State of the Stock Market

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Today's economic data offers hope. The Greek suspects the nascent rally's speed bump could be quickly surmounted and stocks could be ready to rise sooner rather than later. This article offers commentary on the State of the Union, economic data and discussion regarding Citigroup and Yahoo!

(Stocks in this article: NYSE: C, Nasdaq: YHOO, NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: QID, NYSE: SDS, NYSE: WMT, NYSE: MMM, NYSE: OXY, NYSE: CFC, NYSE: LLY, NYSE: DOW, Nasdaq: IACI, Nasdaq: LCAPA, NYSE: EMC, NYSE: VMW, NYSE: AXP, Nasdaq: JNPR, NYSE: LXK)

Ladies and gentlemen, the state of the union is zzzzzzzzzzz, boring! In perhaps the least moving State of the Union Address I've seen in my short lifespan, the market found little catalyst for drift or drive. We suspect many of you fell asleep. Or, you would have if not for all the 2008 political race drama to keep your attention. Read the speech in full here: State of the Union.

It seemed as though GW simply made a checklist of unfinished business, and really came across like a lame duck president at this point. However, if you were able to stay awake, and if you had your ears open, you would have caught a very interesting inside message shared with the members of Congress. The president, while on his "I told you so" speech regarding the effectiveness of the surge, also presented some interesting Homeland Security information.

While seeking to renew law allowing the monitoring of Americans and others in our country suspected of plotting against the state (interestingly not mentioning its well-known moniker as we haven't here either), he candidly reminded Congress that they had very personal reason to thank the members of our intelligence forces.

As he spoke about stopping plots in Los Angeles and one involving the planned downing of airplanes over the Atlantic, he also alluded to something important perhaps halted in Washington D.C. Why else would every member in attendance, as he put it, and not all Americans, owe thanks to the intelligence forces... He also mentioned al Qaeda in Iraq's stated goal to attack Washington. While listening as a New Yorker, I felt comfort from this, and also from the fact that I'm not living in the nation's capital. That's a quite ironic statement, coming from a New York City resident.

Whether you agree with GW or not, view him a victim of circumstance or a catalyst of it, you have to admit to something. It would be cool as hell to spend a day with him and a case of beer.

On the whole, this speech will drop out of the media spotlight quite quickly. It was perhaps typical of a speech at the end of an 8 year term, a victory lap. Clinton's was similarly disappointing as I recall. I know some of you would rather I analogize it as closer to running out of gas and cruising into the pit, rather than victory lap. However, we have to remember that this president was faced with very unique challenges, and it's very easy to play Monday morning quarterback now.

Regarding Iran, much speculation was born from what seems like a step-back stance from the Administration. Here's the thing though, even if that's true, Israel is not likely to allow it to play out. Imagine GW stepping back and bumping into a close standing Ehud Olmert. Israel cannot risk a Democrat in the White House while Iran develops nuclear technology. This is why I still believe there's a strong chance of war this year, whether we plan it or not.

Economic Data & Analysis:

Durable Goods Orders December

Talk about a good start to a frightening economic data and event heavy week. Durable goods orders for December blew out expectations. Rising 5.2%, expectations for a 1.6% rise were demolished! This has positive implications for tomorrow's GDP report, and the speed bump looks easily surmounted for now. In other words, the economic data that matters most to the market right now should prove positive catalyst this week. While we could say that international demand that may have boosted results looks to be waning, we also have to acknowledge other changes in the soup.

I warn bears, while reminding you that I was one for quite some time, don't fall in love with your recent success. Don't let your day in the limelight boost your ego so much that you exchange the intelligence behind your view, with your view. In other words, keep thinking and don't fall into the pitfall of backing a winning view just because it's risen to consensus. If you do, you are doomed to die with a good view gone bad.

The market is dynamic! This fiscal stimulus and monetary action should prove potent in my opinion, while the speed of deliver is the most important factor now. As the variables in the algorithm change, the equation's result must also change. I think there's a decent chance Q4 GDP could surprise on the high side of forecast. I hope the Fed acts with a quarter point cut or more. If both these events occur, I see no reason why this speed bump will not be passed and market rise resume.

Home Prices & Foreclosure Data

Old news! Focus on the forward. The Greek still believes it's early to buy property, but not early to buy foreclosure property. While that market will only get better as more homes filter through the time exhaustive system to the foreclosure sale, the foreclosure market is the only place I would look for property now. Prices should continue to decline on the regular housing market until inventory normalizes. This is not going to happen until at least the second half of 2008. Also, there's little chance of missing a change in housing prices, since the market is huge, illiquid and does not turn on a dime and make sharp adjustments quickly. That risk does exist in the mortgage market however, meaning rates could jump quickly as the economy recovers later this year.

Iran is the X Factor

It's important to note that my economic theory excludes the possibility of war with Iran. The advent of such war, and likely surprising guerrilla warfare that would ensue on Middle Eastern, American and European soil, would bring such a shift from conventional expectations that forecasting it in, would leave me a great outlier. I'm concerned with that risk tied to Iran, and ready to advise you if it becomes a clearer reality to me, but I am not psychic or an employee of the CIA, and can't see that far forward into that drastic a change. Be sure, however, that we're closely following the situation.

Consumer Confidence January

The Conference Board reported Confidence for January today, and it drifted lower to 87.9, from 90.6 in December. The number, however, beat expectations for a reading of 87.5, and thus offers more good news. It's perhaps a sign that recent action by the Fed and the government are appreciated and considered important by the American public.

ICSC-UBS Weekly Same-Store Sales

Bad news folks. Consumers are spending even less than they were last year. We're in a race now. The contestants are the economy and the effects of action by those who hope to pace it. Will we fall into recession before the actors (Fed, Gov't, ECB...) can head it off... That's the big question. The important answer is that they are at least acting. Expectations are shifting from concern for recession to expectation of it, and for recovery from it. This is a good thing, and don't overlook it.

Weekly same-store sales rose just 1.3%, after ticking higher last week to 1.6%. We're now in a consistent range of 1-2% growth, versus last year's 2-3% and the year before's 4% range. These represent significant cuts to growth rate, and it will lead to consolidation in the retail/restaurant/small business/consumer sensitive areas. But, remember, the market looks ahead and it's already sunk near 20% on most scales from the October highs. Fiscal stimulus acts to counter the direction I just put forward. The speed of deliver is critical, and I can't overemphasize that. Hank Paulson should be nagging the hell out of Senators now, and finding a way to get the money in the hands of Americans soon.

Company Specifics

We were happy to discover Vik Pandit is not a headless chicken, and we already suspected this. He may in fact be a fox. It's still early to say, and this news is based on one discussion while a review is still ongoing. However, a level head in tough times helps avoid reactionary behavior that occurs for the sake of change and for the sake of appeasing the rioting crowd (sometimes shareholders, but usually media). Vik seems to us like a sensible, level-headed leader, and he will make significant changes, but it seems those will be value added changes, not massive overhaul to create impression. We believe Citigroup (NYSE: C) will be better for it.

Yahoo! (Nasdaq: YHOO) reports at the close. Recent news of job cuts and that computer glitch that had many YHOO sites closed during important shopping season days, anecdotally portend a miss this quarter. That, however, should enhance an already attractive investment in our opinion. We would advise long-term investors to take a close look at YHOO on any bad news driven share decline. If good news is reported, which would surprise, there still might afford an opportunity.

On a Greek personal aside, the first presidential televised speech I recall was during the Nixon presidency, and I remember my father and uncle yelling at the television, so I assume it was his resignation speech or otherwise controversial. I must have been four or five years old at the time. What's the first speech you remember? Comment at the site, below the article.

Market-Moving News

• Bloomberg: Durable Goods Orders December, a Blowout Number


• Bloomberg: Stocks Gain Overseas


• CNN Money: The State of the Union is...


• AP/Yahoo!: Home Prices Plunge in November


• Bloomberg: CreditSights Says Bond Insurer Bailout Comes Too Late


• CNN Money: Foreclosures Rose 75% in '07


• CNBC: Pandit NOT a Headless Chicken, Opposes Breakup


• CNN Money: Wal-Mart (NYSE: WMT) Cuts Prices 10-30%


• Platts: Crude Futures Move Higher


• Forbes: Wealth Builder 2008


• CNBC: Japanese Employment Steady, Spending Up


• FT: Rumors of Share Sales at SocGen on Day Rogue Exposed


• Yahoo! Earnings Calendar


• AP/Yahoo!: Occidental (NYSE: OXY) Profit Rises


• AP/Yahoo!: Countrywide (NYSE: CFC) Much Greater Loss Than Expected


• CNN Money: Eli Lilly (NYSE: LLY) Beats Numbers


• CNBC: Dow Chemical (NYSE: DOW) Misses Estimates


• Reuters: Lexmark (NYSE: LXK) Beats Expectations


• Bloomberg: Liberty Media (Nasdaq: LCAPA) Sues to Remove Dillar from IAC Board (Nasdaq: IACI)


• CNBC: 3M (NYSE: MMM) Overseas Sales Strong


• Bloomberg: EMC (NYSE: EMC) Profit Rises 35%


• TheStreet: Sales Shortfall Slams VMware (NYSE: VMW)


• CNN Money: American Express (NYSE: AXP) Results from Monday


• SA: Juniper (Nasdaq: JNPR) Continues to Grow


• Greek's Week Ahead: Nascent Rally Sees Speed Bump


• Economist: Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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