INSIGHTS
SEP
10
WEEK AHEAD...
Since it’s been so long since we have actually had a week of significant news, I hope we all can handle it. This has been the Summer of Paralysis and I feel we are finally going to feel a pulse from this market.
Thankfully, Mario Draghi and the ECB announced their plan to buy sovereign debt from debt strapped countries like Spain, Italy, Greece and Portugal. This plan helped the markets rally on Thursday and over the weekend; the International Money Fund (IMF) backed the Draghi Plan. They also said that they felt that both Italy and Spain were making great strides in getting their financial house in order so they felt that the risk of failure of the ECB’s efforts were minimal.
Seeing that the European Union (EU) may finally have the motivation to help fellow members and solve one of the thorniest issues in years has got to relieve some major stress in Europe. The key thing to watch for this week is the ruling from one of Germany’s constitutional courts. If they decide that the facility used to buy up all these sovereign bonds is unconstitutional, it could seriously derail any plans that will be in place to shore up the affected countries borrowing. Since Germany will be asked to directly and indirectly foot a major portion of the bill, that ruling is critical.
On Wednesday and Thursday, the Federal Open Markets Committee will meet and possibly announce another round of bond buying in the U.S. This Quantitative Easing will hopefully push enough money into the system that the economy will jumpstart. With a weaker than expected jobs report on Friday, the general consensus is that it will happen.
I, for one, don’t believe it’s necessary. I think an economy that is expanding at a 1.7% clip is anemic but it is expanding and there are several bright spots that should be noted. Auto sales for one. Home sales are also recovering faster than the overall economy. Earnings, while growing slowly, are still significant.
Bottom-line, companies are making money. People are making major purchases again and even though the consumer confidence numbers might not meet expectations, they are misleading.
Apple is set to make an announcement on Wednesday. Most people expect it to be unveiling the next version of the IPhone. As with any technology lately, we see small incremental increases in that technology. I think that will be the case here as well. It wont be anything substantially better than what’s out there now but people will buy it. That is the true magic of Apple.
Although in another era, this week’s inflation numbers would be significant, I don’t think people will pay much mind to them. Considering that gas prices have risen substantially in the last four weeks and the drought in the Midwest has caused food prices across the board to rise more than they have in over a year, we should be very concerned about inflation and yet we are not. I still hold that serious, real life inflation is caused by rising wages first and then it’s everything else. We will not see a serious issue with rising wages until we see an unemployment rate closer to 5% than to 8%.
With the summer over and the 4th quarter almost here, we should see some pretty significant price moves overall and volumes will increase as investors prepare for the end of the year. As I have said on CNBC, I still believe we will touch record highs before the end of the year. Considering that we are only roughly 800pts from the all-time high, it really is much of a stretch but remember I said this in March when the market was at 12,800.
Thankfully, Mario Draghi and the ECB announced their plan to buy sovereign debt from debt strapped countries like Spain, Italy, Greece and Portugal. This plan helped the markets rally on Thursday and over the weekend; the International Money Fund (IMF) backed the Draghi Plan. They also said that they felt that both Italy and Spain were making great strides in getting their financial house in order so they felt that the risk of failure of the ECB’s efforts were minimal.
Seeing that the European Union (EU) may finally have the motivation to help fellow members and solve one of the thorniest issues in years has got to relieve some major stress in Europe. The key thing to watch for this week is the ruling from one of Germany’s constitutional courts. If they decide that the facility used to buy up all these sovereign bonds is unconstitutional, it could seriously derail any plans that will be in place to shore up the affected countries borrowing. Since Germany will be asked to directly and indirectly foot a major portion of the bill, that ruling is critical.
On Wednesday and Thursday, the Federal Open Markets Committee will meet and possibly announce another round of bond buying in the U.S. This Quantitative Easing will hopefully push enough money into the system that the economy will jumpstart. With a weaker than expected jobs report on Friday, the general consensus is that it will happen.
I, for one, don’t believe it’s necessary. I think an economy that is expanding at a 1.7% clip is anemic but it is expanding and there are several bright spots that should be noted. Auto sales for one. Home sales are also recovering faster than the overall economy. Earnings, while growing slowly, are still significant.
Bottom-line, companies are making money. People are making major purchases again and even though the consumer confidence numbers might not meet expectations, they are misleading.
Apple is set to make an announcement on Wednesday. Most people expect it to be unveiling the next version of the IPhone. As with any technology lately, we see small incremental increases in that technology. I think that will be the case here as well. It wont be anything substantially better than what’s out there now but people will buy it. That is the true magic of Apple.
Although in another era, this week’s inflation numbers would be significant, I don’t think people will pay much mind to them. Considering that gas prices have risen substantially in the last four weeks and the drought in the Midwest has caused food prices across the board to rise more than they have in over a year, we should be very concerned about inflation and yet we are not. I still hold that serious, real life inflation is caused by rising wages first and then it’s everything else. We will not see a serious issue with rising wages until we see an unemployment rate closer to 5% than to 8%.
With the summer over and the 4th quarter almost here, we should see some pretty significant price moves overall and volumes will increase as investors prepare for the end of the year. As I have said on CNBC, I still believe we will touch record highs before the end of the year. Considering that we are only roughly 800pts from the all-time high, it really is much of a stretch but remember I said this in March when the market was at 12,800.