Weekly Street Sentiment: The Fed Never Got Gramm’s Memo

Includes: DIA, QQQ, SPY
by: First Coverage


  • Overall market sentiment increases from last week’s record bearish levels. 
  • Most bearish industry reverts to Financials.
  • Most bullish industry remains Energy.
  • Sell-side certainty returns to positive, settling at 108%.
  • Most active area for idea generation is Financials.


First Coverage Market Sentiment increased over last week’s record bearish levels but remains in a multi-week downtrend.  Energy is still the industry with the most bullish sentiment while Financials recapture their familiar place as the industry with the strongest bearish sentiment. The First Coverage Sell-Side Certainty Index [FCSSCI] re-entered positive territory and ended the week at 108.


Institutional sell-side professionals drove overall market sentiment moderately higher then the record bearish levels reached last week. While we’re never able to completely understand what drives the actions of the institutional sell-side, perhaps some of them were moved by the words of former Senator Phil Gramm last week.

For those of you who might have missed his comments, Gramm, who holds a PhD in economics, told the Washington Times that the U.S. is not in a real recession, but merely in a “mental recession” being caused by a “nation of whiners”. I can only imagine that those individuals who are currently seeing their home equity devastated, their stocks drop by a third and their food and energy costs soar felt much better upon being informed that it was all in their heads.

Energy remains the industry with the most bullish sentiment. For the second week in a row positive sentiment in this area was close to unanimous. Bulls point to the fact that P/E Multiples for energy stocks are, by cyclical standards, low and the price of these stocks have not yet followed the most recent rise in crude leaving room to the upside. Clearly, external events including Iran testing missiles in the Persian Gulf and a Nigerian militant group announcing they are ending a ceasefire are also considered reasons for continued bullishness.

Financials replaced Consumer Cyclicals as the industry with the greatest bearish sentiment this week. Feelings towards Financials might have been impacted by the Fed extending its program of low-cost overnight loans to the nation’s investment banks into next year. This was a program that was first put into place to address liquidity problems on Wall Street emanating from the Bear Stearns incident. Based on this ‘comforting’ extension by the Fed, two things became clear.

  1. It is not just our user base that feels the credit crisis is far from over.
  2. The Fed never got Gramm’s memo that this whole thing is just in their head.

Until next week…


On July 7th: This week, the consensus on First Coverage remains that capital should stay allocated to Energy.

What’s happened: Oil futures broke through the July 9 high of $138.28 mid week and the market then pushed Crude to record highs.

On July 7th: The ‘Financial Bears’ continue to short the industry & prove their intelligence once again as they profited from an additional 8% decline.

What’s happened: Fannie Mae & Freddie Mac get decimated, losing almost half their value and drag financials down for yet another week.