Tuesday, December 20, 2011 9:08 am ET
DJIA: 11,766.26 S&P 500: 1205.35
December’s crosscurrents tend to make it difficult to gauge the direction of the stock market, primarily because there is tax selling and year-end institutional portfolio adjustments. Toss a totally ideologically polarized Congress in beside a European mess and you hardly have Happy Holidays this year.
Yet the U.S. economy has been able to grind out a recovery off and on since the end of the recession in mid-2009. While Europe’s endless problems continue to adversely impact stock prices, this week’s economic reports could be a stabilizing factor.
Stocks plunged yesterday after European Union finance ministers announced they had agreed to provide additional bailout funding, but lacked specific contributions from some key members. Additionally, European Central Bank head, Mario Draghi, reiterated the ECB’s position that it would not be more aggressive in helping struggling countries with additional bond purchases.
As noted yesterday, this is a big week for economic reports. I sense the housing market can become a positive for the economy next year and it’s turnaround may be happening at this very moment. A number of housing reports (see below) are due this week. One, the NAHB/Wells Fargo Housing Market Index was reported yesterday and posted the third straight month in which builder confidence has improved.
This morning, an increase of 9.3% in Housing Starts for November was reported vs. a decline of 2.9%, a big reason for a strong open.
Interest in new homes is picking up, can house prices be far behind ? If prices stabilize, even selectively rise, so will consumers’ “wealth effect,” in this case – relief that one’s net worth is no longer slipping, but actually stands to increase. A transaction to build or buy creates a ripple effect throughout the economy. It spells jobs, money flows, purchases of appliances, furniture, etc..
Wednesday (10:a.m.) Existing Home Sales – previously built houses, condos, co-ops
(8:30 a.m.) GDP – Third estimate for Q3 growth
(8:30 a.m.) Jobless Claims – workers filing for first time
(9:55 a.m.) Consumer Sentiment –U. of Michigan survey reflects sentiment for spending
(10: a.m.) FHFA House Price Index single family
(10 a.m.) Leading Indicators – for overall economy as reflected by indicators that “lead” other indicators
(8:30 a.m.) Durable Goods – new orders for hard goods
(10 a.m.) New Home Sales – newly constructed homes
CONCLUSION: If the BIG money can look out 9 months to a year and see a U.S. economy ramping up a full head of steam, it will buy now. It cannot do that without showing its hand, ergo a surge in volume and prices. Institutions, likewise. They compete based on performance, and treasuries and money markets aren’t giving it to them. Unless they can justify a big plunge in the stock market, they have to buy stocks.
TODAY: Yesterday’s break below DJIA 11,800 (S&P 500: 1210 resulted in a drop to the DJIA 11,730 (S&P 500: 1203) area where stocks rebounded. Thanks to a robust Housing Starts report, today’s open stands to exceed 120 points in the DJIA.
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 = 1.3449 U.S. dollar (12/5)
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:
Nov. 18, DJIA: 11,770, “Stock Market a Coiling Spring ?”
Nov. 21, DJIA: 11,796, “Occupy Washington”
Nov. 22, DJIA: 11,547, “Uncertainty Rules – But Trader’s Opportunity Looms Wednesday Morning Early”
Nov. 23, DJIA: 11,493, “Darkness Before the Dawn ? Germany Starting to Feel the Heat”
Nov.25, DJIA : 11,257, “Europe, Where Art Thou ?”
Nov. 28, DJIA: 11,231, “Finally ! The European Leaders Act”
Nov. 29, DJIA: 11,563, “Game’s On !”
Nov. 30, DJIA: 11,600, “Full Court Press to Address Europe’s Problems”
Dec. 1, DJIA: 12,020, “New “Tradable” Trading Range DJIA Emerging”
Dec. 2, DJIA: 12,020, “U.S. & Euro Shaping Up – Game Changers ?”
Dec. 5, DJIA: 12,019, “Big European Week Spells Volatility”
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”:
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.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer