Brooksie’s Daily Stock Market blog – an edge before the open
Monday, December 19, 2011 9:15 am ET
DJIA: 11,866.39 S&P 500: 1219.66
This is a BIG week for economic indicators, especially the housing sector. The U.S. economy is the lone bright spot in the global theatre. While not robust, it is gaining traction even in face of a feckless Congress and eurozone’s flirtation dissolution.
This week’s reports will help confirm if our recovery is still tracking positive. I am especially interested in the housing numbers, as this vital sector of the economy is overdue to “contribute” rather than inhibit growth. I sense it will be an important contributor in 2012.
Monday (10 a.m.): Housing Market Index New Home sales, projected sales, traffic prospective buyers)
Tuesday (8:30 a.m.) Housing Starts – start of construction new homes.
Wednesday (10:00 a.m.) Existing Home Sales – previously built houses, condos, co-ops
(8:30 a.m.) GDP – Third estimate for Q3 growth
(8:30 a.m.) Jobless Claims – workers filing for first time
(9:55 a.m.) Consumer Sentiment –U. of Michigan survey reflects sentiment for spending
(10: a.m.) FHFA House Price Index single family
(10 a.m.) Leading Indicators – for overall economy as reflected by indicators that “lead” other indicators
(8:30 a.m.) Durable Goods – new orders for hard goods
(10 a.m.) New Home Sales – newly constructed homes
CONCLUSION: Rally attempts to break up through resistance starting at DJIA 11,969 (S&P 500: 1226) failed again Friday, but the downside was limited to Thursday’s close. The futures trading before the open today suggest a positive open. Any strength developing now would be derived from expectation of better-than-expected economic reports this week.
Europe continues to be a drag as it appears no one, even in high places, knows what will happen. It would be a good idea to consider the possibility of a reduction of membership among the eurozone nations, as it does not appear the mechanism or will exists to prevent it. I do not know what the repercussions of that would be on international banks and global economies. This crisis is two years old, but the euro as a currency is still in its infancy.
Investors are just going to accept ongoing uncertainty from this source and that a worst case scenario (dissolution of the eurozone as we know it today and a banking crisis abroad with impact here) is possible. That doesn’t preclude announcements along the way that offer temporary solutions. The consequences of failure are severe.
Volatility will continue, and new commitments will require good timing. Barring a total European meltdown, opportunities in the U.S. will exist, since our economy is gaining traction, corporate earnings stable and rising, and stocks reasonable attractive historically.
TODAY: another attempt to rebound is likely with resistance starting once again at DJIA 11,960 (S&P 500: 1226). A break below DJIA 11,800 (S&P 500: 1210) paves the way for a drop to the 11,730 (S&P 500: 1210) area, possibly 11,550 (S&P 500: 1190).
The European Union (EU) is an economic and political union of 27 sovereign member states with origins going back to 1958, but which was officially established by the Maastricht Treaty in 1993. Its goals are a free movement of goods, services, capital and people differing in life style, language, economies, geography, religion, politics and history.
Its 27 Members include: Austria, Belgium Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. The EU comprises a population exceeding 500 million people a GDP exceeding 16.2 billion USD, some 20% of the world’s GDP.
Important components of the EU include: European Parliament, European Commission, Council of European Union, European Council Court of Justice and European Union, and the European Central Bank.
The euro area (eurozone) is an economic and monetary union (EMU) of 17 member nations that use the “euro” as their common currency and sole legal tender. Its members include: Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain.
While the goal of single currency originated with the European Economic Community (EEC) in 1969, it was not until 1993 that members were legally bound to start the monetary union no later than January 1, 1999. At that point, the euro was launched after which it was an “accounting” currency until January 1, 2002 when euro notes and coins were issued and national currencies phased out in the eurozone.
The European Central Bank (ECB) is the central bank for the eurozone. Governed by its president, Mario Draghi, and a board of the heads of national central banks, the ECB’s primary responsibility is to maintain the euro’s purchasing power and price stability within the eurozone.
The Eurosystem is the monetary authority of the eurozone comprised of the ECB and the central banks of its member states, which are charged with applying the ECB’s policy.
The European Commission, comprised of one commissioner from each of the 27 member states, represents the interests of the EU, drafts proposals for laws, and manages the day-to-day business and disbursement of funds.
European Banking Authority (EBA): Established on Jan. 1, 2011 as a regularity agency to conduct stress tests of banks in order to detect weaknesses in capital structure. It has the power to overrule national regulators if necessary to prevent unfair competitive advantages between jurisdictions. It issues a report, Common Reporting Framework (COREP) covering capital requirements regarding credit risk, market risk, operational risk, fund and capital adequacy ratios.
The European Financial Stability Facility (EFSF): created by eurozone members to safeguard financial stability in Europe. Authority includes loans to countries in need, intervention in primary and secondary markets pursuant to ECB analysis, finance recapitalizations of financial institutions. It is backed by guarantee from the eurozone members for a total of 780 billion euros and has a lending capacity of 440 billion euros. (not considered adequate)
One euro = 1.3449 U.S. dollar (12/5)
Prominent names: European Union President: Herman van Rompuy, European Central Bank President: Mario Draghi, European Commission President: Jose Manuel Barroso, German Chancellor: Angela Merkel, French President: Nicolas Sarkozy, Italy Prime Minister: Mario Monti, EFSF President: Klaus Regling
Super Committee: While the committee failed, I am keeping this up FYI, since it will continue to get press coverage prior to the “trigger” in January.
Jan. 15, 2012: Date that the “trigger” leading to $1.2 trillion of future spending cuts goes into effect if
the committee’s legislation has not been enacted.
Feb. 2012: Approximate time when first $900 bn of debt ceiling runs out.
Feb./Mar.2012: Deadline for Congress to consider a resolution of disapproval for the second tranche
($1.2 – $1.5 trillion) of debt limit increase.
Fall/Winter 2012: When additional $2.1 – $2.4 trillion of borrowing authority from this law runs out.
Jan.2, 2013: OMB orders sequestrations for defense and non-defense categories of spending necessary
to meet spending cuts required by the “trigger.”
Recent blog headlines:
Nov. 18, DJIA: 11,770, “Stock Market a Coiling Spring ?”
Nov. 21, DJIA: 11,796, “Occupy Washington”
Nov. 22, DJIA: 11,547, “Uncertainty Rules – But Trader’s Opportunity Looms Wednesday Morning Early”
Nov. 23, DJIA: 11,493, “Darkness Before the Dawn ? Germany Starting to Feel the Heat”
Nov.25, DJIA : 11,257, “Europe, Where Art Thou ?”
Nov. 28, DJIA: 11,231, “Finally ! The European Leaders Act”
Nov. 29, DJIA: 11,563, “Game’s On !”
Nov. 30, DJIA: 11,600, “Full Court Press to Address Europe’s Problems”
Dec. 1, DJIA: 12,020, “New “Tradable” Trading Range DJIA Emerging”
Dec. 2, DJIA: 12,020, “U.S. & Euro Shaping Up – Game Changers ?”
Dec. 5, DJIA: 12,019, “Big European Week Spells Volatility”
Dec. 6, DJIA: 12,097, “Mounting Uncertainties Call for a Pullback of 200 – 300 Dow Points”
Dec. 7, DJIA: 12,150, “Easy Does It ! No Room For Disappointment at Euro Summit
Dec. 8, DJIA: 12,196, “Getting Close to Tectonic Shift- Pessimism to Optimism.”
Dec. 9, DJIA: 12,184, “Good Summit – Uncertainties Linger”
Dec.12, DJIA: 12,184, “Summit’s Success Questioned – Market Seeks Comfort Level”
Dec.13 DJIA: 12,021, “Money Managers Pondering Risk/Reward”
Dec.15, DJIA: 11,954 “More Consolidation Needed”
Dec. 16, DJIA: 11, 568 “ Market Probing for a Level that Discounts Euro-Uncertainties”:
The writer of Brooksie’s Daily Stock Market blog, 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.