Friday, November 04, 2011

The Morning Call Greece pulls back from self inflicted wound

I leave after this is published for my 50 year pledge class reunion and will be tied up for the weekend. So no Closing Bell this weekend. Back on Monday.

The Market


The indices (DJIA 12044, S&P 1261) had another good day, finishing within both their intermediate term trading ranges (10725-12919, 1101-1372) and theit short term up trends (11458-12385, 1213-1324).

Volume was up a bit; breadth was flattish. The VIX fell but remains within the upper zone of its current trading range (not good for stocks).

GLD just keeps on, keepin’ on, closing up on the day and well within its intermediate term up trend.

Bottom line: the technicals appear a lot more positive than one would assume after listening to the news flow. Often that means that all the bad news has been discounted. I am not arguing this to be the case; but it is a possibility that we have to consider in making investment decisions.

I noted when the Averages busted through the 11719, 1230 resistance, that there was little resistance between that level and 12919, 1372. Monday/Tuesday’s heart stopping decline notwithstanding, with the indices bounce off the 1230 resistance turned support level, I think that the burden of proof is on the skeptics to prove that won’t occur.

The latest sentiment indicator from AAII:



Yesterday’s economic data was about as good as it can get: weekly jobless claims were down, third quarter productivity was well above estimates, factory orders smoked expectations and while the ISM nonmanufacturing index was a bit below forecasts, it was still positive. That surely had to help investor attitudes.

Nevertheless, Greece dominated the airwaves. I noted in yesterday’s Morning Call that the over night news out of Greece was nothing but back and forth announcements that Papandreou was/wasn’t going to resign, that he was/wasn’t going to pull the referendum, that he would/wouldn’t survive a vote of confidence.

That continued through the early part of the trading day as one Greek pol after another came on camera and either cursed Papandreou or the referendum. By the end of the day, it looked like there would be no referendum; although Papandreou’s fate is very unsure. In the end, not having the referendum is a lot more important than not having Papandreou; so it appears that having driven into a ditch, the Greek’s have hopefully snatched victory from the jaws of a self inflicted defeat.

Another piece of unexpected news out of Europe was that the ECB lowered interest rates on the first day of the reign of its new president, Mario Daghi. It was only .25% so it isn’t going to alter the course of the European economy; but it does signal a more positive attitude toward easy money. That should help (though it may not prevent) Europe to avoid a recession; and it sure can’t hurt our GLD position.

Don’t forget Italy (medium):

Will Europe drag us down (medium):

MF Global moved to the back burner, at least for a day. In fact, the most important news in this case, wasn’t even about MF Global. Rather it was an analyst report that Jefferies (MF Global’s investment banker) was in as deep of trouble as MF Global via a highly leveraged derivatives portfolio. That eventually proved inaccurate.

Hopefully, this story will fade if MF Global is brought to justice, foolish investors suffer their losses and any criminal behavior soundly punished--that is the good news scenario in this unfortunate case of hubris gone wild.

Bottom line: the US economy seems be on its sluggish growth trajectory; despite going to Defcon 5, Greece is apparently pulling back from the brink; and MF Global may end up being a hiccup. There are a lot of qualifiers in that statement; but if we could be definitive about them, the S&P would probably be 100 points higher. As it is, stocks likely reflect much if not most of the bad news in each of the above scenarios and they are still slightly undervalued.

I know nothing that would alter either of our Models; and so with stocks slightly undervalued, I would be a Buyer if I can find Value. While there is plenty of it around--just look at our Buy Lists--as I noted in yesterday’s Morning Call, all those stocks that are on our Buy List are full positions in our Portfolios. So our Portfolios have nothing left to Buy from this group of stocks; and given stocks’ general proximity to Fair Value, there is nothing compelling about chasing prices up, in particular if they are stuck in a trading range and not apt to top the 1372 level.

So I am in a bit of a dilemma, though certainly not crucial. As you know from yesterday’s Morning Call my solution to this problematic investment situation is kind of hedged bet. In this case, our Aggressive Growth Portfolio Bought, as a trade, a dividend based Market ETF (Vanguard Dividend Appreciation Fund--VIG) in order to participate on the ride to 1372.

The latest earnings ‘beat’ rate: