Market Matters…         

Ah…the doldrums of summer.  Sure Greece just completed crucial elections that could have dramatic impact on the euro-zone and the global economy; AND Spain just saw its interest rates rise above the key seven percent level into traditional bailout territory; AND JP Morgan, of failed hedging fame, just received a major ratings downgrade by Moody’s Investors Services; AND Facebook disappointed the investment world with its disastrous IPO, a comedy of errors for most everyone involved; AND equities have given back virtually all gains from the solid first quarter, leaving investors back in panic mode; AND oil prices plunged into a dramatic tailspin on fears of weak demand that even threats of a nuclear Iran could not stop; AND investors have practically begged Dr. Bernanke and the Fed to “save” the country from double-dip; AND the Prez candidates continued their daily slugging matches over the best ways to solve all the ills of the world.  Guess traders can keep passing the lazy days at the Hamptons and on the golf courses. 

Just when the financial services world looked to be back on track from the debacle of 2008, Morgan Stanley’s (apparent) greed drove the Facebook deal into the ground; and JP Morgan’s (apparent) greed renewed the negative connotation for the term “derivative” and sent its once  illustrious CEO to Capital Hill with his tail between his legs.  Always a day late, Moody’s jumped on the bad news and downgraded the world’s major banks including the aforementioned (Morgan duo) as well as Citigroup, Bank of America, and Goldman Sachs.  The Facebook saga continued as Morgan Stanley banker Michael Grimes has been painted as the lead scapegoat, the man who shunned advice from other underwriters and “drove the ship,” while claiming that he would accept blame for any failures and it would be “his throat to choke.”  (Tough words to swallow, Mr. Grimes.)  The stock has enjoyed a steady climb back to respectability, though still stands below its offering price.  Goldman added to the week’s pessimism by suggesting that its clients “short” the S&P 500 (sell stocks) as its analysts perceive the economic slowdown was extending well into the summer.  In other (more favorable) corporate news, Microsoft became the latest techie into the tablet game (take that Apple) with the introduction of Surface, marking the software giant’s expansion into the mobile market.  Oracle posted a better-than-expected profit increase, while economic bellwether FedEx also bested earnings expectations.  Walgreens announced the acquisition of Alliance Boots, a health and beauty company, for over $6.5 billion. 

Stocks actually enjoyed a mixed week (could have been worse) as investors dissected the Goldman negativism against news that Europe finally may be prepared to take some serious steps toward reform.  Investors even shrugged off their disappointment that the Fed did not take more definitive steps at jumpstarting the economy, though many still found solace in Dr. B. promise to act should the policymakers deem it absolutely necessary.  The Moody’s downgrade was actually a big yawner (bank stocks rose) as analysts had been expecting such a move for some time.  Oil continued its plunge below $80/barrel at one point to its lowest level since October 2011, before rebounding slightly at the end of the week.  And so concludes another “boring” week. 

Economic Calendar

Global

When all else fails, settle it on the futbol field (rather soccer).  Late in the week, Greece and Germany took out their frustrations on each other in the quarter finals match of the European Championship (this year sponsored by the EU, IMF, and ECB).  Germany 4 Greece 2…though no one in the US cares much about soccer.  Despite the game’s outcome, Greek conservatives were in celebratory mode early in the week as the New Democrats emerged victorious in the country’s elections and successfully forged a coalition government that plans to move forward with the bailout.  Greece then relinquished its role of EU poster child to Spain whose banks remain in dire need of a capital infusion (what’s $80 billion between friends?) as its interest rate surged over seven percent at one point during the week.  Its government looks to be joining forces with Germany and Italy to push for a $163 billion coordinated plan to jumpstart the European economies (which appear to be stuck with Greece for the time being).  Meanwhile, the European Central Bank plans to ease some collateral rules for its banking system to promote more lending (isn’t that what started the problems in the first place?) as the economies continue to slow,  The purchasing managers’ indexes depicted manufacturing sector contraction in both Germany and the entire euro-zone again last month.  Similarly, China’s related index fell for the eighth straight month as its economy moves below its prior would-be “overheating” mode.

Though existing home sales dropped in May, all was not bad for the housing sector.  To start with, homebuilder sentiment rose to its highest level in over five years and permits for future construction jumped to numbers not seen since 2008.  Investors drew concerned about the manufacturing picture (like in Europe and China) as the Philly Fed suggested a contraction in regional activity in Eastern Pennsylvania and Southern New Jersey.  Likewise, the jobless claim numbers showed the labor remains a concern, though the widely-watched figure still remains below the key 400k level (but not by much).  The Fed extended its Operation Twist  program (sell short maturity and buy longer maturity securities) through the end of the year in an effort to keep long-rates low and encourage more borrowing.  The policymakers did not initiate a new bond buying program (Quantitative Easing), but suggested that such action (or another equally bizarre sounding made-up program) could be in the works for the months to come.  Though the Fed expressed some concern about weaker growth (and reduced certain projections), it reiterated its belief that the economy is expanding at a “moderate” pace and inflation is not much of a threat in the current environment. 

On the Horizon…Though next week’s economic data brings news from housing, manufacturing, and labor, the consumer confidence release may be the most widely anticipated as investors project future activity amid a weakening labor picture.   Of course, the euro-zone remains on the front-burner as the new allies (Spain, Germany, and Italy) pitch their “rescue” plan to their brethren.  And with the NBA done for the year, don’t expect anyone here to turn on euro soccer. 

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

www.ronbrounes.com

             
 

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