Investor’s first read – Brooksie’s edge before the open
Monday, September 17, 2012 9:04 a.m.
DJIA: 13,593.37
S&P 500: 1465.77
Nasdaq Comp.: 3183.95
Russell 2000: 864.70
The DJIA soared 300 points, following the Fed’s announcement of QE3 last Thursday. Now that the worry that the Fed “won’t” delay QE3 for another time, a crisis-weary Street is already worrying about another thing – Will it work?
There’s one difference this time around, not present in QE 1 and 2. The Fed has not set a time limit, or a $$$ limit on QE3, i.e., it’s open-ended. This may move investors and business decision makers from the “on-deck” circle to the batter’s box.
With the promise of zero interest rates through 2015, we HAVE TO ASK THE QUESTION, “What if the Fed achieves its goal of shifting our economic gears from low to high?
How can they keep rates low, how can they prevent inflation from accelerating? If that happens, the bond market bubble will burst, savaging long-term bond portfolios. I have warned about this in the past, notably in August 2010 when I was right short-term, but ultimately wrong when the Fed launched QE2 in December 2010.
Nevertheless, as desperate as investors are to improve return over that received from safe investments (Treasuries, money markets, CDs), investing in a bond fund now with interest rates at historic lows is fraught with risk.
Treasury bonds took a hit last week, following the Fed’s announcement of QE3, as concern for inflation picking up down the road were kindled.
Fiscal Cliff angst!
This week the Senate will vote to extend the nation’s debt limit by $1,047 trillion for six months. Last week the House voted 329-91 to extend it. Even some Tea Party members voted for it! My, my, what a difference backlash and an election can make. No holding the country hostage this time around. The fiscal cliff is the next hurdle – sequestration and an automatic cut in military and domestic programs, along with the expiration or partial extension of the Bush-era tax cuts.
It can’t be swept under the table, the press won’t let it.
CONCLUSION:
Profit-taking should be offset by institutional buying today. While there are a host of negatives in the wings, there has always been a host of negatives since this bull market began in early March 2009. The CRASH scenario has plagued investors for four years with the survival of the euro a major contributor.
But it looks like the euro-crisis has mostly been resolved. The crash in the housing market was a huge contributor to the Great Recession, yet it is now in recovery mode.
While global recession looms, the United States, Europe, China and Japan are stimulating their economies.
That all this would happen is what the rise in stock prices has been telling us all along. That’s why bull markets are said to “climb a wall of worry.”
Support is DJIA 13,420 (S&P 500: 1444).
FACEBOOK (FB) – $22:
Its Sept. 4 low of $17.55 is looking pretty good right now, though a move down to a smidge below $19 as a “test” is possible. I think I have achieved the goal that I set in May, that is to offer daily guidance for followers of FB starting at $34 on May 21 with my warning about a drop to the $24 – $26 area, which it did shortly thereafter. Following a rally back into the 30s FB dropped into the low-20s where on August 2, I forecast a low for the stock at $16.88.
On September 4, it hit $17.73 before rebounding into the 20s over the last six days. I plan to cut back on coverage, commenting on occasion when I think it would be helpful. 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. At some point, I will drop coverage. I would like to see readers through the full cycle, from the $34 where I picked it up as “going lower” down to a bottom.
I have been in this business 50 years and get thoroughly ripped when I see injustice, and I think that is what happened here at high levels. Needless to say, this is not the only time. Speaking my mind has not been without cost.
ECONOMIC REPORTS:
MONDAY:
Empire State Mfg Svy (8:30) – Dropped to a minus 5.85 in August from a plus 7.39 in July. New Orders also down to minus 5.50 from minus 2.69.
TUESDAY:
Housing Market Ix (10:00) – Rose for the 4th straight month to 37 from 35 in August the best since 2007.
WEDNESDAY:
Housing Starts (8:30) – dropped1.1% in July after an 8.8%jump in June. Permits rose 6.8% after a drop of 3.1% in June.
Existing Home Sales (10:00) – Rebounded 2.3% in July to a 4.47 million annual rate reversing a 5.4% drop in June.
THURSDAY:
Jobless Claims (8:30) – Rose 15,000 to 382,000 for the week ended Sept. 8, partly due to Tropical Storm Isaac and Labor Day The 4-week average is now 375,000
Markit PMI Mfg flash In. (9:00) – Final Aug. index was revised down 0.4 points to 51.5.
Philadelphis Fed Svy (10:00) –Improved to minus 7.1 in Aug. from minus 12.8 in July
Leading Economic Indicators (10:00) – Rebounded 0.4% in July after a drop of 0.4% in June.
Note: Economic data above is subject to revision, so what you see as the latest reading may change in the next report.
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.
