Weekly Recap & Outlook – 03.11.11

Tower Private Advisors

Below

  • Correction mode continues
  • Oil dynamics likely to fluctuate (deep thought by Jack Handy, that one)
  • Slow week for economists

Prior Posts

Capital Markets Recap

Here’s a look at the correction action in the S & P 500.  It’s down just 3%, so it hardly counts as a correction.  Naturally, the pain has been more acute in individual securities.  The chart below shows a breach, yesterday, in the 50-day moving average and, today, a rebound back above it.  We’ll call yesterday’s action a whipsaw for now, a shakeout of traders who use the default settings on their fancy software.  But that support has been shown to be tenuous–notice that the action back in November/December only flirted with the 50-day moving average, validating it by not closing below it, just getting there on an intraday basis.

For now, we remain in correction mode until we start to see some higher highs in the chart above.  The market tends to make a modest bottom early in March of each year, so it may just be that seasonal dip. 

We think this will be a short-term correction within a cyclical bull market within a secular bear market, so for now we intend to weather the correction and make some buys of stocks we’re watching.  Trouble is, one never knows if the short-term will become cyclical . . .

Top Stories

 Running out o’ time on this Friday afternoon . . . bullets only.

  • Dubai Stocks Tumble to World’s Cheapest as ING says Time to Buy
  • Italian Stocks Cheapest Since 1993 May Signal Gain
  • PIMCO’s Gross Eliminates Government Debt from Total Return Fund

The Total Return fund is the world’s largest fund of any type, stock or bond.  In his monthly dispatch, which came out last week, Bill Gross argued that the Fed’s Quantitative Easing program (aka QE2) has been a $1.5 trillion prop for risk assets and has kept interest rates low.  With itself as THE buyer of the increased debt supply–and itself exiting the pool of future bond buyers–the Bond King wonders where the next marginal buyers will come from?  In other words, how will interest rates be kept low.

  • Oil Tumbles as Japanese Quake Shuts Refineries

This is a curious one, and about one economics class beyond my ken, having stopped at Econ 100.5.  The refineries will demand less oil; thus aggregate demand for oil will go down, pushing its price down.  At the same time, the supply of distillates (i.e. refined products) will go down, and that could push gas prices higher.  That’s one moving part too many.  So much for ceteris parabis.

Short of saving your soul or fixing the Mars/Venus problems, a Bloomberg terminal can do just about anything, and we sport one of the desk of each portfolio manager here.  As a matter of fact, while it can’t sort of Mars/Venus issue, in the event that Mars (or is it Venus) wants Venus (or is it Mars) to stop talking and just get to the point and ruffles feathers in the process, the Bloomberg terminal can help facilitate penance via its shopping functionality.

Anyway, here’s a look, courtesy of Bloomberg, at refinery outages worldwide.  (Click the image for super large version.) 

Here is what makes me think you’d better top off the tank, again.  We’ve lost an annualized 25% of output–O V E R N I G H T–as the chart below illustrates.

  • Retail Sales in U.S Climb Most in Four Months on Car, Clothing Purchases
  • Gross says U.S. will Retain its AAA Credit Rating as PIMCO culls U.S. Debt

Undoubtedly, PIMCO received a call from its close associates at the Fed (“I’ve got Bernanke on seven, your majesty,”) asking it to go on Bubblevision and reassure Joe Investor that his bonds are safe.  The credit rating is someone’s approximation of the likelihood of an investor getting his/hers principal and interest payments.  No risk there for now, no matter what Sean Hannity says. If Bill’s right the risk now seems to be that of a rise in real interest rates (who will buy the bonds? have to raise the yield) and, possibly, the inflation premium will go up, too, giving a double kicker to yields.  We advise under-emphasizing bonds in a balanced portfolio.

This Week

As I mentioned last week, there really wasn’t much of great import on this week’s economic calendar.  The NFIB Small Business Optimism index rose to a level last seen at the end of 2007.  The index had been in decline then, but the recession that was underway hadn’t been widely accepted.  Hiring Plans, however, a component index is only back to Lehman-Crisis September 2008.  Initial Jobless Claims took an unexpected–as if anything the economist get wrong is unexpected–jump to 397,000, which was well above the consensus (376,000) and last week’s figure (368,000, which was subsequently revised up to 371,000.)  Finally, skyrocketing gas prices finally put the squeeze on the consumer’s attitude.  The drop in University of Michigan Consumer Confidence to 68.2 broke a rising trendline, which had been in place back to early 2009.

Next Week

In contrast to this week, there’s a whole slew of them next week.

Key indicators to watch

  • FOMC Rate Decision - there won’t be any surprise on the rate, but following Bill Gross’s comments about QE 2 propping up the market, you can be sure this will be carefully watched.
  • Producer Price Index (Wednesday) – February
  • Consumer Price Index (Wednesday) – February
  • Industrial Production (Thursday) – February
  • Capacity Utilization (Thursday) – February
  • Initial Jobless Claims (Thursday) – weekly
  • Leading Economic Indicators (Thursday) – February

Housing related indicators

  • NAHB Housing Market Index (Tuesday) – March
  • Housing Starts (Wednesday) – February
  • Building Permits (Wednesday) – February

Regional indicators

  • Empire State Manufacturing index
  • Philadelphia Federal Reserve 
  • 

Graig P. Stettner, CFA, CMT

Vice President & Portfolio Manager

Tower Private Advisors

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One Response to “Weekly Recap & Outlook – 03.11.11”

  1. tom breading says:

    Graig,
    I have enjoyed your informative news and outlook newsletter for over a year now.
    Thanks to you and also John Warren for sending me this.
    Tom B.

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