David Moenning's Daily State of the Markets: 6/25

Would They, Should They?

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

With the Fed announcement on tap for later today, all anybody has been able to talk about lately is the issue of whether or not the Fed would or even should make a move to increase interest rates. And although it is widely expected that Mr. Bernanke will stand pat today, there is worry that this new Fed will continue to do things that are not in the playbook.

The inflation hawks are adamant that Mr. Bernanke & Co. need to get ahead of the curve now and start to take back those rate cuts that were designed to keep the banking system solvent and the economy out of recession. In short, the ardent inflation fighter types argue that this is the time to begin raising interest rates.

Never mind the fact that higher interest rates won’t do a darned thing to bring down the prices of oil, corn, or steel. Never mind the fact that the economy continues to brush with recession and that such rate hikes would undoubtedly push the good ‘ol USofA over the edge. Never mind that higher rates would prolong the already painful decline in housing prices and then probably push down the value of stocks as well. No, by all means, let’s be like France and get tough on inflation now… give me a break!

Yes, in a perfect world, every economist worth a hoot would agree that it is not a good idea to let inflation get out of control. However, let’s remember that the type of inflation we are encountering now is commodity based and not a result of an overheating economy. We do not have any wage inflation to speak of and corporate America continues to have a tough time passing along higher input costs. So, other than to defend the dollar, which, of course, would help bring down the price of oil to a certain degree, we're not sure why you’d want to raising rates at this time.

With the financial system in trouble because the subprime slime was able to spread far beyond anyone’s imagination, it is going to take some time before the economy can absorb any further shocks to the system. And in our humble opinion, raising rates at this time would provide just such a shock.

At least part of the reason that the major indices have fallen about 10% over the last month is the worry that the Fed will jump the gun here. Of course, another reason for the precipitous decline is the fact that the economic backdrop has begun to weaken again, which, in and of itself, is a reason to argue against raising rates at this time.

In closing, thank you for the opportunity to offer up a bit of a rant on the subject this morning. I assure you that I will now climb down off of my soap box and attempt to once again analyze the market action in an objective manner.

Turning to this morning, stocks are attempting to rebound from the recent declines. However, with the Fed announcement due this afternoon at about 2:15 eastern, we probably shouldn’t expect too much in the way of upside fireworks in the early going.

On the economic front, we have learned that orders for durable goods were flat in May, which was in-line with expectations. Then when you strip out transportations, orders came in lower by -0.9%, which was a hair better than the consensus estimates for a drop of 1%.

Running through the rest of the pre-game indicators; European markets are higher this morning. Crude futures are moving down a smidge this morning with the latest quote showing oil trading lower by $0.42 to $136.58. Interest rates are up a little this morning with the yield on the 10-yr currently trading at 4.13%. And finally, with about an hour before the bell, stock futures in the U.S. are pointing to a modestly higher open. The Dow futures are currently ahead by about 38 points; the S&P’s are up by about 7 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:

AT&T (NYSE: T) – Upgraded at Bernstein
New York Community Bancorp (NYSE: NYB) – Downgraded at Citi
Precision Castparts (NYSE: PCP) – Downgraded at Goldman
Textron (NYSE: TXT) – Downgraded at Goldman
Republic Services (NYSE: RSG) – Upgraded at Goldman
Waste Management (NYSE: WMI) – Added to Conviction Buy list at Goldman
Boeing (NYSE: BA) – Downgraded at Goldman
Ashland (NYSE: ASH) – Upgraded at JP Morgan
Qualcomm (Nasdaq: QCOM) – Target increased at Lehman
Jabil Circuits (NYSE: JBL) – Upgraded at Merrill Lynch
NASDAQ OMX Group (Nasdaq: NDAQ) – Upgraded at Piper

Disclosure: Mr. Moenning and/or related firms hold long positions in: none

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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