Investor’s first read – Brooksie’s edge before the open.
Monday, January, 30, 2012, 9:22 a.m.
DJIA: 12,660.46 S&P 500: 1316,32
This week has the potential to rattle a lot of cages. Like two drunks swinging wildly outside a bar trying to connect with a solution to Europe’s dilemmas. While solutions seem light years apart, I don’t buy that. Cover your back, BUT PREPARE FOR OPPORTUNITY.
TODAY; Look for 100 down in the DJIA at the open with a potential for 12,439 this week.
This may be the week that counters that bleak prospect of confirms it.
We get 16 economic reports, some obviously more important than others, but combined stand to paint a positive picture from one that appears to be weakening.
Generally, I don’t like to dwell on economics, but it is a swing factor in uncertain times like this, but this week could be big.
THE ECONOMY THIS WEEK:
This is a big week for economic indicators, because much of this year’s strength has been derived from the expectation of our economy gaining enough traction to counter the economic drag that is “expected” from a European recession.
- Personal Income and Outlays (8:30 a.m.): Grew at a slower rate in Nov. vs. Sept.
- ICSC Goldman Store Sales (7:46 a.m): Accounts for 10% total retail sales.
- Employment Cost Index (8:30 a.m.): Broadest measure of labor costs.
- S&P Case-Shiller Home Prices (9 a.m.): Tracks monthly changes in 20 met districts. May provide small clue to housing recovery.
- Chicago PMI (9:45 a.m.): Regional business conditions (mfg and non-mfg) Slight firming from October to November.
- Consumer Confidence (10 a.m.): Survey of consumer attitudes go big bump in December.
- Motor Vehicle Sales (early): Big ticket items in industry with widespread impact.
- MBA Purchase Applications (7 a.m.): Measures actions and confidence to take those actions.
- ADP Employment (8:15 a.m.): Includes private hires, not government. Has been upbeat.
- ISM Manufacturing Index (10 a.m.): Broadly based survey of 300 manufacturers
- Construction Spending (10 a.m.): Jumped 1.2% in Nov. after a 0.2% drop in October includes both single family houses and multi-family, the latter may be slowing.
- Chain Store Sales (early): Monthly volumes of a big cross section.
- Jobless Claims (8:30 a.m.): Overall trend down with drop of 21,000 for week ending Jan.21.
- Productivity and Costs (8:30 a.m.): Stabilizing after early surge in 2011.
- Employment Situation (8:30 a.m.): A jump of 200,000 in December came on top of a jump of 100,000 in November.
- Factory Orders (10 a.m.): Basically flat over the past six months. Though October, the indicator was down 0.4%.
- ISM Non–Mfg Index (10 a.m.): Survey of 375 non-manufacturing firms has been flat.
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
SEQUESTRATION – TRIGGER SPENDING CUTS
While the SuperCommittee failed to agree on cuts, 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:
Jan. 3, DJIA: 12,224 “Good Start, but Follow-Through Key”
Jan. 4, DJIA: 12,397 “Buyers Expected on Any Weakness”
Jan. 5, DJIA:12,418 “U.S. Economy Gaining Traction”
Jan.6, DJIA: 12,415. “Long-Term Bonds at Risk Via Euro-Meltdown/Solution –Money Out of Bonds Into Stocks”
Jan.9 DJIA: 12,359 “Flight From “Safe” to “Risk” Assets BIG News of 2012?”
Jan.10 DJIA: 12,392 “Odds of 600 to 1,000-Point Surge in DJIA Improving”
Jan. 11 DJIA: 12,462 “Buyers on Dips”
Jan. 12 DJIA: 12,449 “Big 2012 Story: Stampede Out of Treasuries Into Stocks?”
Jan. 13 DJIA: 12,471 “Europe: Catharsis or Solution = Buying Opportunity”
Jan. 17 DJIA: 12,422 “Market Defying S&P Downgrade – But Rally Must Hold”
Jan. 18 DJIA: 12,482 “World Bank Forecast to Test Bull’s Resolve“
Jan 19 DJIA: 12,578 “What Happens If All That Money Parked in a “Safe” Haven Pours Into Stocks?“
Jan 20 DJIA: 12,623 “Two European Meetings Next Week to Set Tone of the Market“
Jan 23 DJIA: 12,720 “Europeans Seeking Long-Term Economic Cure“
Jan 25 DJIA: 12,675 “Consolidation, Correction Likely though US Stocks Hold Strong Against EU Turmoil“
Jan. 26 DJIA: 12,756 “Fed Would Raise Interest Rates If Inflation Picks Up“
NOTE: Came home from the hospital yesterday. This is still challenging.
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.