David Moenning's Daily State of the Markets: 08/16
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Price: $207.08 +1.02%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 3.1%
Revenue Growth %: +17.3%
Overall Analyst Rating:
SELL (= Flat)
Dividend Yield: 3.1%
Revenue Growth %: +17.3%
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The Song Remains the Same
Although the bulls did their level best to muster up a rebound yesterday, the bears continued to sing the same old song and ruled the day once again. Worries over hedge fund redemptions, liquidity, and credit market problems, both real and speculated, were the focal point of trading during much of the session. But then in the last hour, the bears added a new verse and began to sing about the unwinding of the Yen-Carry trade.
Although the macro economic news wasn’t half bad, the bottom line is that uncertainty is the primary emotion at the moment. It seems that Art Cashin’s now famous quote; “We just don’t know what we don’t know” is quickly becoming the current market theme as investors have no idea what to expect with regard to redemptions from hedge funds, the impact of the unwinding of the Yen-Carry trade, and just how far the credit problems in the mortgage business will spread.
For the average investor, the problems in the credit market are probably tough to get a handle on. However, the headlines out of Countrywide Financial yesterday help to spell things out. You see, Countrywide is in the business of making mortgage loans, packaging them up, and then selling them off as a security. The key thing to understand is that the company also uses borrowed money to make the loans. So, CFC’s problem right now is two-fold. First, it is having trouble selling the loans it has made and is being forced to hold onto the paper, which puts a big crimp in their cash flow. And second, with its commercial paper now being priced at more than 12%, it is tough for them to implement the strategy of borrowing low and lending high. This, in turn, makes it tough for CFC to lend, which means that rates are on the rise.
Why worry about Countrywide Financial’s business plan, you ask? In short, because the problem at CFC stems from a lack of liquidity, which is something that is not limited to the mortgage business. As you’ve probably heard, investors are currently “re-pricing risk” in the credit markets. This means that rates on riskier paper are skyrocketing to levels that are prohibitive – which has the potential to strangle all kind of businesses.
And while much of this situation is based on fear and projections of what might happen in the future, the end result was another big drop for the stock market yesterday. And unfortunately, the move took the indexes to new lows, which, according to the technicians, means that there is more downside ahead.
Turning to this morning, it looks like the techies got it right this time as concerns over credit and the Yen-carry trade are causing indices to plunge lower around the globe. You can forget about inflation or any other macro economic numbers right now (today’s housing-start numbers were weak once again) as stocks appear to be in panic mode.
The Fed has come in with $5 billion this morning and has said that it will continue to add money in the coming days. And with Fed Funds futures trading consistently below 5%, it is obvious that the Fed has effectively eased rates through these operations. The question now becomes, will it be enough?
Running through the rest of the pre-game indicators, as we mentioned, the overseas markets are down hard across the board. Crude futures are lower by $1.56 with the latest quote at $71.77. Interest rates are diving in a flight to quality this morning as the 10-yr is trading with a yield of 4.67% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking to move lower once again. The Dow futures are currently off by about 100 points; the S&Ps are down by about 14 points, and the NASDAQ looks to be about 15 points below fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Network Appliances (Nasdaq: NTAP) – Reported $0.20 vs. $0.19
Petsmart (Nasdaq: PETM) – Reported $0.31 vs. $0.31
Today’s Earnings Before the Bell:
Estee Lauder (NYSE: EL) – Reported $0.45 vs. $0.50
JC Penney (NYSE: JCP) – Reported $0.78 vs. $0.78
News, Upgrades/Downgrades/Brokerage Research:
PetroChina (NYSE: PTR) – Upgraded at Bear Stearns
China Petroleum (NYSE: SNP) – Upgraded at Bear Stearns
Sovereign Bancorp (NYSE: SOV) – Upgraded at Citi
Intel (Nasdaq: INTC) – Upgraded at Credit Suisse
Emergency Medical Services (NYSE: EMS) – Upgraded at Jefferies
Eaton Vance (NYSE: EV) – Downgraded at Merrill Lynch
Mr. Moenning holds Long positions in stocks mentioned: MER, JCP, SNP
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.
Although the bulls did their level best to muster up a rebound yesterday, the bears continued to sing the same old song and ruled the day once again. Worries over hedge fund redemptions, liquidity, and credit market problems, both real and speculated, were the focal point of trading during much of the session. But then in the last hour, the bears added a new verse and began to sing about the unwinding of the Yen-Carry trade.
Although the macro economic news wasn’t half bad, the bottom line is that uncertainty is the primary emotion at the moment. It seems that Art Cashin’s now famous quote; “We just don’t know what we don’t know” is quickly becoming the current market theme as investors have no idea what to expect with regard to redemptions from hedge funds, the impact of the unwinding of the Yen-Carry trade, and just how far the credit problems in the mortgage business will spread.
For the average investor, the problems in the credit market are probably tough to get a handle on. However, the headlines out of Countrywide Financial yesterday help to spell things out. You see, Countrywide is in the business of making mortgage loans, packaging them up, and then selling them off as a security. The key thing to understand is that the company also uses borrowed money to make the loans. So, CFC’s problem right now is two-fold. First, it is having trouble selling the loans it has made and is being forced to hold onto the paper, which puts a big crimp in their cash flow. And second, with its commercial paper now being priced at more than 12%, it is tough for them to implement the strategy of borrowing low and lending high. This, in turn, makes it tough for CFC to lend, which means that rates are on the rise.
Why worry about Countrywide Financial’s business plan, you ask? In short, because the problem at CFC stems from a lack of liquidity, which is something that is not limited to the mortgage business. As you’ve probably heard, investors are currently “re-pricing risk” in the credit markets. This means that rates on riskier paper are skyrocketing to levels that are prohibitive – which has the potential to strangle all kind of businesses.
And while much of this situation is based on fear and projections of what might happen in the future, the end result was another big drop for the stock market yesterday. And unfortunately, the move took the indexes to new lows, which, according to the technicians, means that there is more downside ahead.
Turning to this morning, it looks like the techies got it right this time as concerns over credit and the Yen-carry trade are causing indices to plunge lower around the globe. You can forget about inflation or any other macro economic numbers right now (today’s housing-start numbers were weak once again) as stocks appear to be in panic mode.
The Fed has come in with $5 billion this morning and has said that it will continue to add money in the coming days. And with Fed Funds futures trading consistently below 5%, it is obvious that the Fed has effectively eased rates through these operations. The question now becomes, will it be enough?
Running through the rest of the pre-game indicators, as we mentioned, the overseas markets are down hard across the board. Crude futures are lower by $1.56 with the latest quote at $71.77. Interest rates are diving in a flight to quality this morning as the 10-yr is trading with a yield of 4.67% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking to move lower once again. The Dow futures are currently off by about 100 points; the S&Ps are down by about 14 points, and the NASDAQ looks to be about 15 points below fair value at the moment.
Stocks “In Play” This Morning:
Yesterday’s Earnings After the Bell:
Network Appliances (Nasdaq: NTAP) – Reported $0.20 vs. $0.19
Petsmart (Nasdaq: PETM) – Reported $0.31 vs. $0.31
Today’s Earnings Before the Bell:
Estee Lauder (NYSE: EL) – Reported $0.45 vs. $0.50
JC Penney (NYSE: JCP) – Reported $0.78 vs. $0.78
News, Upgrades/Downgrades/Brokerage Research:
PetroChina (NYSE: PTR) – Upgraded at Bear Stearns
China Petroleum (NYSE: SNP) – Upgraded at Bear Stearns
Sovereign Bancorp (NYSE: SOV) – Upgraded at Citi
Intel (Nasdaq: INTC) – Upgraded at Credit Suisse
Emergency Medical Services (NYSE: EMS) – Upgraded at Jefferies
Eaton Vance (NYSE: EV) – Downgraded at Merrill Lynch
Mr. Moenning holds Long positions in stocks mentioned: MER, JCP, SNP
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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