And That's The Week That Was
Brounes & Associates
By Ron Brounes
June 18, 2012
Occasionally, “bad” may actually be “good” (at least, from an investor’s perspective). With Fed officials preparing for next week’s policy meeting, traders and investors alike have been busy dissecting economic data and global developments as they speculate about any potential moves. While most would surely outwardly embrace solid numbers as a sign of a rebounding economy, others may be secretly hoping that certain weakness would lead to new stimuli and ultimately stronger growth. So while signs of sluggish retail activity and concerns within manufacturing reared their ugly heads, investors seemed to welcome the news and rode the equity markets higher. While Spain and Italy saw their yields surge and Greece moved closer to “Decision 2012,” investors focused on the potential for European action and (dare I imply) compromise that could put the Union back on a road to recovery (with or without Greece). Stay tuned…
On the domestic political landscape, the two presidential candidates offered contrasting visions for the country (rather for Ohio) as each traveled this battleground state pointing out why their policies will better serve the people. Obama warned of Romney’s desire for lower taxes on the wealthy and limited regulations, while Mitt spoke of the never-ending damages the current Administration continues to bring to average Ohioans. Bear in mind, no Republican has captured the White House without winning Ohio, a state that currently maintains an unemployment rate of 7.4%, well below the national average. (Romney is secretly hoping for more bad news to befall the state.) Shifting gears, the Supreme Court prepares to rule on the Affordable Care Act (better known as health care reform or Obama-care) and investors are trying to determine the overall impact on insurance companies, managed care, hospitals, and pharmaceuticals. Justice Kennedy always remains the main wildcard, though this time, some are speculating that conservative Chief Justice Roberts may reject his true beliefs and defer to Congress, thereby upholding the law.
In corporate news, Dell hoped to win back over its angry shareholders by announcing a quarterly dividend; Johnson & Johnson received approval to move forward with its near-$20 billion acquisition of Synthes; Apple looked to end ongoing ties with Google by changing navigation systems on its iPhone/iPad to a TomTom product; JP Morgan faced the wrath of Congress as its CEO tried to explain whether management knew of the potential for sizable “hedging” losses in advance; and Allen Stanford learned he will not be visiting Antigua, the land of his knighthood, for another 110 years as the one-time 205th richest man in the world (per Forbes) received his lofty sentence for that $7 billion ponzi scheme. (Sounds like Jamie Dimon got off pretty easy.)
Despite some less than encouraging signs in the economy, stocks rose throughout the week on speculation that the Fed may step up and act to help stimulate growth as early as at next week’s policy meeting. Likewise, crude bounced off of eight-month lows on similar hopes for monetary action, though the “honest” brokers at OPEC agreed to hold production steady, despite certain countries’ desires to limit output. Any more “bad” news for investors to root for?
The information set forth was obtained from sources which we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance is not a guarantee of future performance.
The Week Ahead
June 19 Housing Starts (05/12)
June 20 Fed Policy Meeting Statement
June 21 Jobless Claims (06/16/12)
Existing Home Sales (05/12)
Leading Eco. Indicators (05/12)
Greece is officially on the clock. With a very key election day rapidly approaching, early poll numbers (all unofficial, of course) show that the pro-austerity folks will claim victory and the terms of the highly controversial bailout will remain intact (so let the street protests commence). Still, the results are expected to be incredibly close and contingency plans are being made across the Continent in case Greece ultimately moves to exit the euro-zone. French financial conglomerate Credit Agricole SA began discussions about closing (or merging) its Greek banking operations in the event that the election go the other way (and an exit become inevitable).
Meanwhile Spain agreed to an aid package ($126 billion) for its banking sector, though a full country bailout may still be in the cards for the euro-zone’s fourth largest economy (bigger than those of Greece, Portugal, and Ireland combined). Moody’s Investors Service’s lowered Spain’s credit rating to just above junk status and it bond yields skyrocketed to euro-era record highs of around seven percent. Amid fears that its country could be next in the line for bailout, Italy introduced some would-be growth measures in the form of tax incentives and asset sales that its leaders hope will stop the contagion in its tracks. Though its policymakers left rates unchanged just last week, some analysts believe that the European Central Bank is close to agreeing to new stimulus as yields surge across the EU and new signs of economic weakness (the latest within labor) emerge. China’s central bank has been loosening the reins on its financial institutions by allowing for more lending as its inflation picture slowed in May.
Closer to home, retail sales dropped in the US for the second straight month, though much of the weakness may have been caused by lower gasoline prices as electronics, furniture, and clothing all saw increased activity. Industrial production fell unexpectedly last month, and the regional manufacturing index in New York also gave up ground, renewing concerns that the once-solid sector may be hitting the skids. Jobless claims jumped for the fifth week out of the past six, reminding analysts (and the Fed) that the labor picture is far from encouraging despite a few solid months of optimism. Inflation, both wholesale and retail, declined in May on lower energy prices, adding to more speculation that the policymakers could act again without much worry about price pressures restricting future consumer demand.
On the Horizon…By the time the bell rings at the New York Stock Exchange, investors should know the results of the Greek election, and the speculation will begin in earnest about the fate of the ailing country within the EU (while Spain, Italy, Cyprus, and the rest of the world watches with much interest). With Spain’s yield’s sitting around 7%, its leaders surely realize that Greece, Ireland, and Portugal were forced into bailout mode once their bonds exceeded similar levels. Dr. B. and friends will be analyzing (and overanalyzing) all of the global developments as they meet to discuss domestic monetary policy and ways to help jumpstart what seems to be a stalling economy at home. (Politicos undoubtedly will be watching closely as some prefer the stall to continue until the November elections…after all, bad news could prove good for them.)
The information set forth was obtained from sources which we believe reliable but we do not guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation by us of the purchase or sale of any securities. Past performance is not a guarantee of future performance.
(c) Brounes & Associates
