Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Second Thoughts on QE II?

Daily State of the Markets 
Tuesday Morning – September 28, 2010

Good morning. The current 'September to remember' rally, which even after Monday's sloppy finish has produced a gain of nearly +9% (+8.85% to be exact), has been sponsored in large part by the realization that the sky is not falling and that the current soft patch may turn out to be short-lived. And then, in more recent days, it has been the concept that Mr. Bernanke might soon fire up the helicopter and drop money from the sky in order to keep the economy growing that has given the bulls a raison d'etre.

However, despite some encouraging signs on the M&A front Monday, the bulls acted like they may be having second thoughts about their thesis. And as the saying goes, a market that can't go up on good news may be in trouble. Well, okay, that may be a little overdramatic for the current situation, but the fact that the bulls got almost nothing out two M&A deals (and talk of a couple more) was a little surprising.

Yes, we recognize that the Chicago Fed National Business Activity Index (catchy title, eh?) was a little disappointing. It turns out that none of the four categories provided a positive contribution to the index and the current trend of the index isn't a pretty picture. In short, this is yet another report that projects sluggish, below trend, growth for the economy going forward.

Sovereign debt worries were also back in the mix on Monday as Moody's downgraded Anglo Irish Bank by not one, not two, but three notches. Then there was a fair amount of talk/angst over whether or not the Eurozone banks would pass an important refinancing test on Thursday, when 442 billion Euros must be rolled.

However, from where I sit, the bigger problem that market may be facing right is one of expectations. While we're not sure how it happened, the market seems have come to the conclusion that the Fed will, without a doubt, launch the QE II in the near future. This, according to folks like David Pepper and Goldman Sachs, will surely be good for stocks. Thus, those that see the glass as at least half full are able to buy stocks in anticipation of the Fed's announcement.

The only problem with this concept is that the Fed has stated publically that they aren't quite sure what the program will look like, what would trigger it, how big it would be, or how long it would last. Thus, it will suffice to say that there might be some discussion yet to come (and likely, some additional economic weakness) before the FOMC starts buying up bonds in order to stuff dollar bills directly into the banking system. But I guess the mere discussion of the idea that Bernanke & Co. was about to get busy was good enough to start buying the rumor.

Don't get me wrong, I'm just as much in favor of the "close your eyes and keep buying" approach as the next trend follower. But, it is worth noting that the current joyride to the upside has become more than a little extended. And with the earnings parade about to roll again in a couple weeks, well, I'm sorry to say that just might some folks out there thinking about taking some profits.

Turning to this morning... Stock futures in the U.S. are modestly higher in the early going. This despite a rather sour day in Asia and ongoing worries in Europe regarding the cost of bailing out Anglo Irish Bank as well as expectations for an imminent downgrade of Spain.

On the economic front... There is no economic data before the bell but we will get the Case-Shiller Home Price Index at 9:00 am eastern and then the Richmond Fed and Consumer Confidence numbers at 10:00 am.

Finally, consider raising your expectations. As Michelangelo said, the danger is not that your hopes are too high, but rather...

Pre-Game Indicators

Here are the important indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: -0.11%
    • Shanghai: -0.63%
    • Hong Kong: -1.03%
    • Japan: -1.12%
    • France: +0.05%
    • Germany: +0.13%
    • London: -0.29%


  • Crude Oil Futures: - $0.57 to $75.95
  • Gold: - $7.70 to $1290.90
  • Dollar: higher against the Yen and Pound, lower vs. Euro
  • 10-Year Bond Yield: Currently trading higher at 2.540%


  • Stocks Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: +2.09
    • Dow Jones Industrial Average: +23
    • NASDAQ Composite: +6.56


Wall Street Research Summary


  • Pulte Home (NYSE:PHM) - Goldman Sachs
  • Greenbriar Companies (NYSE:GBX) - Morgan Keegan
  • Intuit (NASDAQ:INTU) - Target increased at Oppenheimer



  • Windstream (NASDAQ:WIN) - Argus Research
  • Alberto-Culver (NYSE:ACV) - BMO Capital
  • Edwards Lifesciences (NYSE:EW) - Canaccord Genuity
  • Hospira (NYSE:HSP) - Citi
  • Target (NYSE:TGT) - Credit Suisse
  • KB Home (NYSE:KBH) - Goldman Sachs
  • Dolby Laboratories (NYSE:CLB) - Goldman Sachs
  • Aqua America (NYSE:WTR) - Janney Capital
  • Air Tran Holdings (AAI) - JPMorgan, UBS
  • Seagate Technology (NASDAQ:STX) - Estimates and target reduced at RBC Capital
  • Newmont Mining (NYSE:NEM) - Stifel Nicolaus


    Long positions in stocks mentioned: none

    For more "top stock" portfolios and research, visit


    The opinions and forecasts expressed are those of David Moenning, founder of 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 TopStockPortfolios 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. Stocks 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 our websites and TopStockPortfolios publications 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. (NASDAQ: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: none