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Wall Street Java

 “Success, remember is the reward of toil.”


                             Sophocles  

 

Wall Street Java

 

May 14, 2010

 

 

News Affecting the Market

 

Scientists and environmental groups are beginning to question the estimates of how much oil is leaking into the Gulf of Mexico. BP is also under fire for not doing more to establish an accurate figure. Thus far, the estimate is at around 5000 barrels per day, but many believe this number should be far higher. Meanwhile, underwater robots are trying to thread a tube into the pipe that is leaking oil, hoping to divert and contain the leak.

New York City residents are still jittery a few weeks after a foiled bomb attempt in Times Square. Late last night, police were called about a suspicious car in lower Manhattan. A sedan with two gas cans in the back seat was investigated before police sounded the all-clear early this morning. The owner of the car was reportedly a landscaper.

Tension has been high in New York City since Faisal Shahzad, a Pakistani-American, left a car bomb in Times Square that failed to detonate.

 

 Market Outlook

 

The Dow endured yet another triple digit decline yesterday, and futures indicate a modest drop at today’s opening bell. Of primary concern for investors is the European debt issue and, in fact, the survival of the European Union as a whole. The words of former Federal Reserve Chairman Paul Volcker have been ringing in the ears of traders since yesterday. Volcker said he’s concerned that the euro area may break up after the Greek fiscal crisis highlighted the weaknesses of the alliance. To survive, many believe that the EU will need to step up its fiscal coordination and economic integration.

Concerns in Europe are weighing heavily on all equity markets, worldwide. The Asian indexes fell by an average of more than 1% last night. With growing concerns for the global economy and weakening demand, industrial shares have led the decline in Asia, and elsewhere. The financial sector has also weakened as banks stand on the front line in the debt crisis.

Sentiment in Asia weakened after the U.S. Labor Department report showed U.S. Initial Jobless Claims were not falling fast enough to signal steady job growth. First-time claims for jobless benefits fell to 444,000 last week from an upwardly revised 448,000 the previous week — the consensus in the markets was for a drop to 440,000.

Stocks in Europe fell sharply at the open today. The major indexes are lower by an average of almost 2% early in the trading day. Bank shares are leading the decline and technology stocks are showing weakness as well.  With investor confidence in debt markets rising after the announcement of the rescue plan, the European Central Bank has reduced purchases of Spanish and Italian bonds. Meanwhile, the euro declined below $1.25 for the first time since March 2009.

 

 

Commodity Update

 

Commodities are also much weaker this morning. Crude oil has fallen by more than a Dollar; just above the $73 mark. While the domestic crude supply is decreasing, it remains well above the 5-year average. A combination of high unemployment and a behavioral change among U.S. consumers has kept demand low and stockpiles high. The situation can change, however, if the Gulf oil slick continues to grow and begins threatening imports, which will only increase pressure on domestic supply.

Gold is up $12 to $1244 this morning. Gold prices had been supported by concerns that the fiscal crisis in Greece could spread to other struggling European economies. As governments continue to print more paper money to stimulate growth, inflation lingers as a credible threat.  

Economic Data

 

Today’s economic data includes Retail Sales, Industrial Production, Business Inventories, and Consumer Sentiment. Earnings reports will be coming from JC Penney, Material Sciences, Associated Materials, and a few others.

 

Washington and Public Finance Update

 

As amendments rack up on a financial regulatory bill, Senator Chris Dodd says his concern is that it will derail the entire process. The Senate, yesterday, passed controversial legislation restricting fees that card issuers charge merchants by bringing them under the scope of the Federal Reserve. The Fed would be given a directive to make fees “reasonable and proportionate.” 

Treasury Secretary Timothy Geithner is meeting with EU officials ahead of an upcoming Group of 20 summit to discuss proposed changes to regulation of the banking industry. The intention is to develop regulations appropriate to their respective markets, but to avoid protectionist rules that would favor domestic markets only.

 

In Summary

 

There appears to be a general theme developing, globally, of sharing the misery. In the US, lawmakers have proposed making banks pay into a rainy day fund for any “future crisis.” In Greece, a large portion of budget reductions have involved job cuts.

Now, in Portugal, the government has announced its latest austerity measures. About half of the deficit-cutting measures are expenditure cuts. The other half will be tax hikes. Among the new taxes, the government will introduce a "crisis tax" on companies and wages. It is hard to believe that adding further burden on citizens and consumers will fix the global economy.

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