The Greek's Week Ahead has been engineered to prepare you for events that could impact your portfolio this week.
The Wall Street Greek has figured it out. We know what big Ben Bernanke has to do to save the economy. We have the blueprint. The poor guy is faced with a situation where he's doomed if he does and doomed if he doesn't. On the one hand, if he shows restraint, waits for the economic evidence and does not cut rates or cuts by a quarter point, the economic participants of this great nation, stock market players included, will lose confidence in him. Political pressures would mount to force him out of his unenviable position.
On the other hand, if Benjamin succumbs to the heat and cuts by a market enthusing 50 basis points or more, which by the way we view as the right decision, he risks igniting inflation and drowning the dollar. Either way, the poor bearded fellow looks doomed.
However, the Wall Street Greek believes he has found a way for Big Ben and the dirty dozen district Fed presidents to save the day. Now, our idea is a bit unconventional mind you, but drastic times call for drastic measures. The Fed boss needs to round up his dirty group of rebel misfits, dress them up in William Poole fashion, bandanna and all, and hit the road. He's also going to need to modify the old helicopter to handle more than just cash drops. It's going to take some real handy work, but that propeller perpetrator is going to have to be refit with some nuke ready cruise missiles. Now, he might have to clone Telly Savalas to get all this accomplished, but Ben has got to get this plan together for a clandestine mission, and launch a war on Iran.
A loyal reader of the Greek, a guy who is so modest he does not even desire recognition, helped put a few ideas together to see where things might be headed. The Greek thanks Mr. Ferguson for his seeding thoughts that spawned this week's theme. The administration's saving grace to this economic mess, and something that might even get a Republican into the Oval Office again in 2008, is war,
perhaps... If the dollar is an important enough concern to restrain the Fed, since we wouldn't want to lose our Asian investors' interest in American assets, then maybe a war that is threatening to enough of the world to drive broad currency reset is what the Fed needs now.
If Iran were dangerous enough to really focus and threaten the U.S. alone, such a war might just add fuel to the dollar fire sale, since capital would look for safe haven. However, Iran is more threatening to its neighbors than it is to us, with some 600 missiles pointed toward Israel according to the latest report. The damage caused by disrupted energy supply to the economies of Iranian oil importers, which by the way does not include the U.S., would weaken those nations' currencies and perhaps support the dollar. So to heck with global drivers! If China can't fuel its plants, the yuan is going to weaken, as are the currencies of Iran's new enemies in Europe. In case you haven't heard, the Iranians recently scorned the French for their criticism of Iranian nuclear efforts.
Now, the guys in the Pentagon have their own reasons to make war on Persia, but if Big Ben and the boys get involved, the result seems certain. However, Defense Secretary Gates was quoted over the weekend saying that America's current focus is clearly to use economic and political pressures to gain Iran's compliance.
Yeah, yeah sure... Like the Greek hasn't noticed what's really up. For instance, how about the President's recent statement that the 30,000 surging soldiers just deployed to Iraq could be sent home within twelve months of heading
over there. If that doesn't stink of smoke screen meant to keep the Iranians off the real reason for deployment, we don't know what would. And, what about the oil inventory supply issues highlighted recently and OPEC's decision to boost production, all while the American economy is expected to slow and Europe seems likely to follow. Like that has nothing to do with the filling of the strategic oil reserve! Before you get angry, we wouldn't write these things if we were not fairly certain Mahmoud Ahmadinejad were not a Greek fan. He isn't on the mailing list anyway, though he's reportedly making a second trip to the UN this September.
When the government announced it would begin filling the strategic reserve, something it has done ahead of every other major engagement, we calculated it would be full around March of next year. However, when we published those thoughts, we also noted that it was unlikely our leadership was in the business of making things obvious to the enemy, so we expected the actual pace would be well ahead of the published copy. Besides this, the fact that Israel is flying over Syria, testing what missile batteries might light up, provides even more evidence things are progressing. Did we note that three aircraft carriers were recently in the area practicing for an Iranian engagement? That's a lot of military might.
Iran remains the joker in the deck, the card that is not planned for by the market. It's the factor that threatens global market correction more than any other, even American recession. Questions remain unanswered as to the degree of cooperation between the Iranians, Syrians and North Koreans. Why has North Korea recently decided that
now would be a good time for light and refrigeration, after all these years of candlelight and ice blocks. Maybe they're just watching their rears, because any nuke that might go off around the world will most likely be traced back to Korea, or possibly the Russian black market.
We think it's quite ironic that war with Iran, as dangerous as it would reportedly be, may also provide the support needed to allow for economy bolstering Fed rate action. We know what you conspiracy theorists with your defamed American flags and Union Square buddies are all thinking now. Hey, maybe this provides great cover for a
terrorist action to start the next war. Unless you expect O.J. to be involved, we disagree. Nah, sorry to spoil your dementia. On the contrary, terrorism within the U.S. would just support foreign investment in Euro denominated and other international investment assets. We discussed this topic previously in our issue, "
Country Risk, Is America Safe?" Now, let's take a look at this week's schedule, shall we?
The week ahead...
The Empire State Manufacturing Survey was reported on
Monday morning, with expectations for a reading of 20.0, which would have been down from August's measure of 25.1. The even lower actual result of 14.7 was startling, and likely indicates growing concern and participation of manufacturers in a slowing American economy. Recall, Wall Street Greek has outlined manufacturing's benefit from exporting from a weak dollar position and into the developing world. With manufacturing and employment following the path laid out by consumer pressures, we should be closing in on recession.
Analysts' third quarter earnings estimates for S&P 500 companies are projecting 3.3% growth over last year, while their views for '08 forecast 11.5% growth, and we thank Michael Santoli's weekly piece for that info. We are not surprised by the divergence though. Analyst are very unlikely to diverge far from historical growth, and are usually a lagging indicator regarding economic pace and direction. You are just not going to find these guys sticking their necks out, and for good reason. They would lose them. Only truly independent shops, small outfits missing that mind limiting corporate box structure, are going to do that. The big independent shops just don't pay enough to even keep their people in the office after five, and I speak from experience.
Credit Suisse's (
NYSE: CS) homebuilder's conference got underway in New York on Monday in a dark room full of the spirits of investors past. The day's light earnings schedule included Adobe Systems (
Nasdaq: ADBE), Napco Security Systems (
Nasdaq: NSSC), OMNOVA Solutions (
NYSE: OMN), Avanquest Software (
Paris: AVQ.PA), Biomerieux (
Paris: BIM.PA), Burren Energy plc (
LSE: BUR.L), COIL (
Paris: COI.PA), Gyrus Group (
LSE: GYG.L), SQLI (
Paris: SQI.PA) and Zodiac Group (
Paris: ZC.PA).
Tuesday starts with the usual early morning Weekly Same-Store Sales Report from ICSC-UBS. Last week's data posted weekly growth of 0.3%, and a year-over-year increase of 2.9%, which actually represented a sharp bump up from the week just prior. Friday's retail sales report and sustained pressures on consumers, however, point toward continued weakness in consumer spending.
The August Producer's Price Index is set for 8:30 a.m. EDT release, with Bloomberg's consensus of economists expecting a decrease of 0.3%, compared to growth of 0.6% in July. Core PPI, excluding food and energy prices, are expected to show a rise of 0.1%, compared to the same increase in July.
The Treasury will report International Capital flows for the month of July. It should be interesting to follow how capital flows might be impacted by the potential for a further weakening dollar. We would anticipate capital will increasingly seek other destination, and add pressure to interest rates. This is a key concern of the Treasury Secretary, and an important reason why he is so hopeful the U.S. economy can withstand the current credit crisis. Or, maybe he only talks to his old buddies at Goldman Sachs (
NYSE: GS), where the third quarter is not seen being too bad.
The State Street Investor Confidence Index will likely
not reflect lower confidence in State Street (
NYSE: STT) stock, ensuing its own recent public issues, but instead measure the amount of portfolio risk held by investors these days. Capital flows out of U.S. equity funds has been heavy over the past few weeks, but looks to be subsiding finally. August's index measure was 99.3.
The Housing Market Index set a new low of 22 in August, and we would not expect improvement this month. Hovnanian (
NYSE: HOV) is having a fire sale, while in an even keeled voice, stating, it's just normal business. Beazer Homes (
NYSE: BZH) looks to be in worse condition, battling regulators and facing default on some debt covenants.
You remember those right? D.R. Horton (
NYSE: DHI) is not far behind, in our view.
The highly anticipated FOMC Policy meeting will finally result in a rate decision at 2:15 p.m. To show you how confused the market is, regarding the Fed's choice between a quarter and half point cut, Bloomberg states economists' consensus at 50 basis points, while Barron's writes a quarter point cut is expected. We continue to view a 50 point cut needed to restore credit market stability. It is also the pill the equity market needs to restore its confidence in the Fed and our economic future. The harder question to answer is, which way will the Fed go? We are leaning toward a 50 point cut on that view also.
Stanford Group kicks off its water conference in New York city, but the most important corporate news of the day will be the earnings report from investment banker, Lehman Brothers (
NYSE: LEH). It will be the barometer used by the market to measure the future of its peers. We believe the barometer has already made a stealth appearance in Merrill Lynch's (
NYSE: MER) filing to the SEC on Friday, within which it stated it would be marking down credit instruments when it reports earnings in October. And, even more importantly, the severity of that mark down may have been implied by a Merrill analyst's preceding downgrade of the company's peers Lehman Brothers (
NYSE: LEH), CitiGroup (
NYSE: C) and Bear Stearns (
NYSE: BSC).
Others reporting earnings on Tuesday include Animal Health International (
Nasdaq: AHII), AutoZone (
NYSE: AZO), Bakers Footwear (
Nasdaq: BKRS), Best Buy (
NYSE: BBY), CBRL Group (
Nasdaq: CBRL), Darden Restaurants (
NYSE: DRI), Kroger (
NYSE: KR) and a few foreign firms.
The first data to hit the wires on
Wednesday will be the regular reporting of the Purchase Index by the Mortgage Bankers' Association. You don't need us to tell how the mortgage market is doing any longer though... The Consumer Price Index is scheduled for report on Wednesday as well, with the headline figure expected to show no change for prices in August, compared to a 0.1% increase in July. Core CPI, excluding food and energy, is seen growing 0.2%, compared to the same change in July. The PCE Deflator, the Fed's most favored measure of inflation will also be reported and is worth noting. Remember, the Fed favors a number short of 2% here. Housing starts are expected to be running at an annual rate 1.36 million in August, down from 1.38 million in July.
Wednesday's earnings reports include AAR Corp. (
NYSE: AIR), Apogee Enterprises (
Nasdaq: APOG), CarMax (
NYSE: KMX), CKE Restaurants (
NYSE: CKR), CLARCOR (
NYSE: CLC), Comtech Telecommunications (
Nasdaq: CMTL), Dress Barn (
Nasdaq: DBRN), Dynamex (
Nasdaq: DDMX), General Mills (
NYSE: GIS), Herman Miller (
Nasdaq: MLHR), Morgan Stanley (
NYSE: MS), Netsol Technologies (
Nasdaq: NTWK), Possis Medical (
Nasdaq: POSS), Somanetics (
Nasdaq: SMTS), Target Logistics (
AMEX: TLG) and a few more.
Wall Street Greek will be intently awaiting the Weekly Initial Jobless Claims Report on
Thursday. While we are sticking to our argument that new hiring should slow before layoffs begin,
ahem, and yes, we were correct given the last Employment Situation report. We think the signs of employers buying into recession are apparent now, and there should not be much delay before consumer sensitive retail and other services are hit hard by consolidation. Bloomberg reports consensus expectations for about 320,000 newly laid off benefits filers, up 1,000 from the week before.
At 10:00 a.m., August Leading Indicators will be announced, and the consensus is looking for a 0.3% decline, after a rise of 0.4% was reported last month. The September Philly Fed Survey is expected to measure 4.0 after posting 0.0 in August. We find the sentiment of the manufacturing sector ominous at this point.
Fed Chairman Bernanke will be in Washington testifying on the state of the mortgage market. Meanwhile the "First Distressed Capital Connection-Opportunities to Invest in Distressed Businesses Conference" begins in New York, just in time for a large group of lenders and builders.
The fate of ABN Amro will be discussed at the company's shareholder meeting on Thursday. Reporting earnings, Goldman Sachs (
NYSE: GS) is expected to post the most positive of reports among the investment banks. Also reporting, look for 3Com (
Nasdaq: COMS), A.G. Edwards (
NYSE: AGE), ACI Worldwide (
Nasdaq: ACIW), American Greetings (
NYSE: AM), Bear Stearns (
NYSE: BSC), Carnival Corp. (
NYSE: CCL), Circuit City (
NYSE: CC), ConAgra Foods (
NYSE: CAG), Diamond Foods (
Nasdaq: DMND), Electroglas (
Nasdaq: EGLS), FedEx (
NYSE: FDX), IHS Inc. (
NYSE: IHS), Media Sciences International (
Nasdaq: MSII), Nike (
NYSE: NKE), Optium (
Nasdaq: OPTM), Oracle (
Nasdaq: ORCL), Pier 1 Imports (
NYSE: PIR), Progress Software (
Nasdaq: PRGS), Scholastic (
Nasdaq: SCHL), Steelcase (
NYSE: SCS), Tektronix (
NYSE: TEK) and a good group of foreign companies.
Friday marks the Jewish Day of Atonement, Yom Kippur. In light of recent terror threat issuance that seem to carry a heavier, more meaningful tone to them, we wonder about days like these. Traders, however, are likely to be more concerned with Quadruple Witching on Friday.
The day's earnings schedule includes Eni S.p.A. (
NYSE: E), Global Crossing (
Nasdaq: GLBC) and North American Scientific (
Nasdaq: NASI). We hope you once again found value in our weekly piece and look forward to providing you more valued-added work the rest of the way.
If you would like to advertise in the space below our articles, we are now offering tailored plans, including assistance in ad design. Contact us at
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