David Moenning's Daily State of the Markets: 08/14

Throwing Money At The Problem

Stocks abstained yesterday from the wild swings we've become accustomed to lately but did manage to give up some gains in the last few minutes of the session. The day was marked by news of money being thrown at problems and a fair amount of uncertainty regarding hedge fund redemptions, earnings from some big retailers, and the next round of inflation data.

The theme of the day seems to be that problems can be solved by throwing money at them. Central banks around the world have been tossing around an impressive amount of cash lately aimed at smoothing out the credit crisis. For example, just yesterday, the ECB tossed another $65 Billion at banks and the Bank of Japan even jumped on the bandwagon with $5 Billion.

These moves, in conjunction with the Fed's latest injection of cash, appear to have placated the markets for now. However, with the August 15th deadline for redemption requests at hedge funds looming, the question is for how long?

Remember, we are now hearing of performance difficulties at hedge funds on a daily basis. And given that most investors in these funds have quick trigger fingers, few are likely to sit idly by and watch their accounts go down. Industry experts are bracing for large redemption requests, which could create even more havoc if funds are forced to sell assets to meet the requests.

Speaking of hedge funds, Goldman Sachs (NYSE: GS) also figured the best way to solve the performance problems at one of their high profile funds was to throw more money at it. Goldman and a couple of big name investors made a statement of sorts yesterday by tossing in another $3 billion to the Global Equity Opportunities fund. This is especially impressive when you consider that the fund only had $3.6 billion in total assets. Goldman's management took great pains to suggest that the injection of capital was to take advantage of attractive investment opportunities at the present time. But with the fund already down somewhere in the -30% range on the year, this move raises some eyebrows.

Although all eyes continue to be focused on the crisis in credit, traders may turn their attention briefly to the big picture issues of inflation and the economy today. So far we've heard that Wal-Mart's earnings were a little on the underwhelming side as the massive retailer reduced guidance for the quarter and the year. This obviously brings up concerns about the consumer and the state of the economy.

Turning to the economic picture, this morning, the government announced that the Producer Price Index came in with an increase of +0.6%, which was much higher than the expected gain of +0.2%. And when you strip out food and energy, the all-important Core rate was actually a tenth better than consensus at +0.1%.

Running through the rest of the pre-game indicators, the overseas markets are mixed. Crude futures are higher by $0.53 with the latest quote at $72.15. Interest rates are moving up a bit this morning as the 10-yr is trading with a yield of 4.79% right now. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open a little higher. The Dow futures are currently up by about 35 points; the S&Ps are about 2 points above breakeven, and the NASDAQ looks to be about 2 points higher than fair value at the moment.

Stocks "In Play" This Morning:

Today's Earnings Before the Bell:

Home Depot (NYSE: HD) - Reported $0.77 vs. $0.72
Wal-Mart (NYSE: WMT) - Reported $0.72 vs. $0.76

News, Upgrades/Downgrades/Brokerage Research:

RE Microdevices (NASDAQ: RFMD) - Upgraded at Citi
Thornburg Mortgage (NYSE: TMA) - Downgraded at Credit Suisse, Friedman Billings, Jefferies, RBC Capital
BT Group (NYSE: BT) - Upgraded at Credit Suisse
Crown Holdings (NYSE: CCK) - Added to Conviction Buy list at Goldman Sachs
Websense (NASDAQ: WBSN) - Upgraded at JP Morgan
Qwest (NYSE: Q) - Upgraded at Lehman Brothers
Allstate (NYSE: ALL) - Upgraded at UBS

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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