The Greek's Week Ahead - The Growth Hoax
The Greek's Week Ahead has been engineered to prepare you for the events that could impact your portfolio this week. At times like these, when the Fed seeks to stimulate economic growth, the sector that should benefit most is growth oriented and "low quality" shares in our view. However, we view the current market environment illusory, and providing a sort of growth hoax that we expect will be exposed after the Fed's Halloween meeting. Expansionary measures are meant to help firms find capital to finance growth at times when a little extra incentive is useful. In that type of environment, the firms that benefit most are the ones financing growth in ways other than through the use of operating cash flow. These are riskier firms, the kind without earnings but with high hopes and debt. At the risk of getting too technical... They benefit also because most, if not all, of their value is found in the terminal portion of the discounted cash flow model, the part outside of the forecast period and most sensitive to changes in cost of capital. In the period after the start of the Fed's most recent expansionary spurring, you remember the one after the tech bubble burst in 2000-2002, there was an initial premature market rebound before the realization of a tough environment sent stocks lower. However in 2003, when it was clear Fed support would help the economy find traction, it was the "low quality" shares that outperformed. That period taught me a lesson that I noted well. I learned that lesson as I watched a sell recommendation rise ahead of many of my better run "buy" names. That sell idea that burned the painful, though useful, memory into my young analytical skull was FuelCell Technology ( Nasdaq: FCEL ), which soared 99% that year. The company was still far from showing signs of operational success, but the stock soared as "low quality" names outperformed. It was a clear case where not so hot operations (read bad company) matched with a scorching hot stock (read good stock). The current period is considered by many, if not most, as one characterized by the start of Fed expansionary efforts, and this may be behind the outperformance of "riskier" industries of late. For instance, the S&P Biotechnology group is up 10.3% in the 13 weeks through October 5. Over that same 13 week period, the Information Technology sector (+4.9%) is second in performance only to energy (+5.5%), but $80+ oil has a lot to do with that sector's leadership. I believe the rug (or ruse) of Fed bias is about to be pulled out from under the market. If this latest Fed maneuver is representative of a "one and done" type move, as I outlined on the day of the cut, then the current market run may be short-lived for these names. The hoax would be exposed and the old favorite defensive names would come back to favor, while riskier stocks would lose their luster just as they were starting to polish up. The way to play this sometime between my publishing of this article and a week ahead of Halloween, is to go short the industries that got hot around the cut, and long the names that got cold around that same time. Now let's take a look at the week ahead... Outside of earnings season revving up into full swing, a rather light event week kicks off Monday with the 8:30 a.m. EDT reporting of the Empire State Manufacturing Index. The October measure of the state of manufacturing in the New York area is seen reaching 12.5 in October, down from September's reading of 14.7, according to Bloomberg's consensus of economists. Last month's figure was a significant disappointment, with expectations for a reading of 20. The day marks the debut of CNBC's new formidable rival, the Fox Business Network. Markets will be closed in Argentina, Chile and Columbia, marking Columbus Day. I guess it took him a few more days to discover South America? Did you know he landed first in the Bahamas? In the evening, Ben Bernanke will keep some economists attuned to the wire as he speaks to the Economic Club of New York, no doubt over a New York strip steak. Monday's earnings slate is headlined by Citigroup ( NYSE: C ), as the big banks take center stage, or fall off it. Many expect banks to report big charge-offs this quarter, related to credit market woes. This is an important reason why expectations for earnings growth are so dull this quarter. The hugely important financial sector accounts for over 20% of the market cap of the S&P 500 Index. Another interesting earnings report will arrive from toy maker Mattel ( NYSE: MAT ). This is the company with all the lead paint recalls, and that same firm that apologized to China for publicizing it so conscientiously when it accepted responsibility... It seems the Chinese would have rather kept it all hush hush. We found it somewhat surprising that MAT's earnings estimates for this quarter and next have not changed over the last 90 days as a result. While analysts may be missing the obvious, seems investors have not, as Mattel's shares are well off their springtime highs. Others reporting on Monday include Alfacel ( Nasdaq: ACEL ), Badger Meter ( AMEX: BMI ), Corgi Int'l ( Nasdaq: CRGI ), Eaton ( NYSE: ETN ), Enzo Biochem ( NYSE: ENZ ), First Defiance ( Nasdaq: FDEF ), Genentech ( NYSE: DNA ), Intraware ( Nasdaq: ITRA ), Lakeland Financial ( Nasdaq: LKFN ), Macatawa Bank ( Nasdaq: MCBC ), New Oriental Education ( NYSE: EDU ), Nuveen Investments ( NYSE: JNC ), Robbins and Myers ( NYSE: RBN ), Royal Phillips Electronics ( NYSE: PHG ), Sonic ( Nasdaq: SONC ), Suffolk Bancorp ( Nasdaq: SUBK ), Sun Bancorp ( Nasdaq: SNBC ), Traffix ( Nasdaq: TRFX ), W.W. Grainger ( NYSE: GWW ), Werner Enterprises ( Nasdaq: WERN ) and Zila ( Nasdaq: ZILA ). In light of the approaching Federal Open Market Committee meeting on Halloween, be sure to catch Tuesday's weekly same-store sales report from the International Council of Shopping Centers-UBS. Last week's report showed very soft year-to-year sales growth of just 2.1%, and the retail sales report for September showed misleading strength inflated by transactions of expensive gasoline and unexplained auto sales improvement. Industrial Production for the month of September is expected to increase 0.1%, according to Bloomberg's consensus. That's down from last month's 0.2% increase and July's 0.3% growth. Economists are still figuring out whether this trend is indicative of cautious production ahead of softening domestic end-demand, or change driven by real economic downturn today. Capacity utilization is seen slipping just modestly though, to 82.1% from 82.2%. Treasury International Capital for the month of August is set for report Tuesday. Foreign demand for long-term U.S. securities dipped in the last report to $19.2 billion in July, from $120.9 billion in June. With the dollar sinking, one would expect September's report to show up weak, no matter what happened in August. This is likely something the Federal Reserve will pay attention to, and certainly the Treasury Secretary will. Speaking of the dollar, the Bank of Canada is set to decide what to do with its interest rates, and given signs of Canadian economic weakness cited in the FOMC meeting minutes released last week, we would not expect action detrimental to the U.S. dollar relationship. The National Association of Homebuilders' Housing Market Index is expected to set a new all-time low in October, according to Barron's and Lehman Brothers, after its recent record breaking bottom of 20 in September of this year. Tuesday's earnings report schedule will be headlined by a couple of tech giants, as Intel ( Nasdaq: INTC ) and Yahoo! ( Nasdaq: YHOO ) report. With the return of renaissance man and CEO Jerry Yang, it should be interesting to see what changes are in store at Yahoo! if any. Analysts are looking for per share results of $0.08, versus last year's $0.11 quarterly tally. The rest of the day's earnings reporters include A.O. Smith ( NYSE: AOS ), ADTRAN ( Nasdaq: ADTN ), AMB Property ( NYSE: AMB ), AmeriServ Financial ( Nasdaq: ASRV ), BOK Financial ( Nasdaq: BOKF ), Champion Enterprises ( NYSE: CHB ), Community Trust ( Nasdaq: CTBI ), CORUS Bankshares ( Nasdaq: CORS ), Crown Holdings ( NYSE: CCK ), CSX Corp. ( NYSE: CSX ), Delta Air Lines ( NYSE: DAL ), Diamondrock Hospitality ( NYSE: DRH ), Domino's Inc. ( NYSE: DPZ ), Enterprise Financial ( Nasdaq: EFSC ), Equity Lifestyle Properties ( NYSE: ELS ), Exfo Electro-Optical ( Nasdaq: EXFO ), First Place Financial ( Nasdaq: FPFC ), Forest Labs ( NYSE: FRX ), FSI International ( Nasdaq: FSII ), Fulton Financial ( Nasdaq: FULT ), Great Atlantic and Pacific Tea ( NYSE: GAP ), Hancock Holding ( Nasdaq: HBHC ), Integra Bank ( Nasdaq: IBNK ), IBM ( NYSE: IBM ), Johnson and Johnson ( NYSE: JNJ ), Keycorp ( NYSE: KEY ), Lifecore Biomedical ( Nasdaq: LCBM ), Linear Tech ( Nasdaq: LLTC ), MEDTOX Scientific ( Nasdaq: MTOX ), National Penn Bancshares ( Nasdaq: NPBC ), Palm Harbor Homes ( Nasdaq: PHHM ), Polaris ( NYSE: PII ), POSCO ( NYSE: PKX ), Regions Financial ( NYSE: RF ), Renaissance Learning ( Nasdaq: RLRN ), Renasant ( Nasdaq: RNST ), RLI Corp. ( NYSE: RLI ), ST Bancorp ( Nasdaq: STBA ), Sandy Spring Bancorp ( Nasdaq: SASR ), Seagate Tech ( NYSE: STX ), SPANSION ( Nasdaq: SPSN ), Stanley Furniture ( Nasdaq: STLY ), State Street ( NYSE: STT ), Steel Dynamics ( Nasdaq: STLD ), Supervalu ( NYSE: SVU ), McClatchy ( NYSE: MNI ), Thornburg Mortgage ( NYSE: TMA ), USANA Health ( Nasdaq: USNA ), Wells Fargo ( NYSE: WFC ), West Coast Bancorp ( Nasdaq: WCBO ) and Westamerica ( Nasdaq: WABC ). On Wednesday , we'll get a look at how higher producer prices may have impacted consumer prices. It's more likely that higher energy prices found their way into the Core CPI figure than they did in the Core PPI, reported last week up just 0.1%. The headline PPI measure was up 1.1% on changes in food and energy prices. Regarding the September CPI metric, Bloomberg's consensus expects a 0.2% increase across the board. While it's not the Fed favored metric, pay close attention to whether the year-over-year CPI growth fits into the Fed tolerable range of 1%-2%. September Housing Starts are expected to fall to a 1.3 million annual pace, down from August's 1.33 million, thus continuing the well-documented slide of housing. On that note, the Mortgage Bankers Association makes its regular Purchase Applications report early Wednesday, but it will likely be muted by the more important Housing Starts data. With oil rising against all odds, at least on the Greek's book, the EIA will report its regular inventory data at the usual 10:30 time. You would think that with the economy slowing, oil prices should trim some fat, but as the dollar weakens, the relative value of commodities rise. At 2:00 p.m. the obscure sounding but actually important Beige Book will display a compilation of the Fed's regional reports. Much can be gleaned here about how the Fed is thinking heading into the Halloween meeting. We may get some anecdotal evidence about the state of employment on Wednesday, with the simultaneous earnings reports from Labor Ready ( NYSE: LRW ) and Manpower ( NYSE: MAN ). The remainder of Wednesday's earnings reports include Abbott Labs ( NYSE: ABT ), Alliance Data ( NYSE: ADS ), Altria Group ( NYSE: MO ), AMR Corp. ( NYSE: AMR ), Amylin Pharma ( Nasdaq: AMLN ), AptarGroup ( NYSE: ATR ), Arena Pharma ( Nasdaq: ARNA ), BlackRock ( NYSE: BLK ), Cavium Networks ( Nasdaq: CAVM ), CIT Group ( NYSE: CIT ), Citrix Systems ( Nasdaq: CTXS ), City National ( NYSE: CYN ), Colonial Bank ( NYSE: CNB ), Comerica ( NYSE: CMA ), Consumer Portfolio Services ( Nasdaq: CPSS ), Cubist Pharma ( Nasdaq: CBST ), Datalink ( Nasdaq: DTLK ), Downey Financial ( NYSE: DSL ), E*TRADE ( Nasdaq: ETFC ), East West Bancorp ( Nasdaq: EWBC ), eBay ( Nasdaq: EBAY ), Exponent ( Nasdaq: EXPO ), First Cash ( Nasdaq: FCFS ), Gannett ( NYSE: GCI ), Gramercy Cap ( NYSE: GKK ), Healthcare Services ( Nasdaq: HCSG ), Healthways ( Nasdaq: HWAY ), Illinois Tool Works ( NYSE: ITW ), IMS Health ( NYSE: RX ), Intersil Corp. ( Nasdaq: ISIL ), J.P. Morgan ( NYSE: JPM ), Knight Capital ( Nasdaq: NITE ), Knoll ( NYSE: KNL ), LaSalle Hotel ( NYSE: LHO ), LeCroy ( Nasdaq: LCRY ), Leggett & Platt ( NYSE: LEG ), Logitech ( Nasdaq: LOGI ), Lufkin ( Nasdaq: LUFK ), Marshall & Isley ( NYSE: MI ), MB Financial ( Nasdaq: MBFI ), MGI Pharma ( Nasdaq: MOGN ), MGIC Investment ( NYSE: MTG ), MoneyGram ( NYSE: MGI ), Navigant Consulting ( NYSE: NCI ), Noble Corp. ( NYSE: NE ), Northern Trust ( Nasdaq: NTRS ), NVE Corp. ( Nasdaq: NVEC ), Pacific Continental ( Nasdaq: PCBK ), Packaging Corp. of America ( NYSE: PKG ), Partners Trust Financial ( Nasdaq: PRTR ), People's United ( Nasdaq: PBCT ), Piper Jaffray ( NYSE: PJC ), Polycom ( Nasdaq: PLCM ), Rurban Financial ( Nasdaq: RBNF ), S.Y. Bancorp ( Nasdaq: SYBT ), Sovereign Bancorp ( NYSE: SOV ), Spartan Stores ( Nasdaq: SPTN ), Stryker ( NYSE: SYK ), Teradyne ( NYSE: TER ), Texas Capital ( Nasdaq: TCBI ), Allstate Corp. ( NYSE: ALL ), Coca-Cola ( NYSE: KO ), Thomas Group ( Nasdaq: TGIS ), Torchmark ( NYSE: TMK ), United Community Financial ( Nasdaq: UCFC ), United Tech ( NYSE: UTX ), Universal Forest ( Nasdaq: UFPI ), Valley National ( NYSE: VLY ), Valmont ( NYSE: VMI ), Virginia Commerce ( Nasdaq: VCBI ), Votorantim Celulose ( NYSE: VCP ), Washington Mutual ( NYSE: WM ), WD-40 ( Nasdaq: WDFC ) and Wesbanco ( Nasdaq: WSBC ). On Thursday , Weekly Initial Jobless Claims are seen measuring 312,000 in the Labor Department's latest reporting. Last week, the list of new benefits filers amounted to 308,000. Remember, this list does NOT include old slaves to the corporate box, who have been recently converted to babble producing bloggers in an empty box, like muah? Hey, if you can't laugh at yourself, then you probably have not made a blog post at 3 a.m. yet! The Conference Board will produce its Leading Indicators Index still too late for the Fed to use in its new effort to predict economic change (God bless em). The month-to-month change in the figure is expected by Bloomberg's consensus to show increase of 0.3% in September, after a 0.6% decrease in August. The EIA Natural Gas inventory report is due at 10:30, while hurricane season comes to an end. At noon, the Philly Fed Index should show Philadelphia area manufacturing sentiment decreased versus the prior month. Bloomberg published a consensus estimate for a reading of 7.0 this time around, compared to 10.9 in September. Thursday is the day Google ( Nasdaq: GOOG ) reports, and it should be declared Googlemania day with the amount of media coverage it will likely attract, especially now that Fox and CNBC will compete for viewer attention. The Greek would rather look at lower key story. McGraw-Hill ( NYSE: MHP ) is due to report on Thursday, after reacting to government scrutiny of its Standard & Poor's division by dropping the segment's CEO. It should be interesting to see if there was any economic impact to the firm, but we suspect the volatility that struck credit markets may have helped the credit rating business, if the drop of trading volume did not outweigh the need for risk measures (however outdated the Congressional Committee reviewing the situation may view those). The remainder of Thursday's earnings schedule includes A. Schulman ( Nasdaq: SHLM ), ABC Bancorp ( Nasdaq: ABCB ), Advanced Micro Devices ( NYSE: AMD ), AMCORE Financial ( Nasdaq: AMFI ), American Standard ( NYSE: ASD ), AMETEK ( NYSE: AME ), Arbitron ( NYSE: ARB ), Associated Banc-Corp ( Nasdaq: ASBC ), Astoria Financial ( NYSE: AF ), Avici Systems ( Nasdaq: AVCI ), BancFirst ( Nasdaq: BANF ), Bank of America ( NYSE: BAC ), Bank of New York ( NYSE: BK ), Baxter Int'l ( NYSE: BAX ), BB&T ( NYSE: BBT ), Briggs & Stratton ( NYSE: BGG ), Brookline Bancorp ( Nasdaq: BRKL ), Build a Bear ( NYSE: BBW ), Cadence Financial ( Nasdaq: CADE ), California Micro Devices ( Nasdaq: CAMD ), Capital One Financial ( NYSE: COF ), Citizens Banking ( Nasdaq: CRBC ), CoBiz ( Nasdaq: COBZ ), Community Banks ( Nasdaq: CMTY ), Computer Programs & Systems ( Nasdaq: CPSI ), Continental Airlines ( NYSE: CAL ), Cree ( Nasdaq: CREE ), Cybersource ( Nasdaq: CYBS ), Cypress Semi ( NYSE: CY ), Cytec ( NYSE: CYT ), Danaher ( NYSE: DHR ), Dow Jones & Co. ( NYSE: DJ ), Eli Lilly ( NYSE: LLY ), F.N.B. Corp. ( NYSE: FNB ), Fairchild Semi ( NYSE: FCS ), Fidelity Southern ( Nasdaq: LION ), First Commonwealth Financial ( NYSE: FCF ), First Financial ( Nasdaq: FFIN ), First Horizon National ( NYSE: FHN ), First Merchants ( Nasdaq: FRME ), Genuine Parts ( NYSE: GPC ), Gilead Sciences ( Nasdaq: GILD ), Great Southern ( Nasdaq: GSBC ), HNI Corp. ( NYSE: HNI ), Home Bancshares ( Nasdaq: HOMB ), Horizon Fin'l ( Nasdaq: HRZB ), Huntington Bancshares ( Nasdaq: HBAN ), ICU Medical ( Nasdaq: ICUI ), IDEX ( NYSE: IEX ), Informatica ( Nasdaq: INFA ), Insteel Industries ( Nasdaq: IIIN ), InsWeb (INSW), Intuitive Surgical ( Nasdaq: ISRG ), IONA Tech ( Nasdaq: IONA ), Journal Register ( NYSE: JRC ), KVH Industries ( Nasdaq: KVHI ), Landstar System ( Nasdaq: LSTR ), Luby's ( NYSE: LUB ), Media General ( NYSE: MEG ), Mission West ( NYSE: MSW ), Modine Manufacturing ( NYSE: MOD ), Molex ( Nasdaq: MOLX ), Nokia ( NYSE: NOK ), Novartis ( NYSE: NVS ), Nucor ( NYSE: NUE ), Oakley ( NYSE: OO ), Omnicell ( Nasdaq: OMCL ), Orbital Sciences ( NYSE: ORB ), Packeteer ( Nasdaq: PKTR ), Parker Hannifin ( NYSE: PH ), Pfizer ( NYSE: PFE ), PMC-Sierra ( Nasdaq: PMCS ), PNC Financial ( NYSE: PNC ), PPG Industries ( NYSE: PPG ), Preferred Bank ( Nasdaq: PFBC ), Provident Bankshares ( Nasdaq: PBKS ), Reliance Steel ( NYSE: RS ), RF Monolithics ( Nasdaq: RFMI ), Rimage ( Nasdaq: RIMG ), Robert Half ( NYSE: RHI ), Rush Enterprises (RUSHB), SanDisk ( Nasdaq: SNDK ), SAP AG ( NYSE: SAP ), Simmons First National ( Nasdaq: SFNC ), South Financial ( Nasdaq: TSFG ), Southwest Airlines ( NYSE: LUV ), Southwest Bancorp ( Nasdaq: OKSB ), St. Jude Medical ( NYSE: STJ ), Strattec Security ( Nasdaq: STRT ), SunPower ( Nasdaq: SPWR ), SunTrust ( NYSE: STI ), Tempur Pedic ( NYSE: TPX ), Textron ( NYSE: TXT ), Hershey ( NYSE: HSY ), McGraw Hill ( NYSE: MHP ), Ultratech ( Nasdaq: UTEK ), Umpqua ( Nasdaq: UMPQ ), Union Pacific ( NYSE: UNP ), UnionBanCal ( NYSE: UB ), UnitedHealth ( NYSE: UNH ), USA Truck ( Nasdaq: USAK ), Vascular Solutions ( Nasdaq: VASC ), VF Corp. ( NYSE: VFC ), Washington Federal ( Nasdaq: WFSL ), Watsco Inc. ( NYSE: WSO ), WESCO Int'l ( NYSE: WCC ), Western Alliance ( NYSE: WAL ), Winmark ( Nasdaq: WINA ), Wyeth ( NYSE: WYE ), Xilinx ( Nasdaq: XLNX ), Zhone Tech ( Nasdaq: ZHNE ) and Zions Bancorp ( Nasdaq: ZION ). China's H-Shares get a day off, as the Hong Kong market is closed on Friday . The Group of Seven finance minsters is set to meet in Washington at the end of the week, and many experts are anticipating pressure on Treasury Secretary Paulson to do something about the troubled dollar. William Poole and Ben Bernanke will address a group together on Friday, as they discuss "Monetary Policy Under Uncertainty." We wonder if Mr. Poole will define his usage of the word "calamity" and if he understands now when and when not to use such language. Reporting earnings at the week's close, look for news from Dow global growth stories, Caterpillar ( NYSE: CAT ) and Honeywell ( NYSE: HON ). The remainder of the schedule includes 3M ( NYSE: MMM ), AMCOL ( NYSE: ACO ), Arch Coal ( NYSE: ACI ), Boston Scientific ( NYSE: BSX ), Caterpillar ( NYSE: CAT ), Dime Community Bancshares ( Nasdaq: DCOM ), Donegal Group ( Nasdaq: DGICA ), Fifth Third Bancorp ( Nasdaq: FITB ), Harley-Davidson ( NYSE: HOG ), ICICI Bank ( NYSE: IBN ), Kensey Nash ( Nasdaq: KNSY ), Mohawk Industries ( NYSE: MHK ), New York Community Bancorp ( NYSE: NYB ), Old Second Bancorp ( Nasdaq: OSBC ), Overstock ( Nasdaq: OSTK ), Schlumberger ( NYSE: SLB ), Sensient Tech ( NYSE: SXT ), Sonoco Products ( NYSE: SON ), Student Loan ( NYSE: STU ), Wachovia ( NYSE: WB ), Wilmington Trust ( NYSE: WL ), Wipro Ltd. ( NYSE: WIT ) and Xerox ( NYSE: XRX ). We hope you again found value in our weekly market-moving event planner, and look forward to keeping you updated all week long. 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 WallStreetGreek@gmail.com to find out more. ( disclosure )
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