo phone on eBay as no-contract for full price. iPhone for $400 net!
No, really, a hammock would be lovely. Just relax in the shade, read Barron’s, smoke a Padron. Now THATS a weekend . . .
I learned an astonishing fact from the WSJ’s Weekend Adviser: the first CD from The Magic Numbers sold a mere 44,000 copies in the US. That’s astonishing to me, considering what a great CD it is. Long time readers may remember a mention of this from our Best of 2006 music list. I thought the…Read More
Fascinating and instructive conversation with a few of our traders/clients this afternoon, including a hedge fund momentum gunner who asked me "if this rally really mattered."
The answer is simply if it goes against you, it matters to your bottom line and/or your clients net for the year. If you were long going into this you made money, you showed a better P&L, your assets under management grew, your clients are happy. If you were short, you got your nuts squeezed, and that’s that.
More importantly, the S&P cleared key resistance, the spread triple top so many technicians have been talking about is now toast (See chart at bottom). If this breakout holds holds the next couple of days, that will inform of us about the technical strength right here, and if it fails, that will also be quite instructive. Indeed, this is shaping up to be quite an important rally.
So to answer the original question, yes, this rally matters.
"This is a bullshit rally" he said.
I asked him Why? Specifically, I ask:
"Do you disagree with this because you were positioned improperly, or because you cannot find a rational basis for today’s move? Do either of those things matter?"
No answer. He then asks me, "What did you think of today’s Retail data?"
Sigh. . . I said it was weak, that most retailers were doing only fair, that in addition to anyone home-related (i.e., Home Depot (HD) and Sears (SHLD)), we saw the Department stores doing poorly, Macy’s (M) and JCPenney (JCP). We already heard Target (TGT) was at the low end of their range.
Here comes the money shot: "And Wal-Mart" he asked?
Mediocre. They don’t break out food (as they do energy), but we can draw some assumptions from their breakdown between Wal-mart and Sam’s Price Club (see our earlier post), as well as what BJs said. As we learned today, Food sales at Wal-Mart, Sam’s, Cost-Co (COST) and BJ’s Warehouse (BJ) were robust.
Here’s the key line from BJ’s report:
"Sales of food increased by 6% and sales of general merchandise increased by
So to answer all of his queries: yes, today’s rally mattered. Yes, the retail sales data was weak. Yes, it was essentially a celebration of higher food prices.
However, if you are looking for a rational basis for the day to day movements of markets, if you seek to find a degree of serenity by understanding why markets do what they do short term (A/K/A noise), well then you are going to drive yourself insane.