Weekly Initial Jobless Claims Report

Initial Weekly Jobless Claims were reported this morning for the period ending August 25, 2012. The latest data showed claims stuck at 374,000 through the period, ahead of economists’ expectations for 370K, though matching the prior week’s flow of claims. However, the four-week moving average shows jobless claims continued to creep higher, with the average up 1,500, to 370,250. The close of August is a slow period for all business activity, especially just ahead of the Labor Day weekend. Over recent weeks, I’ve been warning that the claims count should creep back up over 400K, leading to one fateful Thursday morning stock selloff. Thus, I half jokingly stated, “Sell Stocks on Wednesday Afternoons” as a trading strategy. September and October are shaping up as a more likely time for a shift toward that end.

The Claims Report showed insured unemployment unchanged at 2.6% for the lagged period ending August 18. The number of people insured and unemployed decreased by 5,000 and numbered about 3.3 million people. The four-week moving average for insured unemployment increased by 9,000, and was a bit higher than the weekly data indicated. The number of Americans covered by some sort of benefit, including through the extensions program, decreased by 62,253 in the period ending August 11, to 5.5 million. Of course, this figure decreases for more than one reason, as Americans fall out of qualification for benefits and as a few of them actually get jobs.

The shares of employment services firms pay close mind to the weekly data, and are curiously lower today despite the lack of change.

Company & Ticker	Thursday’s Start (10 AM)
Robert Half (NYSE: RHI)	-1.1%
Korn Ferry (NYSE: KFY)	-0.7%
Monster Worldwide (NYSE: MWW)	-1.3%
Manpower (NYSE: MAN)	-1.1%
Kelly Services (Nasdaq: KELYA)	-0.7%

If I’m right, America’s largest employers will likely be doing most of the firing, but only because they employ the most people per company. In actuality, America’s small businesses are the most important of our employers. The largest employers are by no coincidence also companies that provide value services or necessities, including Wal-Mart (NYSE: WMT), McDonald’s (NYSE: MCD), Target (NYSE: TGT) and Kroger (NYSE: KR).

This week’s leading layoff newsmakers, either firing, planning cuts or rumored to be about to declare layoffs included Lexmark International (NYSE: LXK), Schnitzer Steel Industries (Nasdaq: SCHN), Boston Scientific (NYSE: BSX), Lockheed Martin (NYSE: LMT), RealNetworks (Nasdaq: RNWK), Rockwell Collins (NYSE: COL) and Sony (NYSE: SNE).

For your information, I often like to include the individual state and territorial information from the report:

The highest insured unemployment rates in the week ending August 11 were in Puerto Rico (4.4), the Virgin Islands (4.1), Pennsylvania (3.9), New Jersey (3.8), Connecticut (3.6), Alaska (3.6), California (3.4), Rhode Island (3.1), New York (3.0), and Nevada (3.0).

The largest increases in initial claims for the week ending August 18 were in Michigan (+2,383), Florida (+1,558), Colorado (+781), South Carolina (+774), and Texas (+517), while the largest decreases were in California (-5,549), Ohio (-1,379), Oregon (-1,098), Wisconsin (-539), and Virginia (-480).

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.

A Mess of Mario Draghi's Own Making

European Central Bank (ECB) Chairman Mario Draghi pulled out of his planned appearance at the Kansas City Fed’s Jackson Hole Symposium this weekend. The ECB chief has been under the spotlight since declaring that the euro would not fail and the ECB would not fail it. His appearances since have been highly heralded, as markets wait for follow through. I warned about his scheduled appearance just yesterday, saying, “The euro is likely to face a test after its recent rally, especially if Mario Draghi can only offer more talk without follow through, as I expect this weekend.” So it would appear that Draghi has taken some age old wisdom to heart, and that would be, “If you don’t have something nice to say, don’t say anything at all.”

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.

Mario Draghi's Mess

“The ECB chief has been under the spotlight since declaring that the euro would not fail and the ECB would not fail it.”

Federal Reserve Chairman Bernanke will address the Jackson Hole crowd, and the world, this Friday morning at 10:00 AM EDT. Seeing as the Fed boss typically plays by the book, he really should not usher in any new Fed policy this week. Rather, he and the rest of the Federal Open Market Committee (FOMC), to which he is bound, will issue policy as prescribed in September following much deliberation and process.

Considering Draghi was scheduled to partake in a panel discussion on Saturday, it would appear that he would likewise not offer much new news. Draghi, like Bernanke, also has a prescribed process to follow and all sorts of other red tape to work through before issuing policy, and especially before launching any new initiative. This makes it highly unlikely that he could do anything more than disappoint the high expectations of the market this weekend. But, he only has himself to blame for the predicament he finds himself in today.

Shaky markets were reassured by his July 26th statement to a London investment conference marking the start of the Olympics. Draghi’s now infamous declaration read, "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." Markets mostly focused on the “it will be enough” part, and unfortunately tossed the “within our mandate” portion aside for later chewing. Continuing on an upward trajectory begun in early June, the SPDR S&P 500 (NYSE: SPY) climbed another 3.8% from July 26 through August 28. The SPDR Dow Jones Industrials Average (NYSE: DIA) gained 2.0% and the PowerShares QQQ (Nasdaq: QQQ) has risen 7.9%. Obviously, Draghi has had more influence on the direction of the euro and European shares. You can see the stabilizing impact of Draghi’s statement clearly in the chart of the euro/dollar comparison.


Chart by Yahoo Finance

Draghi’s impact is also prominently behind the more significant gains of European stocks, in comparison to U.S. shares since July 26. The iShares S&P Europe 350 (NYSE: IEV) has gained 7.0% through August 28. ETFs of the hardest hit nations of Europe have done even better; those are the nations that would benefit from ECB purchases of their debt.

ETF SECURITY	CHANGE JULY 26 – AUG. 28
iShares MSCI Spain Index (NYSE: EWP)	+19.6%
iShares MSCI Italy Index (NYSE: EWI)	+15.4%
Global X FTSE Greece 20 (NYSE: GREK)	+11.5%
iShares MSCI France Index (NYSE: EWQ)	+8.9%
iShares MSCI Germany Index (NYSE: EWG)	+8.6%

But since Draghi’s statement, he’s found himself backtracking and qualifying comments. His announcement about missing Jackson Hole to focus on an otherwise busy work schedule was clearly carefully constructed to manage expectations. Spanish yields have expanded since the news broke that he would not appear at the central bank event. However, his reason for not making it, because of workload, implies he’s possibly working on something that might support the euro and the region generally. It’s quite a mess he’s found himself in, and one our own Fed chief does his best to avoid. It is not central bank concern to manage equity market expectations, but stock investors follow closely the words of those who impact the cost of corporate funding. So, wise bankers carefully word every statement so as to keep speculators from reading into anything.

Draghi’s infamous words did exactly the opposite. I suppose the leaders of Europe are happy about that today, since the euro has stabilized, yields have eased, and European equity portfolios have fattened. However, the devils in the game at play will eventually take the candy away and replace it with nails. It’s a game best not entered, and one I’m sure Mario Draghi wishes he did not step into. If this is not yet so, I’m certain that someday he will regret it.

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.

Home Prices Improved but Case & Shiller Agree with Me

The Standard & Poor’s Case Shiller Home Price Index was reported improved in June by most measures of comparison. Yet, the index’s founders Professors Case and Shiller, expressed concern about the outlook for housing in a Bloomberg Radio interview this morning. The two wise men might add a mouthy blogger to their troop, as I’ve been doing much of the same over the course of the last year, often to an unreceptive audience.

The report’s three main composite indices, the National Index, 20-City Composite and the 10-City Composite all marked year-over-year growth. It was the first time for it since the summer of 2010. On a monthly basis, all 20 Metropolitan Statistical Areas (MSA) reported higher home prices in June versus May. Only Charlotte and Dallas reported decelerated annual rates, and just 6 MSAs were still seeing negative annual comparisons.

Composite Index	Monthly Change	Annual Change Q2
National Composite	+6.9% Vs. Q1	+1.2%
20-City Composite	+2.3%	+0.5%
10-City Composite	+2.2%	+0.1%

The news certainly appears good enough, and a view of the trend lines likewise offers an attractive picture. So why were Professors Case and Shiller concerned then? Their comments on Bloomberg Radio sounded very similar to my macroeconomic musings of the past year. Case and Shiller took note of the slowdown in China, it seems, because that would be the new factor at play these past few months versus older history. Their warnings were vague though, indicating that these slowing and contracting economies must carry some weight and weigh against the U.S. economy in some way, and housing by default. Sound familiar?

Over recent months, I’ve been swimming against the tide with my warnings about the European economy, how it would impact the world, and its unavoidable impact to the real estate market and housing industry. However, my views are complex, because while warning against housing stocks generally, I’ve also noted the existence of corporate specific benefits from market share gain, multi-family construction (for rentals) and the tight supply of new homes available for sale. Companies like Toll Brothers (NYSE: TOL), PulteGroup (NYSE: PHM) and D.R. Horton (NYSE: DHI) have benefited from these factors. Still, I warn about the strong tide that might washout all players.

Also, while you might expect economic recession to coincide with home price deflation, I do not see that scenario as most likely here. As the dollar comes under increasing pressure, hard assets will rise. Also, mortgage rates at record low levels, could quickly shoot higher as factors I see at play change the lending environment in the U.S. and globally. I’m reportedly out on a limb with my inflation fire setting, but when it happens, mainstream pundits and economists will say, “Nobody could have foreseen this.” It wouldn’t be the first time or the last, but until I’m more widely followed, I will garner little credit for forecasting events like the downfall of the real estate market and the financial sector. The cost of homeownership, including home prices and the cost of borrowing, will increase and price many out of the home market for a long time, in my view. This is the reason I authored my report, “Time to Buy Real Estate”. Such change would also do harm to investors in high yielding mortgage REITs like Annaly Capital (NYSE: NLY) and American Capital Agency (Nasdaq: AGNC).

The reaction of the SPDR S&P Homebuilders (NYSE: XHB) today to the home price index is telling of the confusion and concern currently about housing. The XHB was up to start the day, sank into the report and rose on it. However, it has since retraced ground into the red. It’s a sign that the market is beginning to understand the interrelations of the issues I’ve discussed over the last few months. Finally, Case, Shiller and I agree that while recovery should be underway, new factors are undermining it.

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.

ICSC & Redbook Same-Store Sales Reported Soft

The weekly flow of same-store sales, as measured by the International Council of Shopping Centers (ICSC) and Redbook have offered really ugly insight into consumer spending of late. The importance of consumer spending in the United States cannot be understated. Unfortunately, it is slipping, as I pointed out in “Recession’s Key Ingredient Added” and “Glaring Recession Signal – Consumer Spending Stops”.

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.

This week’s data from the ICSC showed same-store sales inched higher by just 0.5% in the week ending August 25, 2012. That embarrassing growth came on a prior week decline of 1.5%. And this is during a period within which consumers are supposed to be shopping for back-to-school needs. If you go back over the weekly data through the past several months, you find a soft trend that in my estimation reflects a path toward recession.

On a year-over-year basis, the ICSC reported same-store sales growth of 3.4%, which marked improvement over the prior week’s 3.1% growth. While this rate is decent, in weeks past we’ve seen growth under the rate of inflation, which clearly implies economic contraction. Redbook reported the year-to-year rate at 1.5% this week, versus 1.9% last week. Each of those rates reflect a slower pace than inflation, and are inadequate to meet current mainstream economic projections (not mine obviously).

I don’t believe we have to look too far for anecdotal evidence of consumer softness either. Even high-end retailer, Tiffany (NYSE: TIF), cautioned on the outlook yesterday after reporting short of Wall Street expectations. Tiffany’s shares rose yesterday, get this, partly on a lesser same-store sales decline (-1%) than was expected by analysts (-4%).

Others like J.C. Penney (NYSE: JCP) are suffering because of poorly timed dramatic change at a time of economic question. The discounters are all the rage today; I even noted Mitt Romney and his wife bragging about buying some shirts at Costco (Nasdaq: COST), perhaps in an effort to fit the economic reality of most Americans. It is the best price sellers like Wal-Mart (NYSE: WMT), Amazon.com (Nasdaq: AMZN), eBay (Nasdaq: EBAY) and Dollar Tree (Nasdaq: DLTR) which are doing best today. That’s something I pointed out through several articles over recent months, including “5 Stocks to Own if Consumers Check Out”. It is because they sell things cheapest at a time when more Americans value price most.

The one-year chart of the Consumer Discretionary Select Sector SPDR (NYSE: XLY) does not reflect the environment I just highlighted. Thus, it illustrates an environment within which many stocks are likely vulnerable.


Charts by Yahoo Finance

The SPDR S&P Retail (NYSE: XRT) offers the same view.



At 10:00 AM EDT this morning, the Conference Board reported Consumer Confidence dropped like a rock, to 60.6, from 65.9 at last check. That should be no surprise to readers of my recent write-up, “Regarding the Consumer Sentiment Celebration – I’ll Pass”, but it’s waking some folks up to the truth today. Stocks are moving lower since the 10 AM release, with the SPDR S&P 500 (NYSE: SPY) indicating lower fractionally. Take heed fellow investors because if the consumer is checking out as I see it, a rude awakening is in store for the second half economy and the stock market.

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.

Spain's Recession Killing the Bull

Spanish data is driving the euro region lower this morning, with all major indexes down on the day. U.S. futures started lower on the news as well. Spain’s GDP contracted by 0.4% in the second quarter, in line with a previous forecast but down from the first quarter’s drop of 0.3%. Expanded spending cuts on painful austerity cut into Spanish consumer spending, leading to a widened budget deficit. Yet, Spanish bond yield’s touched a three-month low at auction today. Bond yields are down more than 130 basis points since late July on the 10-year bond benchmark. Still, the IBEX 35 was down a half point when measured here this morning. Still, the iShares MSCI Spain Index Fund (EWP) seems to be finding some footing, as more aid for the peripherals of the EU seems to be on the way. Spain’s Prime Minister Mariano Rajoy is scheduled to meet with EU President Herman Van Rompuy today to discuss just that.


Chart from Yahoo Finance

The Spanish recession is certainly not being remedied by austerity today, as consumer spending declined 1.0% in the second quarter. A Deputy Economic Minister called the current state of Spain’s economic cycle, the “moment of steepest fall”, and said it would continue into the second half of the year. Spain’s big hope is that the European Central Bank (ECB) might buy its bonds to help lower its borrowing costs. In a new bond offering today, Spain managed to raise more funds than expected. Unfortunately, there’s little confidence being expressed by Spaniards, with private sector deposits at Spanish banks down 4.7% in July.

International Markets

EUROPE	ASIA
EURO STOXX 50: -0.6%	S&P/ASX 200: +0.4%
DAX: -0.5%	Nikkei 225: -0.6%
CAC 40: -0.7%	Hang Seng: +0.1%
FTSE 100: -0.2%	Shanghai Shenzhen CSI 300: +0.5%
IBEX 35: -0.5%	India’s BSE Sensex 30: -0.3%

Prices measured at 7:45 AM EDT

Separately, French officials announced a gasoline price reduction of approximately six euro cents per liter, as a campaign promise of President Francois Hollande is fulfilled. The CAC 40 decline of 0.7% was leading the region lower, despite the move. The iShares MSCI France Index (EWQ) has risen recently as France has gained with most markets, but it’s vulnerable today.

The euro rose Tuesday against the dollar on that same ECB hope. Mario Draghi will speak in Jackson Hole this weekend, following Ben Bernanke’s highly heralded speech scheduled for Friday morning. The PowerShares DB US Dollar Index Bearish (UDN) looks to benefit this morning, as the PowerShares DB US Dollar Index Bullish (UUP) is down in early trade. The euro rose 0.4% this morning to $1.2547. The euro is likely to face a test after its recent rally, especially if Mario Draghi can only offer more talk without follow through, as I expect this weekend. However, before long, I also expect the ECB to buy hard-pressed euro nation bonds; investors are keeping that in mind as well.

The shares of major European banks face a test today, but action should be kept in check by the pending discussion from Jackson Hole. Banco Santander S.A. (SAN) is lower 1% in early trading today on the poor Spanish data, and faces a tough go today. Shares of Citigroup (C) are down fractionally and Deutsche Bank (DB) should neither find support. Europe weighs on U.S. stocks today, and has the SPDR S&P 500 down fractionally in early going.

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.

Durables Orders Show Damaged Goods

Durable Goods Orders offer important insight into the demand for higher ticket items meant to last for multiple years. These purchases are reflective of economic realities, as they will receive great consideration because of the substantial amount of capital involved. The time from order to delivery could be extensive as well, and so purchasers need to be relatively certain of their business outlook.

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.

Durable Goods Orders

As a result, econo-watchers benefit from following the report because of the sensitivity of such spending to economic conditions. Oftentimes, because of the high ticket price of these items, the change from month to month can fluctuate substantially and offer a noisy perspective into the economy. As a result, some dismiss the changes and even brush off the monthly datapoint as a volatile measure when it doesn’t fit their forecast. However, after reviewing the durable goods order data for July, it is clear that this one is not dismissible.

Business was strong on the top line, with new orders rising 4.2% overall in July, well ahead of economists’ expectations for a lesser 1.9% increase, based on Bloomberg’s survey. The result also marked the third consecutive month of increase, adding, for some, even more reason to cheer. However, when excluding transportation, new orders actually declined by 0.4%, which matched poorly against the expectation for a 0.4% increase. The difference was the result of the substantial 14.1% increase in orders for transportation equipment. Much of those gains were pinpointed to Boeing (BA), as non-defense orders for aircraft and parts increased by 54%. Again, I note that because of the high ticket price of these products, a few more or less month-to-month can make a big difference.

The important take away is that when excluding the aircraft orders, the business outlook was quite different. What’s also clear is that businesses are not investing significantly enough due to a feeling of uncertainty about what’s to come, but also due to a tangible easing of consumer spending. Illustrating this, new orders for capital goods excluding defense and transportation declined 3.4% in July, after dropping 2.7% in June. It means businesses are not spending, and that reflects poorly for the economy on the whole.

Looking even more deeply into the details of the data, we find that machinery orders were down 3.6% in July, following a 2.5% drop in June. This follows in the natural progression of deterioration in manufacturing, and may precede layoffs for the sector. Regional data and the national ISM manufacturing data have begun to show a changing mood regarding employment for the sector, which follows downgraded expectations and softening business. So for the big industrial players like General Electric (GE), Caterpillar (CAT) and others, the report may hold special significance. As far as the sector is concerned, the last year’s performance of the Industrial Select Sector SPDR (XLI) seems to reflect a vulnerable group.

Chart by Yahoo Finance

New orders for computers and related products increased by 3.7% in July after declining by 4.7% in June. That’s inconsistent with the latest results from Dell (DELL) and Hewlett-Packard (HPQ), and also with views that potential buyers are waiting on Microsoft’s (MSFT) Windows 8 release. Orders for communication equipment fell 4.0% in July after a 7.4% decrease in June. That’s consistent with the caution provided by Cisco Systems (CSCO) in its discussion post earnings this last month.

New orders for motor vehicles and parts rose by 12.8% in July, after a 0.7% decrease in June. That bodes well for Ford (F) and GM (GM), which considering my negative outlook for the big three Japanese automakers, Toyota (TM), Honda (HMC) and Nissan (NSANY.PK), offers all the more reason to consider a change in capital allocation within the sector.

In conclusion, the durable goods orders report, when excluding the volatile transportation results, reflects a market demanding less goods generally. Even before this report, purchasing managers have been indicating a changing mood reflecting more cautious spending patterns. This report offers important economic insight into the demand for durable goods but also for employment and spending generally, and for the economy on the whole. It implies that industrials should reflect the change in their reported operating results and guidance, and share performance. Finally, it supports my longstanding argument that the ills of Europe are in fact contaminating the vulnerable U.S. market as well as hampering the growth of the emerging world.

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.

Stocks Moving on News - 08-24-12

Friday's stocks moving on news include Apple, Samsung, Nokia, Research in Motion, Zynga, Bristol-Myers Squibb and Sales- force.com.

Apple (Nasdaq: AAPL) and Samsung (OTC: SSNLF.PK) each lost on a Korean ruling that both companies infringed upon the other’s patents, but Apple lost more. The result is a partial ban of their products in South Korea. The court ordered Apple to stop selling its iPhone 3GS, iPhone 4, iPad 1 and iPad 2, while it stopped Samsung from selling its Galaxy S2 and a few other products. That’s a harsh result for both companies, but it’s good news for Research in Motion (Nasdaq: RIMM), Nokia (NYSE: NOK) and others. The shares of Apple are down fractionally in the pre-market while shares of Samsung were down 0.9% in Korea. Look for Nokia to shine today. In an unrelated story, we just suggested it is time for Apple to split its shares.

A report published this morning says Zynga (Nasdaq: ZNGA) bosses have left town as the stock collapsed this month. At least four important managers have fled for other jobs. ZNGA shares are down 70% since their IPO opening last December. I warned about Zynga’s valuation and competitive position in an article authored last February.

Bristol-Myers Squibb (NYSE: BMY) dropped its Hepatitis C drug development after one of its patients died of heart failure. The drug BMS-986094 was being tested and has been discontinued in the interest of the safety of patients. The drug was under mid-stage review, and has now been placed by the FDA on clinical hold. The stock is down only fractionally in early going, as the company seems to have cut its losses early enough. We’ll see what develops with the limited study pool of patients.

Salesforce.com (NYSE: CRM) is down 4.3% in early going. Despite reporting better than expected results for the latest period, the company said it would earn $0.31 to $0.32 in the coming third quarter; that matched against Street views for $0.34 on average.

Friday’s highlighted earnings reports include Eurocastle Investments (ECT.AS), RenaSola (SOL), Syswin (SYSW), 24SevenTechnology (TFSO.OL), AAC Technologies (2018.HK), Ackermans en van Haaren NV (ACKB.BR), China WindPower Group (182.HK), China Shanshui Cement (691.HK), Tat Technologies (TATT), The Madison Square Garden Co. (MSG) and several others. Yesterday saw big losses from Big Lots (NYSE: BIG) and Guess (NYSE: GES), so the two will be under scrutiny today.

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.

Stock Market Faces Another Challenge Friday

After a beating Thursday, stocks should move lower again Friday, given weak U.S. durable goods data. Europe got some relief from a push forward statement from Angel Merkel, though the stocks were still in the red at the hour of publishing here. There will be no major announcement today from Merkel, after her meeting with the Greek Prime Minister. The weight on European shares is due to the purchasing managers data reported Thursday, which showed economic contraction across the region, including in Germany. The realization that the global community is feeling the effects of Europe should also weigh against the broader indices Friday. The SPDR S&P 500 (NYSE: SPY), SPDR Dow Jones Industrial Average (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) were all lower Thursday and are hard to look at this morning.

International Markets

EUROPE	ASIA
EURO STOXX 50: -0.5%	S&P/ASX 200: -0.8%
FTSE 100: -0.4%	Nikkei 225: -1.2%
German DAX: -0.5%	Hang Sang: -1.25%
CAC 40: -0.5%	Shanghai Shenzhen CSI 300: -1.15%
Greece’s ASE: +1.3%	India’s Sensex 30: -0.4%

Overseas Drivers
Angela Merkel basically passed the buck forward this morning, telling the press and Antonis Samaras, the Greek PM, that she and France’s Hollande had determined to wait for a report from the troika before making a determination on Greece. She said that the two cornerstones of the EU had agreed on the importance of Greece remaining in the euro-zone. However, they also maintain that Greece must show adequate progress in the required budget goals to receive new funding. That funding, however, will simply be used to repay loans coming due from the same parties, though Samaras may ask for more. Therefore, I assume it will be reissued. Greek stocks are up on the news in Athens, and the Global X FTSE Greece 20 ETF (NYSE: GREK) is likely to gain as well today. The rest of Europe is lower, as it continues to suffer from the PMI data reported yesterday showing an 8th straight month of contraction. The iShares S&P Europe 350 (NYSE: IEV) faces another challenge Friday.

Shares in Asia are running on a lag, after rising yesterday while the rest of the markets declined. Today, they felt the effects of the European data, Japanese export softness and also China PMI data, which each indicated the effects of Europe are contaminating Asian economies as well. The iShares FTSE China 25 Index (NYSE: FXI) and the iShares MSCI Japan Index (NYSE: EWJ) were each burdened yesterday in New York and are going to have a hard time of it again Friday in my view.

U.S. Economic Drivers
Durable Goods Orders were reported this morning for the month of July. While the news was strong on the top line, with new orders rising three consecutive months and 4.2% in July, it wasn’t good for stocks today. The top line increase matched against expectations for a lesser 1.9% increase, based on Bloomberg’s survey of economists. However, when excluding transportation, new orders actually declined by 0.4%, which matched poorly against the expectation for a 0.4% increase. Most importantly, new orders for capital goods excluding defense and transportation declined 3.4% this month, after dropping 2.7% last month. It means businesses are not spending, and that reflects poorly for the economy on the whole. While Boeing (NYSE: BA) may benefit from the news, the Industrial Select Sector SPDR (NYSE: XLI) and most of the sector should look lower.

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.

Thursday - China Burning, Europe Learning & US Denying

International news was dramatic enough this morning to send global markets into tailspin, but Fed hope and relatively impotent U.S. economic data (so far this morning) offer enough drugs to keep nerves calm. China is burning, Europe is confused and the global economy is definitely heading in the wrong direction. Yet, the SPDR S&P 500 (NYSE: SPY) could meander through it all as the S&P 500 Index seems to have a hold on the water line this morning. The SPDR Dow Jones Industrials (NYSE: DIA) and the PowerShares QQQ (Nasdaq: QQQ) are having a tougher time of it today given the troubles at Dell (Nasdaq: DELL) and Hewlett-Packard (NYSE: HPQ).

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.

Overseas Drivers
Asian shares are mostly higher today, though Europe is in the red. Asia is most likely reacting to the U.S. Federal Reserve FOMC meeting minutes released Wednesday afternoon. The report was perceived as supportive of a September action by the Fed. Asian shares are buying into the myth that central bank magic can save the global economy, when in fact, all capital leverage evils can be traced to the move from the gold standard a half century ago and more recently to Alan Greenspan’s low rate policies, in my humble opinion.

The tangible news out of Asia was not good though. A survey of purchasing managers published by HSBC (NYSE: HBC) showed deterioration in the nation’s great manufacturing sector. The preliminary index reading for August marked decline to a point of 47.8, down from 49.3 in July. Need I point out that a reading short of 50 marks economic contraction for the sector? Yet, the stocks rise on central bank hopes. This can’t last.

In Europe, Greece is word today, as the German chancellor prepares to meet with the Greek prime minister Friday. The word is that Greece will request more time and more money from the German head of the Medusa we call the European Union (EU). Much of the week’s trading has been around rumor and reality about this subject. Today, the German finance minister said more time and more money will not solve Greece’s problems, and so European shares bleed red. The Vanguard MSCI Europe ETF (NYSE: VGK) managed to resurface yesterday after diving early, but faces a tough trial again today; likewise for the iShares MSCI Germany Index (NYSE: EWG).

International Markets

EUROPE	ASIA
EURO STOXX 50: -0.7%	S&P/ASX 200: +0.2%
FTSE 100: +0.2%	Nikkei 225: +0.5%
German DAX: -0.5%	Hang Seng: +1.2%
CAC 40: -0.6%	Shanghai Shenzhen CSI 300: +0.3%

U.S. Economic Drivers
Weekly Jobless Claims for the week ending August 18 rose by 4,000 to 372K. The four-week moving average for claims increased by 3,750 for the same period. Insured unemployment stuck at 2.6% in the August 11 period, as the number increased by 4,000. The number of Americans covered under all programs decreased by 109,812, to fall to 5.6 million. I hope by now, readers understand that long-term unemployed Americans keep falling out of the workforce after their 99 weeks of benefits run out. A few weeks ago, I authored “Sell Stocks on Wednesday Afternoons,” an article anticipating the fateful day when weekly jobless claims once again reach 400K. It’s inevitable in my view, and will move stocks on some fateful Thursday. Stock futures started lower immediately after the 8:30 release this morning, but have a chance to hold ground.

The Markit Flash U.S. Manufacturing PMI Index, reported at 9:00 AM EDT, rose slightly in August to 51.9, from 51.4 in July. It’s a mark that indicates expansion and improvement, but it’s also the third lowest reading in 35 months and indicates a soft environment on an absolute basis. The New Orders Index gained to 52.4 from 51.7. Despite my own pessimistic view, the data offers some support for economists and strategists in denial and blind to global happenings and domestic dullness.

The consumer mood has been deteriorating on the trend line, though with points of reported improvement. The weekly Bloomberg Consumer Comfort Index is one measure that has clearly shown a deteriorating trend over recent weeks. Recent lift reported on the University of Michigan measure led me to pen, “Regarding the Consumer Sentiment Celebration – I'll Pass.” The consumer offers the key ingredient for recession, and I’ve argued it has now been added to the economic stew.

Yesterday’s Existing Home Sales growth, with the annual pace of sales up 2.3% to 4.47 million in July, is followed by New Home Sales data at 10:00 AM EDT today. Economists expect the annual pace of new home sales to rise for July to 362K, an increase from 350K in June. The range of views extends from 340K all the way up to 400K though. Toll Brothers (NYSE: TOL) lifted the housing industry yesterday with its earnings support, leaving the industry vulnerable to a soft data point though ready for more good news.

Adding to the real estate data flow of the day, the FHFA offers up its monthly House Price Index at 10:00 AM EDT. The index showed prices rose about 0.8% in May. Economists surveyed by Bloomberg see a 0.6% increase for June, with the range of views extending from 0.3% to 0.7%. Yesterday, I theorized that rising home prices and maybe even rising mortgage rates might help housing by scaring homebuyers into action. However, I’m not crazy enough to really believe it’s a good idea, so keep reading.

Yesterday’s Petroleum Status Report showed a 5.4 million draw from oil inventory and a 1.0 million barrel draw from total motor gasoline stocks. That helped oil prices higher, and the iPath S&P GSCI Crude Oil TR Index (NYSE: OIL) gained 0.7% on the day. Today’s Natural Gas Report is set for release at 10:30 AM EDT. Last week’s report showed natural gas stores increased by 20 Bcf in the period ending August 10 to a level 363 Bcf above the five-year average.

Corporate Drivers
Shares of Big Lots (NYSE: BIG) are 18% lower in early trading Thursday, after the company reported results short of Wall Street expectations and cut forward guidance as well. BIG produced EPS of $0.36 from continuing operations, versus the analysts’ consensus estimate of $0.41. Its fiscal 2012 guidance for $2.80 to $2.95 was also below its previous forecast for $3.25 to $3.40. The company attributed the loss to cost issues and its Canadian operations.

The EPS schedule for the day highlights news from Autodesk (Nasdaq: ADSK), Big Lots (NYSE: BIG), Salesforce.com (NYSE: CRM), Patterson Companies (Nasdaq: PDCO), Hormel Foods (NYSE: HRL), Aruba Networks (Nasdaq: ARUN), 1-800-Flowers.com (Nasdaq: FLWS), bebe stores (Nasdaq: BEBE), Bona Film Group (Nasdaq: BONA), China Nepstar Chain Drugstore (NYSE: NPD), Fred’s (Nasdaq: FRED), GigaMedia (Nasdaq: GIGM), Global Sources (Nasdaq: GSOL), Golar LNG (Nasdaq: GMLP), Jinkosolar (NYSE: JKS), Lancaster Colony (Nasdaq: LANC), Mentor Graphics (Nasdaq: MENT), Michael’s Stores (NYSE: MIK), MICROS Systems (Nasdaq: MCRS), Navios Maritime (NYSE: NM), Net 1 UEPS Technologies (Nasdaq: UEPS), Paragon Shipping (Nasdaq: PRGN), QAD Inc. (Nasdaq: QADB), Regis (NYSE: RGS), rue21 (NYSE: RUE), School Specialty (Nasdaq: SCHS), Shiloh Industries (Nasdaq: SHLO), Shoe Carnival (Nasdaq: SCVL), Signet Jewelers (NYSE: SIG), Solera (NYSE: SLH), The9Ltd (Nasdaq: NCTY), Toro (NYSE: TTC), Urologix (Nasdaq: ULGX), Versant (Nasdaq: VSNT), Zygo (Nasdaq: ZIGO) and more.

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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.

Are Higher Rates Scaring Homebuyers Into Action?

The latest reporting of Weekly Mortgage Applications by the Mortgage Bankers Association (MBA) produced an interesting result. While overall activity dropped significantly on a spike in mortgage rates, applications tied to home purchases actually increased. This begs to question whether a counter-intuitive allowance of rate increase might actually help the housing market. Before I lead you on too far, you should know that I’m relatively certain the answer here is no, and I’ll tell you why.

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.

The MBA’s Market Composite Index, measuring overall mortgage application activity, dropped sharply 7.4% in the period ending August 17. The decline was clearly driven by a dead stall in refinancing activity, with the MBA’s Refinance Index falling 9.0%. This was all driven by a marked increase in mortgage rates through the period.

Average Contracted Mortgage Rates & Changes Across Loan Types

Loan Type	Rate	Rate Change
30-Year Fixed Rate w/ Conforming Loan Balance	3.86%	+10 Basis Points
30-Year Fixed Rate w/ Jumbo Loan Balance	4.11%	+8 BPs
30-Year Fixed Rate w/ FHA Backing	3.62%	+9 BPs
15-Year Fixed Rate Mortgages	3.15%	+3 BPs
5/1 ARMS	2.74%	+1 BPs

Yet, purchase activity increased through the same period, with the MBA’s Purchase Index rising 0.9%. Now, you could argue that the purchase of a home is not a nimble action like the refinancing of a mortgage is, and that the increase therefore is more likely reflective of rates and other factors over the last several weeks. This is an important point and the best argument against the thesis that rising rates might drive homebuyers on the sidelines into action.

Still, many in the industry believe that falling home prices (over the longer term) and falling mortgage rates have had many prospective homebuyers waiting things out. The same theory would thus imply that a sudden jolt higher for mortgage rates in conjunction with the latest increase in home prices could help the housing market. The latest action might incorporate such a psychological draw, with some number of special cases waiting for the best time to buy real estate. However, the latest increase really is more likely just due to the length of time it takes to decide on, contract for and buy a home, and to be rid of any old property held in an illiquid market.

It would be a risky game to play if the Fed were to actually attempt to target higher rates now, assuming they could. I say that because of the great demand for U.S. debt instruments as a relative hedge against external risks. This works to drive rates lower. Most economists would likely warn that a rate increase now would only serve to send the U.S. economy into recession. Our economic recovery out of the financial crisis has been burdened by the tighter lending regulation and higher expectations of mortgage lenders. Institutions like Bank of America (NYSE: BAC) are still working through bad loans and fending off demands of mortgage-backed security holders and insurers, who are demanding to be made whole for alleged faulty loans written by BofA, J.P. Morgan Chase (NYSE: JPM), Citigroup (NYSE: C) and others.

Thus, on net, higher rates would certainly hinder economic recovery and cyclical housing activity. Recession happens to be my current expectation for our economy as is - for this year if not in 2013. It’s the reason why I’ve been recommending stock investors avoid the high-flying housing stocks like Toll Brothers (NYSE: TOL), PulteGroup (NYSE: PHM) and D.R. Horton (NYSE: DHI), which have been benefiting from demand for new homes in a special situation - tight supply environment; and from multi-family residential property construction for rental; and from market share gains from smaller builders. The SPDR S&P Homebuilders ETF (NYSE: XHB) has gained dramatically over the course of the last year. Still, I feel the more important macroeconomic driver will force a tide too strong against them soon enough, and at least see it as a risk not worth taking with other options available for capital. But the new home market and its builders are part of a special situation, and relatively small with respect to the overall market.

Today, Existing Home Sales were reported 2.3% higher, but that followed June’s sharp drop in activity. Sales at a 4.47 million annual pace actually fell short of economists’ expectations for 4.5 million for July. So, despite the headlines, the real estate environment is still far from robust and thus vulnerable to economic shock catalysts like rate increase.

In conclusion, I think it’s safe to say that while there likely is a curious draw provided by higher home prices and mortgage rates for a few shy real estate watchers, on net there would be an overwhelmingly destructive effect to the overall economy and the real estate market by a rate increase today.

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.