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Do You Believe?

Daily State of the Markets 
Monday Morning - December 12, 2011

Good Morning. With just fourteen trading left in what is currently being called the "Nightmare on Wall Street" (lest we forget, reports from HFR show that hedge funds are having their second worst year on record and another report I saw over the weekend said that 3 out of 4 mutual fund managers are underperforming their benchmarks), the question of the day is: Do you believe?

First of all, I'll have to ask if you believe in Santa. History shows that while most adults only play along with the Santa Claus myth for the benefit of their kids, Santa and his sleigh filled with goodies does tend to show up at the corner of Broad and Wall with regularity. And in case you are not familiar with the details of this seasonal trend, the last seven trading days of the year tend to be up rather nicely. So, with the S&P still sitting just a hair in the red on the year, we would not at all be surprised to see Santa pay a visit again this year. (However, if rates start to rise again in Spain or Italy, traders may be stuck with a lump of coal in their stockings.)

Next up, do you believe that the EU's new "fiscal compact" is going to be a game changer? Will the promise by all seventeen member states not to run up huge debts in the future make the refinancing of current debt payments any easier? Viewed in a vacuum, the answer is probably no. However, if the IMF can come with a couple hundred billion Euros to lend out and if the folks in China and the rest of the BRICS decide to add some cash, then maybe, just maybe, Europe can squeak by without a major disaster in the next year. However, a key test will come this week come as Italy, Spain and Germany all hold bond auctions.

Speaking of lending money, do you believe the ECB has done all that it needs to in order to put an end to the European sovereign debt crisis? Put another way, do you believe that "Super Mario" will eventually come through with a major quantitative easing program (after the EU nations sign on to the fiscal compact, of course)? While it is great that the ECB extended loan durations and took steps to remove the possibility of a bank default in the near term, the market does seem to want to see the ECB do more.

On the subject of central bankers, do you believe that our very own Ben Bernanke has played all of his cards? Or will the Fed decide to start buying up mortgage bonds in order to try and do something to help the housing market at some point soon?

Next, do you believe that stocks in the U.S. are cheap at current levels and deserve to be higher? If I've heard one analyst say lately that large cap stocks in the U.S. are undervalued, I've heard ten say so in the past week. While this type of jibber-jabber seems rather pointless during the heat of the current European debacle, there is the hope that our stock market might, at some point, return to such matters. And based on some of the measures I follow, I will have to say that these guys might just have a point.

Also on the topic of U.S. stocks, do you believe that the U.S. can decouple from Europe from an economic standpoint? While we will admit that the U.S. economic data has been surprisingly good lately, we struggle with the argument that the U.S. can march merrily along while Europe enters a recession. This is especially true if the current slowdown in China lingers or picks up steam. In short, I'm not sure I can believe that we will be able to go it alone for long without the support of a global rebound.

Although most of the questions I've posed this morning are fairly big-picture in nature, the key question facing investors over the next fourteen trading days is do you believe that stocks can rally further from here? Although many analysts are of the opinion that stocks in the U.S. look like they "want" to go higher, we're not sure that we have escaped the current news-driven environment tied to Europe. And from where I sit, this remains the key.

Turning to this morning... Friday's enthusiasm over the EU's fiscal compact appears to be fading quickly as rising rates in Italy and Spain forced the ECB to intervene in the bond market again (but as usual, on a modest basis). This isn't sitting well with traders across the pond. So, with Europe markets down more than 1%, U.S. futures are pointing to a red open on Wall Street.

On the Economic front... There is no economic data scheduled for release today.

Thought for the day... Here's wishing you all the best for a productive and enjoyable day...

Pre-Game Indicators

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


  • Major Foreign Markets:
    • Australia: +1.11%
    • Shanghai: -1.02%
    • Hong Kong: -0.06%
    • Japan: +1.38%
    • France: -1.45%
    • Germany: -1.97%
    • Italy: -2.55%
    • Spain: -2.04%
    • London: -0.65%

  • Crude Oil Futures: -$1.08 to $98.33
  • Gold: -$34.90 to $1681.90
  • Dollar: lower against the Yen, higher vs. Euro and Pound
  • 10-Year Bond Yield: Currently trading at 2.023%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -7.99
    • Dow Jones Industrial Average: -64
    • NASDAQ Composite: -13.2


Positions in stocks mentioned: None

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


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