The Crooners’ Serenade To Angie

“I feel the Earth Move Under My Feet – I feel the sky tumbling down…I feel my heart start to tembling…Whenever you’re around……” -Carole King – Tapestry 1971 Could this be the new theme song for the continued EU summits that fail to produce any realistic results? Can you see Mario (Monti), Francois (Hollande) and Mariano (Rajoy) crooning the words to the famous song to Angie?  Expectations remain low….Angie re-iterates “There is no quick solution and simple solution.  There is no one magic formula with which the gov’t debt crisis can be overcome in one go.” One go???  Has someone lost their mind??  This is the 19th “go” at it…..The 3 men appear to be isolating Frau Merkel… as they unite and back the creation of Euro bonds and push for measure to stimulate growth vs. measures to impose austerity…. Will they just kick the can down the road again?  Does anyone understand that the timeframe for financial crisis is just weeks…..while financial structural reform will take years….and yes – they need structural reform but that is not happening today….. Mkts in Europe are lower – across the board all are now down 1+% ….US futures were down sharply but have since recovered to -3- now trading at 1322…Stocks did finish higher yesterday ahead of what could be a pivotal day as the mkt tested the resistance level 1325 leaving the S&P still caught within the 1300/1325 trading range. Keep in mind we are at the end of the month and quarter, so there is clearly a bit of window dressing taking place…. so yesterday’s rally could be more about rebalancing of portfolios at the end of the quarter, or it could be the expectation that whatever decision comes down today at 10 am from the Supreme Court will be bullish for the stock market.  Not sure I understand how that could be….but hey….weirder things have happened…. You know me….I think it has more to do with the Fed positioning themselves to provide stability to the stock market ahead of the news…. Understand that if the Supreme Court strikes down this bill – then 30 mil + people will not have health insurance which many analysts will remind you – will become a DRAG on the economy……and any further perception of a drag on the economy will not be good for stocks – at least in the short term…… So – if Uncle Benny stands in the wings then investors can expect him to come to the rescue… conveniently noted yesterday afternoon by the Atlanta Fed President & voting member – Dennis Lockhart. He sees the economy growing at “around” 2% (so a sub 2% number would be acceptable as the expectation is for GDP to be 1.9%)….conditions do not warrant further action, but QE3 remains an option on the table. The Fed has the proper tools to deal with any deterioration in the European Crisis.  The Fed and ECB will boost coordination if financial contagion spreads.  Another round of easing through more asset purchases is certainly an option…. Well of course the mkt will not trade freely – how can it?  They have to get out of the way – stop throwing money at it and force the administration and Congress to stand up and do their job…..Stop the madness and incorporate fiscal policy initiatives to change the outlook. Maybe Angie is not so wrong….she is trying to force leaders to TAKE responsibility for their actions (or inaction) – maybe she should come to America and have a “sit down” with DC – and “strike while the iron is hot”. So what to do?  Given the S&P 500 is stuck within this trading range of 1300/1325, the market is subject to volatility in either direction – and until it either breaks out above the 50 DMA (1325) and remains there beyond 2 days….or breaks down below the 200 DMA (1298) Short term traders need to remain nimble….long term investors should take advantage of weakness but not chase stocks until we get more clarity…. It still feels nervous….yields continue to climb in Spain and Italy, expectations remain low for the summit and the Fed continues fire the printing press…. The market will have to decide when it is exhausted with inaction and adjust accordingly.  My sense is that we get weaker – but will not collapse as the smart money remains patient waiting for the coming sale.   Eco data due out today….Final revision to GDP exp of 1.9%, Pers Consumption exp of 2.7%, init jobless claims of 385k and cont claims of 3.28 mil….but again….all of this eco data will be trumped at 10am by the Supreme Court decision and the ongoing saga in Brussels….. Take good care, Kp
Kenny PolcariThe Crooners’ Serenade To Angie