Morning Coffee: Herd Mentality

(Stocks in article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: WM, NYSE: TXN, NYSE: C, NYSE: MRK, NYSE: BA, NYSE: T, NYSE: HRB, NYSE: KR, Nasdaq: SBUX)l

Shoulda, woulda, coulda is what market participants could be saying this afternoon, as they consider their oversight of The Greek's warnings. One thing that you can count on here is that I will not follow the herd based on fear of making a mistake. I will stand by my convictions, and sometimes I'll be wrong, but I think I've steered you correctly for the most part so far.

All the buzz this morning is again surrounding the Fed, and in a clear signal to me of the indecision that encompasses the current meeting, the FOMC has convened early today. If everything were a given, there would not even be a need to meet, but if you call the boys in early, something is probably cooking. I expect another "close call," using the Fed's own words from the last meeting notes.

It is amazing to me how information and opinion feed on themselves and build momentum so powerfully. The herd mentality has never been stronger than that view which surrounds the market certainty that a Fed hike "will" happen. I see journalists speaking about the decision as if it has already occurred. My dear friends, you have gotten ahead of yourselves. The Fed will not cut rates, after heated debate. I'm a small voice overpowered by the roaring of a speeding freight train on this one. It's clear investors would be served to hedge against the risk I outline, since a cut is so well built in to the markets, and I believe erroneously.

1. Fed Buzz! - If and when the Fed decides to NOT act on the Fed Funds Rate, while cutting the Discount Rate, the market would probably ignore the accompanying supportive statement. This afternoon's collapse would be dramatic as a result. I expect it would continue into the next day and perhaps through the week, and as we retouch or surpass recent lows, that is when I would prepare to pounce on stocks for a rally into early 2008. Now, if the Fed does cut rates by a quarter point, the market may retrace a bit anyway. In that scenario, I would buy into that weaness late this afternoon. If the Fed goes nuts and cuts by 50 points, I would suck it up, eat my crow, and buy immediately. In all of these scenarios, I see a buying opportunity relatively soon. Clearly, I would be a little late if rates are reduced, but better late then never. And if the Fed does not act, please remember me and tell others, because I am alone on this island, and it's cold and lonely. It takes courage to go out on a limb like this based on conviction, and this is clearly evident in the unequivocal unanimity of opinion for a rate cut. Not one expert is willing to express doubt, and there is no courage on Wall Street today. Reiterating, my view is based on what I expect the Fed to do, NOT what I think it should and eventually will do.


2. ICSC-UBS Weekly Same-Store Sales - Sales posted a 2.3% increase last week, and the consumer is clearly showing his cards. It's a poor hand. A recent survey found below showed expectations for Q4 GDP growth have fallen to 1.0% from 1.5% most recently. Retail sales for November are due for release this Thursday, and only the week after Black Friday could save the month, which could benefit from an earlier Thanksgiving.


3. October Wholesale Trade - At 10:00 a.m., October Wholesale Trade was reported. Inventories were unchanged, as compared to consensus expectations for wholesale inventories to rise 0.5%. Inventories grew 0.1% and 0.8% in August and September, respectively. This says to me that businesses are taking heed of market signals, not that sales have accelerated.
   

Market-Moving News

• CNN Money: Asia Jumps


• Financial Times: Europe Falls


• CBOT: Fed Funds Futures See 100% Probability of 25 Pt. Cut


• DailyFX: Are Funds Futures Wrong?


• SeekingAlpha: Fed Will Not Cut


• Bloomberg: Economic Growth to Slow to 1% in Q1


• CNBC: Small Business Confidence Tanks


• ECONOMIC REPORT: October Wholesale Trade - Inventories Unchanged Vs. Consensus +0.5%


• ICSC-UBS Weekly Same-Store Sales +2.3%


• Platts: Crude Inching Higher


• Bloomberg: Chinese Inflation Heats, Trade Gap Widens


• Yahoo! Earnings Calendar


• AP/Yahoo!: H&R Block (NYSE: HRB) Losses Soar


• Bloomberg: AT&T (NYSE: T) Raises Dividend and Buyback


• Financial Times: Citigroup (NYSE: C) Offloads SIV Assets


• CNBC: Merck (NYSE: MRK) Plans Late Stage Trials, Backs Forecast


• AP/Yahoo!: Washington Mutual (NYSE: WM) Drastic Measures


• AP/Yahoo!: Kroger (NYSE: KR) Net Up 18%


• MarketWatch: Texas Instruments (NYSE: TXN) Raises Outlook


• MarketWatch: Boeing (NYSE: BA) 787 Back on Track


• AP/Yahoo!: Starbucks (Nasdaq: SBUX) Downgraded


• BBC: Israeli Tanks Push Into Gaza


• BBC: CIA Man Backs Water-Boarding


• The Greek's Week Ahead - Alone on an Island, "Fed Will NOT Cut!"


• Economist: The Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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