Market Matters…                                  

Exactly seven years after Hurricane Katrina brought lasting devastation to New Orleans and parts of the Gulf Coast, Isaac followed a similar path and poured more than a foot of rain and caused widespread power outages in many areas.  Thankfully the damage was less severe than post-Katrina… thoughts and prayers are with those who suffered ill-effects. 

Republicans kept a watchful eye on the hurricane developments, worried that their convention would get upstaged in primetime and fearful that the old reliable Obama blasts would look petty at a time of national crisis.  As the week progressed and the damage seemed contained, Veep Candidate Ryan, former Secretary of State Rice, and even Dirty Harry Eastwood took their turns with the typical Obama bashing (the man and his policies).  Not to be outdone, Mitt Romney accepted his party’s nomination for Prez and immediately touted his biz acumen, while lambasting the prior four years of failure that O’s “hope and change” actually brought to the American people.  Interestingly, no one uttered Reagan’s famous question, “Are you better off today than you were four years ago?” because they may not have wanted to hear the answers.  Despite the relatively modest growth in the economy and stagnant labor market, the major stock indexes are actually up quite a bit from early 2009 (and expect Dems to point out that fact at their upcoming convention).  So let the rebuttals begin (fact checkers, please stay on guard). 

Transactions garnered much of the (non-convention, non-weather) headlines, while investors played a waiting game for a major late-week Bernanke address.  Hertz is (finally) acquiring Dollar Thrifty for $2.3 billon; Hudson City Bancorp is adding M&T Bank to its expanding portfolio for $3.7 billion; IBM is buying software and consulting company Kenexa for $1.3 billion; private equity firm Carlyle continued its summer buying spree with the purchase of a key DuPont coating unit for about $5 billion.  Rumors have Chevron exploring new energy deals and/or acquisitions of smaller rivals as its cash position exceeds $20  billion.  Best Buy’s founder keeps exploring the private route for his old company, and AOL rewarded shareholders for their confidence with a special dividend and buyback plan. 

Oil prices remained volatile as traders tried to determine how Isaac would impact future supply/demand, especially with some officials calling for a (premature) tapping into the strategic reserves.  Inventories unexpectedly declined in the latest government release and prices dropped mid-week.  With Bernanke’s message leading many to believe that QE3 was coming sooner than later (see below), prices made one late-week push back above $95 and toward the $100/barrel level.  Stocks took negative cues from ongoing uncertainties in Europe and contradictory consumer-related numbers, before moving higher on prospects for the next round of Fed stimulus as soon as September’s policy meeting.  Labor Day officially marks the end of summer (and Hamptons’ vacations) so the doldrums come to an end and volume could increase in the weeks ahead.  Plus, with the TV airwaves bombarding folks with Romney/Obama ads, investors try to determine just what “Believe in America” means vs. “Forward.” 

Economic Calendar

In a week that saw Hurricane Isaac and Mitt Romney competing for airtime, Fed Chairman Bernanke may have actually stolen the show.  With the next policy meeting a few weeks away, investors have long been speculating about the next Fed action and even Dr. B’s partners-in-crime have expressed a complete lack of consensus.  Chicago Fed Prez Evans called for a new round for mortgage-backed securities purchases immediately, while Cleveland Fed head Pianalto worried about the risks of such non-traditional measures.   A recent CNN-Money poll showed that 97% of investments strategists and 77% of economists surveyed don’t think the Fed should act at the September meeting.  While they feel that the stock market would benefit from such a move, they don’t see it causing a dramatic boost to the economy.  The Fed’s Beige Book depicted an economy that is growing moderately with improvements in housing and retail and even slight advances in labor.  Manufacturing seems to be on the decline as commodity prices rise and weak demand from Europe (and even China) is hindering the once strong sector. 

Against that backdrop, Bernanke took to the podium and defended the Fed’s past stimulus actions and even reiterated the comments from the last open market committee meeting… "The Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery."  Though he expressed a desire for Congress to address fiscal policy issues to fight the ballooning deficit, he left little doubt that he believes the Fed has an important role to play in supporting an economy that he claimed is “far from satisfactory.”   Most Fed watchers took his remarks as a foreshadowing of another move at the upcoming policy meeting. 

On the economic front, the consumer remains somewhat of an enigma in the current environment.  While the consumer confidence index dropped to its lowest level since November 2011, personal spending grew in July at its fastest pace in five months and incomes rose for the eighth straight month.  Additionally, same-store sales in August revealed stronger retail (back-to-school) activity with Target, Macy’s, Nordstrom, and Gap among the main beneficiaries.   The revised GDP release reported slightly better growth in the overall economy.  Though factory orders experienced their best advance in a year, biz investment declined as corporations delayed expansion plans in light of the troublesome news out of Europe and the effect on the trade picture.  Overseas, the German business confidence index declined for the fourth straight month; Spain continued on its path toward bailout; and Slovakia’s prime minister see a 50-50 chance that the Eurozone will not survive the current dire state of affairs. 

On the Horizon…Investors return from their Labor Day breaks to a hectic economic calendar, led by news from manufacturing (ISM) and labor.  Though some Fed watchers now see some new stimulus as a foregone conclusion at the September 12 meeting, stronger-than-expected unemployment and nonfarm releases could cause Bernanke to reconsider (or delay).  Dems get together for their own party and will undoubtedly portray the state of the economy in a quite different manner than their Republican counterparts, but the blasts, bashing, and lambasting (on Congress) will seem very much the same. 

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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