Morning Market Review 08-31-10

Morning Market Review
Greek Factor: -1

You'll want to pay close attention to the Chicago PMI data today, as it will be the report that carries past morning trading. The slight uptick in consumer confidence was nice, but is negligible and not important when placed into context. Simply put, the reading still sucks, however better it may be than the last. The "Greek Factor" ranges from +3 to -3, and is a subjective measure of The Greek's view of the market impact of individual and aggregate news and the day's scheduled events.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Tickers: NYSE: MS, NYSE: BA, NYSE: HON, NYSE: NOC, NYSE: DHR, NYSE: GR, NYSE: HNZ, NYSE: ABM, Nasdaq: ARAY, Nasdaq: APSG, AMEX: BLD, NYSE: BNS, Nasdaq: CHOP, Nasdaq: CCUR, NYSE: CPY, NYSE: CFI, NYSE: DAC, NYSE: DG, NYSE: DSW, Nasdaq: ENER, NYSE: ENV, Nasdaq: FTLK, Nasdaq: ISLE, NYSE: KSP, Nasdaq: LLEN, OTC: LUKOY.PK, OTC: PSKNY.PK, Nasdaq: SGI, NYSE: SQM, Nasdaq: UNFY, NYSE: BEM, NYSE: SKS, NYSE: SKH, NYSE: LGF, NYSE: GG, NYSE: ETM, NYSE: CT, NYSE: MCP, NYSE: HL, NYSE: WLT, NYSE: CPY, NYSE: PRM, NYSE: RBS, NYSE: ANR, NYSE: CMA, NYSE: QTM, NYSE: PCX, NYSE: ABV, NYSE: IAG, NYSE: JCP, NYSE: CBC, NYSE: IOC, NYSE: SWC, Nasdaq: FCFL, Nasdaq: BNVID, Nasdaq: FSGI, Nasdaq: ZNWAW, Nasdaq: ARSD, Nasdaq: KONA, Nasdaq: AFOPD, Nasdaq: ENER, Nasdaq: EDAP, Nasdaq: SPSC, Nasdaq: RBNF, Nasdaq: KFED, Nasdaq: NSEC, Nasdaq: MPAC, Nasdaq: BLDR, Nasdaq: EFOI, Nasdaq: CASEYV, Nasdaq: KGJI, Nasdaq: TATT, Nasdaq: ICAD, Nasdaq: ALIM, Nasdaq: SCSS, Nasdaq: ARMH, Nasdaq: MEOH, Nasdaq: LGND, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ

Morning Market Review

Tuesday is a busy day my dear traders, with six total reports scheduled, so your morning market review should come in handy in helping you make heads or tails of it all. Premarket releases came in the S&P Case Shiller Home Price Index, ICSC Weekly Sales data, and Canadian GDP. By 10:00 AM, we had another 4 reports, including Chicago PMI and Consumer Confidence.

S&P Case Shiller Home Price Index
Greek Factor: OUTDATED DATA

That's right, this is the best the producers of this data can do, June. By now we've seen pricing trends from the Existing Home Sales and New Home Sales report, and so the data is relatively worthless, except maybe for popular financial press on a slow day.

In any event, today's Home Price Index for June showed the HPI increased 4.4% in Q2. By now, you're all well aware of the fact that the tax incentive unnaturally boosted the second quarter data, and so you have nothing to look forward to based on Q2's rise. I would go so far as to say it's misleading to even publish this information so late, without qualification in that regard.

By the way, Q2's increase came after Q1's decline in prices of 2.8%. The report promotes the fact that quarterly prices are 3.6% higher than last year, but fails to note that last year marked generational low economic activity and that this year benefited from special stimulus.

17 out of 20 MSAs showed price increase in June. Also, the 10-City Composite rose 5%, while the 20-City measure increased 4.2%. Be careful folks, because you're learning about the past here, while studying irrelevant comparisons versus year ago; and every data point since has been miserable for housing. So before go believing popular press this morning, put this into perspective. The Chairman of the Index Committee even says so in the report, and I quote: "The monthly Composites cover June and the national index covers the second quarter, when the government's program for first time home-buyers was winding down. While the numbers are upbeat, other more recent data on home sales and mortgages point to fewer gains ahead."

I'm not wasting any more time on this data point, until it is relevant and timely, and neither should you. At least keep it in perspective and pay more attention to the Home Sales data, and pricing info therein.

ICSC Same-Store Sales
Greek Factor: 0

The International Council of Shopping Centers (ICSC) reported today on weekly same-store sales for the week ending August 28. After falling 0.4% last week, same-store sales increased 0.1% week-to-week. Warning sirens keep sounding on the news, and the year-over-year comparison gained 2.8% this week (low), versus last week's 2.3% rise. Back-to-school activity may be skewing things now, so be careful in reading too much into the activity of the next several weeks (on a weekly basis). Rather, look at the monthly data combined for August and September for a solid read. Redbook showed a 3.0% sales increase year-to-year, versus last week's +2.6% rate.

Chicago PMI
Greek Factor: -2

The Chicago Purchasing Managers Index was reported at 9:45 AM. Chicago offered bad news folks, and a few of the data points were down right dire within the report. Quoting ISM: "The Chicago Purchasing Managers reported the CHICAGO BUSINESS BAROMETER stumbled, marking an eleventh month of growth but indicating a decreasing breadth of expansion. Six of seven Business Activity indicators echoed the slowed expansion."

The seasonally adjusted index fell to 56.7, from 62.3 in July. This still reflects economic expansion (above 50). Economists were looking for the Chicago PMI's Business Barometer Index to mark 56.0 in August. Six of seven indicators reflected the headline index decline in pace. Production marked its biggest drop since October of 2008. New Orders fell to 55.0, from 64.6, which is highly concerning to me. Employment eased as well as inventories. Prices paid fell, so you deflation demons have fuel to fire. Capital equipment investment dropped sharply too. This is a negative report folks, and the market will likely grab a hold of it once economists get through with the release.

Consumer Confidence
Greek Factor: +1

Put this into perspective fellas. So what, the Conference Board's measure rose a bit to 53.5 in August. 53.5 sucks! I can't say it more clearly. This is a subjective survey, and so we cannot read too much into small changes. Economists were looking for 51.0, so stock traders took the report positively in the early go. I give it a positive mark because it beat expectations and traders have to trade on it a certain way in the short-short term. It should have no positive impact past today.

Canada's Q2 GDP

Canada reported its Q2 GDP figures Tuesday. Our northern neighbor's gross domestic product increased only 2%, versus economist expectations for a 2.5% increase. The Canadian dollar weakened against the USD on the news, down about a half a percentage point.

Investor Confidence

State Street (NYSE: STT) reports on Investor Confidence today. Last month's read saw global confidence increase 4.8 points to 96. Investor confidence improved in North America as well, rising 5.4 points to 99.9. This month's data is still not available.

FOMC Meeting Minutes
Greek Factor: This Release Matters Greatly

At 2:00 PM, the Federal Open Market Committee (FOMC) posts its meeting minutes for its latest gathering. The August 10 meeting purportedly featured some heated debate over starting up Bernanke's helicopter. This should make for an interesting read, as investors mull over the need for more help from the Fed.

Farm Prices

Agricultural goods prices for August are due at 3 PM.

Corporate News Drivers

Morgan Stanley's (NYSE: MS) Global Industrials Conference kicks off Tuesday. Look for presentations from Boeing (NYSE: BA), Honeywell (NYSE: HON), Northrop Grumman (NYSE: NOC), Danaher (NYSE: DHR) and Goodrich (NYSE: GR). H.J. Heinz (NYSE: HNZ) has a shareholders meeting scheduled.

Look for EPS from ABM Industries (NYSE: ABM), Accuray (Nasdaq: ARAY), Applied Signal Technology (Nasdaq: APSG), Baldwin Technology (AMEX: BLD), Bank of Nova Scotia (NYSE: BNS), China Gerui Advanced Materials (Nasdaq: CHOP), Concurrent Computer (Nasdaq: CCUR), CPI Corp. (NYSE: CPY), Culp (NYSE: CFI), Danaos (NYSE: DAC), Dollar General (NYSE: DG), DSW (NYSE: DSW), Energy Conversion Devices (Nasdaq: ENER), Envestnet (NYSE: ENV), Funtalk China (Nasdaq: FTLK), Isle of Capri Casinos (Nasdaq: ISLE), K-SEA Transportation (NYSE: KSP), L&L Energy (Nasdaq: LLEN), Lukoil (OTC: LUKOY.PK), Polski Koncern ADR (OTC: PSKNY.PK), Silicon Graphics (Nasdaq: SGI), Chemical & Mining Co. of Chile (NYSE: SQM) and Unify (Nasdaq: UNFY).

Today's biggest gainers so far: NYSE Gainers: Structured Product Capital (NYSE: BEM), Saks (NYSE: SKS), Skilled Healthcare (NYSE: SKH), Lions Gate Entertainment (NYSE: LGF), Goldcorp (NYSE: GG), Entercom Communications (NYSE: ETM), Capital Trust (NYSE: CT), Molycorp (NYSE: MCP), Hecla Mining (NYSE: HL), Walter Energy (NYSE: WLT), CPI Corp. (NYSE: CPY), Primedia (NYSE: PRM), Royal Bank of Scotland (NYSE: RBS), Alpha Natural Resources (NYSE: ANR), Comerica (NYSE: CMA), Quantum (NYSE: QTM), Patriot Coal (NYSE: PCX), Companhia de Bebidas das America (NYSE: ABV), IamGold (NYSE: IAG), J.C. Penney (NYSE: JCP), Capitol Bancorp (NYSE: CBC), Interoil (NYSE: IOC), Stillwater Mining (NYSE: SWC); Nasdaq Gainers: First Community Bank (Nasdaq: FCFL), Bionovo (Nasdaq: BNVID), First Security Group (Nasdaq: FSGI), Zion Oil & Gas (Nasdaq: ZNWAW), Arabian American Development (Nasdaq: ARSD), Kona Grill (Nasdaq: KONA), Alliance Fiber Optic (Nasdaq: AFOPD), Energy Conversion (Nasdaq: ENER), EDAP TMS (Nasdaq: EDAP), SPS Commerce (Nasdaq: SPSC), Rurban Financial (Nasdaq: RBNF), K-FED Bancorpo (Nasdaq: KFED), National Security Group (Nasdaq: NSEC), MOD-PAC (Nasdaq: MPAC), Builders FirstSource (Nasdaq: BLDR), Energy Focus (Nasdaq: EFOI), Casey's General STore (Nasdaq: CASEYV), Kingold Jewelry (Nasdaq: KGJI), TAT Tech (Nasdaq: TATT), icad (Nasdaq: ICAD), Alimera Sciences (Nasdaq: ALIM), Select Comfort (Nasdaq: SCSS), ARM Holdings (Nasdaq: ARMH), Methanex (Nasdaq: MEOH), Ligand Pharmaceuticals (Nasdaq: LGND).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

This Week's Pact Between Friends

The Employment Situation Report falls on the Friday before Labor Day weekend. That creates quite a predicament. Who in their right mind would leave their trading desk early in such a situation? But, what if we made a little pact? Nobody trades after 1 PM! Can I count on you?

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

This Week's Pact

Oh who am I kidding?! Everybody knows The Greek hasn't been able to vacation for five years now. How much do you think bloggers really make anyway? At this point, you all must be well-aware of the potato famine on the Upper East Side right? Do you think I drink Natural Ice beer for the taste? Do you think I would pay for graphics this bad? Just kidding... I'll catch you on Shelter Island (more like the homeless shelter). Save the mojitos, stock picks and cans of beans for me. I might be a little late, while I enjoy the arbitrage opportunity that your empty trading desks avail to me, or as I rob your empty trading desks (or as I write another prescient report for free). Do I sound bitter? Have me with your tequila then.

Monday

Personal Income & Outlays were reported Monday for the month of July. Income increased 0.1% month-to-month, while spending rose 0.4%. The Core PCE Price Index, the Fed's favorite inflation gauge, increased 0.1%, in line with expectations.

Markets in the UK were closed Monday. St. Louis Fed President James Bullard addressed a group Monday afternoon. Yeah, you get the picture. The most exciting thing about Monday was that it was Warren Buffet's 80th birthday, but all his favorite holdings spoiled the party.

Catch the replay of the conference call regarding Sanofi-Aventis' non-binding offer to acquire Genzyme (Nasdaq: GENZ). BioLase Technology (Nasdaq: BLTI) held a conference call to discuss its corporate restructuring. The earnings schedule offered news from Astrotech (Nasdaq: ASTC), Donaldson (NYSE: DCI), Elbit Imaging (Nasdaq: EMITF), Empressa Nacional del Petroleo (Nasdaq: ENAP), KU6 Media (Nasdaq: KUTV), Marshall Edwards (Nasdaq: MSHL), Origin Agritech (Nasdaq: SEED), Partner Communications (Nasdaq: PTNR), PowerShares Dynamic Software (PCX: PSJ), Prospect Capital (Nasdaq: PSEC), SWS Group (NYSE: SWS), Winn-Dixie (Nasdaq: WINN) and a few more.

Tuesday

Tuesday is a busy day, with six total reports scheduled. Look for the S&P Case Shiller Home Price Index at 9:00 AM. We expect that eventually the metrics covering home pricing will show a double-dip has begun in real estate. Perhaps this latest data for the month of June might be the one to set the blaze.

Look for the latest same-store sales figures from the International Council of Shopping Centers (ICSC) Tuesday morning. Last week's report covering the period ended August 21 showed sales fell 0.4%. Warning sirens sounded on the news, and even the year-over-year comparison only gained 2.3% last week. Redbook concurred, with the yearly gain decelerating (trend) to a +2.6% rate.

The Chicago Purchasing Managers Index is due for report at 9:45 AM. Economists see the Chicago PMI's Business Barometer Index marking 56.0 in August. That would spot a drop from July's spike up to 62.3. Economists were likewise looking for 56 last month. New Orders came in strong last month too, so the economists' consensus is in question. That said, the highest economists' estimate sets the ceiling at 58.5 (floor at 54.1).

At 10:00 AM, the Conference Board will report on Consumer Confidence again. The measure fell to 50.4 in July, and economists are looking for a similarly dismal 51.0 in August.

State Street (NYSE: STT) reports on Investor Confidence at 10:00 AM as well. Last month's read saw global confidence increase 4.8 points to 96. Investor confidence improved in North America as well, rising 5.4 points to 99.9.

At 2:00 PM, the Federal Open Market Committee (FOMC) posts its meeting minutes for its latest gathering. The August 10 meeting purportedly featured some heated debate over starting up Bernanke's helicopter. This should make for an interesting read, as investors mull over the need for more help from the Fed.

Canada reports its Q2 GDP figures Tuesday. This news might garner some attention for a change, as the market looks for signs of North American weakness. Oh Canada... I'll stop there, while I still have places to stay in BC and Toronto.

Morgan Stanley's (NYSE: MS) Global Industrials Conference kicks off Tuesday. Look for presentations from Boeing (NYSE: BA), Honeywell (NYSE: HON), Northrop Grumman (NYSE: NOC), Danaher (NYSE: DHR) and Goodrich (NYSE: GR). H.J. Heinz (NYSE: HNZ) has a shareholders meeting scheduled.

Look for EPS from ABM Industries (NYSE: ABM), Accuray (Nasdaq: ARAY), Applied Signal Technology (Nasdaq: APSG), Baldwin Technology (AMEX: BLD), Bank of Nova Scotia (NYSE: BNS), China Gerui Advanced Materials (Nasdaq: CHOP), Concurrent Computer (Nasdaq: CCUR), CPI Corp. (NYSE: CPY), Culp (NYSE: CFI), Danaos (NYSE: DAC), Dollar General (NYSE: DG), DSW (NYSE: DSW), Energy Conversion Devices (Nasdaq: ENER), Envestnet (NYSE: ENV), Funtalk China (Nasdaq: FTLK), Isle of Capri Casinos (Nasdaq: ISLE), K-SEA Transportation (NYSE: KSP), L&L Energy (Nasdaq: LLEN), Lukoil (OTC: LUKOY.PK), Polski Koncern ADR (OTC: PSKNY.PK), Silicon Graphics (Nasdaq: SGI), Chemical & Mining Co. of Chile (NYSE: SQM) and Unify (Nasdaq: UNFY).

Wednesday

Wednesday starts the monthly employment data parade. Challenger's Job-Cuts Report comes first in the early AM hours. There is no forecast available for this data. Last month's report for July showed announced corporate layoffs totaled 41,676, and compared against June's 39,358.

The market will be more interested in ADP's Private Employment Report for August. Once again, there is no economists' consensus forecast for the data-point. It will instead be compared against forecasts of the Labor Department's data, which will be released Friday. July's report showed private employment increased by a net 42,000, or rather it estimated it did.

Look for the Mortgage Bankers Association's Weekly Applications Survey in the premarket. Last week's report covering the period ended August 20 showed the Market Composite Index of mortgage applications increased 4.9%. The gains came mostly on the 5.7% increase of the Refinance Index, which benefited from lower contracted mortgage rates. On average, fixed rate mortgage rates for 30-year and 15-year mortgages fell to 4.55% (from 4.6%) and 3.91% (from 3.99%), the lowest in recorded history (1990). Purchase Applications increased 0.6%.

Look for ISM's Manufacturing Index data at 10:00 AM. The report for August is seen showing the index easing further this month, to 53.0, from 55.5 in July. And the manufacturing slide slips on...

Construction Spending will be reported at 10:00 AM as well. This data covering the month of July is expected to show spending fell 0.6%, as activity suffers in the absence of the housing tax incentive.

Motor Vehicle Sales will be reported throughout the day. Economists expect the aggregate level of domestic vehicle sales to run at an annual rate of 8.7 million. That would match July's sales rate, which had increased from June's 8.4 million. Combined light truck and auto sales of domestic and imports gained to 11.5 million in July.

At 10:30, look for the EIA's Petroleum Status Report. The latest data covering the period ended August 20 showed crude oil inventories increased by 4.1 million barrels. Total motor gasoline inventories increased by 2.3 million barrels. Both crude and gasoline continued to mark above the average range for this time of year.

The Fed speaker of the day will be Dallas Federal Reserve Bank President Richard Fisher, with an address scheduled for 12:30. The Fed's Neighborhood Stabilization Summit kicks off in Washington, as the power mongering independent organization takes on home foreclosures this day.

In corporate news, Apple (Nasdaq: AAPL) will introduce a few more blockbuster new products and services Wednesday in its usual grandiose fashion. Presenting at the Morgan Stanley Global Industrials Conference, Lockheed Martin (NYSE: LMT), General Dynamics (NYSE: GD), Raytheon (NYSE: RTN), Rockwell Collins (NYSE: COL) and Roper Industries (NYSE: ROP). Heinz (NYSE: HNZ) has its EPS conference call.

The EPS schedule includes H.J. Heinz (NYSE: HNZ), SAIC Inc. (NYSE: SAI), Brown-Forman (NYSE: BF-A, NYSE: BF-B), Borders Group (NYSE: BGP), Collective Brands (NYSE: PSS), Express (Nasdaq: EXPR), American Software (Nasdaq: AMSWA), Casella Waste Systems (Nasdaq: CWST), Charming Shoppes (Nasdaq: CHRS), China Green Agriculture (NYSE: CGA), FuelCell Energy (Nasdaq: FCEL), Genesco (NYSE: GCO), G-III Apparel (Nasdaq: GIII), Global Crossing (Nasdaq: GLBC), Greif (NYSE: GEF), Hovnanian (NYSE: HOV), IntraLinks (NYSE: IL), Joy Global (Nasdaq: JOYG), LTX-Credence (Nasdaq: LTXC), Magal Security Systems (Nasdaq: MAGS), Martek Biosciences (Nasdaq: MATK), Oxford Industries (NYSE: OXM) and Trintech (Nasdaq: TTPA).

Thursday

Thursday's labor market data arrives from Monster World Wide (NYSE: MWW) and the Labor Department. Premarket radar will be fixated on the Weekly Jobless Claims Report, given recent tidal play. Last week's data offered low water, with new benefits filers receding to 473K, down from the prior week's high tide of 504K (revised). Economists always play it safe with this weekly forecast, and the consensus is therefore stuck at 470K (guesswork).

The Monster Employment Index is due for release before sunrise. This metric of online job demand last showed deterioration of three points, to a mark of 138. The decrease was reportedly due to construction and the leisure industry, which makes perfect sense we suppose.

Several other reports will keep media rooms pumping out the interviews Thursday. Retailers will be reporting chain store sales for the month of August throughout the day. With Labor Day again pushed out a bit, the results might not be top of the class this back-to-school season. July's data was mixed, but the total pace of sales left something to be desired. Same-store sales were up only 2% in July.

The Productivity & Costs data is due for release at 8:30. Given the deceleration in Q2 GDP, economists are looking for a decrease in productivity of -1.9%, quarter-over-quarter. As a result, unit labor costs are expected to rise by 1.2%.

Factory Orders will be reported for the month of July at 10:00 AM. Orders fell 1.8% in May and another 1.2% in June. Economists are looking for an increase of 0.3% for July, based on Durable Goods Orders data. Still, the range of views vary widely, with the highest expectation at +0.5% and lowest at -1.2%.

After dropping 2.6% in June, July's Pending Home Sales Index could fall even further, given the sad state of affairs since the expiration of government stilts, err tax incentive. We would look for the index to fall below July's 75.7 level.

The European Central Bank (ECB) is expected to keep rates unchanged at 1.0% at its latest monetary policy meeting. Cleveland Federal Reserve Bank President Pianalto will address the Fed's neighborhoods conference. Remember, Ohio was hard hit by the forced downsizing of the US auto industry.

The EIA reports on Natural Gas Inventory again at 10:30 Thursday. For the week ended August 20, natural gas stocks increased 40 Bcf, and measured 177 Bcf above the five-year average for this time of year. However, they were 198 Bcf below last year's level.

On the corporate schedule, Limited Brands (NYSE: LTD) gives its prerecorded sales call. Salesforce.com (NYSE: CRM) appears on the Caris & Co. Bus Tour. Continental Resources (NYSE: CLR) presents at the Hodges Capital Management Investment Forum.

The EPS schedule highlights news from H&R Block (NYSE: HRB), Aspen Technology (Nasdaq: ASPN), Del Monte Foods (NYSE: DLM), SeaChange International (Nasdaq: SEAC), Sycamore Networks (Nasdaq: SCMR), ArcSight (Nasdaq: ARST), Blyth (NYSE: BTH), Cascade Corp. (Nasdaq: CASC), Finisar (Nasdaq: FNSR), Gazprom (OTC: OGZPF.PK), Krispy Kreme Doughnut (NYSE: KKD), Layne Christensen (Nasdaq: LAYN), Methode Electronics (NYSE: MEI), Movado (NYSE: MOV), Quiksilver (NYSE: ZQK), Take-Two Interactive (Nasdaq: TTWO), The Cooper Cos. (NYSE: COO), Toronto Dominion Bank (NYSE: TD), Ulta Salon Cosmetics & Fragrance (Nasdaq: ULTA), UTi Worldwide (Nasdaq: UTIW), Vimpel-Communications (NYSE: VIP), Wimm-Bill-Dann Foods (NYSE: WBD).

Friday

You probably don't need me to tell you that Friday will be all about jobs. The Labor Department will release its latest Employment Situation Report at 8:30 Friday morning. Unlike "The Situation" from MTV's makes-me-wonder-about-society hit show Jersey Shore, the employment situation should not be rich.

Once again due to the laying off of temporary census takers, the labor market is expected to shed jobs in July (80K). The range of economists tops out at +75K and the most dire forecast sees a decrease of 160K, based on Bloomberg's survey.

Economists see the unemployment rate edging back up to 9.6%, from 9.5% in July (on suspect labor force shrinkage). Maybe that invisible nation will return to the data count this month. What's important here is that most expect bad news, but if we get worse news, it would still play a role in a lightly traded market ahead of the three day weekend. Friday could be choppy folks, so you might want to get your volatility plays into action. Of course, if we come in right in line, perhaps you'll be able to leave the office early. Maybe we can make a pact or something; nobody buy or sell after 1 PM. Somehow I get the feeling some greedy souls among us will take advantage of the pact for profit, don't you...? Yeah, you go ahead; I'll be right there...

ISM's Non-Manufacturing Index is due at 10:00 AM Friday. It measures the critical service sector, so don't take it too lightly. The index improved in July, rising slightly to 54.3, but economists see it back-tracking in August to 53.0. I think this might get uglier than that. After all, if one out of every six Americans really are getting some sort of government support, then we can't expect folks are getting manicures can we? Or bikini waxes? Are you ladies sacrificing these services? Gosh, I hope not...

Atlanta Fed President Lockhard speaks at 10 AM. Have a nice weekend folks.

Friday's EPS schedule includes news from Campbell Soup (NYSE: CPB), OceanFreight (Nasdaq: OCNF) and a few others.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

GDP Revision Concerns Us Still

Investors were not surprised when GDP was revised lower Friday, but as the data is digested, we suspect it will be regurgitated. Stocks closed higher Friday, as press and pundits positioned the message positively. We prefer you not rest comfortably though, because there's a bear lurking. In fact, our analysis turns up an interesting aspect with regard to the trade deficit between the US and China, and a conflict between the trade data and lower private inventory investment in Q2. Meanwhile, some of the factors that propped up GDP in Q2 are clearly falling apart in Q3 and Q4.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Tickers: NYSE: BAC, NYSE: JPM, NYSE: GS, NYSE: MS, NYSE: C, NYSE: TD, NYSE: WFC, NYSE: PNC, NYSE: GE, NYSE: LII, NYSE: SPB, Nasdaq: HELE, NYSE: NPK, Nasdaq: IRBT, NYSE: XRX, NYSE: PBI, NYSE: PAY, NYSE: DBD, Nasdaq: CSTR, NYSE: HNI, Nasdaq: MLHR, NYSE: SCS, NYSE: KNL, NYSE: FO, NYSE: LEG, NYSE: TPX, NYSE: AYI, NYSE: ETH, Nasdaq: SORL, NYSE: UTX, NYSE: MMM, NYSE: DHR, NYSE: PPG, NYSE: IX, NYSE: CBE, NYSE: TXT, NYSE: CR, NYSE: HON, NYSE: GD, NYSE: GR, NYSE: LLL, NYSE: ERJ, Nasdaq: FLIR, NYSE: TDG, Nasdaq: BEAV, NYSE: CAE, NYSE: ATK, NYSE: TGI, NYSE: CAT, NYSE: WHR, NYSE: F, NYSE: HMC, NYSE: TM, NYSE: BA, Nasdaq: AAPL, Nasdaq: MSFT, Nasdaq: DELL, Nasdaq: CSCO, NYSE: TSM, Nasdaq: INTC, NYSE: RTP, NYSE: BHP, Nasdaq: VALE, NYSE: CAT, NYSE: LMT, NYSE: COL, NYSE: NOC, NYSE: X, NYSE: AZN, Nasdaq: SCHW, NYSE: BA, Nasdaq: SYMC, NYSE: S, NYSE: IP, Nasdaq: CTXS, NYSE: EK, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, Nasdaq: NDAQ, NYSE: ICE

GDP Revision

The Bureau of Economic Analysis published its first revision to second quarter GDP Friday. We were one of the first publishers warning that GDP would be cut in half upon revision, once international trade data were published in early August. Gradually, as economists revised their forecasts lower over the weeks that followed, investor perception was well-prepared for the BEA's news release.

The economists consensus was set for a deep downward adjustment, to +1.3%, from the initially reported 2.4% growth. So, when the data showed a gain of +1.6%, the market was unaffected. Stocks had been moving lower in the days and weeks ahead of the news already. Stocks still dove though once 10:00 AM rolled around, when investors found less than reassuring words in a speech given by Federal Reserve Chief Bernanke in Jackson Hole, Wyoming. However, the Dow moved 1.65% higher by the close.

What investors, or the press at least, liked about the latest take on GDP was that a greater level of imports drove the redesign. However, most of the issues that concerned us about the data detail in the first place were still problematic at its revision.

First of all, there's a misconception about the international trade data that needs to be cleared up. We reported on this upon the early August release. Normally, the deficit is characterized by a higher level of imports-to-exports, but both usually increase. This time around, while imports increased by $5.9 billion, exports dropped $2.0 billion against May levels. The drivers included a seasonal adjustment to petroleum trade, but also a significant deficit expansion between the US and China. Also take note of the fact that the details of the report show that the deficit was mostly driven by decreases in the export of capital goods ($1.4 billion), industrial supplies and materials ($1.0 billion) and increases in the import of consumer goods ($3.1 billion), automotive vehicles and parts ($1.3 billion), other goods ($0.6 billion) and capital goods ($0.5 billion). The decrease in exports helps to create an illusion of stronger imports. And we have a theory on the imports gain as well.

Here's a bit of golden theory you've heard nowhere else, not even from your highly paid economic resources. The increase in import demand from China seems to run counter to signs of decreased consumer spending here at home. I think I know why.

Your Greek Wisdom:

I suspect retailers are demanding more low-priced goods to stock their shelves with and distributors are providing them more Chinese goods as a result. That's not the positive signal the data would seem to offer, and which the popular press and most market strategists promoted Friday. Yes, reporters were painting the drop in GDP with a bright color, saying it was due to higher imports. We're saying that's not the case at all, that there is simply a shift toward lower priced goods that has fogged the view of the novice audience. Our theory makes perfect sense and fits the broader economic puzzle better. Need a market strategists or representative partner for your investment or consulting firm?

Take note also that the BEA said the second most important factor in the GDP revision was a sharp drop in private inventory investment. Might that have had more to do with the lower price of the inventory being added (from China) versus the aggregate inventory investment in terms of quantity? I think this is probably partly to blame, and is the only way I can tie the two conflicting components of GDP together. How else could imports be rising and inventory investment be decreasing? Demand for US goods is slipping too, as seems clear by the manufacturing slow down.

Here's another crack in the foundation you should note. GDP growth was greatly aided by an upturn in residential fixed investment. That's right, so the market's hopes were propped up by second quarter housing strength. Well, we know that temporary strength, if we can even call it that, hinged on the special tax incentive. We also know very well that housing has collapsed since the expiration of that deadline. So, what then does all this information portend about Q3 and Q4, if not serious trouble? Also, federal, state and local government spending helped fuel growth, and we do not see that lasting either.

Thus, the market's high hopes expressed Friday by the Dow reversal seem based on unstable footing. This portends serious economic trouble for Q3 and Q4, so beware the bear. The economy, including both real estate and the stock market remain vulnerable, and so double-dip recession or something similarly sinister threaten. Here's some more good news. With the Iraq draw down about to get going, and with oil prices relatively low, the president's men might soon get the bright idea to begin a war with Iran.

Article should interest investors in Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), J.P. Morgan Chase (NYSE: JPM), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), Caterpillar (NYSE: CAT), Whirlpool (NYSE: WHR), Ford (NYSE: F), Honda (NYSE: HMC), Toyota (NYSE: TM), Boeing (NYSE: BA), Apple (Nasdaq: AAPL), Microsoft (Nasdaq: MSFT), Dell (Nasdaq: DELL), Cisco Systems (Nasdaq: CSCO), Taiwan Semi (NYSE: TSM), Intel (Nasdaq: INTC), Rio Tinto (NYSE: RTP), BHP Billiton (NYSE: BHP), Vale (Nasdaq: VALE), Lockheed Martin (NYSE: LMT), Rockwell Collins (NYSE: COL), Northrop Grumman (NYSE: NOC), United States Steel (NYSE: X), Symantec (Nasdaq: SYMC), Sprint (NYSE: S), International Paper (NYSE: IP), Citrix Systems (Nasdaq: CTXS), Eastman Kodak (NYSE: EK), General Electric (NYSE: GE), Lennox (NYSE: LII), Spectrum Brands (NYSE: SPB), Helen of Troy (Nasdaq: HELE), National Presto (NYSE: NPK), iRobot (Nasdaq: IRBT), Xerox (NYSE: XRX), Pitney Bowes (NYSE: PBI), VeriFone (NYSE: PAY), Diebold (NYSE: DBD), Coinstar (Nasdaq: CSTR), HNI (NYSE: HNI), Herman Miller (Nasdaq: MLHR), Steelcase (NYSE: SCS), Knoll (NYSE: KNL), Fortune Brands (NYSE: FO), Leggett & Platt (NYSE: LEG), Tempur Pedic (NYSE: TPX), Acuity Brands (NYSE: AYI), Ethan Allen (NYSE: ETH), SORL Auto Parts (Nasdaq: SORL), United Technologies (NYSE: UTX), 3M (NYSE: MMM), Danaher (NYSE: DHR), PPG Industries (NYSE: PPG), ORIX (NYSE: IX), Cooper (NYSE: CBE), Textron (NYSE: TXT), Crane (NYSE: CR), Honeywell (NYSE: HON), General Dynamics (NYSE: GD), Goodrich (NYSE: GR), L-3 Communications (NYSE: LLL), EMBRAER (NYSE: ERJ), FLIR (Nasdaq: FLIR), Transdigm (NYSE: TDG), BE Aerospace (Nasdaq: BEAV), CAE (NYSE: CAE), Alliant Tech Systems (NYSE: ATK), Triumph (NYSE: TGI).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Morning Market Activity 08-27-10

Morning Greek
Greek Factor: -1

Today's morning market activity is going to be greatly influenced by the revision of Gross Domestic Product (GDP), and also by the Jackson Hole address of Federal Reserve Chairman Benjamin Bernanke. A slew of important speakers are on tap at the Kansas City Fed's confab, including the ECB's Jean-Claude Trichet. Thus, a wild card market factor might surface through the day. Finally, also look for Consumer Confidence data from the University of Michigan/Reuters later this morning. The "Greek Factor" ranges from +3 to -3, and is a subjective measure of The Greek's view of the market impact of individual and aggregate premarket news and the day's scheduled events.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: NYSE: HPQ, NYSE: PAR, Nasdaq: DELL, NYSE: TIF, NYSE: DNA, Nasdaq: IMGN, NYSE: BA, Nasdaq: GLNG, NYSE: HS, NYSE: FRO, NYSE: CEA, LSE: CCC.L, NYSE: SHI, Nasdaq: APWR, Nasdaq: ARUN, Nasdaq: BEBE, Nasdaq: BRLI, NYSE: CEL, NYSE: CHT, Nasdaq: CONN, NYSE: DHT, Nasdaq: DLLR, Nasdaq: DROOY, Nasdaq: FRED, NYSE: GRB, Nasdaq: GIGM, Nasdaq: IMMU, NYSE: IRF, NYSE: JCG, Nasdaq: LAVA, NYSE: MPR, NYSE: MBT, Nasdaq: UEPS, NYSE: NZ, Nasdaq: IPVO, Nasdaq: NOVL, Nasdaq: OVTI, Nasdaq: OVRL, Nasdaq: PDCO, Nasdaq: QADI, NYSE: NX, NYSE: RGS, NYSE: RY, NYSE: SFL, NYSE: SIG, NYSE: SLH, NYSE: SXI, AMEX: TIK, Nasdaq: XETA, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

Morning Market Activity

GDP was revised lower, but the result was ahead of consensus forecasts and the market was well-prepared for the reduction. Fed Chairman Ben Bernanke will attempt to appease market concerns at 10:00 AM in Jackson Hole. So, you would think we might find a Friday rally, and we may. However, I expect that throughout the day, the market will remember that the economic recovery is deteriorating, and will focus on this. Also, I expect confidence in the ability of the Fed to affect the economy is dwindling, and so the potency of Bernanke's sometimes shaky voice will have been diluted. I would look for the market to lose ground into the close today, whichever direction intraday trading may take it.

GDP Revision
Greek Factor: -1

Second quarter gross domestic product (GDP) was revised lower this morning to +1.6%, from its initial reporting of +2.4%. To the reader who is first becoming aware of this news, it may sound cataclysmic for stocks. While it is highly critical to the short to medium-term movement of stocks, this report considers the short short-term impact of the data release. Therefore, and considering that economists had enough advanced warning through the release of other data points, the broader market was geared to receive a revision even lower, to +1.3%. So, if you can believe it, the news today is relatively positive for the open of stocks.

We've assigned a Greek Factor rating of negative one to the data point, simply because of the only nascent digestion of market participants of a lower level of economic activity and even the risk for a second dive into recession. As investors continue to digest this new paradigm, we expect many investors are still liquidating positions. We will cover the GDP report in detail in a later release this morning.

Bernanke's Jackson Hole Address
Greek Factor: +1

Normally, we would anticipate Chairman Bernanke's address, and its design to appease concerns, would offset concerns about the earlier report of GDP, especially given its better than expected result. However, general market sentiment is swaying, and confidence in Bernanke's ability to fix things is dwindling. There is a growing opinion that perhaps the Federal Reserve is about out of bullets, has done all it can, and has been rendered impotent by the greatest recession in generations. For this reason, we have only assigned a positive one factor to Bernanke's address, which comes at 10:00 AM. We will try to cover the speech as well this morning, as it is highly important to investors.

Attending the Jackson Hole summit will be a slew of important global financial market figures. The head of the IMF appeared today in a morning interview on CNBC, as did St. Louis Fed President James Bullard. Bullard was not very reassuring, at least not to my metric of his demeanor. As an analyst, I was pretty good at measuring the effectiveness and aptitude of corporate leaders, economists, strategists and political powers. My feeling from Bullard was that there's little value add in terms of original opinion. His statement that the Fed Chief has support at the Fed, seems to say there's little courage among the Fed Board of Governors and its regional presidents to take personal responsibility and to look toward adding value to Fed decision making. In other words, the weight is squarely on Bernanke.

Consumer Sentiment
Greek Factor: -1*

The Reuters/University of Michigan Consumer Sentiment reading improved slightly in mid-August, to 69.6. Recall that previous readings marked sharp down-slide in confidence, and so the latest improvement should be taken in context. In absolute terms, it still signifies a low level of confidence among America's underemployed consumer base.

The consensus of economists are not going out on a limb for this latest reading, as their forecast sits at 69.6. We expect the measure to slip slightly, as it sort of settles into new paradigm thinking (re economy). Even though the report comes after the market open, I've assigned an anticipatory Greek Factor rating for its release, should it be slightly lower, as I expect.

Corporate Drivers

The day's corporate schedule is light. Hewlett-Packard (NYSE: HPQ) and Dell (Nasdaq: DELL) have traded new offers for 3Par (NYSE: PAR), and the fight is officially on. We're up above $30 now to take control of the firm. Tiffany (NYSE: TIF), Frontline (NYSE: FRO) and Golar LNG Ltd. (Nasdaq: GLNG) report results and host conference calls today. Healthspring (NYSE: HS) will acquire Bravo Health. Boeing (NYSE: BA) is delaying its Dreamliner yet again, to the middle of the first quarter of 2011. Genentech (NYSE: DNA) receives a Refuse to File Letter from the FDA for T-DM1; Immunogen (Nasdaq: IMGN) will host a conference call in this regard.

EPS reports are due from China Eastern Airlines (NYSE: CEA), Computacenter Plc (LSE: CCC.L), Sinopec Shanghai Petrochemical (NYSE: SHI) and others. Thursday's EPS schedule included data from A-Power Energy (Nasdaq: APWR), Aruba Networks (Nasdaq: ARUN), Bebe Stores (Nasdaq: BEBE), Bio-Reference Laboratories (Nasdaq: BRLI), Cellcom Israel (NYSE: CEL), Chunghwa Telecom (NYSE: CHT), Conn's (Nasdaq: CONN), DHT Holdings (NYSE: DHT), Dollar Financial (Nasdaq: DLLR), DRD Gold (Nasdaq: DROOY), Fred's (Nasdaq: FRED), Gerber Scientific (NYSE: GRB), GigaMedia (Nasdaq: GIGM), Immunomedics (Nasdaq: IMMU), International Rectifier (NYSE: IRF), J. Crew (NYSE: JCG), Magma Design Automation (Nasdaq: LAVA), Met-Pro (NYSE: MPR), Mobile Telesystems (NYSE: MBT), Net 1 UEPS (Nasdaq: UEPS), Netezza (NYSE: NZ), Newmarket Technology (Nasdaq: IPVO), Novell (Nasdaq: NOVL), Omnivision (Nasdaq: OVTI), Overland Storage (Nasdaq: OVRL), Patterson Dental (Nasdaq: PDCO), QAD (Nasdaq: QADI), Quanex Building Products (NYSE: NX), Regis (NYSE: RGS), Royal Bank of Canada (NYSE: RY), Ship Finance (NYSE: SFL), Signet Jewelers (NYSE: SIG), Solera (NYSE: SLH), Standex (NYSE: SXI), Tel-Instrument Electronics (AMEX: TIK) and XETA Technologies (Nasdaq: XETA).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Durable Goods Orders Doomsday Prophecy

Durables Doomsday Prophecy

Take heed, oh ye market mavens, for the directive issued by July's Durable Goods Orders is clear. Sell, says this barometer of economic demise, or rather demand! Sell, sell and sell some more, because your favorite modern day Greek oracle has prophesied yet another doomsday precisely.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: NYSE: GE, NYSE: LII, NYSE: SPB, Nasdaq: HELE, NYSE: NPK, Nasdaq: IRBT, NYSE: XRX, NYSE: PBI, NYSE: PAY, NYSE: DBD, Nasdaq: CSTR, NYSE: HNI, Nasdaq: MLHR, NYSE: SCS, NYSE: KNL, NYSE: FO, NYSE: LEG, NYSE: TPX, NYSE: AYI, NYSE: ETH, Nasdaq: SORL, NYSE: UTX, NYSE: MMM, NYSE: DHR, NYSE: PPG, NYSE: IX, NYSE: CBE, NYSE: TXT, NYSE: CR, NYSE: HON, NYSE: GD, NYSE: GR, NYSE: LLL, NYSE: ERJ, Nasdaq: FLIR, NYSE: TDG, Nasdaq: BEAV, NYSE: CAE, NYSE: ATK, NYSE: TGI, NYSE: CAT, NYSE: WHR, NYSE: F, NYSE: HMC, NYSE: TM, NYSE: BA, Nasdaq: AAPL, Nasdaq: MSFT, Nasdaq: DELL, Nasdaq: CSCO, NYSE: TSM, Nasdaq: INTC, NYSE: RTP, NYSE: BHP, Nasdaq: VALE, NYSE: CAT, NYSE: LMT, NYSE: COL, NYSE: NOC, NYSE: X, NYSE: AZN, Nasdaq: SCHW, NYSE: BA, Nasdaq: SYMC, NYSE: S, NYSE: IP, Nasdaq: CTXS, NYSE: EK, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, Nasdaq: NDAQ, NYSE: ICE)

Durable Goods Orders Doomsday Prophecy

Cataclysmic...Dire...Gloomy...Doomsday! Jim Cramer says those of us who use these types of words are drama kings & queens and fear mongers or bloggers. It's the safe thing to say, you know, that things are not that bad. It's easy to be the voice of reason, especially when history is on your side as you do so. This is why so many market strategists and television pundits missed the financial crisis of our generation, and why the courageous among us who do not fear speaking the ugly truth are now globally syndicated.

People like The Greek do not have seven digit TV contracts to guard, nor big bonus paying jobs to protect. We have not the worry of maintaining busty blond arm candy, nor the tie to image that the big snots are bound by. Heck, I am not even capable of lying, not even for my own sake. And so, I speak. In Cramer's defense, he also wields a special power and influence over masses. The big, bald & bold bad-man from Philly town (my brother) has the ability to spawn a flash-crash by his mere utterance of the wrong word. This great responsibility calls for cautious speak, and requires wisdom to pull off. So, give him some credit today for keeping the peace. He probably played a role in the market's recovery yesterday, as a matter of fact. Lucky for the few of you reading along with our little blog, we exist, providing you the opportunity to diverge from the herd of sheep, and to find higher ground in times of trouble (and Easter if you graze in Greece).

Make no mistake about it, today's durable goods orders report was meaningful, and heavily slanted toward the dark-side. It was perhaps a doomsday prophecy. We warned about it in our premarket report yesterday, but view it so important, we've decided to remind you again here. By the way, we were also warning about it last month, as seen via this link.

Back to Doom

First of all, durable goods orders were soft in aggregate, increasing substantially less than economists had expected. The 0.3% rise matched against economists' consensus expectations for a 2.5% leap. What were they thinking?! Well, the difference certainly was not explainable by transportation, considering that the transportation segment saw a 13.1% jump in orders, and nondefense aircraft soared 75.9%. Therefore, the miss must be explainable by economists' clinging to a baseline forecast that is simply flawed. They have followed historic trend and the guidance of an admittedly poor forecaster, the Federal Reserve and its chief, Ben Bernanke.

This is the problem with most gurus found by business television producers for their loud voices first and their minds second. They base all forecasts on historical trend, clinging to it like a crack addict to his pipe. I would venture to say too many of them are incapable of thinking outside the box. In times like these, you have to find yourself a source like Wall Street Greek, an expert voice off-Wall Street, to get a truly independent, unbiased and correct view of the situation.

Where market mavens got it wrong with this particular report was in what really matters. Excluding transportation, which can skew the measure due to its big ticket products, new orders fell 3.8%. The problem is that the deeper we dig into the data, the more fundamental flaws we find with our nation's economic situation.

Let's start with the meat of the matter of concern. An important component of durables orders is the line item found way down towards the bottom of the spreadsheet provided by the Department of Commerce. Orders for Capital Goods Ex-Aircraft and Defense is seen as an accurate measure of business investment, which reflects how companies feel about expanding their labor force as well as end market demand. What happened in this key segment is therefore troubling. In the most recent two months of measurement, this important barometer showed increases of 4.7% and 3.6%. Those results, however, were forgotten today, as July marked an 8.0% decrease in orders. Businesses may be retrenching, is the fear.

A look deeper only reveals more blood, infection and economic rejection. Manufacturing orders fell 0.5%, the third sequential showing, as far as we could tell by this latest spreadsheet. Machinery orders collapsed 15%! Over the last few months, the President and his friends at the Treasury and Federal Reserve have harped on the fact that software and hardware demand seemed solid. Not no more! Forgive my return to a slang from another life.

Orders for computers and electronic products fell 2.4% in July, with orders for computers and related products specifically falling 12.7%. Perhaps there's more reason to sell Dell (Nasdaq: DELL), than the potential impact to capital that might result from an acquisition of 3Par (NYSE: PAR). Maybe Hewlett-Packard (NYSE: HPQ) should hold on to its wondrous wealth as well. Tech firms might find even better pricing sometime soon.

In every story, there's a silver lining. It seems the Internet can't be stopped. Expanding uses of broadband and expanding demand for it have communications equipment orders up 3.9%, so Cisco Systems (Nasdaq: CSCO) may just be the Gillette of our generation. God knows, I've stopped shaving and live in the etherworld.

There was more good news delivered to Detroit as well, as motor vehicle and parts orders increased 5.3%. I ran into my brimstone tempered cousin this weekend, the one who has been transported to Detroit by the auto industry Gods. You remember him, the guy who talks too loudly, but also works too hard. Can you imagine driving from New York to Detroit after an intercontinental flight, because weather delay rerouted you ,and threatened to have you home a day late? That's what Iron Mike did so that he would not have to explain to his bosses the loss of a day, a legitimate reason mind you. I can't give credit to Detroit for making the guy so tough, because I witnessed Philly do it to us all. Well, Mike tells me Motor City is running at proper capacity now, so perhaps this is the difference between its economic development and the rest of the nation.

Maybe Detroit will fit a strange analogy some day, it being to us what Germany is to Europe. God knows, that day has not come yet, but she may be on her way. I think the combined efforts of our last two presidents got the D-town fix right, and you should agree, whatever one might say regarding Wall Street.

Found a video with a smart title, but a boring introductory speaker, that might evidence that the President has a clue about how to fix our economy. It's called Transforming the American Economy Through Innovation, and its found via the link here. I think you should fight the urge to fade into dreamland, and watch it. By the way, the follow up to the introductory speaker, is Joe Biden, so good luck with that! Actually, Biden will keep us on our toes, with his unpredictable tongue. So I expect you'll be glued to your screen. It's a solid speech, once you get past the political pokes.

Importantly, we must understand that this new paradigm that has infected our economy can only be cured with special medicine. As we've seen, blank checks sent to mail boxes nationwide, shovels of money to financiers on Wall Street, blind incentives to small businessmen, and intravenous to the unemployed are not going to solve what ails us now. What we need now is a new New Deal, and we need public works projects to build parallel energy resources that will eventually free us from our dependence on foreign oil. This will lead me into my next major project. For now, understand that this Durable Goods Orders data demands your attention, and offers yet another signal this week, to coincide with the coming revision downward of GDP, that our economy is diving into double-dip recession.



Article should interest investors in Caterpillar (NYSE: CAT), Whirlpool (NYSE: WHR), Ford (NYSE: F), Honda (NYSE: HMC), Toyota (NYSE: TM), Boeing (NYSE: BA), Apple (Nasdaq: AAPL), Microsoft (Nasdaq: MSFT), Dell (Nasdaq: DELL), Cisco Systems (Nasdaq: CSCO), Taiwan Semi (NYSE: TSM), Intel (Nasdaq: INTC), Rio Tinto (NYSE: RTP), BHP Billiton (NYSE: BHP), Vale (Nasdaq: VALE), Lockheed Martin (NYSE: LMT), Rockwell Collins (NYSE: COL), Northrop Grumman (NYSE: NOC), United States Steel (NYSE: X), Symantec (Nasdaq: SYMC), Sprint (NYSE: S), International Paper (NYSE: IP), Citrix Systems (Nasdaq: CTXS), Eastman Kodak (NYSE: EK), General Electric (NYSE: GE), Lennox (NYSE: LII), Spectrum Brands (NYSE: SPB), Helen of Troy (Nasdaq: HELE), National Presto (NYSE: NPK), iRobot (Nasdaq: IRBT), Xerox (NYSE: XRX), Pitney Bowes (NYSE: PBI), VeriFone (NYSE: PAY), Diebold (NYSE: DBD), Coinstar (Nasdaq: CSTR), HNI (NYSE: HNI), Herman Miller (Nasdaq: MLHR), Steelcase (NYSE: SCS), Knoll (NYSE: KNL), Fortune Brands (NYSE: FO), Leggett & Platt (NYSE: LEG), Tempur Pedic (NYSE: TPX), Acuity Brands (NYSE: AYI), Ethan Allen (NYSE: ETH), SORL Auto Parts (Nasdaq: SORL), United Technologies (NYSE: UTX), 3M (NYSE: MMM), Danaher (NYSE: DHR), PPG Industries (NYSE: PPG), ORIX (NYSE: IX), Cooper (NYSE: CBE), Textron (NYSE: TXT), Crane (NYSE: CR), Honeywell (NYSE: HON), General Dynamics (NYSE: GD), Goodrich (NYSE: GR), L-3 Communications (NYSE: LLL), EMBRAER (NYSE: ERJ), FLIR (Nasdaq: FLIR), Transdigm (NYSE: TDG), BE Aerospace (Nasdaq: BEAV), CAE (NYSE: CAE), Alliant Tech Systems (NYSE: ATK), Triumph (NYSE: TGI).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Morning Market Report 08-25-10

Morning Greek
Greek Factor: -3

We've applied a dramatically negative Greek Factor to today's morning market report, based greatly on the bad news on Durable Goods for July. Orders fell in many key categories, including previous areas of strength, business investment and computer and electronics. Stock futures agree, and point to a markedly lower start to the day. The "Greek Factor" ranges from +3 to -3, and is a subjective measure of "The Greek's" view of the market impact of individual and aggregate premarket news events.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, and Mr. Kaminis has appeared across major media. While writing for Wall Street Greek, he presciently predicted the financial crisis in detail.

(Tickers: Nasdaq: CWTR, NYSE: MDT, Nasdaq: CVLT, Nasdaq: JDSU, NYSE: DNR, Nasdaq: AREX, Nasdaq: FNGN, NYSE: TOL, Nasdaq: NKBP, NYSE: GES, Hong Kong: 656.HK, OTC: HKFI.PK, NYSE: ACH, NYSE: AEO, Nasdaq: ANGN, Nasdaq: AVNW, NYSE: BHP, NYSE: BWS, NYSE: CM, NYSE: LFC, NYSE: CHA, Nasdaq: CYBX, Nasdaq: DLIA, Nasdaq: HAIN, NYSE: HEI, Nasdaq: ITRN, NYSE: JAS, Nasdaq: KONG, Nasdaq: OSIS, Nasdaq: PERY, NYSE: PTR, Nasdaq: RAVN, Nasdaq: RUE, Nasdaq: SMTC, Nasdaq: SHLO, Nasdaq: SCVL, Nasdaq: SIGM, Nasdaq: SYNO, Nasdaq: TBAC, Nasdaq: TIVO, Nasdaq: VSNT, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

Morning Market Report

Today's market has a lot weighing against her. The importance of July's Durable Goods data cannot be overstated in this morning market report, with most industry segments, except perhaps auto orders, weighing against economic life. Meanwhile, mortgage activity improved, but we must take note of why. Mortgage rates dropped to historical bottoms, and that is indicative of an anemic real estate marketplace. That is NOT a good thing, and gives reason to sell again today. Enjoy your coffee, donut and economic double-dip.

Mortgage Application Volume
Greek Factor: -1

Mortgage activity for the week ending August 20 improved, but only as mortgage rates collapsed to the lowest levels in recorded history. Contracted mortgage rates on 30-year and 15-year fixed rate mortgages fell to 4.55% (from 4.60%) and 3.91% (from 3.99%), respectively, in the measured period. Thus, the Refinance Index gained 5.7%, to its highest level since May 1st. Purchase activity was less robust, rising 0.6% on a seasonally adjusted basis, but losing 1.1% when unadjusted. The Market Composite Index increased 4.9%. We are applying a negative factor rating to this data point due to the fact that purchase activity remains nonexistent, and even due to the depth of mortgage rates. While this should be fueling economic growth, its anemic mark is reflective of the pathetic state of our economy and housing market.

Durable Goods Orders
Greek Factor: -3

Durable Goods Orders were reported this morning for the month of July. New Orders increased just 0.3%, well short of the economists' consensus for a gain of 2.5%. Excluding volatile transportation data on big ticket orders, the result was a 3.8% drop. July's result compared against a revised higher June result of -0.1%.

The strength was clearly in transportation, where orders gained 13.1% after posting two consecutive monthly drops. Aircraft orders were up on nondefense, as non-defense aircraft orders jumped 75.9%. Total New Orders ex-defense were up 0.3%. Computers and Electronics Products Orders fell 2.4%, and most related segments showed drops in order activity as well. This was a strength in recent months, so the turn around will disappoint investors today. Also dreadful, Capital Goods Orders Ex-Defense and Aircraft collapsed 8.0% in July, meaning businesses stopped investing. Again, investors were desperately hopeful here, and the rug has been pulled out from under them. This is a key driver today, and we'll take a closer look in a later article.

New Home Sales

New Home Sales data for July is due for release at 10:00 AM. This follows the lousy Existing Home Sales Report released yesterday. Existing home sales account for about 90% of total sales, and therefore matter significantly more than New Home activity. That said, economists forecast an annual rate of New Home Sales of 340K for July. This would compare against June's rate of 330K. I am not expecting good news here. We do not assign a Greek Factor to the data point because it has not been released in the premarket. However, we expect it to weigh against the market today.

FHFA House Price Index

The Federal Housing Finance Agency (FHFA) will report on its House Price Index (HPI) at 10:00 AM. This latest reading will be for the month of June, and will compare against May's monthly gain of 0.5%. Eventually, one of these indices is going to turn sour, and we might see it in FHFA data, due to price ceilings here. The House Price Index is derived from transactions involving conforming conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. In contrast to other house price indexes, the sample is limited by the ceiling amount for conforming loans purchased by these government-sponsored enterprises (GSE).

EIA Petroleum Status

The EIA reports on Petroleum Status every Wednesday at 10:30. The last report, covering the period ended August 13, showed oil inventory fell by 0.8 million barrels. Gasoline stocks remained relatively unchanged last week. Both oil and gasoline stores remained above the upper limit of the average range for this time of year. Energy prices are giving way now as economic expectations deteriorate.

Corporate News Drivers

Coldwater Creek (Nasdaq: CWTR), Medtronic (NYSE: MDT), Commvault (Nasdaq: CVLT) and JDSU (Nasdaq: JDSU) discuss earnings and more with investors today. Denbury Resources (NYSE: DNR) and Approach Resources (Nasdaq: AREX) make presentations at the EnerCom Inc. Oil & Gas Conference. The IPO lockup period expires for Financial Engines (Nasdaq: FNGN). BHP Billiton (NYSE: BHP) reports results this morning, and its CEO said it would maintain discipline in its bid for Potash (NYSE: POT).

The day's EPS schedule includes news from Coldwater Creek, JDSU, Toll Brothers (NYSE: TOL), China Nuokang (Nasdaq: NKBP), Guess (NYSE: GES), Fosun Int'l (Hong Kong: 656.HK), Hancock Fabrics (OTC: HKFI.PK), Aluminum Corp. of China (NYSE: ACH), American Eagle (NYSE: AEO), Angeion (Nasdaq: ANGN), Aviat Networks (Nasdaq: AVNW), BHP Billiton (NYSE: BHP), Brown Shoe Co. (NYSE: BWS), Canadian Imperial Bank of Commerce (NYSE: CM), China Life Insurance (NYSE: LFC), China Telecom (NYSE: CHA), Cyberonics (Nasdaq: CYBX), dELiA's (Nasdaq: DLIA), Hain Celestial Group (Nasdaq: HAIN), HEICO (NYSE: HEI), Ituran Location & Control (Nasdaq: ITRN), Jo-Ann Stores (NYSE: JAS), Kongzhong (Nasdaq: KONG), OSI Systems (Nasdaq: OSIS), Pery Ellis Int'l (Nasdaq: PERY), PetroChina (NYSE: PTR), Raven Industries (Nasdaq: RAVN), rue21 (Nasdaq: RUE), Semtech (Nasdaq: SMTC), Shiloh Industries (Nasdaq: SHLO), Shoe Carnival (Nasdaq: SCVL), Sigma Designs (Nasdaq: SIGM), Synovis Life Technologies (Nasdaq: SYNO), Tandy Brands (Nasdaq: TBAC), TIVO (Nasdaq: TIVO) and Versant (Nasdaq: VSNT).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Cataclysmic Home Sales Data for July

Real Estate

Tuesday's report by the National Association of Realtors was so bad that the pace of sales fell outside the range of 70+ economists forecasts, needless to say missing the consensus estimate. The data was so miserable, it set the broader indexes to gap lower openings, and held them down all day.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, and Mr. Kaminis has appeared across major media. While writing for Wall Street Greek, he presciently predicted the financial crisis in detail.

(Tickers: NYSE: NVR, NYSE: DHI, NYSE: PHM, NYSE: GFA, NYSE: TOL, NYSE: LEN, NYSE: MDC, NYSE: KBH, NYSE: RYL, NYSE: MTH, NYSE: SPF, NYSE: HOV, NYSE: BZH, NYSE: BHS, Nasdaq: AVTR, NYSE: XIN, NYSE: MHO, Nasdaq: CHCI, NYSE: SNH, NYSE: DMM, NYSE: UMM, Nasdaq: FSHOX, Nasdaq: CHLN, NYSE: EQR, NYSE: AVB, NYSE: UDR, NYSE: ESS, NYSE: CPT, NYSE: BRE, NYSE: AIV, NYSE: HME, NYSE: MAA, NYSE: ELS, NYSE: ACC, NYSE: CLP, Nasdaq: AGNC, NYSE: SUI, NYSE: EDR, NYSE: AEC, NYSE: PMT, NYSE: TWO, NYSE: HD, NYSE: LOW, NYSE: USG, NYSE: EXP, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

Home Sales Data for July

"Cataclysmic" seems to apply best here. I'm sorry to say it dear readers, but the broader market is starting to capitulate to our viewpoint. Once again, we've gone from the Armageddon view to mainstream consensus, and once again that occurred as a result of popular thought merging toward our prescient insight. The reason is simple friends; it's because we have no bias. We are neither contained by editorial leanings or political bias, nor directed by a higher business objective. We pay little attention to the views of media nor pundits. We focus on the pure data, and we see things clearly. Even when we do turn on the tele for a look-see, we sift the crap from substance and we flush it away. This ability to weed out noise is why I succeeded in stock selection, and it's the same reason I can forecast economic and market matters now.

Tuesday's report by the National Association of Realtors (NAR), a biased organization mind you, could not contain the damage. The result was so bad that it fell outside the range of economists estimates, needless to say missing the consensus forecast. The data was so miserable, it sent the broader indexes to gap lower openings, and held them down through the day.

July's pace of Existing Home Sales ran at an annual pace of 3.83 million, down 27.2% from June's revised measure of 5.26 million. Ensuring you took note of what you just read, the NAR recorded a steep monthly slip of over 1 million sales to the current rate of activity. On a relative basis, that's a bad comparison, but it does not even completely tell the horror story. This latest rate of housing sales is the worst since comparable records began in 1999. This rate includes both single-family homes and multi-family structures though. The rate of sales for single-family homes alone fell to 3.37 million, the lowest since May of 1995! Need I say that's bad?

Bloomberg's consensus of 74 economists projected an annual pace of sales of 4.65 million. That's lower, but not anywhere near as low as the actual result this month. In fact, not one economist of those surveyed foresaw the 3.83 million rate, continuing a recent trend of wake up calls among the economist community. It was just last week none of them foresaw jobless claims spiking to above 500K again. The economists' range here covered from 3.96 million to 5.2 million.

Much of the same scribble we used to define the housing hit last month remained valid again this month. You might recall our report found here, which stated: "A housing sector, and economy, that have been held up by government stilts for some time have now been left to stand on their own. We're sorry to report, she's falling flat onto her face in the mud where a foundation was supposed to be. As the First-Time Homebuyers Tax Credit expired, was renewed and expanded, and expired once more, its ability to spur housing activity wore thin. Don't get me wrong though, the government's efforts served a useful purpose and kept the economy from disappearing altogether. It's just too soon for this unemployment burdened baby to make a significant growth spurt." Ditto this month...

By the way, I was wondering if this last quote sounded familiar to you? I just turned CNBC on for the first time in months and heard some of the crew chirping about the same things we said a month ago. You could have heard it from us when it might have saved you some money; hey, CNBC, you might try including some Greek on your menu.

Here's what you'll see on CNBC in the months ahead. Flash forward: "Home prices fell! Recession looms again!"

Prices

Prices increased this month, based on the NAR report. Still the data was skewed by major Northeastern and Western MSAs. The median price of an existing home sold in July increased 0.7% from the year ago mark. The price of a single-family home was 0.9% higher than a year ago. Single-family home prices increased in 11 of 19 metropolitan statistical areas (MSAs) in July, year-to-year (1 MSA data point missing). That means 8 MSAs did not report price increase though, or nearly half. The median existing condo price fell 1.7% in July.

Generally speaking, price increases in the Northeast and West offset price decline in the Midwest and South. We took a closer look at the MSAs and found scarce price increases, though they were in existence in the heavily populated MSAs of Boston, New York, Washington DC, etc. I have to believe that wherever markets are global in nature, prices are more stable, a benefit of that extra demand stream.

Inventory

Home inventory is directly impacted by the rate of sales, which fits into the denominator of the equation that finds it. The numerator is the number of homes on the market. As you might expect, with the severely lower denominator, existing home inventory shot up in July to a 12.5 month supply, from 8.9 months in June. However, even in absolute terms, the news was bad. The number of existing homes on the market increased 2.5% in July, to 3.98 million. The supply of single-family homes on the market in July marked the highest housing supply since 1983 (11.9 months supply).

Lawrence Yun, the NAR's Chief Economist placed a majority of the blame on the end of tax credits. He said that it would take a few more months before the affect of the conclusion of the credits wore off. The idea is that the credits did not really create activity, but pulled forward what would have otherwise occurred this month and next, and perhaps after that as well. What that basically tells us is that housing activity is anemic, has been anemic and will be anemic for the foreseeable future. It's a wake up call to investors who may have gotten ahead of themselves, and it leads one to wonder, have home prices been artificially stabilized and will they take a second leg lower? The answer is yes, unless economic activity gains some traction. All signs point to that not occurring any time soon.

The Good News is Limited

The good news for some of my uber-wealthy neighbors in NYC is that the ultra rich are still buying homes. The highest end of the spectrum, encompassing $1 million plus homes, was the only one to see sales increase in July. This ultra-rich segment marked a 6.9% increase in sales activity in July. Of course, characteristics of this group do not include "surviving by the skin of their teeth on unemployment checks."

Regurgitating Some Old Greek Wisdom

We wrote this a month ago, it still applies, and I cannot say it any better:

Sad State of Affairs

The low mood in housing continues to find causation in an overhang of near 10% unemployment, extremely altered lending standards and a flood of foreclosure activity. While unemployment lingers at a suspect 9.6% rate (probably understated due to workforce declines), the underemployed, or those working insufficient hours at inadequate income remain upward of 16%. That simply will not inspire a fantastic spending scenario.

With regard to lending, the game has changed. With the secondary market for mortgage securities seeing a seismic shift in investor perception, and with a commensurate change in demand for the investment pools, a significant degree of liquidity is gone. But that's not what is limiting housing starts now. Rather, that's what will limit housing growth once the economy starts to gain traction again.

Lending standards have shifted as well, since these assets are finding less secondary demand. You can't just write them and sell them anymore (though some would say you never really could - Countrywide, Washington Mutual, etc.). Anyway, we would like to take this moment to again thank the rating agencies for rating MBS investment grade in the first place; thanks a lot S&P (NYSE: MHP) and pals (NYSE: MCO). Let your policy makers know that we're still waiting for justice.

Meanwhile, foreclosures continue to mount, flooding the market with low-priced inventory. Why would any cost-sensitive buyer look toward the new construction market under these conditions? Well, plenty are not. Distressed home sales accounted for 32% of all transactions in July, up from 31% last year.

Even with mortgage rates at historic lows, buyers are still not turning up. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.56 percent in July from 4.74 percent in June; the rate was 5.22 percent in July 2009. Last week, Freddie Mac reported the 30-year fixed was down to 4.42 percent.

Thus a confluence of factors weigh against housing. The problem is of course that the main factor is systemic; too many Americans simply cannot or will not buy a home under these conditions. Finally, housing itself is a systemic driver of the overall economy and spurs all sorts of consequential spending. We have found ourselves caught in a continual loop of lousy, a death spiral. It will take some original thought to get us out of this mess. We need to stimulate the economy, not to stand it up on stilts like we have with the housing tax credit and via the issuance of $300 checks. Otherwise, we will inch ahead and pray for Asian growth and demand to pick us up.



Relevant Tickers include NVR Inc. (NYSE: NVR), D.R. Horton (NYSE: DHI), Pulte Group (NYSE: PHM), Gafisa SA (NYSE: GFA), Toll Brothers (NYSE: TOL), Lennar (NYSE: LEN), MDC Holdings (NYSE: MDC), KB Home (NYSE: KBH), Ryland Group (NYSE: RYL), Meritage Homes (NYSE: MTH), Standard Pacific (NYSE: SPF), Hovnanian Enterprises (NYSE: HOV), Beazer Homes (NYSE: BZH), Brookfield Homes (NYSE: BHS), Avatar Holdings (Nasdaq: AVTR), Xinyuan Real Estate (NYSE: XIN), M/I Homes (NYSE: MHO), Comstock Homebuilding (Nasdaq: CHCI), Senior Housing Properties Trust (NYSE: SNH), NYSE: DMM, NYSE: UMM, Fidelity Select Construction & Housing (Nasdaq: FSHOX), China Housing (Nasdaq: CHLN), Equity Residential (NYSE: EQR), Avalonbay Communities (NYSE: AVB), UDR, Inc. (NYSE: UDR), Essex Property Trust (NYSE: ESS), Camden Property Trust (NYSE: CPT), BRE Properties (NYSE: BRE), Apartment Investment Management (NYSE: AIV), Home Properties (NYSE: HME), Mid-America Apartment (NYSE: MAA), Equity Lifestyle Properties (NYSE: ELS), American Campus Communities (NYSE: ACC), Colonial Properties Trust (NYSE: CLP), American Capital Agency (Nasdaq: AGNC), Sun Communities (NYSE: SUI), Education Realty Trust (NYSE: EDR), Associated Estates Realty (NYSE: AEC), PennyMac Mortgage Investment (NYSE: PMT) and Two Harbors Investment (NYSE: TWO). The day's EPS reports included American Woodmark (Nasdaq: AMWD), Avago Technologies (Nasdaq: AVGO), Bank of Montreal (NYSE: BMO), Barnes & Noble (NYSE: BKS), Big Lots (NYSE: BIG), Burger King (NYSE: BKC), CRH PLC (NYSE: CRH), Daktronics (Nasdaq: DAKT), Dycom (NYSE: DY), Eastern Light Capital (AMEX: ELC), Edap TMS (Nasdaq: EDAP), Eltek (Nasdaq: ELTK), Israel Chemicals (ICL.TA), Lihir Gold (Nasdaq: LIHR), Medtronic (NYSE: MDT), Pacific Sunwear (Nasdaq: PSUN), Indosat (NYSE: IIT), Sinocoking Coal (Nasdaq: SCOK), The9 Ltd. (Nasdaq: NCTY), Trina Solar (NYSE: TSL), Urologix (Nasdaq: ULGX), Verifone (NYSE: PAY).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

M&A Activity on Large Cap Tech Sector Dynamics

Large Cap Tech Driving Merger Wire

A wave of merger mania has seemingly suddenly swept over the corporate world, and especially the tech sector. Naturally, analytical minds want to know why, and we believe we can help clear that up for investors swiftly. Basically, it has everything to do with a confluence of factors found within the current character of the large-cap technology sector: cash, price and growth. We go a step further today, and give you three 3Par like ideas, and look into how M&A plays with the broader market and the economy.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, and Mr. Kaminis has appeared across major media. While writing for Wall Street Greek, he presciently predicted the financial crisis in detail.

(Tickers: NYSE: HPQ, Nasdaq: DELL, NYSE: PAR, Nasdaq: GOOG, NYSE: TXN, Nasdaq: CSCO, NYSE: EMC, NYSE: MU, Nasdaq: SNDK, Nasdaq: INTC, NYSE: MFE, NYSE: IBM, Nasdaq: AAPL, NYSE: C, Nasdaq: QCOM, NYSE: CML, Nasdaq: ISLN, Nasdaq: CVLT, NYSE: POT, NYSE: BHP, NYSE: HBC, NYSE: CPB, NYSE: UBS, Nasdaq: NTAP, NYSE: WDC, NYSE: STX, Nasdaq: BRCD, Nasdaq: STEC, Nasdaq: XRTX, NYSE: IMN, Nasdaq: VOLT, Nasdaq: HTCH, Nasdaq: HILL, Nasdaq: OCZ, Nasdaq: LCRD, Nasdaq: OVRL, OTC: SONP.OB, Nasdaq: DRAM, Nasdaq: ALAN, OTC: TMOL.OB, NYSE: VMW, Nasdaq: BBHL, NYSE: SNP, Nasdaq: CNYD, Nasdaq: CNCN, Nasdaq: CISG, Nasdaq: EDS, Nasdaq: FMCN, Nasdaq: IRBS, Nasdaq: KNSY, Nasdaq: MGPI, Nasdaq: MWGP, Nasdaq: NGBF, Nasdaq: SAFM, Nasdaq: GASS, Nasdaq: TPIV, Nasdaq: TIGE, Nasdaq: TUES, Nasdaq: VBFC, NYSE: YZC, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

Large Cap Tech Sector Dynamics at Play in M&A Activity

Hewlett-Packard (NYSE: HPQ) today made a competing bid for 3Par (NYSE: PAR), a data storage company. HP upped the ante for 3Par with its $24 per share bid worth $1.6 billion, surpassing Dell (Nasdaq: DELL), which had started the bidding with an $18 offer. HP might soon be re-nicknamed MnA, as it has not skipped a beat since the departure of its scandalized CEO, who by the way, oversaw the deals for 3Com and Palm before he had to go away. HP is not alone in the tech world though in its active M&A efforts, and has only contributed to the market's expectations for more. That was evidenced by trading in PAR and its relatives on Monday.

The high-end storage firm's shares spiked to a level even higher than the latest takeover bid price, all the way to $26 at the close. It seems investors expect a second offer from Dell, or a new bidder to enter the fray for this once semi-anonymous firm (to most of us). Investors seem to have good reason to expect a bidding war too, given the nascent acquisition frenzy within the technology sector.

Tech M&A Frenzy

This latest bidding war only continues a trend that's been increasingly recharacterizing the current marketplace. Just last week, the big news centered on Intel's (Nasdaq: INTC) offer to buy McAfee (NYSE: MFE) for $7.68 billion. Tech M&A activity increased in Q2 2010, on deals by Google (Nasdaq: GOOG), IBM (NYSE: IBM), Apple (Nasdaq: AAPL) and private equity firms Silver Lake Partners, TPG Capital, and Warburg Pincus. A total of 36 tech companies were acquired in Q2, in fact, which compares to 34 in Q1. The latest pace of deal making contrasts highly with the 24 deals that took place in last year's quarter. July was the biggest M&A month in 10 years for $1 billion plus transactions in tech. According to Citigroup (NYSE: C) Global M&A Chief Mark Shafir, we have seen $31 billion in transactions versus $7 billion in all of 2009. Activity is clearly on the rise, and that's a good driver for the tech sector and the investment banks that facilitate the deals. However, it may not offer any reason infer near-term economic gains nor broader stock market rise.

Rather, it seems to me that it's a product of the industry characteristics within the tech space. There are more than a few large cap tech companies with hoards of cash piling up. These once high-growth names have become cash cows in many instances. Still, all of these firms would like to relive their past glory and fuel future growth by making sweet deals for more robust businesses. By doing so, they seek to maintain or restore the higher P/E ratios that defined their past, and create value for shareholders in the process.

Whether value will be created or not is dependent on the specific stories and corporate leadership savvy and insight at each individual acquiring firm. In some cases, investors will end up wishing management had just paid out cash stores in dividends.

Given the economy and market's recovery to a more stabilized state, though still not confirmed stable, corporate managers have the guts now to buyout firms that may still look like relative bargains to them. It sure would have been nice for many of us if they had that same conviction a year and a half ago, when prices were dirt cheap. Still, we'll give these guys a break, since most of you also thought the world was coming to and end back then and were trading shares down to bottom dollar prices.

So, if capital is a key driver of these acquisitions, then CNBC's research today on the wealthiest potential acquirers might help us also anticipate who they might acquire. The only problem is that it will not, since recent deals have been across tech fields of play. The financial news channel noted Micron Technology (NYSE: MU), Sandisk (Nasdaq: SNDK), and a few others as cash rich. Texas Instruments (NYSE: TXN) is one Wedbush Morgan analyst's big pick to keep acquiring smaller firms for growth. The company has $2.3 billion in cash and no debt. An Edward Jones analyst looked towards Intel and Qualcomm (Nasdaq: QCOM) as rich potential future acquirers. He calls attention to the fact that Intel still has double-digit billions left over, even after it closes its pending deal. But, you'll want to stay away from these firms, since the acquirer's shares usually give back ground on deal announcement.

To benefit from this trend, you have to get into the heads of the corporate managers of the large cap tech companies with cash. You'll need to listen to a few conference calls, especially the Q&A sessions if available. You might call a solid analyst for some insight as well. Mark Shafir, Citigroup's M&A man, continues to look toward security and data storage for acquisition activity. IDC data seems to agree, noting the volume of data out there will increase 44X by 2020. This is not news though, but it seems to finally be finding money. Look at EMC's (NYSE: EMC) chart since the tech bubble bust, and you'll get what I mean.

3 Names to Consider

The market is a smart cookie, and smart money led some stocks on the PAR news today. Compellant (NYSE: CML), Commvault (Nasdaq: CVLT) and Isilon Systems (Nasdaq: ISLN) were three names that jumped by double-digit percentages. So, the market may already be giving us ideas, since these three companies are involved in relative businesses to 3Par. Of the three companies, ISLN's chart seems to show solid operational gains reflected in a steadily rising price chart. You'll need to do a little research here, but the chart jumps out at me for starters. I also like the rising EPS estimate trend in ISLN, but as far as valuation is concerned, CVLT looks most balanced. Again, some more due diligence would be needed to find value, if it exists. I would never invest in these stocks before a good deal more research work. Also, it's generally not wise to make a long-term investment, or to buy a stock, based on acquisition hope. Since these shares have jumped sharply now, I would be cautious in the near-term with regard to any long-term investment strategy.

The Broader Read

The fun also seems to be spreading to other industries, likely at the soft prodding of investment bankers. Potash (NYSE: POT), for instance, today spurned a bid by BHP Billiton (NYSE: BHP) on expectations for a better offer. The company is reportedly talking to others, including for instance China Sinochem. Campbell Soup (NYSE: CPB) is reportedly considering an acquisition of Britain's United Biscuits, or just its biscuits business. Campbell has been relatively active of late, acquiring artisan bread maker Ecce Panis last year. Heck, even banks are back to buying apparently, as HSBC (NYSE: HBC) is reportedly in exclusive talks with Old Mutual PLC (OTC: ODMTY.PK) to take a majority stake in South Africa's fourth largest bank, Nedbank Group.

UBS' (NYSE: UBS) Art Cashin said the deal activity is a good sign for the market, but I don't agree. Cashin says the fact that they're using cash for acquisitions indicates that they view their own stock undervalued, and therefore not the best currency to use to acquire. That would be a positive, except for the fact that corporate managers regularly view their own stock as undervalued. Now they are putting their money where their mouths are in using cash here, but just the same... So I'm not banking on this factor to look toward general market rise. And there's a golden rule I like to quote on the Street that might apply here: "Just because a stock is cheap does not mean it can't get cheaper." Cashin also points to the fact that companies are buying now as a positive sign for stocks generally. This has not proven true in recent history, and you already know my economic view, so be careful about getting trigger happy beyond specific picks on solid study.



Article should interest investors in NetApp (Nasdaq: NTAP), Western Digital (NYSE: WDC), Seagate (NYSE: STX), Brocade (Nasdaq: BRCD), STEC (Nasdaq: STEC), Xyratex (Nasdaq: XRTX), Imation (NYSE: IMN), Quantum (NYSE: QTM), Voltaire (Nasdaq: VOLT), Hutchinson Technology (Nasdaq: HTCH), Dot Hill Systems (Nasdaq: HILL), OCZ Tech (Nasdaq: OCZ), Lasercard (Nasdaq: LCRD), Overland Storage (Nasdaq: OVRL), Sonnen (OTC: SONP.OB), Dataram (Nasdaq: DRAM), Alanco (Nasdaq: ALAN), Trimol (OTC: TMOL.OB), VMWare (NYSE: VMW). The day's EPS included BCB Holdings (Nasdaq: BBHL), China Petroleum and Chemical (NYSE: SNP), China Yida (Nasdaq: CNYD), Cintel (Nasdaq: CNCN), CNInsure (Nasdaq: CISG), Exceed (Nasdaq: EDS), Focus Media (Nasdaq: FMCN), IR Biosciences (Nasdaq: IRBS), Kensey Nash (Nasdaq: KNSY), MGP Ingredients (Nasdaq: MGPI), Midwest Grain (Nasdaq: MWGP), New Generation Biofuels (Nasdaq: NGBF), Sanderson Farms (Nasdaq: SAFM), Stealthgas (Nasdaq: GASS), TapImmune (Nasdaq: TPIV), Tigrent (Nasdaq: TIGE), Tuesday Morning (Nasdaq: TUES), Village BK & TR (Nasdaq: VBFC) and Yanzhou Coal Mining (NYSE: YZC).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.