David Moenning's Daily State of the Markets: 12/07
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Bailout or Common Sense?
As the saying goes, timing is everything. And as anyone who has ever bought or sold a stock knows, this is especially true on Wall Street. So, with the Mortgage Bankers Association reporting that mortgage delinquencies soared in the third quarter by 0.47% to 5.59%, which just happens to be the highest level of delinquencies since the middle of 1986, it was definitely a good time for Messrs. Bush and Paulson to announce their plan to try and fix the mortgage mess.
During his tenure at the helm of Goldman Sachs (GS), when Hank Paulson talked, people listened. So when the new Secretary of the Treasury rounded up the banks and effectively told them that their options were to either freeze rates on the subprime loans or write them ALL down to zero, the powers-that-be in the banking biz quickly nodded their heads in agreement to the plan to freeze rates.
While there is definitely a large contingent of political types that don’t agree with the government meddling in the free enterprise system we so thoroughly enjoy here in the USofA, this plan actually makes a lot of sense. And the strange thing is, the freeze, which is purported to help more than 1 million homeowners, won’t cost taxpayers any money… imagine that.
While even Mr. Paulson admits that the plan is not a silver bullet, Wall Street definitely likes his thinking. Or more accurately, Wall Street likes the idea that both the Fed and Big Brother are on the case. And as such, the subprime mess is unlikely to send the economy into a prolonged tailspin. So, in response to the bailout plan and the anticipation of another rate cut, stocks continued to melt up yesterday.
For those of you keeping score at home, the DJIA has moved up 371 points over the last two days and has soared almost 900 points since November 26th. The techies will argue that ‘tis the season to be jolly and that Santa is clearly having an impact here. But the reality is that traders had simply gotten too negative last month and are now correcting prices higher - and back to a more neutral position.
The bottom line is that we remain in fairly broad trading range between 12,750 and 14,000ish on the Dow. And until we can figure out whether a soft landing is in the cards, the trading range is likely to remain intact.
Turning to this morning, we’ve got a very important economic report on tap, so let’s get right to it. The Labor Department reported that Nonfarm Payrolls increased by 94,000 in November, which was higher than the consensus estimate of 75,000 new jobs. In addition the Unemployment Rate dropped a tenth to 4.7% and the average hourly earnings increased by +0.5%, which was 0.2% higher than the estimates. And finally, October’s jobs numbers were revised higher.
There are several points that can be taken from this report. First, the reports of the death of the economy may be a bit exaggerated. During October and November, the period in which stocks tanked on worries that the economy would fall into recession, the economy created a total of 264,000 new jobs. Next, we see that the ADP report was way off base once again and has therefore lost credibility as a leading indicator of job growth. And finally, there is a lot of talk that Goldilocks is alive and well right now as the economy appears to be neither too hot nor not too cold.
Running through the rest of the pre-game indicators; with the exception of Hong Kong, the overseas markets are up nicely this morning. Crude futures are off a bit so far with the latest quote showing the January contract trading down by $0.17 to $90.06. Interest rates are higher on the positive economic news with the 10-yr trading at a yield of 4.06% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are off their highs but are still pointing to a modestly better open. The Dow futures are currently ahead by about 13 points; the S&Ps are up by about 2 points, while the NASDAQ looks to be about a point below fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:
Target (NYSE: TGT) – Downgraded at Bank of America
Gamestop (NYSE: GME) – Target increased at Broadpoint Capital
Synopsis (Nasdaq: SNPS) – Upgraded at Deutsche Bank
Lennar (NYSE: LEN) – Downgraded at Deutsche Bank
McAffe (NYSE: MFE) – Upgraded at Friedman Billings
CA Inc (NYSE: CA) – Upgraded at Goldman Sachs
Align Technology (Nasdaq: ALGN) – Upgraded at Jefferies
National Semi (NYSE: NSM) – Upgraded at JMP Securities, Target increased at UBS
AutoZone (NYSE: AZO) – Upgraded at JP Morgan
Everest RE (NYSE: RE) – Upgraded at JP Morgan
Palm Inc (Nasdaq: PALM) – Target reduced at Lehman
Fluor Corp (NYSE: FLR) – Mentioned positively at Lehman
JC Penney (NYSE: JCP) – Upgraded at Lehman
Avon Products (NYSE: AVP) – Upgraded at Merrill
American Express (NYSE: AXP) – Downgraded at Merrill
Capital One (NYSE: COF) – Downgraded at Merrill, Morgan Stanley
DeVry (NYSE: DV) – Estimates increased at Piper Jaffray
Activision (Nasdaq: ATVI) – Upgraded at Piper Jaffray
Mr. Moenning holds Long positions in stocks mentioned: MER, JCP, DV
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.
As the saying goes, timing is everything. And as anyone who has ever bought or sold a stock knows, this is especially true on Wall Street. So, with the Mortgage Bankers Association reporting that mortgage delinquencies soared in the third quarter by 0.47% to 5.59%, which just happens to be the highest level of delinquencies since the middle of 1986, it was definitely a good time for Messrs. Bush and Paulson to announce their plan to try and fix the mortgage mess.
During his tenure at the helm of Goldman Sachs (GS), when Hank Paulson talked, people listened. So when the new Secretary of the Treasury rounded up the banks and effectively told them that their options were to either freeze rates on the subprime loans or write them ALL down to zero, the powers-that-be in the banking biz quickly nodded their heads in agreement to the plan to freeze rates.
While there is definitely a large contingent of political types that don’t agree with the government meddling in the free enterprise system we so thoroughly enjoy here in the USofA, this plan actually makes a lot of sense. And the strange thing is, the freeze, which is purported to help more than 1 million homeowners, won’t cost taxpayers any money… imagine that.
While even Mr. Paulson admits that the plan is not a silver bullet, Wall Street definitely likes his thinking. Or more accurately, Wall Street likes the idea that both the Fed and Big Brother are on the case. And as such, the subprime mess is unlikely to send the economy into a prolonged tailspin. So, in response to the bailout plan and the anticipation of another rate cut, stocks continued to melt up yesterday.
For those of you keeping score at home, the DJIA has moved up 371 points over the last two days and has soared almost 900 points since November 26th. The techies will argue that ‘tis the season to be jolly and that Santa is clearly having an impact here. But the reality is that traders had simply gotten too negative last month and are now correcting prices higher - and back to a more neutral position.
The bottom line is that we remain in fairly broad trading range between 12,750 and 14,000ish on the Dow. And until we can figure out whether a soft landing is in the cards, the trading range is likely to remain intact.
Turning to this morning, we’ve got a very important economic report on tap, so let’s get right to it. The Labor Department reported that Nonfarm Payrolls increased by 94,000 in November, which was higher than the consensus estimate of 75,000 new jobs. In addition the Unemployment Rate dropped a tenth to 4.7% and the average hourly earnings increased by +0.5%, which was 0.2% higher than the estimates. And finally, October’s jobs numbers were revised higher.
There are several points that can be taken from this report. First, the reports of the death of the economy may be a bit exaggerated. During October and November, the period in which stocks tanked on worries that the economy would fall into recession, the economy created a total of 264,000 new jobs. Next, we see that the ADP report was way off base once again and has therefore lost credibility as a leading indicator of job growth. And finally, there is a lot of talk that Goldilocks is alive and well right now as the economy appears to be neither too hot nor not too cold.
Running through the rest of the pre-game indicators; with the exception of Hong Kong, the overseas markets are up nicely this morning. Crude futures are off a bit so far with the latest quote showing the January contract trading down by $0.17 to $90.06. Interest rates are higher on the positive economic news with the 10-yr trading at a yield of 4.06% at the moment. And finally, with about an hour before the bell, stock futures in the U.S. are off their highs but are still pointing to a modestly better open. The Dow futures are currently ahead by about 13 points; the S&Ps are up by about 2 points, while the NASDAQ looks to be about a point below fair value at the moment.
Stocks "In Play" This Morning:
News, Upgrades/Downgrades/Brokerage Research:
Target (NYSE: TGT) – Downgraded at Bank of America
Gamestop (NYSE: GME) – Target increased at Broadpoint Capital
Synopsis (Nasdaq: SNPS) – Upgraded at Deutsche Bank
Lennar (NYSE: LEN) – Downgraded at Deutsche Bank
McAffe (NYSE: MFE) – Upgraded at Friedman Billings
CA Inc (NYSE: CA) – Upgraded at Goldman Sachs
Align Technology (Nasdaq: ALGN) – Upgraded at Jefferies
National Semi (NYSE: NSM) – Upgraded at JMP Securities, Target increased at UBS
AutoZone (NYSE: AZO) – Upgraded at JP Morgan
Everest RE (NYSE: RE) – Upgraded at JP Morgan
Palm Inc (Nasdaq: PALM) – Target reduced at Lehman
Fluor Corp (NYSE: FLR) – Mentioned positively at Lehman
JC Penney (NYSE: JCP) – Upgraded at Lehman
Avon Products (NYSE: AVP) – Upgraded at Merrill
American Express (NYSE: AXP) – Downgraded at Merrill
Capital One (NYSE: COF) – Downgraded at Merrill, Morgan Stanley
DeVry (NYSE: DV) – Estimates increased at Piper Jaffray
Activision (Nasdaq: ATVI) – Upgraded at Piper Jaffray
Mr. Moenning holds Long positions in stocks mentioned: MER, JCP, DV
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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