The Greek's Take on Friday's Market Upheaval and the Day's Business
Very little on the preset market schedule seemed to actually impact stocks today, save perhaps President Obama’s jobs address. Rather, the day’s global trading was hinged on European unraveling and a terrorism threat to the U.S. We cover these events, plus July’s Wholesale Trade Report and the day’s leading corporate stories herein.
Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.
The Greek’s Take on Friday’s Market Upheaval and the Day’s Business
The Dow, S&P 500 and Nasdaq Indexes all closed roughly 2.5% lower today. Overseas, the Euro Stoxx 50 Index fell 4.15%%, while the NIKKEI dropped 0.6%; the Hang Seng fell 0.23%; and the S&P ASX 200 rose 0.16%. The Dollar Index Spot rose 1.2% Friday, thanks to the upheaval in Europe. Commodities were generally lower today on the dollar’s strength. Near term WTI Crude Futures fell 2.1%, to $87.20. Gold was unchanged at $1856.90.
The President’s Speech
He said it sternly and he said it loudly, as President Obama presented an economic stimulus plan that had been well-vetted before economists before its release. The President noted the details of his initiative to stimulate jobs and to keep those facing imminent layoff in their jobs; plus schemes to induce new hiring and inspire business investment; not to mention, to put more money in the peoples’ hands via the extension of payroll tax cuts (avoiding an effective tax hike). I listened to it, and I found nothing I could object with. The program was even paid for, but that’s exactly where his opponents will find issue. Some of the areas in which the President wants to cut back spending to pay for his plan are areas often defended by his opponents. At the same time, though, he conceded to a need to reform social security for the future of those currently paying into it, not for retired seniors. In any event, the plan itself offered little reason to sell off stocks Friday, in my view, and even presented hope as some sort of negotiated final product should be helpful.
Rather, what started stocks lower globally Friday was European upheaval supported by an ominous terrorism threat in the United States. Tensions have been intensifying between the Germans and its friends in the European Union. Earlier this week, a German constitutional court ruled that the German government’s issuances of capital into packages for the aid of Greece and the eurozone were legal, but it also recommended that future payments be more scrutinized by the full government. This slows a process that might delay the issuance of often quickly demanded capital (by antsy markets). Thus, a wall is building in strength against future bailout aid for the nation’s European brothers.
Thursday, European Central Bank (ECB) Chief Jean-Claude Trichet raised his voice in response to a testy question from a German reporter. Trichet defended the ECB’s record of strong support for German economic health. However, this morning, Germany’s leading representative at the ECB resigned from his post, in what many are assuming was a gesture of dissatisfaction with the bank’s recent interventions in the eurozone’s debt markets (like our Fed). The German representative, Jurgen Stark, formally attributed his resignation to “personal reasons.”
Meanwhile, today IMF Managing Director Christine Lagarde went on record warning that the global economy was entering a dangerous new phase. She spoke in London, ahead of the G7 summit scheduled to take place in Marseilles, France. Lagarde, who replaced Dominque Strauss-Kahn, said, “The world is collectively suffering from a crisis of confidence, in the face of a deteriorating economic outlook and rising concerns about the health of sovereigns and banks.” Interestingly, rumors also warmed today regarding German planning for the protection of its domestic banks in the scenario of a Greek default. On Saturday, George Papandreou, Greece’s Prime Minister delivers a speech on the state of the Greek economy. However, today, the Greek Finance Minister put down rumors of a near-term Greek default. The euro pared some of the day’s losses against the dollar following the Greek statement. Meanwhile Greece prepares for massive protests in its second largest city of Thessaloniki Saturday.
Wholesale Trade Data
The one bit of preset data on the calendar for Friday was the Wholesale Trade Report for July. It was pretty much overwhelmed by the bombardment of other issues on the market. July’s wholesale inventories increased by 0.8% in July, however, wholesalers sales were flat through the month. Inventory growth is healthy when empty stores are being rebuilt or when sales are increasing alongside them. Neither was the case in July, and so the inventory-to-sales ratio deteriorated to 1.17, from 1.16 in June. Economists expected wholesale inventories to increase by 0.8%, versus the 0.6% increase in June. While naïve traders may view the in-line result as a neutral factor, we would argue it is not.
The Corporate Wire
Four companies really keyed the corporate wire Friday, Bank of America (NYSE: BAC), McDonald’s (NYSE: MCD), Kroger (NYSE: KR) and Lululemon (Nasdaq: LULU). The Wall Street Journal Reports that BofA officials have discussed the possibility of eliminating 40K positions during a first wave of restructuring, which its CEO is scheduled to discuss at the Barclays Capital 2011 Global Financial Services Conference on Monday (NYSE: BCS). A job cut figure may not meet the light yet though, due to the forum.
McDonald’s (NYSE: MCD) shares were down about 5% in late afternoon trading Friday, after the fast food giant reported August same-store sales short of analysts’ views. MCD’s same-store sales increased 3.5%, but were reportedly short of expectations due to European weakness. August still marked the company’s 100th consecutive month of global same-store sales growth.
Kroger (NYSE: KR) shares are off 6% near 3:00 PM EDT, as EPS before tax adjustments reached $0.41 a share, short of the analysts’ consensus for $0.43. Revenues exceeded expectations, but Kroger talked about cost pressures and the use of incentive programs, along with pressures on consumers, driving lower margin sales.
lululemon is off 6% Friday, despite beating analysts’ expectations. The company earned $0.26, versus the analysts’ consensus for 22 cents, based on Factset data. What hurt LULU was a conservative revenue outlook and its guidance for EPS of $0.22 to $0.24 for the third quarter, versus analyst expectations at the high end of the range, based on Thomson Reuters data. LULU did, however, raise its full year EPS guidance.
Merck (NYSE: MRK) and Novartis (NYSE: NVS) are down today, as an FDA panel reviewed several osteoporosis drugs, including medicine from the two. FDA advisors are concerned that long-term use of the drugs may lead to unusual fractures. Thus, the FDA may advise for a time limit in the use of osteoporosis drugs.
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