BIG Money Will Call the Shots

George Brooks |

nyse, wall street, economy, stock marketInvestor’s first read - Brooksie’s edge before the open
Tuesday, August 14, 2012 9:17 a.m.
DJIA: 13,169.43
S&P 500: 1404.11
Nasdaq Comp.: 3022.52
Russell 2000: 799.49
It comes as no surprise that many of the 17 euro-area countries are sliding into a recession or coming uncomfortably close to one.
The problem is exacerbated by the need for austerity programs to address sovereign debt woes on the heels of the Great Recession of 2007 – 2009.
What’s worse, both Japan and China are seeing their economies weaken.
The big question for us is, how will all this impact our economy ?
So far, our stock market is telling us – no sweat !
Part of the stock market’s indifference is due to less angst about the euro, as well as the expectation that the Fed will be quick to rescue our economy if, with or without an adverse impact from abroad, our economy begins to suck too much wind.
Assuming, the euro will survive (bold assumption), we are faced with a number of uncertainties beyond which the stock market has a chance of a sustained upmove.
The November election is one negative, sequestration (huge spending cuts) another, and of course our economy’s ability to survive the impact of a global slowdown.
There are a lot of positives, indicating the potential for another leg to the bull market that started 3 ½ years ago.
We came perilously close to a global meltdown 4 years ago. Recoveries from severe recessions take more time than rebounds from less severe ones and we have already logged in 3 years of that transition with the European “thing” to boot.
The housing industry is turning the corner, consumers’ liquidity is improving along with a rebound in their “wealth effect.” The Mid-East wars have wound down.
Whether the stock market takes off from here, or lower levels before year-end depends on how the BIG money sees it. If it perceives a vast improvement 6 – 9 months from now, it will be buying aggressively in coming months.
Facebook ($21.60 ) No change today. The ban on sales by insiders lifts Thursday the 16th as the first of several “lockup” periods end, indicating the potential exists for an increase in selling pressure.( Lock-up period: a period of 90 – 180 days after an IPO during which insiders are forbidden to sell shares).
SO, the big question is, will holders of these locked up shares sell ? With the stock down 43% from its IPO price, maybe not. However, the shares will overhang the market potentially putting a “lid” on the price as it attempts to move up.
Over the next nine months, close to 1.91 billion shares will become eligible for sale vs. 500 million shares trading now.
Clearly, this is a deterrent to buyers, though a buyer “in-size” may want to test the waters. What would be good for the stock would be if one of the major holders like
Microsoft (MSFT), which sees itself as a strategic partner as it jousts for position with Google (GOOG), bought more. That would be very positive.
Goldman Sachs, Accel Partners and Microsoft control at least 200 million shares.*
As the worst ever major IPO, FB has lost$38.8 billion in market value since its May 17 offering.
My worst case low for FB is $16.88, however that would have to occur on very heavy volume – 200 million – 260 million shares
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO, because I felt at $34 it was very vulnerable in face of all the misunderstanding and hype.
ECONOMIC REPORTS: Big Week for economic reports.
TUESDAY:
NFIB Small Business Optimism Index (7:30) – Down 3 points in June to 91.4 in line with general economic weakness.
Producer Price Index (8:30) – Up 0.1% in June after a like drop in May. Core was up 0.2% after a like gain in May. Energy dropped 0.9% in June after a 4.3% drop in May.
Retail Sales (8:30) – Sales were softer than expected in June, including auto. Gasoline sales contributed to June’s drop with a decline of 1.8%
Business Inventories (10:00) – May inventories rose 0.3% outpacing sales which declined 0.1%, bumping the inventory/sales ratio up to 1.27.
WEDNESDAY:
Consumer Price Index (8:30) – Unchanged in June after a 0.3% drop in May. Ex food and energy, the CPI rose 0.2% following a like increase in May.
Empire State Mfg Survey (8:30) – Jumped 5 points to 7.39 in July, however new orders were down, suggesting the rise was misleading.
Industrial Production (9:15) – Up 0.4% in June after a drop of 0.2% in May. Capacity Utilization improved to 7.9%
Housing Market Index (10:00) –Surged 6 points to 35, the biggest gain in 10 years. The index reflects the sentiments from a survey by the NAHB regarding the economy and housing market.
THURSDAY:
Jobless Claims (8:30) – Fell 6,000 in the August 4 week to 361,000 bringing the 4-week average to 368,250, 10,000 less than the month ago trend.
Housing Starts (8:30) – Bounced 6.9% in June after a drop of 4.8% in May. Gains were in both single-family and multi-family homes.
Philadelphia Fed Survey (10:00) – Improved slightly in July, though only a positive blip in a soft environment.
FRIDAY:
Consumer Sentiment (9:55) – Flat in July
Leading Indicators (10:00) – Down 0.3% in June after a rise of 0.4% in May. This is a composite index of 10 economic indicators.

George Brooks
*Bloomberg .com
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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.

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