THIS WEEK: October Lurks

Just when we thought we might enjoy a few weeks of post-Fed folly, the media has to go and remind us of all things scary in October. Whether it be government shutdown or Obamacare, or even that old September favorite, Iran and its dark nuclear program, they are trying to spook us again. It’s working though, because people know very well that malevolent ghosts do walk the Congressional halls in D.C. town and that skeletons can be found around the U.N. this time of year.

This Week

Index ETF	Year-to-Date
SPDR S&P 500 (NYSE: SPY)	+19.1%
SPDR Dow Jones (NYSE: DIA)	+17.7%
PowerShares QQQ (Nasdaq: QQQ)	+21.1%

Stocks may have a tough time ahead, as the media is already focusing investors on the next fear factor at hand, government shutdown. October is a tough month to begin with historically speaking, but this year it brings with it the ominous threat of a Washington stalemate driving government shutdown. And did I mention that October also offers the start of many new healthcare processes that threaten to shake things up? Fines will start to be issued for noncompliant businesses and doctors, at least as far as I hear from my local political punks on the Upper East Side. What’s a political punk look like on the Upper East Side? Just like a man anywhere else, but a fuming one in a cheap suit, speaking passionately on the street corner with a supermarket delivery boy about Obamacare. It’s that guy!

Economic Events

THIS WEEK’S ECONOMIC REPORT SCHEDULE
Economic Data Point	Prior	Expected
MONDAY
Chicago Fed National Activity Index	-0.43 (R)	+0.14 (A)
PMI Manufacturing Index Flash	53.9	54.0
Dennis Lockhart Speech
William Dudley Speech
Richard Fisher Speech
TUESDAY
Case Shiller Home Price Index 20-City	+0.9%	+0.8%
FHFA House Price Index	+0.7%	+0.7%
ICSC Weekly Store Sales	-1.6%
-Year-to-Year Pace	+3.2%
Redbook Store Sales	+3.4%
Consumer Confidence	81.5	80.0
Investor Confidence Index	105.1
Richmond Fed Manufacturing Index	14.0	10.5
Sandra Pianalto Speech
Esther George Speech
WEDNESDAY
Durable Goods Orders	-7.3%	-0.5%
-Orders Ex-Transportation	-0.6%	+1.0%
New Home Sales	394K	425K
Mortgage Activity	+11.2%
EIA Petroleum Status
-Crude Oil Inventory	-4.4 M
-Gasoline Inventory	-1.6 M
THURSDAY
GDP Report	+2.5%	+2.7%
Pending Home Sales	-1.3%	-1.0%
Bloomberg Consumer Comfort	-29.4 (+2.7)
Weekly Jobless Claims	309K	330K
EIA Natural Gas Report	46 Bcf
Kansas City Manufacturing Index	8.0	9.0
Jeremy Stein Speech
Narayana Kocherlakota Speech
Esther George Speech
FRIDAY
Personal Income & Outlays
-Income	+0.1%	+0.4%
-Spending	+0.1%	+0.3%
-Core PCE Price Index	+0.1%	+0.1%
Consumer Sentiment	76.8	78.0
Farm Prices
Eric Rosengren Speech
William Dudley Speech
Charles Evans Speech

The economic schedule is like most others, colored with updates on all fronts: from the consumer mood, with two such reports due this week along with an investor sentiment measure and personal spending data; housing reports, with several index updates this week on the state of real estate; manufacturing data, with news arriving on durable goods orders, along with a slew of PMI and regional measures; and a mix of some irregulars, including another revision of GDP data. You’ll also note that the Fed is on tour again, with regional bank presidents and governors speaking about the latest Fed policy issued last week.

Corporate Events

Approaching third quarter earnings season, the schedule is light here except for a good number of homebuilders coming to the fore. Otherwise, the market is talking Apple (Nasdaq: AAPL), Blackberry (Nasdaq: BBRY) and the rest of the usual suspects.

HIGHLIGHTED EPS REPORTS
Company	Ticker
MONDAY
Ennis	NYSE: EBF
S&W Seed	Nasdaq: SANW
Park City Group	NYSE: PCYG
Red Hat	NYSE: RHT
TUESDAY
Carnival	NYSE: CCL
Neogen	Nasdaq: NEOG
Lennar	NYSE: LEN
K.B. Home	NYSE: KBH
Ascena Retail Group	Nasdaq: ASNA
Copart	Nasdaq: CPRT
Landec	Nasdaq: LNDC
Misonix	Nasdaq: MSON
AAR Corp.	NYSE: AIR
WEDNESDAY
Autozone	NYSE: AZO
H.B. Fuller	NYSE: FUL
Pro-Dex	Nasdaq: PDEX
SYNNEX	NYSE: SNX
Progress Software	Nasdaq: PRGS
THURSDAY
McCormick & Co.	NYSE: MKC
Cantel Medical	NYSE: CMN
Worthington Industries	NYSE: WOR
Nike	NYSE: NKE
Authentidate	Nasdaq: ADAT
AEHR Test Systems	Nasdaq: AEHR
JTH Holding	Nasdaq: TAX
FRIDAY
AZZ Inc.	NYSE: AZZ
USA Technologies	Nasdaq: USAT
Finish Line	Nasdaq: FINL
Vail Resorts	NYSE: MTN
Cubic Energy	NYSE: QBC

Recent reports you might find interesting:

LinkedIn (Nasdaq: LNKD) Valuation Threatened by Facebook (NYSE: FB) and Twitter
McDonald’s (NYSE: MCD) Innovation is Key for Shareholder Return
Taperless Fed Favors American Capital (Nasdaq: AGNC)
With Annaly (NYSE: NLY) Settled, Why the Next Leg is Higher

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.

Why War with Syria Would Benefit Annaly Capital and Real Estate

It sounds wacky I know, but bear with me, because war with Syria really would serve Annaly Capital (NYSE: NLY) shareholders and the entire real estate market in my estimation, and for a very tangible reason. If the U.S. were to eventually take military action against Syria, it would drive a “flight to quality,” and despite U.S. involvement, that means increased buying of U.S. treasury securities. Increased demand for U.S. debt would drive up the price of that debt and lower the cost of debt for the U.S. When U.S. treasury yields fall, longer term interest rates decline including mortgage rates. Just as higher mortgage rates have hurt the real estate market and NLY shares, lower mortgage rates serves the housing market and Annaly.

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.

Chart at Yahoo Finance

Annaly Capital (NYSE: NLY) shares have been especially impacted by rising mortgage rates since speculation began about Fed tapering in early May. The situation was only exacerbated when the Fed Chairman actually suggested tapering would likely start this year. This week, the Fed backed down from its prior warnings and held off the tapering of its asset purchases. That supported Annaly Capital, American Capital Agency (Nasdaq: AGNC) and the rest of the real estate sector. Still, the threat of near-term tapering remains, and that was priced back into long interest rates and mortgage rates yesterday a bit, and served to sink Annaly shares again.

Now, you might think a U.S. war or strike against Syria would drive capital out of the U.S., but the opposite is actually more likely. Given the distance between the U.S. and Syria, and the immense difference in military might between the two nations, any injury to the U.S. would be unlikely in such a conflict. Obviously, if something significant did occur on U.S. soil, the argument would not hold and interest rates would not decline, but instead increase. Despite the threats often made against the United States when it threatens nations in the Middle East and North Africa, history has shown a lack of follow through against the blitz of power the U.S. has displayed. More often, serious threat is directed toward Israel, Europe and western allies in the Middle East. So on a relative basis, the United States has tended to be the destination in flights to quality. In the future, someday, that may change, but today it remains likely.

You might ask how sustainable a change in interest rate trends might be in such a scenario. While a military strike might only last a few days, the concern and worry about the region would last longer. Also, the U.S. Federal Reserve would be expected to favor accommodation in such a time, which further serves lower interest rates. And the dependence of the entire globe on Middle Eastern oil, and the importance of the U.S. strategic oil reserve and new status of the U.S. as a net exporter of energy, only solidifies the U.S. status as destination in flights to quality.

As interest rates have increased, investors and pundits have expressed concern about the structure of mREIT asset portfolios and their exposure to rising interest rates. Annaly shares are down in price by 22% since May 1st, even after adjusting for dividends. The SPDR S&P 500 (NYSE: SPY) is up by 8.2% over the same span.

Security	05/01 – 09/16
Annaly Capital (NLY)	-22%
SPDR S&P 500 (SPY)	+8.2%
iShares US Real Estate (NYSE: IYR)	-10.4%
SPDR S&P Homebuilders (NYSE: XHB)	+0.2%
American Capital Agency (AGNC)	-26%

The entire group of real estate relative stocks sensitive to changes in interest rates has underperformed the broader market since May, but the mortgage REITs, including Annaly’s peer American Capital Agency (AGNC), have done the worst. Thus, they should also outperform if rates were to change direction and turn lower. While none of us would like to see war or conflict of any sort, it is interesting to note and perhaps prepare for the possibility that some stocks might benefit from the effects of a flight to quality. Among those, I find real estate relatives and especially Annaly Capital (NLY) of special interest for capital resting on the sidelines.

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.