Daily State of the Markets 01/13: Repeat After Me...

January 13, 2011 9:11 AM EST Send to a Friend
Good morning. Long time readers know that I tend to favor the idea that there is a Wall Street cliché for just about every situation. So, if there is anyone out there still wondering why stocks are continuing to march steadily higher right now, please repeat after me: "Don't Fight the Fed (of any country) - Especially when they are on a mission!"

Wednesday's advance, which wound up pushing all the major indices to new highs for this bull market cycle, was sponsored by the ECB (which is the European version in the Fed for the purposes of matching up the clichés). The key here was the Jean Claude Trichet and his gang decided to lend a hand to Portugal, who, by the way, has publically stated that they neither need nor want any help. However, the bond market thinks otherwise. So, with a VERY big (in terms of importance - not size) bond auction being held in Portugal, the ECB decided to not-so covertly buy up a bunch of the offering.

While market watchers had expected to see rates soar at this auction, the surprise participation by the ECB wound up actually pushing rates lower. The key here is that with rates going lower, contagion came off the table in a big hurry. Thus, the message was clear - don't mess with the guys who have all the money!

The bears continue to cling to the idea that the European debt mess is going to evolve into a crisis of debt contagion and bring down the global economy in the process. But what our furry friends don't seem to understand is (1) they are busy fighting the last war and (2) stocks don't usually get clobbered for the same reason twice.

Remember, it is the element of surprise that gives the bears the edge in these cases. So, with everybody on the planet knowing just how much money each of the PIGI'S needs to raise and when, it is a safe bet that the ECB (and perhaps their friends in places like China, Japan, and the U.S.) are also aware of the importance of these auctions. And the bottom line is the central bankers have a huge interest in not letting things get out of hand here. Hence, the ECB's decision to play along in the Portugal auction yesterday.

To be sure, there are difficult problems being faced by our friends across the pond. And the road to recovery both in Europe and here at home is likely to be quite bumpy. However, with the central bankers around the world now aware of how the game is being played, the bears shouldn't expect them to fumble the ball. They know what the problems are. They know how the markets react and the impact a negative reaction can have. They have the money to fight the fight. And they now have the luxury of time to plan for the problems that crop up.

So, if you find yourself leaning bearish for any other reason than it is probably time for some sort of a pullback, repeat after me...

Turning to this morning... The all-important auctions in Spain and Italy were considered successful as Spain raised as much money as they had hoped and the rate increases for both auctions weren't horrific. This without the help of the ECB. As such, one has to consider the decision to help out in Portugal as a good one.

On the Economic front... First up, the Labor Department reported the Producer Price Index (an indication of inflation at the wholesale level) for December rose by +1.1%, which was above the consensus estimate for +0.9% and above November’s +0.8% (October: +0.4%). When you strip out food and energy, the so-called Core PPI came in up +0.2%, which was inline with the consensus for +0.2% and below November’s +0.3%.

Next, the Labor Department reported that initial claims for unemployment insurance for the week ending January 8 rose by 35,000 to 445K. The week’s total was well above the consensus for a reading of 409K. Continuing Claims for unemployment for the week ending January 1 were below consensus at 3.879M vs. expectations for 4.06M and last week’s revised (higher) 4.124M.

Thought for the day: Be sure to take time to breathe today...

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

* Major Foreign Markets:
o Australia: +1.44%
o Shanghai: +0.22%
o Hong Kong: +0.47%
o Japan: +0.73%
o France: +0.49%
o Germany: -0.07%
o London: -0.31%

* Crude Oil Futures: - $0.20 to $91.66
* Gold: - $0.70 to $1385.10
* Dollar: higher against the Yen lower vs. Euro and Pound
* 10-Year Bond Yield: Currently trading at 3.354%

* Stocks Futures Ahead of Open in U.S. (relative to fair value):
o S&P 500: -0.35
o Dow Jones Industrial Average: -8
o NASDAQ Composite: -0.3

Wall Street Research Summary

Upgrades:

* Cheesecake Factory (Nasdaq: CAKE) - BofA/Merrill
* General Dynamics (NYSE: GD) - Citi
* Terex (NYSE: TEX) - Target and estimates increased at Credit Suisse
* Aflac (NYSE: AFL) - FBR Capital
* Fidelity National Information (NYSE: FIS) - Goldman Sachs
* NYSE Euronext (NYSE: NYX) - Goldman Sachs
* Whole Foods (Nasdaq: WFMI) - Estimates increased at Jefferies
* Parker-Hannifin (NYSE: PH) - JPMorgan
* Spirit AeroSystems (NYSE: SPR) - Morgan Stanley
* Amazon.com (Nasdaq: AMZN) - Target increased at Oppenheimer
* KLA-Tencor (Nasdaq: KLAC) - Oppenheimer
* Tesoro (NYSE: TSO) - Oppenheimer
* Imperial Oil (NYSE: IMO) - RBC Capital
* Micron (NYSE: MU) - RW Baird
* Cummins (NYSE: CMI) - Target increased at UBS
* PACCAR (Nasdaq: PCAR) - Target increased at UBS
* Navistar (NYSE: NAV) - Target increased at UBS
* Amdocs (NYSE: DOX) - UBS
* Cardinal Health (NYSE: CAH) - Target increased at UBS
* Deere & Co (NYSE: DE) - Target increased at Wells Fargo, Upgraded at JPMorgan
* Hershey (NYSE: HSY) - Wells Fargo
* Pinnacle Entertainment (NYSE: PNK) - Wells Fargo

Downgrades:

* Pier 1 Imports (NYSE: PIR) - BB&T Capital Markets
* ITT Corporation (NYSE: ITT) - Cowen
* ResMed (NYSE: RMD) - Credit Suisse
* Towers Watson (NYSE: TW) - Goldman Sachs
* Amdocs (NYSE: DOX) - Goldman Sachs
* E*Trade (Nasdaq: ETFC) - Goldman Sachs
* Nasdaq OMX Group (Nasdaq: NDAQ) - Removed from Conviction Buy at Goldman
* PACCAR (Nasdaq: PCAR) - JPMorgan

Long positions in stocks mentioned: none

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Credit Suisse, UBS, JPMorgan, Jean-Claude Trichet, Citi, Morgan Stanley, Jefferies & Co, Robert W Baird, Bank of America, RBC Capital, Standard & Poor's, BB&T Capital Markets, European Central Bank, Cowen & Co, Crude Oil

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