The coast is clear for 12 months or so but Moody's and Fitch have made it clear with their negative outlooks that the US must reduce its debt and there is doubt that the political will is there. In the meantime, Dagong, the Chinese rating agency, has lowered the US rating to A from A+. The market crumbled after President Obama pushed it over the edge in his afternoon press conference, which was tantamount to a (fresh) declaration of war on businesses and people with money. I'm not talking rich people, but folks with good jobs that might go to the mall and stop in Coach (NYSE:COH) or Nordstrom (NYSE:JWN). Those stocks and other high-end retailers were hammered, along with other "winners" in the economy. The market is in a serious conundrum now as some panicked sellers will dump good stocks to offset weakness in poorer performers. This means confusion over what to hold and what to sell, and that always results in across-the-board selling. But, the market is correct in its assumption the White House will double-down on its war against prosperity.
Last week when I suggested in writing, on TV, and on my radio show that maybe the market didn't want the debt ceiling raised, people thought I was nuts. The debt ceiling has been raised so many times since 2002 that it was time to cut off the credit card. Instead, we now have the two largest debt ceiling hikes ever, back to back. Considering that kind of borrowing, the economy should be growing at a faster clip than 0.8%. Toss in all the cash from the Federal Reserve and it is like spending $150,000 at a car dealer and walking out with a skateboard. If somehow Washington could come clean about this it would help a lot. I still think citizens and businesses are the key; the money has to be coaxed out of them, not taken at knifepoint.
We heard the same old stuff and the same old solutions. People with money are evil and are not doing their fair share. People not paying federal income tax are somehow paying more than people and businesses that actually fork over dough. The crazy thing is that all the money taken from the successful (not to be confused with the rich) would be spent on a variety of things, but not to bring down our enormous debt. As for the other tricks up Mr. Obama's sleeve, well...
* Patent reform
* Trade deals
* Infrastructure bank
These would help, but let's be real, they are not the answer. Moreover, they have been hijacked to divert money to unions and high speed rail. I hate to say it but I cringe when the President talks about "growing the economy" because he has no clue how to grow the economy. Nor, to be frank, is that his real concern. So the market lost hope this week. The market recoiled at more debt and little spending cuts. The market recoiled at the continued stream of poor economic data. We have the biggest report coming up on Friday morning. The market is down eight days in a row, and more than $800.0 billion in market cap has vanished. Three things keep me interested in stocks.
Valuation, Global growth, and Overwhelming Bearish Tone
I think stocks are cheap, but that doesn't mean they can't go lower. However, dumping good stocks at a loss is dangerous, and can be heartbreaking. I realize near-term pain is difficult in light of 11 years of nothing; although there has been great buying periods during that time span. Too many people are throwing in the towel and without fail, it marks the beginning of a bottom, although it could be a multi-month process. It can be a multi-week process. Realistically, it would be so much easier if our government even adopted the current attitude of China's leaders; our market would surge.
By: Brian Sozzi, Equity Research Analyst
No doubt about it, data overload is front and center. I see it in the newspapers. I see it on my iPad. I see it on the websites of major news organizations. The debt ceiling fallout, China data and comments, employment readings are at the root of the market related storylines at the moment. What is an investor to focus on? Is it earnings, which have been coming in rather well? Or is it the news that trickles out minute by minute, only to snowball and impact trading by the time the closing bell rings? I almost have no idea anymore; this is truly a new world of investing. Buffett disciples must have already ripped their hair out, I know I have shed a few follicles. The only tidbit of wisdom I could offer is to read as much as you could (with a focus on big topics) humanly absorb to keep your "feel" for the market heightened. Feel is an intangible to investing that requires years of practice to first gain, and then maintain.
Commercial Mortgage Backed Securities
By: David Urani, Research Analyst
Hey, remember mortgage backed securities? There are still problems in that arena, and now it is in the commercial real estate variety (NYSEARCA:CMBS). CMBS delinquency rate rose to a new record high level of 9.88% in July. The delinquency rate had been trending down for the previous two months. There were reports of servicers declaring foreclosure more quickly, which lead to the acceleration, but when isolating out that factor, the rate still reportedly jumped from the previous month. It was simply a case of issuers becoming tentative in a softening economy. Back in 2009 and 2010, many economists were calling for CMBS to be the next shoe to drop on the economy, and while that talk has mostly faded, I wonder if the accelerated foreclosure servicing will start to ring the alarm bells again soon.