The Greek's Week Ahead - Buy the News?

The Greek's Week Ahead is the most comprehensive "week ahead" market-moving event planner in existence.

“Buy the rumor, sell the news!” Market gurus often echo this long-standing and well-known bit of wisdom. In the current economic situation, we would reverse the quote and say instead, “sell the rumor, buy the news.” In this case the rumor has been that recession is on the way, despite the Federal Reserve Chairman and the President’s advice to the contrary.

The stock market has listened carefully to this rumor, and has sharply corrected from October 2007 highs. Over the past few months, economic data has offered apparent validation of the rumor through increasing evidence that economic recession might finally have befallen us. So, is it time to close our eyes to troubling data and buy into the news? Perhaps the more important question to ask is have we really received confirmation of the rumor? Recession has not yet been confirmed.

However, even if it had been, it would take courage (some would say blind bravado) to buy stocks in a market that continues to set new lows on still deteriorating data flow. This plays right into another famous piece of market wisdom. Legendary investors like Warren Buffet advise to “buy into fear and sell into greed.” A few readers who find themselves poorer since following this wisdom from a starting point earlier this year might not agree.

It seems to us that the most important consideration before us requires us to gauge where we stand in the current economic cycle. Whether it is time to buy or not depends on it. There are three general views of our economic situation and outlook that are painted by various economists. The majority of economists see recession possible, and economic slowing likely. This group also expects the economy to begin to grow again by year-end.

This group, let’s call them the Consensus Economists, would likely say you should buy stocks when bad news draws no more sell-off reaction. The thinking here is that seller exhaustion finally sets in. Then eventually, economic stimulus offered by the Federal Reserve and Congress should serve as catalyst for economic recovery and stock market rise.

The second group of experts, let’s call them the Armageddon Economists, would tell you that this credit market crisis we are now experiencing, combined with the inflation environment, offers a unique and destructive path for the economy. These jolly souls are the pessimistic extremists who have increasingly found believers. However extreme they may be, they actually may hold a better poker hand than the optimists.

There are few catalysts that could add on to current trouble to make these doomsayers correct, whether they are now or not. For instance, a messy war involving an important oil-producing nation (read Iran and maybe Venezuela) could prove extremely problematic. In that scenario, oil prices would move even higher and further stress global economies at exactly the worst time for it.

The third group of strategists is composed of optimists who believe prices will back up due to global economic slowing. They also believe a recession might still be averted. Remember, recession requires two consecutive quarters of economic contraction to be labeled so.

The Greek falls somewhere between the Consensus and the Armageddon groups. Last year, we were considered Armageddon-like when we discussed the likelihood of liquidity drying up and economic strife. Now the consensus has found us. There's still good reason to fear the entire financial system might finally fail, but we'll dive deeper into this in another article.

While current economic troubles are very unique and concerning, I have faith in an intangible factor. The economy has mitigated significant problems already, and done so through diligent efforts of government and private sector alike. I believe the problem solving human mind will continue to find resolution where it might not immediately be apparent. For this reason, we find fault in the Armageddon viewpoint. Its basis rests on a presumed stagnant economic factor, human creativity, and by definition that’s already proven false.

The Week Ahead

The week ahead offers significantly less economic releases than this past week.

Monday

Wholesale Trade (Jan.) on Monday and Business Inventories (Jan.) on Thursday will offer insight into the condition of inventories and inventory-to-sales ratios on the wholesale, manufacturing and retail levels. We have noted in the past the long-term trend of decrease in inventory-to-sales ratios. This of course is the beneficial result of the penetration of new technologies into modern business operations. Just-in-time production to delivery processes have significantly improved inventory management and thus improved our economy’s ability to emerge from economic trough.

According to Barron's, the consensus expectation for January's Wholesale Inventories is for an increase of 0.5%, versus a rise of 1.1% in December.

Three corporate events could offer market-moving impact on Monday. Texas Instruments (NYSE: TXN) is meeting with analysts, while Bear Stearns holds its annual Media and Marketing Conference. Also, John Malone hopes to force IAC/Interactive (Nasdaq: IACI) to split into five separate organizations through a Delaware court action.

Earnings season has winded down, but the week ahead still offers noteworthy reports from Hovnanian Enterprises (NYSE: HOV), Jones Soda (Nasdaq: JSDA), Lifetime Brands (Nasdaq: LCUT), The Blackstone Group (NYSE: BX) and Vail Resorts (NYSE: MTN). Hovnanian Enterprises looks to be the most interesting report of the day. Analysts are looking for a huge loss of $1.96 per share for the January quarter. HOV has missed estimates each of the last four quarters.

Other companies reporting include Bancolumbia (NYSE: CIB), Boots and Coots Int'l Well Control (AMEX: WEL), CECO Environmental (Nasdaq: CECE), CMGI Inc. (Nasdaq: CMGI), ExpressJet Holdings (NYSE: XJT), Foot Locker (NYSE: FL), Hydrogenics (Nasdaq: HYGS), Lipid Sciences (Nasdaq: LIPD), Neose Tech (Nasdaq: NTEC), ResCare Inc. (Nasdaq: RSCR), Six Flags (NYSE: SIX) and others.

Tuesday

Tuesday’s International Trade (Jan.), Thursday’s Import & Export Prices (Feb.) and Friday’s Consumer Price Index (Feb.) will offer an important fresh look at inflation. Price information will be directly offered by the CPI and import price data, and indirectly seen in the impact of weak domestic purchasing on international trade. It’s near critical to the market to see some easing of price pressure, but that seems unlikely at this juncture.

Bloomberg's consensus of economists is looking for the international trade deficit to widen to $59.5 billion in January, from $58.8 billion in December. This seems out of order, with the economy faultering, but it's the result of the rising price of oil.

Tuesday also offers the regular weekly same-store sales report from the ICSC-UBS. The data here has defied previous trend that had it headed into the abyss, and last week's year-over-year tally saw sales rise 2.1%.

The FDA is considering a Schering-Plough (NYSE: SGP) drug devised to reverse the effects of anesthesia, while Chevron (NYSE: CVX), BMC Software (NYSE: BMC) and Caterpillar (NYSE: CAT) hold analyst meetings.

Tuesday's noteworthy earnings reports include Boston Beer Co. (NYSE: SAM), Dick’s Sporting Goods (NYSE: DKS), J. Crew (NYSE: JCG), Take-Two Interactive (Nasdaq: TTWO), Kroger (NYSE: KR), Akorn (Nasdaq: AKRX), AmREIT (AMEX: AMY), Bon-Ton Stores (Nasdaq: BONT), Capital Senior Living (NYSE: CSU), Collective Brands (NYSE: CSS), GigaMedia (Nasdaq: GIGM), Gottschalks (NYSE: GOT), IDT Corp. (NYSE: IDT), Pep Boys (NYSE: PBY), Plug Power (Nasdaq: PLUG), Stage Stores (NYSE: SSI), Stewart Enterprises (Nasdaq: STEI), Superior Well Services (Nasdaq: SWSI), The Buckle (NYSE: BKE), West Marine (Nasdaq: WMAR) and more.

Wednesday

The Mortgage Bankers Association reports its weekly Purchase Applications Report early Wednesday premarket. Applications rose last week, but long rates look to rise as the ECB and BOE held rates steady last week. Thus, mortgage activity should fade.

The Census Bureau is to release its Quarterly Services Survey at 10:00 AM on Wednesday. Then, at 10:30, the EIA Petroleum Status Report might actually help oil prices ease some this time around, considering recent builds and the imminent onset of recession. February's Treasury Budget release at 2:00 PM is expected to show a deficit of $157 billion, versus a seasonal surplus of $17.8 billion in January.

Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) caught some unwanted publicity over the weekend when Barron's wrote up a tough piece on Fannie. Freddie is set to meet with analysts Wednesday.

The House Financial Services Panel is going to look at how the credit crunch is impacting local governments. They might want to start thinking about how recession will impact the tax coffers as well.

Wednesday's EPS reports include those from American Eagle Outfitters (NYSE: AEO), Gymboree (Nasdaq: GYMB), JA Solar (Nasdaq: JASO), Men’s Wearhouse (NYSE: MW), Quality Distribution (Nasdaq: QLTY), Speedway Motorsports (NYSE: TRK), The PMI Group (NYSE: PMI), Flanders (Nasdaq: FLDR), Globalstar (Nasdaq: GSAT), Goodrich Petroleum (NYSE: GDP), Hot Topic (Nasdaq: HOTT), Jo-Ann Stores (NYSE: JAS), Jupitermedia (Nasdaq: JUPM), Kronos Worldwide (NYSE: KRO), Neenah Paper (NYSE: NP), Talbots (NYSE: TLB), Titan Pharmaceuticals (NYSE: TTP), TLC Vision (Nasdaq: TLCV) and more.

Thursday

February's Retail Sales are expected to have increased 0.2%, versus a 0.3% increase in January. All indications from individual chain store sales and ICSC weekly data point to growth here as well, despite signs the consumer is breaking.

The aforementioned Import & Export Prices Report (see Tuesday) is expected by economists to show a February import price increase of 0.6%. Import prices climbed 1.7% in January. Business Inventories (see Monday) are expected to have increased 0.5% in January, according to Bloomberg. That would match up against a 0.6% rise in December.

The regular EIA Natural Gas Report is due at 10:30 on Thursday. Nat gas was priced at $9.70/MMBtu on Monday morning. European Union leaders are getting together to discuss how to handle sovereign wealth funds. That should be interesting!

Microsoft (Nasdaq: MSFT) is scheduled to meet with analysts on Thursday. Thursday earnings include Aeropostale (NYSE: ARO), Akeena Solar (Nasdaq: AKNS), Biovail (NYSE: BVF), Churchill Downs (Nasdaq: CHDN), Dendreon (Nasdaq: DNDN), Genesco (NYSE: GCO), Luxottica (NYSE: LUX), American States Water (NYSE: AWR), Autobytel.com (Nasdaq: ABTL), Cell Therapeutics (Nasdaq: CTIC), Citizens, Inc. (NYSE: CIA), Cornell Cos. (NYSE: CRN), Dot Hill Systems (Nasdaq: HILL), Eddie Bauer (Nasdaq: EBHI), Isis Pharmaceuticals (Nasdaq: ISIS), Kintera (Nasdaq: KNTA), Miller Industries (NYSE: MLR), MIVA Inc. (Nasdaq: MIVA), NPS Pharmaceuticals (Nasdaq: NPSP), Orthovita (Nasdaq: VITA), Pacific Sunwear (Nasdaq: PSUN), Ready Mix (AMEX: RMX), Superconductor Technologies (Nasdaq: SCON), Think Partnership (AMEX: THK), Unversal Display (Nasdaq: PANL), Zumiez (Nasdaq: ZUMZ) and more.

Friday

Friday's Consumer Price Index should cause quite a stir to close out the week, again! Who schedules these things? It's just crazy to put such important data out on a Friday, considering the possibility for panic selling from those unwilling to hold shares through the weekend. February's headline CPI is seen rising 0.3%, while the core figure is expected to increase 0.2%. Last month, these two data points increased 0.4% and 0.3%, respectively. Even an in-line figure should be enough to restart the stagflation banter. Our best guess says, barring any other important information driver, the market should sell off into this report.

The University of Michigan's Consumer Sentiment Index for March is seen measuring at 69.5. While this is a relatively low figure, we expect an even lower result. Every consumer sentiment reading shows deterioration, and we see no reason for the trend to break until after economic and market data flow improves.

Fed Chairman Bernanke is scheduled to address the National Community Reinvestment Coalition, so the financial paparazzi will be on high alert for any keyword slip ups like "stagflation" or "recession."

Genentech (NYSE: DNA) and Gannett are set to address analysts on Friday, while the earnings schedule includes AnnTaylor (NYSE: ANN), Eni SpA (NYSE: E), IMAX (Nasdaq: IMAX), Mannatech (Nasdaq: MTEX), Novavax (Nasdaq: NVAX), Reis Inc. (Nasdaq: REIS), Smart Balance (Nasdaq: SMBL), Sterling Construction (Nasdaq: STRL) and a few more.

See our daily market commentary and now regular premarket reports here all week long.

Thank you. (disclosure)