The Greek's Week Ahead - Mainstream Armageddon
The Greek's Week Ahead has been engineered to prepare you for events that could impact your portfolio this week.
Two weeks ago, when the automobile industry reported a drastic falloff in April sales, I theorized that this may portend a greater problem. Last weekend, I shed light on consumer spending pressures that I suggested could come to the fore. Wall Street Greek presciently forecast that April retail sales were likely overestimated. We were proven correct in this view, as Friday's reporting of retail sales evidenced a change in consumer spending patterns, though major market media attributed a great deal of the softness to the weather and the unfavorable date of Easter. We agree that some of the weakness can be explained by those factors, but we would not ignore the impact of a rising cost of living and tightening of lending standards on American consumers.
This weekend, while perusing Barron's, I was enthused to see Alan Abelson has embraced my views. Now that the consumer is in question, it seems likely to me that market sentiment will begin to change. Abelson's article, entitled "Running on Vapors," highlighted the stretched consumer and the importance of rising food and gasoline prices, two themes you have heard here often. Finally, people are talking about the importance of food and energy, though they haven't picked up the baton regarding the secular trends that make food and energy prices important now, versus less meaningful fluctuations of the past. It's only a matter of time though before you start to hear that too from every other talking head on the street.
I believe my counterparts who argue that labor strength and industrial demand prove me wrong, have lost their way in the forest. They're like hikers staring at trees, looking for the yellow ribbon they left, and missing the sound of the roaring river that can guide their way just as well. I believe employment and industrial health are anomalies that will lag other economic factors lower. I believe both have benefited from foreign demand for American products and services, but that the American consumer is more important of a driver for American firms, even multinationals. I expect that as banks refuse loans to previously acceptable applicants, purchases of homes, autos and even credit card born expenditures will decrease in frequency, and we've already begun to see this.
As I read 100 times this past week, the home equity ATM is gone, and lenders are getting burnt from their excesses of the past. The credit comfortable American economy is losing its financing. Trips to the mall will likely decline, restaurant outings will become less frequent and less enthusiastic. You can only burden the consumer with so much debt, and then it's time to pay the piper. An article in Businessweek this week highlighted how businesses of all sorts, while making everything from big screen TVs to homes accessible to those with even the weakest credit, have in fact created a situation where the working poor are now buried in it. I think commercial real estate is next to falter, after employment, as it becomes clear the retail environment is saturated with too many weak players to survive in a less fruitful environment.
The labor situation is logical to me. I think the slowdown in hiring will become a trend now, and I expect it is foreshadowing rising unemployment. If you are running a company, before you fire people, you stop hiring new folks. Also, productivity growth is down, and likely due to a fat labor count within companies. I do not think we have reached the limit of technological advance as some have posited. It's just a matter of bloated work force, in my view.
All these factors point toward a Fed that will have to become expansionary in nature in the future. However, with inflation holding, the Fed portends likely to wait out economic slippage, perhaps until too much damage is done. The market reacts well to rate cuts, as my friend Sam Stovall will tell you, but I think the timing of the cut and the rate of economic downturn could play a greater role in an overriding market move. Also, I have to highlight for you that emerging markets have run hard and fast, and when it becomes clear American demand may wane, we will have catalyst for equity correction in China, India and other emerging markets that have tagged along for the ride, and those that have not as well.
But wait, there's more. I hope this doesn't classify me as one of these Armageddon forecasters Erin Burnett spoke of last week, but we cannot ignore geopolitical factors that are positioning in a threatening manner. Russia just signed an agreement that will bypass western efforts to bring natural gas from the Caspian to Europe. You can now expect to see sabotage within the Republic of Georgia that will likely be blamed on breakaway factions, but driven by Russian interests. Russia's moves and Putin's language cannot be ignored, as this past week he likened America's foreign policy to that of the Third Reich. Russia is positioning itself at odds with America, as is China, too often.
While China is clearly already critical, Iran and China are set to play critical roles in our economic future. Though it may be inevitable, if we bomb Iran, or allow Israel to, Iran is likely to lash out in many unforeseen, unexpected ways, possibly including gorilla style efforts to drive oil prices higher through attacks upon its neighbors. Iran's boisterous president, and its supreme leader, may be just the right personalities to unite peoples across boarders. And when China's important oil supplier is cut off against its wishes, how should we expect it to react. I believe that a planned meeting between the U.S. and Iran, which is being labeled as an effort to improve the situation in Iraq, offers an opportunity for the U.S. to save face and negotiate with Iran directly. This is no time or place for bravado. We know what damage we can do to Iran, but we also know we will not infuriate the world by doing so. So, a deal works best, but a nuclear Iran remains an impossibility. The clock is ticking, and the strategic oil reserve is filling.
Anywho, let's hope geopolitical tensions are contained and calmer heads prevail both here and there, but don't lose sight of an important factor that could severely damage your financial well-being. The prospect of greater war is no longer interesting fictional material, but real life risk to you and your portfolio. I just hope that my view on this is never adopted by the mainstream, as the likely cause of such adoption would surely be troubling.
This week, I anticipate the concerning consumer will be lifted even higher for the viewing of all. Very important inflation, consumer sentiment and housing data is set for report, along with more individual retail earnings reports.
The week ahead...
Monday started the news week hot with the announced sale of Chrysler to Cerberus, but the heat was tepid in equities. Perhaps the market is proceeding with caution after last week's poor retail data. Dallas Fed President Richard Fisher is scheduled to speak to the importance of the U.S. service sector on the first day of the week. Reporting earnings Monday, Nordic American Tanker (NAT), PetMed Express (PETS), Yamana Gold (AUY), Agilent Technologies (A), Valspar Corp. (VAL) and others.
The first key economic data of the week hits the wire at 8:30 a.m. on Tuesday. The April consumer price index is expected to show an increase of 0.5%, versus a rise of 0.6% in March. Consensus expectations are sourced from Bloomberg. Excluding food and energy prices, the core CPI is seen rising 0.2%. Reiterating, we view changes in food and energy important, as the driver behind these changes are secular, not seasonal as in past fluctuations. Restating an argument we've made throughout the year, increasing demand and tightening supply for food and energy, due to population growth, industrial development of emerging markets, new uses of food products and the potential for war in the Middle East should keep a floor under prices while pressuring them even higher from time to time. In our view, only global economic recession poses to soften pricing, but that's not out of the question either considering the viable risks we have outlined.
The National Association of Home Builders is scheduled to report on market conditions Tuesday at 1 p.m., and recent signs from home builders do not portend strength. An especially horrid report could raise market concern for recession significantly. The reading measured 36 in March and 33 in April. The index surveys current economic and new housing conditions, sales expectations for six months forward and home buyer traffic.
After last week's retail data, the Redbook retail sales index will likely be closely watched on an ongoing basis, however, it is a less reliable resource than the weekly ICSC Index, which is reported Tuesday as well. In any event, these usually lightly followed (by the general investment community) reports are likely to gain more media attention in the future. The New York Fed will release its Empire State Manufacturing Survey. The consensus is looking for a reading of 8.0, compared to 3.8 last month. Wall Street Greek believes a strong reading continues possible for now, as New York's important port continues to serve the state's manufacturers' overseas selling efforts.
Tuesday's earnings report schedule includes Applied Materials (AMAT), Compuware Corp. (CPWR), Eddie Bauer Holdings (EBHI), Fortress Investment Group (FIG), Fossil (FOSL), Home Depot (HD), Koor Industries (KOR), The TJX Companies (TJX), Varsity Group (VSTY) and others.
Housing starts are due to be reported on Wednesday morning at 8:30 EDT and could send investors right back to bed. The consensus view is looking for an annual pace of 1.48 million starts, versus 1.52 a month prior. Again, housing data continues to pound in the reality of a weakening situation. At 9:15, April industrial production and capacity utilization will be posted. Production is expected to show a rise of 0.3%, while capacity utilization is seen inching higher to 81.5%, from 81.4% in the prior month. The mortgage banker's association will report its weekly mortgage report Wednesday, and the Energy Information Administration will report its weekly petroleum status report. We anticipate the EIA will show a second week of gasoline and oil storage build, helping oil prices to ease.
Reporting earnings, look for BEA Systems (BEAS), Deere & Company (DE), Hewlett Packard (HPQ), PetSmart (PETM), Sony (SNE) and others.
More key economic data is due Thursday. April leading indicators is seen unchanged, versus a 0.1% rise a month prior. Clearly, leading indicators will be reviewed carefully for signs of further economic weakness, or the path to recession. We will carefully note how certain media outlets, reporters and specific talking heads interpret the news, as many have thus far retained a bullish bias. Not to say they've been wrong.... Still, some people are great contrary indicators that reflect well only the current situation in equities, and the buy signal may well come when these beacons turn overwhelmingly bearish.
The May Philly Fed Survey will add further information to the New York data reported days earlier, providing further insight into manufacturing health of the Northeast. The survey is seen improving to 3.0, versus 0.2 in April. Finally, the Labor Department reports weekly initial jobless claims on Thursday and the IEA reports natural gas status. Claims are seen at 310,000. Over time, we anticipate claims will trend higher and signal that stalling hiring has spread to staff reduction. Ben Bernanke is scheduled to keynote a Chicago Fed conference on "Subprime Mortgage Markets & Regulation." This should be interesting... I guess he'll do some scolding.
Thursday's earnings reports include Advance Auto Parts (AAP), Autodesk (ADSK), Intuit (INTU), JC Penney (JCP), Kohl's (KSS), Nordstrom (JWN), Sonic Solutions (SNIC) and others. Intuit had a problem with last minute filers in April, and refunded a good deal of money. The financial impact of the issue, and a strong competitive drive by H.R. Block, may hurt INTU's fiscal third quarter ended in April.
On Friday, May Michigan sentiment may shed light on whether consumers were really feeling the heat, or just the cold weather in April. Many anticipate a retail rebound in May, and a poor reading of sentiment may raise red flags for those who previously overlooked the consumer's burden. Expectations are for a rise in sentiment to 87.0 from 85.3 in April, so there is room for downside surprise. Friday's earnings include British Airways (BAB), Dr. Reddy's Laboratories (RDY), TRC Companies (TRR) and a handful of others. We hope you found value in this latest edition of The Greek's Week Ahead.
To receive "The Greek's Week Ahead" and our daily reports via email, click here and provide us with your email address. We respect your privacy and will never share your information with any third party.(disclosure)
Two weeks ago, when the automobile industry reported a drastic falloff in April sales, I theorized that this may portend a greater problem. Last weekend, I shed light on consumer spending pressures that I suggested could come to the fore. Wall Street Greek presciently forecast that April retail sales were likely overestimated. We were proven correct in this view, as Friday's reporting of retail sales evidenced a change in consumer spending patterns, though major market media attributed a great deal of the softness to the weather and the unfavorable date of Easter. We agree that some of the weakness can be explained by those factors, but we would not ignore the impact of a rising cost of living and tightening of lending standards on American consumers.
This weekend, while perusing Barron's, I was enthused to see Alan Abelson has embraced my views. Now that the consumer is in question, it seems likely to me that market sentiment will begin to change. Abelson's article, entitled "Running on Vapors," highlighted the stretched consumer and the importance of rising food and gasoline prices, two themes you have heard here often. Finally, people are talking about the importance of food and energy, though they haven't picked up the baton regarding the secular trends that make food and energy prices important now, versus less meaningful fluctuations of the past. It's only a matter of time though before you start to hear that too from every other talking head on the street.
I believe my counterparts who argue that labor strength and industrial demand prove me wrong, have lost their way in the forest. They're like hikers staring at trees, looking for the yellow ribbon they left, and missing the sound of the roaring river that can guide their way just as well. I believe employment and industrial health are anomalies that will lag other economic factors lower. I believe both have benefited from foreign demand for American products and services, but that the American consumer is more important of a driver for American firms, even multinationals. I expect that as banks refuse loans to previously acceptable applicants, purchases of homes, autos and even credit card born expenditures will decrease in frequency, and we've already begun to see this.
As I read 100 times this past week, the home equity ATM is gone, and lenders are getting burnt from their excesses of the past. The credit comfortable American economy is losing its financing. Trips to the mall will likely decline, restaurant outings will become less frequent and less enthusiastic. You can only burden the consumer with so much debt, and then it's time to pay the piper. An article in Businessweek this week highlighted how businesses of all sorts, while making everything from big screen TVs to homes accessible to those with even the weakest credit, have in fact created a situation where the working poor are now buried in it. I think commercial real estate is next to falter, after employment, as it becomes clear the retail environment is saturated with too many weak players to survive in a less fruitful environment.
The labor situation is logical to me. I think the slowdown in hiring will become a trend now, and I expect it is foreshadowing rising unemployment. If you are running a company, before you fire people, you stop hiring new folks. Also, productivity growth is down, and likely due to a fat labor count within companies. I do not think we have reached the limit of technological advance as some have posited. It's just a matter of bloated work force, in my view.
All these factors point toward a Fed that will have to become expansionary in nature in the future. However, with inflation holding, the Fed portends likely to wait out economic slippage, perhaps until too much damage is done. The market reacts well to rate cuts, as my friend Sam Stovall will tell you, but I think the timing of the cut and the rate of economic downturn could play a greater role in an overriding market move. Also, I have to highlight for you that emerging markets have run hard and fast, and when it becomes clear American demand may wane, we will have catalyst for equity correction in China, India and other emerging markets that have tagged along for the ride, and those that have not as well.
But wait, there's more. I hope this doesn't classify me as one of these Armageddon forecasters Erin Burnett spoke of last week, but we cannot ignore geopolitical factors that are positioning in a threatening manner. Russia just signed an agreement that will bypass western efforts to bring natural gas from the Caspian to Europe. You can now expect to see sabotage within the Republic of Georgia that will likely be blamed on breakaway factions, but driven by Russian interests. Russia's moves and Putin's language cannot be ignored, as this past week he likened America's foreign policy to that of the Third Reich. Russia is positioning itself at odds with America, as is China, too often.
While China is clearly already critical, Iran and China are set to play critical roles in our economic future. Though it may be inevitable, if we bomb Iran, or allow Israel to, Iran is likely to lash out in many unforeseen, unexpected ways, possibly including gorilla style efforts to drive oil prices higher through attacks upon its neighbors. Iran's boisterous president, and its supreme leader, may be just the right personalities to unite peoples across boarders. And when China's important oil supplier is cut off against its wishes, how should we expect it to react. I believe that a planned meeting between the U.S. and Iran, which is being labeled as an effort to improve the situation in Iraq, offers an opportunity for the U.S. to save face and negotiate with Iran directly. This is no time or place for bravado. We know what damage we can do to Iran, but we also know we will not infuriate the world by doing so. So, a deal works best, but a nuclear Iran remains an impossibility. The clock is ticking, and the strategic oil reserve is filling.
Anywho, let's hope geopolitical tensions are contained and calmer heads prevail both here and there, but don't lose sight of an important factor that could severely damage your financial well-being. The prospect of greater war is no longer interesting fictional material, but real life risk to you and your portfolio. I just hope that my view on this is never adopted by the mainstream, as the likely cause of such adoption would surely be troubling.
This week, I anticipate the concerning consumer will be lifted even higher for the viewing of all. Very important inflation, consumer sentiment and housing data is set for report, along with more individual retail earnings reports.
The week ahead...
Monday started the news week hot with the announced sale of Chrysler to Cerberus, but the heat was tepid in equities. Perhaps the market is proceeding with caution after last week's poor retail data. Dallas Fed President Richard Fisher is scheduled to speak to the importance of the U.S. service sector on the first day of the week. Reporting earnings Monday, Nordic American Tanker (NAT), PetMed Express (PETS), Yamana Gold (AUY), Agilent Technologies (A), Valspar Corp. (VAL) and others.
The first key economic data of the week hits the wire at 8:30 a.m. on Tuesday. The April consumer price index is expected to show an increase of 0.5%, versus a rise of 0.6% in March. Consensus expectations are sourced from Bloomberg. Excluding food and energy prices, the core CPI is seen rising 0.2%. Reiterating, we view changes in food and energy important, as the driver behind these changes are secular, not seasonal as in past fluctuations. Restating an argument we've made throughout the year, increasing demand and tightening supply for food and energy, due to population growth, industrial development of emerging markets, new uses of food products and the potential for war in the Middle East should keep a floor under prices while pressuring them even higher from time to time. In our view, only global economic recession poses to soften pricing, but that's not out of the question either considering the viable risks we have outlined.
The National Association of Home Builders is scheduled to report on market conditions Tuesday at 1 p.m., and recent signs from home builders do not portend strength. An especially horrid report could raise market concern for recession significantly. The reading measured 36 in March and 33 in April. The index surveys current economic and new housing conditions, sales expectations for six months forward and home buyer traffic.
After last week's retail data, the Redbook retail sales index will likely be closely watched on an ongoing basis, however, it is a less reliable resource than the weekly ICSC Index, which is reported Tuesday as well. In any event, these usually lightly followed (by the general investment community) reports are likely to gain more media attention in the future. The New York Fed will release its Empire State Manufacturing Survey. The consensus is looking for a reading of 8.0, compared to 3.8 last month. Wall Street Greek believes a strong reading continues possible for now, as New York's important port continues to serve the state's manufacturers' overseas selling efforts.
Tuesday's earnings report schedule includes Applied Materials (AMAT), Compuware Corp. (CPWR), Eddie Bauer Holdings (EBHI), Fortress Investment Group (FIG), Fossil (FOSL), Home Depot (HD), Koor Industries (KOR), The TJX Companies (TJX), Varsity Group (VSTY) and others.
Housing starts are due to be reported on Wednesday morning at 8:30 EDT and could send investors right back to bed. The consensus view is looking for an annual pace of 1.48 million starts, versus 1.52 a month prior. Again, housing data continues to pound in the reality of a weakening situation. At 9:15, April industrial production and capacity utilization will be posted. Production is expected to show a rise of 0.3%, while capacity utilization is seen inching higher to 81.5%, from 81.4% in the prior month. The mortgage banker's association will report its weekly mortgage report Wednesday, and the Energy Information Administration will report its weekly petroleum status report. We anticipate the EIA will show a second week of gasoline and oil storage build, helping oil prices to ease.
Reporting earnings, look for BEA Systems (BEAS), Deere & Company (DE), Hewlett Packard (HPQ), PetSmart (PETM), Sony (SNE) and others.
More key economic data is due Thursday. April leading indicators is seen unchanged, versus a 0.1% rise a month prior. Clearly, leading indicators will be reviewed carefully for signs of further economic weakness, or the path to recession. We will carefully note how certain media outlets, reporters and specific talking heads interpret the news, as many have thus far retained a bullish bias. Not to say they've been wrong.... Still, some people are great contrary indicators that reflect well only the current situation in equities, and the buy signal may well come when these beacons turn overwhelmingly bearish.
The May Philly Fed Survey will add further information to the New York data reported days earlier, providing further insight into manufacturing health of the Northeast. The survey is seen improving to 3.0, versus 0.2 in April. Finally, the Labor Department reports weekly initial jobless claims on Thursday and the IEA reports natural gas status. Claims are seen at 310,000. Over time, we anticipate claims will trend higher and signal that stalling hiring has spread to staff reduction. Ben Bernanke is scheduled to keynote a Chicago Fed conference on "Subprime Mortgage Markets & Regulation." This should be interesting... I guess he'll do some scolding.
Thursday's earnings reports include Advance Auto Parts (AAP), Autodesk (ADSK), Intuit (INTU), JC Penney (JCP), Kohl's (KSS), Nordstrom (JWN), Sonic Solutions (SNIC) and others. Intuit had a problem with last minute filers in April, and refunded a good deal of money. The financial impact of the issue, and a strong competitive drive by H.R. Block, may hurt INTU's fiscal third quarter ended in April.
On Friday, May Michigan sentiment may shed light on whether consumers were really feeling the heat, or just the cold weather in April. Many anticipate a retail rebound in May, and a poor reading of sentiment may raise red flags for those who previously overlooked the consumer's burden. Expectations are for a rise in sentiment to 87.0 from 85.3 in April, so there is room for downside surprise. Friday's earnings include British Airways (BAB), Dr. Reddy's Laboratories (RDY), TRC Companies (TRR) and a handful of others. We hope you found value in this latest edition of The Greek's Week Ahead.
To receive "The Greek's Week Ahead" and our daily reports via email, click here and provide us with your email address. We respect your privacy and will never share your information with any third party.(disclosure)
Labels: Week Ahead
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