Week Ahead - The Worst Case Scenario Bear Market
"The Greek's Week Ahead" has been engineered to provide you with a tool you can reference all week long, a schedule of the week's market-moving events. Please also see our article, "Week in Review," which serves as a primer for this piece.
Enter the dragon of a bear market. This could get really ugly before it's over folks. We're down 20% on the Dow now, and 30% to 50% is not out of the question considering that inflation and Iran loom.
While the Fed might have a defense against inflation, it cannot predict what Iran has been planning over the last seven years, a period throughout which we have telegraphed our own plans for an eventual attack. And, the Fed cannot predict what Communist China will do if Middle Eastern oil flow is severely disrupted by a disturbed Iranian regime. Nor can it predict what opportunistic Vladimir Putin and his clone, might do if the U.S. were preoccupied or injured.
No Empire Lasts Forever
I spoke with someone recently who believes the American ego is getting exactly what it deserves. Her lecture theme centered on the premise that we Americans think too highly of ourselves, and we are being shown our place now. These words came from a proud American actually, with an open mind and a bad taste in her mouth from chewing on the faults of President Bush, the state of our economy and the state of our standing in the world. While admittedly sympathizing with her a bit regarding some of the faults of the Bush administration, I could not help but think to myself, "forgive her Lord, for she knows not what she says."
Before all is said and done, if she's right, then that lovely person will very likely regret the realization of those words. When she's homeless and hungry, far different than her current standing, we're very sure she will wish she was not so prescient. And, if you think poverty is beyond you, that starvation is outside of the realm of possibility for you... well, I say you are the product of too many good years of living and too little creative foresight (read blind). It will take more than a little of that to digest our pending article about Iran, or even the paragraphs that follow here.
Be sure to stay tuned to the Wall Street Greek over the next week, as we will publish a disturbing piece or two that will have you barricading your doors and stocking up on canned goods. Or you'll decide "The Greek" is insane... sort of like how many did when we first wrote about what would happen to our economy when liquidity dried (well ahead of 99% of economists); or when we said oil had bottomed at $49 (correct to the hour); or when we said food and energy price volatility were different this time around (before anyone noticed); etc. etc.
Interesting Apocalyptic Reading
Let's assume a worst case scenario for the sake of interesting apocalyptic reading... If and when the system itself ever fails, your paper dollars and securities would become worthless. You would be left with whatever you have stored in your home and whatever means you have to defend it from the not so prepared rest of the country. I realize how ridiculous this seems, and how unlikely it appears today, but it's not at all impossible.
Okay, it's a given that a lot would have to happen to get us to where we could have a productive debate on this currently very hypothetical scenario. I mean even I, a man who predicted airplanes could strike the Twin Towers (candidly once or twice and I can't prove it, nor do I want to), and who avoided seeking work in New York for nearly six months before becoming the fixture I have become... even I have to look a couple chess moves ahead to imagine that kind of situation. But I CAN see it just the same. And for the record, I have no store of canned goods, nor even one bottle of water. (Remember, "The Greek" survives on your support of our advertisers and potatoes... PS: send potatoes and clicks.)
Why the Threat is Real
This is why John McCain says the only thing worse than confronting Iran is allowing Iran to attain nuclear weapons. That means confronting Iran is mighty dangerous folks; let's not mince words. This is why Mahmoud Ahmadinejad is so cocky on the world stage. I mean, the man has the example of the decimated and now deceased Saddam Hussein, and he still threatens the end of Israel. Is he insane? Is he another brazen fool, the spitting image of Saddam? Or does he have a master plan full of secret allies and already well-aimed missiles? And, does he have the will to see it through... It sure seems so. And our extensive missile defense system tests over the last few weeks say something to that as well, as does Israel's most extensive civilian emergency preparedness campaign in history.
No, if we challenge her, we must show no mercy to Iran. You never go into a fight pulling punches, especially not after you've announced your plans. I hope we are prepared to defend the Middle East after Israel launches its mission, because we will have to. And I hope America is ready for the realization of many of those feigned threats from al-Qaeda, which Iran actually has the capability to pursue.
This is the real reason oil is moving higher. This is part of the reason why the dollar has softened, and I'm not overlooking the main driver of Fed free-flowing fiscal and monetary policy. But, oil has no right climbing above $140 otherwise, especially as the dollar holds still. The smart money behind those $150 and $200 price targets knows what's in store for Iran, and they might also know a little bit about what John McCain is so sober in thought over. If you want to buy something folks, buy gold maybe, water and canned goods definitely, and some other timely stocks that I'll put together for you shortly. I'll publish an article with a nice set of hedge plays for you, to be prepared for the worst case scenario.
I'm not looking for any near-term bounce for stocks. We will break into bear territory across the board soon enough. Spring is over and hope is not eternal. However, America is not afraid, nor is she incapable. Never confuse my candor for fear. I have no doubt about our great spirit as a nation or our military capabilities. While the final result seems certain to be victory, I warn you, expect surprises and an injury or two this time.
The Week Ahead
The week ahead is a holiday shortened one, as Americans celebrate Independence Day. The week's marquee data point is clearly Thursday's Employment Situation Report, which follows up on last month's dramatic unemployment increase to 5.5%. Even so, there will be plenty more to keep us busy.
Economic data will be scarce on Monday, but the National Association of Purchasing Managers (NAPM - Chicago) is scheduled to report on Midwestern manufacturing. Recall, both New York and Philly area reports were softer than expectations. Bloomberg's consensus of economists is looking for a measure of 48.0 in June here, compared to 49.1 in May. Recall, a reading below 50 indicates economic contraction, which should be no surprise to you by now.
The National Agricultural Statistics Service will follow up on Friday's Crop Report with its own take on individual states' acreage planted and harvested data.
Monday marks the end of the second quarter, but earnings season will not start until next week. Of the handful of firms reporting earnings on Monday, look for news from H&R Block (NYSE: HRB), Mesa Air (Nasdaq: MESA), Advanced Photonix (AMEX: API), Castle Brands (AMEX: ROX), GenCorp (NYSE: GY), Hemispherx Biopharma (AMEX: HEB), Investors Real Estate (Nasdaq: IRETS), LCC International (Nasdaq: LCCI), LJ International (Nasdaq: JADE), Mad Catz Interactive (Nasdaq: MCZ), MTS Medication Technologies (AMEX: MPP), Robbyns & Myers (NYSE: RBN) and US Dataworks (AMEX: UDW). Navistar Int'l (Nasdaq: NAVZ.PK) is scheduled to post delayed Q1 and Q2 results on Monday, and to be relisted on the New York Stock Exchange.
On Tuesday, the Construction Spending and ISM Manufacturing reports should only offer more bad news about these distressed sectors of the economy. We expect the construction report to indicate the spread of pain from residential into commercial construction, as retail and restaurant chains cut back on investment.
According to Bloomberg, economists are looking for Construction Spending to have decreased 0.5% in May, from April. Economists project ISM will post a June index of 48.7, compared to May's 49.6 result. Again here, contraction territory is depicted by a reading below 50. The manufacturing sector has been in contraction since the start of February, according to ISM.
The International Council of Shopping Centers' (ICSC-UBS) weekly same-store sales reports continue to illustrate the benefit of the economic stimulus distribution. Last week's result measured +2.2% year-over-year. Even so, the monthly Motor Vehicle Sales data that is due for June should see no benefit. General Motors (NYSE: GM) and Ford (NYSE: F) started warning about the period right from the get-go. As the companies were reporting May results, they began warning about June, so don't get your hopes up. However, the two stocks have discounted a horrible month already. The movement of the shares on Tuesday will likely have more to do with company forecasts and other unexpected announcements they may make.
After every FOMC meeting, Federal Reserve officials schedule a plethora of public appearances. This offers the market a chance to hear what was left unsaid in the brief FOMC Policy Statement. Atlanta Fed President Dennis Lockhart will address a group on Tuesday. Also, the IMF will offer their assessment of the global impact of rising food and energy prices. Finally, the Bank of Japan will publish its quarterly tankan business survey.
Markets are closed in Hong Kong and Thailand on Tuesday. In the states, Bank of America's (NYSE: BAC) acquisition of Countrywide Financial (NYSE: CFC) is expected to close. Tuesday earnings slate includes Apollo Group (Nasdaq: APOL), Constellation Brands (NYSE: STZ), CardioDynamics Int'l (Nasdaq: CDIC), MSC Industrial Direct (NYSE: MSM), Rostelecom OAO (NYSE: ROS), Schnitzer Steel (Nasdaq: SCHN) and Standard Microsystems (Nasdaq: SMSC).
Wednesday starts the flow of monthly employment reports, as the Challenger Job-Cut Report, Monster Employment Index and the ADP Private Employment Report all weigh in on the deteriorating state of the labor market. But before any of these reports hits the wires, the OECD is scheduled to publish its employment outlook for 2008 from Paris.
Monster (Nasdaq: MNST) kicks things off with its 6:00 a.m. ET reporting of its index. The barometer was reported at 166 in May, down from 174 in April. Challenger is up to bat at 7:30, and the report will garner a great deal of attention this month, after it noted a lofty 103.5K announced layoffs in May, as compared to 90K in April and 53.6K in March. ADP's Private Employment Report follows, and will match up against a reported May increase of 40K jobs. Prior month data is often revised, and it should be as interesting to follow revisions as it will to see the current month's tally.
Wednesday offers the regular Mortgage Banker's Association mortgage activity report and the EIA's Petroleum Status data. Then at 10:00 AM, look for the May reading of Factory Orders. Economists are on record with a mean forecast for 0.6% growth, month-to-month. Orders increased 1.1% in April.
The National Association for Business Economics is holding a conference to discuss the financial crisis. Also, Fed heavyweight, but soon to be retired, Fred Mishkin will address a group on "The Global Financial Disruption and the World Economy." Also, Treasury Secretary Paulson will speak on the topic of the economy and markets.
Wednesday's short earnings schedule includes A. Schulman (Nasdaq: SHLM), Family Dollar (NYSE: FDO), Acuity Brands (NYSE: AYI), Isle of Capri Casinos (Nasdaq: ISLE), Schawk (NYSE: SGK), Spectrum Control (Nasdaq: SPEC), UniFirst (NYSE: UNF) and WD-40 (Nasdaq: WDFC).
On Thursday, the regular weekly Initial Jobless Claims data will be overshadowed by the monthly Employment Situation Report. This data portends trouble if the unemployment rate gets even worse than last month's 5.5%. After such a dramatic change last time around, further softening would seem to investors as if the wheels were coming off the economy, and they would be...
However, we anticipate the unemployment rate will hold ground or back up a little bit. Economists are generally predicting a rate of 5.5% for June. The consensus is looking for a nonfarm payroll loss of 50K jobs, compared to a decrease of 49K in May. The regular Weekly Initial Jobless Claims Report is seen producing a result of 385K new benefits filers, a number just one thousand higher than the week before.
Also on Thursday, look for an important European Central Bank meeting to potentially offer the ECB's first rate increase in its well-publicized battle against inflation. There is some hope the ECB might delay, after last week offered poor retail sales and confidence readings for Europe.
The day also offers another tough sentiment measure, the RBC Cash Index, and a check on the state of the non-manufacturing sector from ISM. The RBC Cash Index measured 22.5 in June, a steep fall from 39 reported in May. ISM's take on the other than manufacturing sector, which comprises the majority of American industry, is expected to offer a reading of 51 in June, versus 51.7 in May.
Ahead of the holiday, the U.S. stock markets and financial futures and options markets close at 1 p.m. ET, and bond markets shutter at 2 p.m. British Airways ADR (Nasdaq: BAIRY.PK) is scheduled to post its June traffic numbers on Thursday. The earnings schedule is empty in the states, but beware the company that posts an after market press release in the hopes of sneaking bad news by the holiday distracted public.
U.S. markets are closed for Independence Day. However, ECB President Trichet will address a group in France. In Asia, the opening of direct flights between Taiwan and China will serve as a positive gesture toward a hopeful future for the two nations in dispute.
Article also interests AMEX: DIA, AMEX: SPY, AMEX: SDS, AMEX: DOG, AMEX: QLD, Nasdaq: QQQQ, NYSE: NYX. Please see our disclosure at the Wall Street Greek website.
Labels: Week Ahead