David Moenning's Daily State of the Markets: 10/03

�Roll Call

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

In case lawmakers in the House of Representatives have any question about what kind of “economic response” they might get if they dink around and screw up this vote again today, Thursday served as a gentle reminder that things are NOT going to be pretty in the financial markets if action is not taken – and soon. While Thursday’s -350 point decline paled in comparison to Monday’s nearly -800 point panic, it is worth noting that the NASDAQ, Russell 2000, and S&P Mid-cap indices all dove to new lows on Thursday.

It may be true that many of the politicians elected to serve their constituents in Washington may not have a firm grasp on the concept of how the commercial paper market works (or in this case, doesn’t work) and they probably don’t have a clue how CMO’s, CDO’s, or CDS’s function. It is also a very safe bet that the public doesn’t understand any of this either. But, I’m guessing that our elected officials in Washington can indeed understand the prospect of another trillion dollars or so coming out of the stock market if they don’t get this deal done.

So, since most Americans living on ‘Main Street’ have money invested in an IRA, a mutual fund, a 401(K), a brokerage account, or even a money market fund, it really doesn’t matter if the rank and file truly understands this bill or why it is needed. And I guess it doesn’t matter either if the public still thinks, for some unknown reason, that this bill is about bailing out all of those ‘fat cats’ we’ve been hearing so much about lately. The simple fact of the matter is that if some kind of action is not taken soon, we are going to have something much worse than what Warren Buffet is already calling an economic Pearl Harbor.

Yes, I recognize that I’m up on a soapbox at the moment and that I could even be accused of using this morning’s missive to do a little ranting. But, the bottom line is that some confidence needs to be restored to the US financial system very soon if we want to avoid a severe recession. Up until this point, the economy has continued to grow and we have even technically avoided a recession. But, if the stock market continues to plunge and Corporate America continues to be shut out of the short-term credit markets, well, let’s just say that a recession would become a self-fulfilling prophecy.

Getting back to the stock market, stocks headed lower out of the gate yesterday on the back of a weak report on jobless claims and then sank further when we learned that Factory Orders fell more than expected. So when a colleague called yesterday to ask what the problem was, my answer was short and simple. I said that, “other than the obvious issue of politicians sitting on their hands, today it looks like the economy is slipping a little.”

But make no mistake about it; for now, the primary focus is on the bailout bill. In case you missed it, just about the time it looked like the Dow had stabilized yesterday and might calmly wait for today’s vote, stocks turned down hard after the following headline crossed the wires: “House Republican group says it is seeking to cut the financial bailout by two-thirds.”

Turning to this morning, today’s session is indeed all about the roll call. But, we’ve also got a merger between Wachovia (WB) and Wells Fargo (WFC) which does NOT involve the FDIC or any governmental assistance that seems to be lifting the mood a bit. And speaking of lifting the mood, Anheuser-Busch says that beer shipments rose by 2.3% last month – so for now at least, it doesn’t appear that all is lost with the economy.

Speaking of the economy, the government reported that the economy lost 159,000 jobs in September, which was worse than the consensus estimates for a decline of 105,000. The unemployment rate, which has been falling hard lately, was steady last month at 6.1% and in line with the consensus.

Running through the rest of the pre-game indicators, the foreign markets are mixed with Asia down and Europe up at the moment. Crude futures are flat with the latest quote showing oil trading up $0.03 to $94.00. Interest rates are lower again with the yield on the 10-yr currently trading at 3.59%. And finally, with about 60 minutes before the bell, the futures are pointing to a modestly higher open. The Dow futures are currently ahead by about 55 points; the S&P’s are up by about 10 points, while the NASDAQ looks to be about 4 points above fair value at the moment.

Stocks “In Play” This Morning:

Today’s Earnings Before the Bell:

Family Dollar (NYSE: FDO) – Reported $0.38 vs. $0.34

News, Upgrades/Downgrades/Brokerage Research:

Federal Realty (NYSE: FRT) – Downgraded at Bank of America
Merrill Lynch (NYSE: MER) – Downgraded at Citi
Schwab (Nasdaq: SCHW) – Mentioned positively at Citi
Blackrock (NYSE: BLK) – Mentioned positively at Citi
TD Ameritrade (AMTD) – Mentioned positively at Citi
Mosaic (NYSE: MOS) – Target reduced at Citi
Penn Natl Gaming (Nasdaq: PENN) – Downgraded at Deutsche Bank
UBS (NYSE: UBS) – Upgraded at Deutsche Bank
Costco (Nasdaq: COST) – Upgraded at Goldman Sachs, Added to Conviction Buy list
Credit Suisse (NYSE: CS) – Upgraded at Goldman
Compass Minerals (NYSE: CMP) – Upgraded at JP Morgan

Burlington Northern (NYSE: BNI) – Upgraded at JP Morgan
CSX (NYSE: CSX) – Upgraded at JP Morgan
Steel Dynamics (STLD) – Upgraded at Merrill
Nucor (NYSE: NUE) – Upgraded at Merrill
XCEL Energy (NYSE: XEL) – Upgraded at Merrill
Schering Plough (NYSE: SGP) – Upgraded at Merrill
Walgreens (NYSE: WAG) – Downgraded at Morgan Stanley
Adobe Systems (Nasdaq: ADBE) – Downgraded at UBS
Inuit (Nasdaq: INTU) – Downgraded at UBS
Salesforce.com (NYSE: CRM) – Downgraded at UBS
Symantec (SYMC) – Downgraded at UBS
Terex (NYSE: TEX) – Downgraded at Wachovia

Cummins (NYSE: CMI) – Downgraded at Wachovia
Caterpillar (NYSE: CAT) – Estimates reduced at Wachovia

Disclosure: Mr. Moenning and/or related firms hold long positions in: FDO, COST

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.

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