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David Moenning's Daily State of the Markets: 06/12

June 12, 2008 10:41 AM EDT
Getting Tough to Stay Upbeat

Here's a link to listen to an Audio Version of the report

Stocks got hit hard again yesterday as the combination of headlines made it tough to stay upbeat about the future for stocks. Let’s see; we’ve got central bankers around the globe uniformly starting to talk tough on inflation – which can only mean one thing with regard to interest rates; we’ve got oil near record highs; we’ve got grains surging on heavy rains in the Midwest; we’ve got data showing that the economy is weakening again; and finally, we’ve got worries that the credit crisis may be making a comeback. Ughh.

Although there has been a green number or two along the way, stocks basically fell for the fourth straight day yesterday. And with Wednesday’s drop of 200 points added to Friday’s thrashing of nearly 400 points, it is obvious that the bears are in control of the game once again.

It's bad enough that the central bankers have all started to talk tough about inflation. We’ve become accustomed to the ECB’s Trichet yammering on about the evils of higher prices and we understand that Gentle Ben has to try and retain some credibility if the dollar has any chance of ever recovering. But yesterday, we started to see some action backing up all the talk as India’s central bank raised rates and Canada decided to leave rates unchanged when a cut of 25 basis points was widely expected.

One of the worries in the market is that the central bankers may be jumping the gun a bit. Everyone in the game understands that the Fed will need to take back some of the rate cuts it has provided in its attempt to keep the U.S. banking system afloat. But, the thinking has been that Mr. Bernanke will likely wait until the credit crisis and the risks of a recession have subsided before making his move.

Speaking of the credit crisis, while the worst may be over, it is becoming apparent that the problem loans, downgrades, and writedowns are not. Although Lehman (LEH) doesn't seem to be going the way of Bear Stearns (BSC), it has become obvious over the past couple of weeks that we haven’t seen the last of problems. Heck, yesterday there was even a rumor that the almighty Goldman Sachs had fallen victim to its hedging strategies and was about to announce a writedown.

But, isn’t the credit crisis old news, you ask? The problem is that with banks struggling to keep their balance sheets in order, they have lost interest in lending to anybody that doesn’t have spotless credit. So, with banks not lending and the housing market still a mess, things aren’t likely to improve in this arena anytime soon.

So, with the news all bad and people talking about $5 gasoline before the end of the summer, it is little wonder that the major indices appear to be well on their way to a retest of the March lows. Frankly, I’d feel better if this trip down was being triggered by more worries over credit. But, all the talk of higher inflation and higher rates during a time when the economy is slowing makes it tough to stay upbeat.

Turning to this morning, the bulls have gotten a breath of fresh air in the early going as we’ve just learned that Retail Sales for May came in with a gain of +1%, which was double the expectation. And then, when you strip out sales of automobiles, the increase of +1.2% was also better than the consensus expectations for an increase of +0.7%. Next up, Import Prices were somehow a little lower than expectations at 2.3% versus 2.4%. However, it is a little disconcerting to note that on a year-over-year basis, prices are up 17%.

Running through the rest of the pre-game indicators; the foreign markets are mixed by region with Asia down and Europe up. Crude futures are moving down with the latest quote showing oil trading lower by $2.80 to $133.50. Interest rates are continuing their breakout move higher this morning with the yield on the 10-yr currently trading at 4.17%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a nice open. The Dow futures are currently ahead by about 105 points; the S&P’s are up by about 10 points, while the NASDAQ looks to be about 17 points above fair value at the moment.

Stocks "In Play" This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Archer Daniels Midland (NYSE: ADM) – Downgraded at Citi
Fortress Inv Group (NYSE: FIG) – Downgraded at Credit Suisse
Amerigroup Corp (NYSE: AGP) – Estimates and target reduced at Deutsche Bank
Chipotle Mexican Grill (NYSE: CMG) – Target reduced at Deutsche Bank
EOG Resources (NYSE: EOG) – Added to Conviction Buy list at Goldman
Cabot Oil (NYSE: COG) – Removed from Conviction Buy list at Goldman
Anadarko Petroleum (NYSE: APC) – Upgraded at Goldman
Lubrizol (NYSE: LZ) – Downgraded at Jefferies
Nortel (NYSE: NT) – Upgraded at JP Morgan
Martha Stewart Living (NYSE: MSO) – Downgraded at JP Morgan
Telefonos de Mexico (NYSE: TMX) – Upgraded at JP Morgan
CONSOL Energy (NYSE: CNX) – Upgraded at JP Morgan
Arch Coal (ANYSE: CI) – Downgraded at JP Morgan
T Rowe Price (Nasdaq: TROW) – Upgraded at Merrill Lynch
Occidental Petroleum (NYSE: OXY) – Downgraded at Merrill
Marathon Oil (NYSE: MRO) – Upgraded at Merrill
Ryland Group (NYSE: RYL) – Upgraded at UBS

Disclosure: Mr. Moenning and/or related firms hold long positions in: EOG, APC, CNX

Note: All earnings reports compared to Reuter’s consensus estimates

** For More of David Moenning’s Market Analysis, Stock Portfolios, and Trading Ideas, visit: www.TopGunsTrading.com

The opinions and forecasts expressed are those of David Moenning, President of Heritage Capital Management and Co-Founder of TopGunsTrading.com and may not actually come to pass. Mr. Moenning’s opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security or Heritage Capital program. No part of this material is intended as an investment recommendation. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any of HCM’s programs. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that investment objectives outlined will actually come to pass. Investors should consult an Investment Professional before investing in any investment program. Neither Mr. Moenning or Heritage Capital Management nor any of their employees shall have any liability for any loss sustained by anyone who has relied on the information contained herein. Mr. Moenning and employees of HCM may at times have positions in the securities referred to and may make purchases or sales of these securities while this publication is in circulation. The analysis contained is based on both technical and fundamental research. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

David D. Moenning
Heritage Capital Management
Main: 630-250-4700
Direct: 303-670-9761
email: [email protected]

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Goldman Sachs Conviction Buy List, Credit Suisse, Deutsche Bank, UBS, JPMorgan, Goldman Sachs, Jean-Claude Trichet, Ben S. Bernanke, Citi, Bear Stearns, Jefferies & Co