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Dear Fed, Lay It Out There, We Can Handle It.

By  +Follow August 1, 2013 6:06AM
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So why the “I’ve got a secret ?  Why the coddling of the stock and bond markets ?

   The plunge in stock and bond markets in June after Fed chief Bernanke indicated the Fed may begin to  taper in the fall and wrap it up by mid-2014, was a wake up call that there WILL BE a change in Fed policy and it could jolt the markets.

   There is nothing wrong with what he said.

   What was alarming was the Fed’s action thereafter to prop bond and stock markets with  assurances that Fed taper and tightening is not the same thing, and not to worry the Fed would be there to accommodate just about anything.

   Why the back peddle ?

    Does the Fed think the Street can’t handle reality with what it has been through over the last  five years here and abroad ?

    Lay it out there and let the market decide, because the more the Street  relies on the Fed to prop the markets, the greater the risk of a sharp crack in stock prices if the market gets an ugly wake up call.

   Can’t happen ?  Bullshit.

   I am a Bernanke supporter, and  think he and the Fed have done a great job avoiding a devastating global meltdown. But, with the stock market at all-time highs and bond market  close to all-time highs,  risks of a reversal are great if  this aura of invincibility is shattered.

   I’m really a bull and think this market has further to run, that it will ultimately run through the classic cycle, ending in a speculative blow-off.

   But, that won’t be achieved in a straight line.

   A severe reality jolt  could crack the DJIA  3,000 points to the 12,500 area.  While that would probably have to come from a higher level, we would only be retracing back to levels seen a little over a year ago.      

   I am fine with the Fed policy of flexibility, accommodating the demands of a slow-growth economic recovery, but why be so vague about its Plan A and Plan B ?

   Yes, taper will begin based on economic progress.  What about interest rates ?  What will dislodge the Fed from its zero policy – then what ?

   It seems like they are afraid to talk about a no-hitter in the 8th inning.

   The Fed needs to bring the Street into the loop on interest rates post QE,  the best and worst case possibilities as the Fed sees it.

CONCLUSION:

   The stock market is gaining its momentum primarily from Fed commentary that it will begin to taper sometime in the future, but don’t sweat it.

   What happens when reality sets in that stimulus will soon end and interest rates rise further ? 

   If the market has not adjusted for that, it is vulnerable.

TODAY:

   After yesterday’s rally failure, we will get a big open, probably challenging yesterday’s all-time intraday high of DJIA 15,634.

   This rally cannot fail, if  another leg in the bull market is imminent. Tomorrow’s 8:30 a.m., Employment Situation Report will have an impact.  A better than expected (187,000 private sector jobs) report will take us closer to the first taper out of QE.

Investor’s first readan edge before the open

DJIA:  15,499.59

S&P 500: 1,685.73

Nasdaq  Comp.: 3,626.37

Russell 2000:  11,045.26

Thursday, August 1, 2013         (9:10 a.m.)

   TECHNICAL OBSERVATION – STOCKS:

Alert: I have successively accomplished my goal of  helping readers navigate through the plunges in both AAPL and FB and subsequent recoveries.  .I may soon drop coverage and either pick up other fallen angels, or begin the technical tracking of stocks on the move.

   Apple(AAPL: $452.53)

   A little profit taking after a one-month 18% surge is normal. Support is $444.75. There is some resistance at $455.40, more important resistance at $457.

Some saw-toothed, sideways action would be normal as AAPL digests its nice July move.

FACEBOOK (FB - $36.80)

FB couldn’t stay above its IPO price of $38  yesterday, but it is up 39% in five days and some consolidation would be normal.  Could slip below $35 in a correction.  Profit takers and investors in the  IPO who held on as it tumbled to $17.55 may put a lid on it at $38.

.

I DO NOT OWN, NOR HAVE I EVER OWNED APPLE OR FB.

ECONOMY:

 

   Huge week for reports on the economy plus more insight on Fed policy coming out of the FOMC meetings Tuesday and Wednesday.

   HOME BUYER BUYING PANIC ?

Mortgage rates rising, home prices rising, inventories decreasing !!

   For a detailed account of past and current economic reports, including charts go to: mam.econoday.com

MONDAY:

Pending Home Sales Ix. (10:00)  Declined 0.4% in July to 110.9, but signed contracts are still up 10.9% y/y.

Dallas Fed. Mfg. Svy. (10:30) July’s index dropped to 4.4 from 6.5, but is still generally seen as positive.

TUESDAY:

FOMC meeting begins

ICSC Goldman Store Sales (7:45)   Declined 1.6 pct for the week ended 7/27 with

                       drop more in discretionary vs. staples

S&P Case-Shiller Home Price Ix. 9:00 – rose 12.17 pct  (May) y/y

Consumer Confidence (10:00)  Slipped to 80.3 in July  from 82.1 in June.

WEDNESDAY:

ADP Employment (8:15)  200,000 private sector jobs were created in July

GDP – Q2  (8:30)  Under the new revisions, Q2 rose at an annual rate of 1.7 pct. in spite of a drop in federal spending of 1.5 pct. GDP has undergone a major revision going back to 1929 so  expect some distortions. The revision will reflect a minor reduction in federal spending and debt as a percent of GDP.  Q2 estimates may lack relevence.

Employment Cost Ix.(8:30)  Proj.:  +0.4 pct Q2

Chicago PMI (9:45)   Rose to 52.3 in July from 51.6 in Jne

FOMC meeting announcement (2:00 PM)  QE commentary possible

THURSDAY:

Jobless Claims (8:30)  Proj.: 345,000 for 7/27 vs. 343,000 7/20

PMI Mfg. Ix. (8:58)   Proj.: 53.1 July

ISM Mfg Ix. (10:00)   Proj.: 53.1 July vs. 50.9 in June  and 49.0 May

Construction Spending (10:00)  Proj.: +0.4 pct June

FRIDAY:

Employment Situation (8:30)  Proj.: 175,000 July (nonfarm), 187,000 (private), Unemployment rate 7.5 pct

Personal Income/Outlays 8:30)   Proj,: +0.4 pct June

Factory Orders (10:00)  Proj.: +2.3 pct June vs. +2.1 pct May

www.mam.econoday.com.

FOMC: Oversees nation’s open market operations, the buying and selling of U.S. Treasury securities, as well as the primary  “decider” in the direction of interest rates and money supply.

  George  Brooks

“Investor’s first read – an edge before the open”

This email address is being protected from spambots. You need JavaScript enabled to view it.

……………………………………………..

The writer of  Investor’s first read, George Brooks,  is not registered as an investment advisor.  Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.

 

 

 

 

 

By  +Follow August 1, 2013 6:06AM
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