Actionable insights straight to your inbox

Equities logo

Crunch Time as Investors Face Euro-Uncertainties and U.S. Debt Ceiling Hassle

Investor’s first read - Brooksie’s edge before the openTuesday, September 11, 2012 9:13 a.m.DJIA: 13,254.29S&P 500: 1429.08Nasdaq Comp.: 3104.02Russell 2000: 839.37The Fed is now expected

Investor’s first read – Brooksie’s edge before the open

Tuesday, September 11, 2012 9:13 a.m.
DJIA: 13,254.29
S&P 500: 1429.08
Nasdaq Comp.: 3104.02
Russell 2000: 839.37

The Fed is now expected to announce an “open-ended” stimulus plan on Thursday, which makes sense. Rather than opting for a specific stimulus amount with an end-date, the Fed would continue bond purchases (Agency and Treasury bonds) until the economy responds, or until it is obvious it is not working.

In March 2009, the Fed began buying $1.25 trillion mortgage-backed securities, $1.75 billion agency debt and $300 billion Treasury debt.

In the second round, announced November 2010 through June, it bought $600 billion in Treasury debt. In September 2011, it employed Operation Twist to replace $400 billion of portfolio debt with longer term debt through June 2012 (extended through December 2012).

CONCLUSION: I have been expecting a “pop” in stock prices accompanying an announcement of a Fed stimulus plan, but have warned that a 13% rise in stock prices since June 4 has at least partly discounted Fed action.

Yesterday’s drop in stock prices suggests the Street is thinking along the same lines Then too, there suddenly seems to be a bunch of uncertainties standing in the way of a big move up from here.

Not all is as well as hoped for in Europe, but who could expect it to be. The euro-area nations are moving in the right direction but not in a straight line.

Tomorrow, Germany’s Constitutional Court will rule on the legality of the euro-zone’s new permanent bailout fund, the European Stability Mechanism (ESM), and budget rules. While it is expected to give a green light, stiff conditions are expected to be attached and a delay to a decision is always possible since it raises constitutional issues.

Greece’s coalition partners have not yet reached an agreement on the spending cuts needed to satisfy conditions for a bailout.

The U.S. “fiscal cliff” and the consequences of sequestration (automatic spending cuts) are starting to hit front pages. While Congress doesn’t want to deal with it before the election, media pressure may not allow it to duck the issue.

Actually, Congress has wiggle room here on a year-end deadline, I just don’t think that will be what gets the press headlines.

The U.S. government’s fiscal year end is up this month, requiring a vote to raise the debt ceiling. Does the Tea Party block of Congress dare to threaten default this time around?

Yes, I remember 9/11. I lived in Darien, Conn., a small New York City commuter town. I worked out of a home office writing investment research for companies and the old Equities Magazine, but was flexible to do a lot of photography for the Darien Times, for which my wife was editor.

I interviewed and photographed commuters as they got off the train, some covered with dust. Wives and family members greeted them – tears and yes joy, but only that they were survivors. One wife literally just dug her fingers into her husband’s back as she hugged him.

One man in his thirties, had an office high up in the second building to get hit. He was very calm and articulate as he explained the chaos and bodies of jumpers. We talked as we walked to his car, then all of a sudden, he broke down and sobbed.

He called me the next day and gave me phone numbers of friends to call for him to see if they survived; he couldn’t call them himself.

As the sun set, I was able to shoot a photo across Darien’s marina on Long Island Sound with an eerie contrast of sailboats moored in still waters in the foreground as black columns of smoke rose against a pink sky from the remains of the towers 40 miles away.

Men and women left town for work in the city that day. Six did not return.

FACEBOOK (FB) at $18.81:

Mark Zuckerberg, CEO, will give his first interview today since FB went public in May. It will be at the TechCrunch Disrupt conference in San Francisco. Could he announce his withdrawal as CEO? That would be temporarily bullish, but what is needed here is clarification about how the company can make money.

Technically, the stock needs to cross $19.25 to reverse a negative pattern. Otherwise, it looks like it will drop below $18. Volume will tell the story. A huge influx of buying suggests Tuesday’s low of $17.55 was FB’s bottom. Without that, FB will test that low.

Until that happens the tug of war between buyers and sellers will continue as the stock seeks a comfort level.
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.

George Brooks
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.

Why distillate crack spreads will likely experience more volatility.