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David Moenning is a the Chief Investment Officer at Heritage Capital, which focuses on active risk management of the U.S. stock market. Dave is also the proprietor of StateoftheMarkets.com, which provides free and subscription-based portfolio services. Dave began his investment career in 1980... More
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Daily State of the Markets
  • Good Things Can Happen 3 comments
    Feb 17, 2012 8:51 AM

    Daily State of the Markets
    Friday Morning - February 17, 2012

    Good Morning. During the majority of last year, it seemed that all (yes ALL) the news was bad. Greece was surely going to default, which was going to trigger vast unknown quantities of CDS, which, this time, would tank the global banking system, which, in turn, would send us back to the middle ages bartering for goods and services with grains and livestock, and protecting our homes with guns. In a nutshell, the news flow and the macro outlook was a nightmare as no one could imagine anything positive ever happening again.

    As I recall, even if Greece was somehow spared and a "messy default" avoided, the domino effect from the rest of the PIGIS would take over and the world as we know it would cease to exist. And if by some off chance the defaults could be avoided in Europe, then the recessions resulting from the mess this crisis had created would surely plunge even the best economies of the world into something that would make the Great Depression in the U.S. look like a cake walk.

    As I have written any number of times over the past six months, the negativity had become so thick you probably couldn't cut it with even the sharpest knife. A pall of gloom engulfed the markets and just about everybody on the planet knew we were doomed. It appeared that the leaders of Europe were powerless to fight the contagion that would surely spread throughout the world. And while politicians talked a good line about working together, it became apparent near the holidays that no other country was willing to buck up and lend the trillions needed to "save Europe."

    However, as we were allowing our brains to be invaded by the pervasive negative feedback loop, one very simple fact was forgotten. You see, even during the worst of times, good things can occasionally happen. Although even the good news was ignored last year, this year appears to be a horse of a completely different color.

    Thus far in 2012, the good news has come in bunches and from the strangest places such as the U.S. housing market (which to hear the bears tell it should be heading down still), corporate earnings, economic output, and yes, even the jobs market. To be sure, things are not peachy keen by any stretch of the imagination. But at the same time, things are FAR better than the doom that dominated the markets near the end of last year.

    Thus, the most important lessons to be heeded in 2012 are: (1) Good things can happen - no matter how dark the night may appear, and (2) Investors simply must be flexible enough to change with the times (or at the very least, follow systems that can force them to adapt - even if they don't want to).

    Am I saying that things are wonderful in the global economy and that we've embarked on a new secular bull market. Uh, no. But I am saying that when the market discounts the worst and then the sky doesn't actually fall (I know, I know, it's coming, just wait), again, good things can happen. Remember, the stock market is a discounting mechanism of future expectations. And right now, stock prices appear to be suggesting that the U.S. economy is growing, that the deal in Greece is going to get done, that the ECB DID know what it was doing with the LTRO, that there won't be a 'Lehman moment' in Europe, and that Apple may sell more of its products than anyone - including the late Steve Jobs - ever dreamed of.

    The key point this morning is that something that everyone knows (such as how the world was going to end because Greece was going to default) isn't really worth knowing in the market. In short, by the time "everyone" knows what's going on, the market has already discounted the potential outcome. And then if something good actually does come along, traders scramble to get back on the right side of the macro view and an unstoppable melt-up ensues.

    So, while stocks are indeed overbought and a pullback could occur at any time and for any reason, the fact that the S&P 500 is up +23.5% from its low means that according to the most common definition, this is a new bull market. And as such, one should be flexible enough to play the game accordingly. You never know, good things might just continue to happen.

    Turning to this morning... Overseas markets played catch up to Wall Street's gains and with expectations for the Greece deal to get done, futures in the U.S. are pointing to a flat-to-slightly higher open.

    On the Economic front... The Consumer Price Index for January was up +0.2%, which was a tenth better than the consensus estimates for an increase of +0.3%. you strip out food and energy, the so-called Core CPI also came in with a gain of +0.2%, which was in line with expectations but above January's level of +0.1%.

    We will also get a report on LEI at 10:00 am eastern.

    Thought for the day... Best of luck on this Friday and be sure to enjoy the LONG holiday weekend!

    Pre-Game Indicators

    Here are the Pre-Market indicators we review each morning before the opening bell...

    • Major Foreign Markets:
      • Australia: +0.38%
      • Shanghai: +0.01%
      • Hong Kong: +1.01%
      • Japan: +1.58%
      • France: +1.25%
      • Germany: +1.28%
      • Italy: +1.08%
      • Spain: +1.15%
      • London: +0.41%
    • Crude Oil Futures: +$0.50 to $102.81
    • Gold: +$6.80 to $1735.20
    • Dollar: lower against the euro, pound and yen
    • 10-Year Bond Yield: Currently trading at 2.035%
    • Stock Futures Ahead of Open in U.S. (relative to fair value):
      • S&P 500: +1.16
      • Dow Jones Industrial Average: +25
      • NASDAQ Composite: +0.86

    Positions in stocks mentioned: None

    For more of Mr. Moenning's thoughts and research, visit StateoftheMarkets.com


    The opinions and forecasts expressed herein are those of Mr. David Moenning 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. The analysis and information in this report and on our website is for informational purposes only. No part of the material presented in this report or on our websites is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed nor any Portfolio constitutes a solicitation to purchase or sell securities or any investment program. The opinions and forecasts expressed are those of the editors of StateoftheMarkets.com and may not actually come to pass. The opinions and viewpoints regarding the future of the markets should not be construed as recommendations of any specific security nor specific investment advice. One should always consult an investment professional before making any investment.

    Any investment decisions must in all cases be made by the reader or by his or her investment adviser. Do NOT ever purchase any security without doing sufficient research. There is no guarantee that the investment objectives outlined will actually come to pass. All opinions expressed herein are subject to change without notice. Neither the editor, employees, nor any of their affiliates shall have any liability for any loss sustained by anyone who has relied on the information provided.

    The analysis provided is based on both technical and fundamental research and is provided "as is" without warranty of any kind, either expressed or implied. Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

    The information contained in this report is provided by Ridge Publishing Co. Inc. (Ridge). One of the principals of Ridge, Mr. David Moenning, is also President and majority shareholder of Heritage Capital Management, Inc. (HCM) a Chicago-based money management firm. HCM is registered with the U.S. Securities and Exchange Commission as an investment adviser. HCM also serves as a sub-advisor to other investment advisory firms. Ridge is a publisher and has not registered as an investment adviser. Neither HCM nor Ridge is registered as a broker-dealer.

    Employees and affiliates of HCM and Ridge may at times have positions in the securities referred to and may make purchases or sales of these securities while publications are in circulation. Editors will indicate whether they or HCM has a position in stocks or other securities mentioned in any publication. The disclosures will be accurate as of the time of publication and may change thereafter without notice.

    Investments in equities carry an inherent element of risk including the potential for significant loss of principal. Past performance is not an indication of future results.

    Disclosure: I am long AAPL.

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Comments (3)
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  • Josh Krause
    , contributor
    Comments (1361) | Send Message
     
    +0.2% Core CPI, a 2.4% annual run rate.

     

    That and Oil at 103 and people are still clamoring for QE3? Market is going to be sorely disappointed in March.
    17 Feb 2012, 09:04 AM Reply Like
  • David Moenning
    , contributor
    Comments (480) | Send Message
     
    Author’s reply » Yep, hard for Bernanke's bunch to make the argument that inflation is "below their target"... But they do seem hell-bent on stimulating asset prices again. Probably time for them to leave well enough alone IMO.
    18 Feb 2012, 08:13 AM Reply Like
  • Josh Krause
    , contributor
    Comments (1361) | Send Message
     
    Gas is at record high prices and it appears to be going even higher. We still have almost 20% seasonal increase in price coming which at this pace will put us a $4.20 gas by May or June.

     

    How is that going to do anything other than strangle whatever recovery we have going right now. Europe is in the same boat, record high prices for Oil for this time of the year.

     

    I understand the gist of your article but Bernanke is crazy if he thinks further stimulation is going to help the economy, bubble blowing right now is just going to result in an eventual crash. Maybe he just hopes he can get Obama in office before the bubble pops.
    18 Feb 2012, 11:00 AM Reply Like
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