The Greek's Week Ahead - O' Say, Can You See, Our Economic Future?
The Greek's Week Ahead has been engineered to prepare you for events that could impact your portfolio this week.
This week will be split in half by my favorite holiday, Independence Day. It's the kind of week where half the traders will take the first portion off and the other half the second portion. Here on the East Coast, we like to spend it at the shore, enjoying an early taste of summer and watching fireworks off the boardwalk. Now that I'm in the city, I do my best to catch the show at Battery Park, I think sponsored by Macy's.
Well, it seems that this week's hot topic is the flailing credit markets, and the risk posed by CDO's and the subprime sector. But, we already covered that before it reached the mainstream radar. Check out our article of June 3, "The Greek's Week Ahead - When Liquidity Dries."
The newest complicated topic meant to scare investors is how the marking to market of CDO's could do in a good deal of hedge funds. It's assumed here that you understand these securities would be marked down, due to rising risk. I have a good friend at one of these funds, so for his sake, I hope this is overdone. Still, there is enough chatter on the street to concern us. I discussed this risk with my friend in late winter, during which I recall advising him to consider looking for another job.
Do I think this will do in the market? Well it won't help... I have a strong view that credit risk spreads will widen, and I agree with a lot of what Pimco's Bill Gross has to say lately. There are many reasons to expect the liquidity situation to dry, including reduced foreign investment in U.S. treasuries and other dollar denominated securities and assets. Also, something only found here at Wall Street Greek, we anticipate America will be reevaluated for the safety of its securities. See "Country Risk, Is America Safe?" We believe here that just as the loss of liquidity dried up the venture capital and IPO market in 2000, private equity and the M&A boom of today are threatened. We think the Blackstone guys are going to come out of this looking brilliant.
Before we discuss the week ahead, let's look back at the week that was...
Regarding the Federal Open Market Committee decision and statement, I think it was a good idea to sit back and wait for the frenzied initial reaction to pass. I have often noticed incorrect, in my view, reactions to policy statements of the past. The market rose into the report this time around, before giving back ground to end the day Thursday. Then, Friday morning, after the personal income and consumption data, the market gapped higher on the open, before terrorism concern and economic realities brought investors back to the table looking for cash to hold over the weekend.
FOMC Policy Decision and Statement
Never have 134 words been so closely reviewed before, except for the last time the Fed issued a policy statement. Seriously, it's essential but ridiculous how much is read into the statement. Why can't we just take it for what it is, and stop attempting to read into the omissions of words that were there last time, or the addition of specific new words that may not be much different than the old terms used. Seriously, it's overdone and takes away from the importance of the statement.
I did not see much difference in the statement, outside of the excess usage of the words moderate and modest. The economy is cruising, according to many economists, and the general view is that second quarter GDP will show improvement over Q1, while at the same time inflation cools. It's possible this could spawn a false confidence among the Fed governors, which in my view would be a mistake. If you've been reading, then you know why.
I anticipate consumer softness, for which there are abundant signs, will drive economic weakening in the second half of the year. But you need to know what's in store for stocks now... Well, in the very short term, barring a serious hedge fund issue, we believe stocks should move higher on the inflation data and in anticipation of earnings season. As the market begins to anticipate Q2 GDP, with inflation likely persisting, we see increasing speculation for a rate increase. That scenario should lead to the market adjusting lower. Then, if it were to become evident the economy could be in trouble, like we expect, stocks should correct further. There would be a loss of confidence in the Fed's ability to manage the economy, and there would be serious stagflation concern as well. Finally, as the Fed potentially moves to cut rates, we expect stocks could then begin moving higher. That's a play-by-play until conflict with Iran erupts, and then all bets are off. It's either foolish or ballsy to make this detailed of a forecast, and that's the reason you do not see any economists doing so. We are striving to provide a value added service, and at minimum, allowing you to see the full spectrum of possibilities in store. Dynamic factors that play out in the future could make this forecast outdated. So, keep in touch...
Personal Income and Consumption
I like Steve Leisman, CNBC's resident economist, but Friday he was just insane or drunken with excitement over the inflation data within this report. He reminded me of Howard Dean's infamous squelch. Steve, I'm sorry, but your presidential hopes are over!
Still, the 1.9% year-over-year growth in the core PCE deflator fell within the Fed's preferred range, and is a positive factor if sustained. Whether it's sustainable is the key question here. Personal consumption growth was reported at 0.5% in May, short of the consensus view for 0.7%, as compiled by Bloomberg. This brings to light our key concern, the state of the consumer.
Consumer Confidence
Two consumer confidence reports reached market last week. The Conference Board's report on Monday showed the Consumer Confidence Index at 103.9, short of the forecast 105 mark and down from May's 108. On Friday, the University of Michigan Consumer Sentiment revision showed the measure was actually higher than first reported, but still a troubling 85.3, versus 85.3 in the month prior. Remember, this metric has trended down from the beginning of the year. Housing sales data didn't provide much support for the consumer this week either, and several housing stocks reported earnings and held discussion that disappointed investors. Still, we anticipate the market wants to move higher in the short term as it anticipates earnings season and contemplates the interest rate data.
Let's examine the abbreviated week ahead...
Now I'm not sure if I'm big in Japan, but I'm high on Japan, in light of its recent consumer spending data and low inflation. Overseas on Monday, the Bank of Japan publishes its quarterly tankan survey, a reading on business confidence, so we'll get to know just how well things appear to Japanese businessmen. Separately, markets in Hong Kong will be closed.
The June ISM Manufacturing Index will be released on Monday morning at 10:00 EDT. Bloomberg's consensus is looking for a measure of 55.0, which compares to 55.0 in May. Reporting earnings, look for 99 Cents Only (NDN), Advanced Photonix (API), TRC Companies (TRR), UAP Holding Corp. (UAPH) and a few others.
At 7:45 Tuesday morning, the International Council of Shopping Centers - UBS will report its weekly same-store sales data. As you may have expected, sales growth has been on the skids of late. This is something we track here, and you can find previous week's data in our sidebar section on the site. Redbook Research issues its same-store sales report at 8:55 EDT, but the data is less consistent than the ICSC data, though still worth a look.
At 10:00, May Factory Orders are expected to show a 1.2% decline. April increased 0.3%, and so, this and durable goods orders raise concern that manufacturers may be anticipating consumer softness. The Pending Home Sales Index is also due out at 10:00, and though Bloomberg has no consensus data, I've read that economists expect growth in May, after a 3.2% decrease in April.
Finally, to end the day, June Domestic Motor Vehicle Sales are scheduled for 4:00 p.m. report. The consensus is looking for 12.4 million in sales, after 12.2 million were reported in May. Reporting earnings, expect Radcom Ltd. (RDCM), Alphameric plc (ALM.L), Green King plc (GNK.L), Northgate plc (NTG.L) and Total Systems plc (TTS.L). Ahead of the Independence Day holiday, the NYSE, AMEX and NASDAQ will close at 1:00 p.m., while the bond market will close at 2:00 p.m.
U.S. markets are closed on Wednesday, to honor "the land that we love." God bless America. However, markets are open around the world, and the Australian Reserve Bank will make its decision on interest rates. The ECB will issue its quarterly financial statement, while May's retail sales are reported for Europe. It's lonely out there, as only Northgate Information Solutions plc (NIS.L) reports earnings.
After the day off, U.S. trading resumes on "Employment Thursday". The early action will be across the pond, where the Bank of England concludes its two-day meeting, and is expected to raise rates a quarter point to 5.75%. The ECB will also provide a decision on eurozone rates on this day.
In America, the Mortgage Banker's Association will report weekly mortgage originations. Also, initial weekly jobless claims are due, with expectations for approximately 315,000 new claims, near the prior week's report. The Challenger Job-Cut Report will show the number of announced corporate layoffs in June. We expect this to tick up from the 71,115 reported in May. The Monster Employment Index is also due out on Thursday, and May's reading was 186. At 8:15, ADP provides its report on the nonfarm payroll trend in the private sector. In May, month-to-month growth was 97,000. This data has recently proven prescient for forecasting the Employment Status report, which is due on Friday.
The ISM Nonmanufacturing Index is scheduled for report Thursday, and the consensus expects a measure of 57.5 in June, compared to 59.7 in May. The regular EIA Petroleum Status Report is due Thursday this week, due to the holiday. There's just one earnings report scheduled, and it's that of Healthways (HWAY).
The EIA Natural Gas Report was also pushed back a day due to the holiday. However, the most important news on Friday originates from the Labor Department, which will post the Employment Situation Report. Nonfarm payrolls are expected to have grown by 125,000 in June, while the unemployment rate is expected to have held at 4.5%. Meanwhile, average hourly earnings are anticipated to have increased by 0.3% in June. Recall, this is the most important report now we believe. We expect this will provide the second signal to us about the potentially deteriorating economy led by consumer softness. Before they fire, they stop hiring. Friday's earnings reports include Laidlaw International (LI) and a group of foreign traded shares. We hope you found value in this week's copy and wish you a great week investing.
Thank you for your interest in our articles. (disclosure)
This week will be split in half by my favorite holiday, Independence Day. It's the kind of week where half the traders will take the first portion off and the other half the second portion. Here on the East Coast, we like to spend it at the shore, enjoying an early taste of summer and watching fireworks off the boardwalk. Now that I'm in the city, I do my best to catch the show at Battery Park, I think sponsored by Macy's.
Well, it seems that this week's hot topic is the flailing credit markets, and the risk posed by CDO's and the subprime sector. But, we already covered that before it reached the mainstream radar. Check out our article of June 3, "The Greek's Week Ahead - When Liquidity Dries."
The newest complicated topic meant to scare investors is how the marking to market of CDO's could do in a good deal of hedge funds. It's assumed here that you understand these securities would be marked down, due to rising risk. I have a good friend at one of these funds, so for his sake, I hope this is overdone. Still, there is enough chatter on the street to concern us. I discussed this risk with my friend in late winter, during which I recall advising him to consider looking for another job.
Do I think this will do in the market? Well it won't help... I have a strong view that credit risk spreads will widen, and I agree with a lot of what Pimco's Bill Gross has to say lately. There are many reasons to expect the liquidity situation to dry, including reduced foreign investment in U.S. treasuries and other dollar denominated securities and assets. Also, something only found here at Wall Street Greek, we anticipate America will be reevaluated for the safety of its securities. See "Country Risk, Is America Safe?" We believe here that just as the loss of liquidity dried up the venture capital and IPO market in 2000, private equity and the M&A boom of today are threatened. We think the Blackstone guys are going to come out of this looking brilliant.
Before we discuss the week ahead, let's look back at the week that was...
Regarding the Federal Open Market Committee decision and statement, I think it was a good idea to sit back and wait for the frenzied initial reaction to pass. I have often noticed incorrect, in my view, reactions to policy statements of the past. The market rose into the report this time around, before giving back ground to end the day Thursday. Then, Friday morning, after the personal income and consumption data, the market gapped higher on the open, before terrorism concern and economic realities brought investors back to the table looking for cash to hold over the weekend.
FOMC Policy Decision and Statement
Never have 134 words been so closely reviewed before, except for the last time the Fed issued a policy statement. Seriously, it's essential but ridiculous how much is read into the statement. Why can't we just take it for what it is, and stop attempting to read into the omissions of words that were there last time, or the addition of specific new words that may not be much different than the old terms used. Seriously, it's overdone and takes away from the importance of the statement.
I did not see much difference in the statement, outside of the excess usage of the words moderate and modest. The economy is cruising, according to many economists, and the general view is that second quarter GDP will show improvement over Q1, while at the same time inflation cools. It's possible this could spawn a false confidence among the Fed governors, which in my view would be a mistake. If you've been reading, then you know why.
I anticipate consumer softness, for which there are abundant signs, will drive economic weakening in the second half of the year. But you need to know what's in store for stocks now... Well, in the very short term, barring a serious hedge fund issue, we believe stocks should move higher on the inflation data and in anticipation of earnings season. As the market begins to anticipate Q2 GDP, with inflation likely persisting, we see increasing speculation for a rate increase. That scenario should lead to the market adjusting lower. Then, if it were to become evident the economy could be in trouble, like we expect, stocks should correct further. There would be a loss of confidence in the Fed's ability to manage the economy, and there would be serious stagflation concern as well. Finally, as the Fed potentially moves to cut rates, we expect stocks could then begin moving higher. That's a play-by-play until conflict with Iran erupts, and then all bets are off. It's either foolish or ballsy to make this detailed of a forecast, and that's the reason you do not see any economists doing so. We are striving to provide a value added service, and at minimum, allowing you to see the full spectrum of possibilities in store. Dynamic factors that play out in the future could make this forecast outdated. So, keep in touch...
Personal Income and Consumption
I like Steve Leisman, CNBC's resident economist, but Friday he was just insane or drunken with excitement over the inflation data within this report. He reminded me of Howard Dean's infamous squelch. Steve, I'm sorry, but your presidential hopes are over!
Still, the 1.9% year-over-year growth in the core PCE deflator fell within the Fed's preferred range, and is a positive factor if sustained. Whether it's sustainable is the key question here. Personal consumption growth was reported at 0.5% in May, short of the consensus view for 0.7%, as compiled by Bloomberg. This brings to light our key concern, the state of the consumer.
Consumer Confidence
Two consumer confidence reports reached market last week. The Conference Board's report on Monday showed the Consumer Confidence Index at 103.9, short of the forecast 105 mark and down from May's 108. On Friday, the University of Michigan Consumer Sentiment revision showed the measure was actually higher than first reported, but still a troubling 85.3, versus 85.3 in the month prior. Remember, this metric has trended down from the beginning of the year. Housing sales data didn't provide much support for the consumer this week either, and several housing stocks reported earnings and held discussion that disappointed investors. Still, we anticipate the market wants to move higher in the short term as it anticipates earnings season and contemplates the interest rate data.
Let's examine the abbreviated week ahead...
Now I'm not sure if I'm big in Japan, but I'm high on Japan, in light of its recent consumer spending data and low inflation. Overseas on Monday, the Bank of Japan publishes its quarterly tankan survey, a reading on business confidence, so we'll get to know just how well things appear to Japanese businessmen. Separately, markets in Hong Kong will be closed.
The June ISM Manufacturing Index will be released on Monday morning at 10:00 EDT. Bloomberg's consensus is looking for a measure of 55.0, which compares to 55.0 in May. Reporting earnings, look for 99 Cents Only (NDN), Advanced Photonix (API), TRC Companies (TRR), UAP Holding Corp. (UAPH) and a few others.
At 7:45 Tuesday morning, the International Council of Shopping Centers - UBS will report its weekly same-store sales data. As you may have expected, sales growth has been on the skids of late. This is something we track here, and you can find previous week's data in our sidebar section on the site. Redbook Research issues its same-store sales report at 8:55 EDT, but the data is less consistent than the ICSC data, though still worth a look.
At 10:00, May Factory Orders are expected to show a 1.2% decline. April increased 0.3%, and so, this and durable goods orders raise concern that manufacturers may be anticipating consumer softness. The Pending Home Sales Index is also due out at 10:00, and though Bloomberg has no consensus data, I've read that economists expect growth in May, after a 3.2% decrease in April.
Finally, to end the day, June Domestic Motor Vehicle Sales are scheduled for 4:00 p.m. report. The consensus is looking for 12.4 million in sales, after 12.2 million were reported in May. Reporting earnings, expect Radcom Ltd. (RDCM), Alphameric plc (ALM.L), Green King plc (GNK.L), Northgate plc (NTG.L) and Total Systems plc (TTS.L). Ahead of the Independence Day holiday, the NYSE, AMEX and NASDAQ will close at 1:00 p.m., while the bond market will close at 2:00 p.m.
U.S. markets are closed on Wednesday, to honor "the land that we love." God bless America. However, markets are open around the world, and the Australian Reserve Bank will make its decision on interest rates. The ECB will issue its quarterly financial statement, while May's retail sales are reported for Europe. It's lonely out there, as only Northgate Information Solutions plc (NIS.L) reports earnings.
After the day off, U.S. trading resumes on "Employment Thursday". The early action will be across the pond, where the Bank of England concludes its two-day meeting, and is expected to raise rates a quarter point to 5.75%. The ECB will also provide a decision on eurozone rates on this day.
In America, the Mortgage Banker's Association will report weekly mortgage originations. Also, initial weekly jobless claims are due, with expectations for approximately 315,000 new claims, near the prior week's report. The Challenger Job-Cut Report will show the number of announced corporate layoffs in June. We expect this to tick up from the 71,115 reported in May. The Monster Employment Index is also due out on Thursday, and May's reading was 186. At 8:15, ADP provides its report on the nonfarm payroll trend in the private sector. In May, month-to-month growth was 97,000. This data has recently proven prescient for forecasting the Employment Status report, which is due on Friday.
The ISM Nonmanufacturing Index is scheduled for report Thursday, and the consensus expects a measure of 57.5 in June, compared to 59.7 in May. The regular EIA Petroleum Status Report is due Thursday this week, due to the holiday. There's just one earnings report scheduled, and it's that of Healthways (HWAY).
The EIA Natural Gas Report was also pushed back a day due to the holiday. However, the most important news on Friday originates from the Labor Department, which will post the Employment Situation Report. Nonfarm payrolls are expected to have grown by 125,000 in June, while the unemployment rate is expected to have held at 4.5%. Meanwhile, average hourly earnings are anticipated to have increased by 0.3% in June. Recall, this is the most important report now we believe. We expect this will provide the second signal to us about the potentially deteriorating economy led by consumer softness. Before they fire, they stop hiring. Friday's earnings reports include Laidlaw International (LI) and a group of foreign traded shares. We hope you found value in this week's copy and wish you a great week investing.
Thank you for your interest in our articles. (disclosure)
Labels: Week Ahead
posted by The Greek | 12:05 PM
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