David Moenning's Daily State of the Markets: 09/27

Buffett Bombing In?

Most everybody on Wall Street knows that when Warren Buffett talks, people listen. Well, except for that heady period back in 1999 when Mr. Buffett said he wasn’t investing in technology because he “didn’t understand it.” (Yea right.) But since then, the man has become nothing short of a rock star in the arena of value investing and there are legions of investors who copy his style. So, when a New York Times report came out late in the day yesterday suggesting that Buffet was about to take a stake in Bear Stearns (BSC), traders sat up and took notice.

In short, instead of a modest up day where stocks were beginning to look tired, the Buffett-for-Bear Stearns story reinvigorated the market and the Dow closed with a gain that was just shy of the triple digit mark.

Although two other reports have since come out saying that the probability of Buffett bombing into BSC is small, investors recognize that Buffett is a very smart guy and a very savvy investor. So, the thinking here is that if Berkshire Hathaway is even remotely interested in making an investment in the beleaguered brokerage firm in the middle of the subprime mess, then perhaps the worries about the downside are overblown.

While the Buffett story gave stocks legs in the afternoon, it was news of weak economic data, an important auction in London, and the GM strike settlement that got stocks moving in the right direction in the early going.

Common sense would seem to dictate that economic data coming in weaker than expected would be a bad thing for the market. But, let’s keep in mind that weak data is actually expected at this point in time, so it isn’t exactly a surprise. In addition, at least for right now, weak data is a good thing as it gives the Fed additional “wiggle room” to keep cutting rates.

The other really important factor in yesterday’s move higher was that nobody showed up to the auction in London for distressed borrowers. The fact that no one took the Bank of England up on their offer to loan money to banks in trouble shows, very simply, that there must not be any banks in trouble. And this one little item, which was barely covered in the press, is very encouraging in that it is a solid indication that we’ve probably seen the worst of the credit crisis.

Turning to this morning, we’ve got some more economic data to review – this time it’s the government’s third and final try at the second quarter GDP numbers. The annualized growth rate for the economy in the second quarter came in at 3.8%, which was a tenth below the consensus estimate for 3.9%. In addition, Personal Consumption was reported at 1.4%, which was dead-on with estimates. And the GDP Price Index (which is a measure of inflation) came in at 2.6%, which was a tenth below the consensus. And finally, the Core PCE (another measure of inflation) showed a gain of 1.4%, which was a bit hotter than expected.

Running through the rest of the pre-game indicators, the overseas markets are up nicely this morning Crude futures are up $1.02 so far with the latest quote at $81.32. Interest rates are a bit lower this morning with the 10-yr is trading at a yield of 4.61% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are looking to open to the upside once again. The Dow futures are currently ahead by about 30 points; the S&Ps are up by about 3 points, and the NASDAQ looks to be about 6 points above fair value at the moment.

Stocks “In Play” This Morning:

News, Upgrades/Downgrades/Brokerage Research:

Dow Chemical (NYSE: DOW) – Estimates reduced at BofA
Starbucks (Nasdaq: SBUX) – Downgraded at BofA
PetroChina (NYSE: PTR) – Downgraded at Bear Stearns
Statoil (NYSE: STO) – Downgraded at Credit Suisse
CNOOC (NYSE: CEO) – Removed from Conviction Buy list at Goldman Sachs
Emerson Electric (NYSE: EMR) – Added to Conviction Buy list at Goldman
Tyco (NYSE: TYC) – Downgraded at Goldman
Campbell Soup (NYSE: CPB) – Upgraded at Goldman
Brinker Intl (NYSE: EAT) – Downgraded at Goldman
Gamestop (NYSE: GME) – Downgraded at UBS
Kindred Healthcare (NYSE: KND) – Upgraded at Wachovia

Mr. Moenning holds Long positions in stocks mentioned: 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.

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