Brooksie’s Daily Stock Market blog – an edge before the open
Friday, December 23, 2011 9: 16 am ET
Best wishes for the Holidays
DJIA: 12,169.65 S&P 500: 1254.00
Indeed, this was a week to “Watch Housing,” per Monday’s blog. There are still a lot of negative forecasts for the housing industry. I sense the industry is turning because it is so basic to peoples’ needs, prices are cheap (Generally, down 31% since 2006), and mortgage rates irresistible if you can get the loan. The entire industry doesn’t have to turn to give the economy a shot in the arm. Clearly, foreclosures will remain a depressant, but I see people buying homes they believe are attractive within their affordability. If prices selectively start to edge up, so will the urge to buy.
A number of housing reports (see below) were released this week. One, the NAHB/Wells Fargo Housing Market Index was reported Monday, ergo the third straight month in which builder confidence improved.
Tuesday, an increase of 9.3% in Housing Starts for November was reported vs. an October decline of 2.9%. Both reports were big reasons for Tuesday’s surge in prices.
November’s Existing Home Sales report, was released at 10 a.m. yesterday, posting a 4% increase over October adding to the sense that this sector has reached a turning point as most things do at extremes.
Yesterday’s economic reports made good reading:
(GDP – The third estimate for Q3’s GDP growth came in at a plus 1.8%, down from the prior estimate of plus 2.0%. This will need further crunching.
Jobless Claims – (workers filing for first time) were down 4,000 for week ended Dec. 17 to 364,000 vs. an expected increase. – O.K.
(9:55 a.m.) Consumer Sentiment –U. of Michigan survey reflects sentiment for spending. Economists project a slight increase for December vs. November,
(10: a.m.) FHFA House Price Index single family
Leading Indicators – November’s leading indicators beat projections with an increase of 0.5 percent vs. a gain of 0.9 percent in October.
Friday:
(8:30 a.m.) Durable Goods – new orders for hard goods for November rose 3.8% (0.3% ex transportation)
(10 a.m.) New Home Sales – newly constructed homes are expected to have climbed to a 315,000 annual rate in November from 307,000.
Volume is likely to be light today as traders head out for a three-day weekend.
CONCLUSION: The upbeat U.S. economic reports clearly refute the doomster’s summer forecasts for a recession, and upstages Europe’s woes (for the moment). Signs that the housing market is beginning to turn was the catalyst for this week’s big surge, and the momentum is hard to turn off.
No matter how dire the pundit’s forecasts are, bear in mind two things. Unless money managers agree, they will buy stocks for their clients – that is what they are getting paid to do, NOT sit on a paltry return in treasuries or a money market fund. Then too, a number of the pundits are most likely short and stand to financially benefit from their negative forecasts.
A seasonal message from the Stock Trader’s Almanac: “If Santa Claus Should Fail To Call Bears May Come To Broad and Wall.” Essentially, if the S&P 500 fails to rise during the last five days of December and first two days of January, you can expect a bear market, or an opportunity to buy stocks cheaper during the following year.
TODAY: Yesterday, I felt that there was an “even chance” that the market could decline into today setting up a trading opportunity this morning – didn’t happen. Instead, the market rallied to my “resistance” levels where it closed.
Trading may be light today going into a three-day weekend. Don’t take the day off if you have targeted specific stocks, you may not be the only one interested. The sudden change in the investment economic and environment from glum to upbeat has to stir money managers into urgency to accelerate accumulation of targeted stocks. Just maybe they don’t have the luxury of patiently bidding at or below the market for stocks they want to own, and especially for stocks they want to show in their year-end reports.
EUROPEAN UNION/EUROZONE
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 = 1.3035 U.S. dollar (12/21)
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:
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”:
Dec. 19, DJIA: 11,866 “BIG Week: Economic Reports – Watch Housing”
Dec. 20, DJIA: 11,766 “ The U.S. Economy – Last Man Standing ?”
Dec. 21, DJIA: 12,103 “ Housing Turnaround = Wealth Effect Rebound = Economic Expansion”
Dec. 22, DJIUA12,107, “Trading Range Intact
George Brooks
*National Journal
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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.
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