That last minute rebound was critical from a technical point of view because 10,700 on the Dow had to hold. Of course we aren't out of the woods, but buyers stepped up in the nick of time. In the aftermath of all that's happened this week we get a chance to try to assess what's ahead.
The conundrum now is how to reconcile fundamentals and value against a shifting backdrop that means slower growth. I know Ben Bernanke's greatest fear is full blown deflation, which already exists in the housing market, but may also be the only way to describe consumer and investor sentiment.
Day after day of disappointments coupled with reminders of how flawed our leadership has become created a negative feedback loop that's accelerating. It's true the global economy is slowing, but the question is to what degree and is that already factored into the market fundamentally.
This week we got warnings from coal companies, the IMF downgrade, the "significant" warning from Bernanke, and the slowdown in manufacturing around the world. Even with those news developments I still think beneath the surface our economy has a pulse, but it needs to race, pulsate, and roar.
That's not going to happen overnight, and I wonder if political leaders are simply waiting for November 2012 to be the referendum on how to steer this nation. There is no doubt the market is oversold, but of course we could go lower. I am not sure there is a groundswell of buyers waiting with open arms. Ironically, that's one of the biggest pluses to this market. It doesn't mean we get a snapback, but it means opportunities can emerge and stocks can rally in a stealth-like manner. Let's make no mistake; the noise is deafening and frightening. There is nothing but bad news and uncertainty on the front pages each morning.
This is like one of those modern alien movies when all the countries in the world unite to fight technologically more advanced invaders. (It's odd those aliens are also built in a manner that belies their technology, odd hands without opposable thumbs and frames that seem brittle and fragile, but I digress). This morning it seems like everyone is trying to find a way to save Greece, which saves Germany and France, which saves Europe, which saves America, which in turn saves the world. Check out the players:
In the meantime, good news is drowned out. Solid earnings reports yesterday from Nike, Finish Line, and Tibco this morning don't even make a ripple in the malaise of despair. The Association of American Railroads reported August traffic; minus grains and coal traffic averaged 381,831 carloads, the most since October 2008. I think talk of a double-dip is silly in the sense too many people never got back on their feet and certainly our country hasn't displayed the same vigor that was once its hallmark. To be sure, we are in trouble as underscored by a piece in the New York Daily News that puts the city's poverty rate at 20.1%.
The thing is people actually still eat and those with jobs go to work during recessions. In the past, great businesses began during recessions. The frustration is clear and understandable, and this woe-is-me market is just a reflection of the country. But, the market is undervalued, and the nation is undervalued. It's a matter of unlocking that potential and unrealized greatness.
Give Yourself a Fighting Chance by Paying Attention
By: Brian Sozzi, Equity Research Analyst
Being five steps ahead of the crowd is how to win in the world of investing. Having forward-looking thoughts is especially important now as news and investor sentiment could turn on a dime. Small clues are presenting themselves as to what the market yearns to see happen from the EU and its stability fund known as the EFSF. If the market's wishes are granted to any extent, stabilization in global markets may occur at long last. To me, any ounce of visibility into improving conditions (meaning, any one of the items listed below is finalized) from the EU would spark a reason to put risk back on.
The market yearns for:
* EFSF allowed to buy debt of profligate spending EU countries.
* EFSF better aid for troubled banks.
* EFSF offers credit lines.
* EFSF uses bonds it sells as collateral to borrow more funds from the ECB.
* EFSF offers credit protection to ECB for buying sovereign debt.
Note: The current role of the EFSF is to sell bonds to fund rescue loans for debt-strapped governments. So as chatter picks up that the EFSF has to be expanded to ring fence the poison, this is the reason....the EFSF only has a single role.
There is no need to force the issue this morning. Rumors of emergency decrees and announcements seem to be moving the needle back and forth, and would-be buyers aren't going to take that bait. Concrete news has to come out of all the meetings and negotiations even if that means Greece defaults and bolts from the European Union. Despite these great values there is no way I would force the issue this morning.
I will say now is not the time to give up on the market or this country. Just stay cool and the time will come to pounce, but for this morning keep your head down and your ears open.