Investors Trading on Selective Opportunities

George Brooks |

NYSE Wall StreetBrooksie's Daily Stock Market blog - an edge before the market opens

Tuesday, December 27, 2011    9:14 am ET

DJIA: 12,254.72     S&P 500: 1262.27

All quiet on the Western and Eastern fronts - for now. Look for  the market to give up some ground at the open. This is normal after a 3.5% pop last week in response to better-than-expected  housing industry reports.

While industry analysts will be quick to point out the turn in this vital industry is still many months off, we are seeing early indications that some of the industry is in a turning pattern. The question “Buy or Rent” will be asked more frequently in coming months.

Then too, how long can attractive houses in attractive locations sell at such attractive prices ?  These don’t have to be high-priced houses, just nice ones in proximity to good schools, etc. – houses that would sell quickly if house prices suddenly rebounded, causing prospective buyers to scramble.

Present home owners stand to get a boost in confidence knowing that a turn is near.

Common sense and the extremes to which this industry has plunged suggests the pendulum is swinging.

Last week’s Housing reports had a big impact on the stock market starting with a 337-point surge in the DJIA on Tuesday with another 151 points added by Friday. Upbeat reports from the NAHB/Wells Fargo Housing Market Index, Existing and New Home Sales reports suggest the early stages of a recovery in the housing industry, long a drag on the economy and consumer confidence.

This week will be lighter.  Today features the Case-Shiller Home Price Index at 9 a.m. and Consumer Confidence at 10:00. Thursday brings Jobless Claims at 8:30, the  Chicago ISM (regional business)report at 9:45, and Pending Home Sales at 10:00.

Case-Shiller house prices are projected to have dropped 3.2% in October from a year ago reflecting a slower rate of decline in recent months. While another round of foreclosures will keep pressure on prices until mid-2012 according to chief economist for Wells Fargo Securities, Mark Vitner.*

“We need a higher level of confidence to get back in the traditional move-upstream or first-time buyer out of rental Jeffrey Metzger, CEO KB Homes says, adding, A lot of consumers are surprised, frankly, at how low home payments are compared to rent.”*

CONCLUSION: We have been spared adverse European news for over a week now, so brace yourself,  it will return – nice while it lasted.

It won’t be long now when the press speculates about the January 15 “Trigger” date when automatic future spending cuts of $1.2 trillion are highlighted, as a result of the SuperCommittee’s failure to decide on deficit reduction measures in committee meetings.

No sweat ! These cuts, half from domestic programs and half from defense, wouldn’t take effect until January 2013, giving Congress a chance to tamper with the process.

Barring any big jolts from abroad, any declines should find support above DJIA 12,145 (S&P 500: 1250). Tough call, this time of the year since institutions are window dressing portfolios for year-end reports and individuals selling for tax purposes.

I have to favor the bulls in here, not across the board, but selectively. New leaders will emerge, watch for them.

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, DJIA   12,107, “Trading Range Intact

Dec. 23, DJIA  12,169  “Don’t Take the Day Off”

George  Brooks

*Bloomberg,com

**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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