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6/8/2012 2:02 PM
United States of Europe
By Charles Payne, CEO & Principal Analyst
It's very interesting the market is trading higher after President Obama's news conference on the economy. There were no new policies, but pronouncements about how many extra jobs there would have been if past plans had been adopted by Congress. Essentially, it's back to debate about spending money to get the economy moving and creating jobs. Obviously if money is borrowed and spent on stuff like filling potholes, there will be more jobs, but when that money runs out—then what? The debt is still on the books and interest continues to mount. We don't have to go in that direction when there is a gargantuan pile of money in every nook and cranny of the economy - that longs to go to work.
Be that as it may, the speech hints at something happening … in Europe, not America, and that is building up some hope. When President Obama says there should be a deeper collaboration on budget and integration, it gets to my point that there is a United States of Europe brewing. Leadership in many nations wants it to happen, but it's a tough sell on the ground where nationalistic pride is always strong even when wallets are empty. Of course Europe is also an arrow in the excuse quiver as there was a connection made about weakness in Paris impacting Pittsburg and Milwaukee. There was the typical shot at small businesses not hiring and demand to give those that are a tax break.
How weird is that to reward a business that's doing what it was going to do anyway. The break wouldn't be enough to make some small business owner on the fence consider an unnecessary hire.
In the end the message was that austerity doesn't work but spending does. There were several odes to the Paul Krugman playbook - all a joke. By the way the Twitter battle between Krugman and the president of Estonia is one you must check out. Krugman is pissed because Estonia is rocking, with 7.6% GDP growth, only 6% debt to GDP and the only surplus in the EU - and all the credit goes to three years of austerity. Look for something out of Spain this weekend but it could be tough as any deal to save its banks will mean giving up part of its sovereignty.
We began the week with a general sense of excitement about money pouring into economies on both sides of the Atlantic. The air was let out of that balloon yesterday but now it's back. Bernanke punted to Obama who's punted to Merkel.
No matter how this plays out it does underscore a pool of sideline money that would like to get into the mix and more importantly reflects a stock market that is significantly oversold - by a million miles.
Sorry about "I'll Have Another," scratched from the Belmont Stakes. I think there could be a pop on Monday although last year Friday optimism was almost always crushed on Mondays… but there is little room or time left.
Weekend Rumor Mill Stocks
Each Friday there are names that make the rounds as possible takeover candidates, and today there are three very delicious names on the list. While there is some credibility to the names, the action speaks to how much the street is buying into the scuttlebutt.
Nokia looks the most compelling based on volume, which could see more than 70,000,000 shares change hands, or two times the daily average. Once the highest market cap in Europe, the stock is down so much it must look attractive to some entity that thinks is can exploit the name and footprint.
Word is VZ is looking at NFLX, which makes some sense but they have to weigh whether they can duplicate NFLX for less money right now the street isn't so convinced the price is right.
AKAM has been in the rumor mill for a couple of years, and I think a deal happens one day, but the street doesn't think so today. That said, there have been big insider buys including the chief scientist buying 147,000 shares at $27.00 to go with $3.3 shares bought at $33.00 recently. (We are long this name.)
A Resilient Market
By Carlos Guillen
Despite the rather disappointing start to today's trading session, equities have been reacting rather well and are still slowly creeping higher. In light of the most recent piece of economic data, it is difficult to see why investors are not more negative on stocks today, but perhaps they are still seeing that equity markets are oversold and are making moves to snatch some beat up companies.
Perhaps the most significant piece of economic data today was that the U.S. trade deficit shrank in April, but exports also declined for the first time in five months, clearly not an encouraging scenario for the U.S. economy. According to the Commerce Department, the trade deficit decreased 4.9 percent to $50.1 billion in April, under the $52.6 billion reached in March but a bit above the Street's estimate of $49.3 billion. Both exports and imports fell from the prior month's record highs, but imports fell at a faster rate than exports. In terms of the two main components, exports declined 0.8 percent to $182.9 billion, as overseas demand for capital goods and industrial supplies eased. Imports dropped 1.7 percent to $233 billion, as demand for petroleum eased during the month. In real terms, however, the trade deficit shrank to $48.5 billion from $49.5 billion. Given that net-exports play a direct effect on gross domestic product (GDP), a greater than expected deficit could lead economists to revise their growth estimates lower for the second quarter of this year. In fact, Goldman Sachs has already moved ahead of the crowd and lowered its GDP forecast to 1.8 percent from its prior forecast of 2.0 percent.
Over this coming weekend, Spain will be in discussions relating to its need or no-need of a bailout package. After weeks of indecisiveness as to whether Spain can handle its debt situation without help, it is now more and more apparent that the nation will need a bailout. Remembering back in late May, Spanish Prime Minster Mariano Rajoy stubbornly declared that Spain did not need help and that it would not seek a bailout of its struggling banks. However, after Fitch downgraded the nation's debt on Thursday, It appears that Spain is now ready to scream help! According to Fitch, Spain will need about at least $60 billion, but it could reach as much as $100 billion, or 9 percent of Spain's GDP, in a worst-case scenario.
At the moment we remain encouraged with the resilience so far today, but still expect to see lots of volatility in the coming week as the situation in Europe continues to unfold and bring surprises.
EU to Force USA's Hand?
By David Urani
Well, the good news is that our trade deficit shrank in April to $50.1 billion from $52.6 billion but other than that it was a disappointment. The Street was looking for the deficit to shrink further, to $49.3 billion, and when the Street expects a small trade deficit that usually means their GDP forecasts were a bit on the high side. Consequentially, Q2 isn't looking to be too great with the general mindset being that GDP would be around 2% prior to this report; now it looks like we may be a tad under 2%.
There's also the fact that both imports and exports dropped, indicating slowing global trade. Falling oil prices sank the petroleum deficit by 4.9% to $28.0 billion.
Of course, those GDP readings remain at risk so long as Europe keeps falling down the gutter. While President Obama laid out his desire for congress to pass spending plans he laid out last year (which are unlikely to pass this year either) the real focus of his appearance, as far as the market was concerned, was about his views on Europe. The President knows that Greece, Spain & the gang can spoil our own recovery and he urges action.
As Charlie Gasparino reports from inside sources, the Treasury is suggesting to EU leaders that a TARP-like program be created to inject capital into needy banks. But once again, as it always does, it really comes back to Germany and whether or not they are willing to cough up the brunt of the money. Of course, you also have to ask whether Europe really wants to listen to our advice anyway. But there's no indication that the President is ready to throw money to Europe to help prevent their crisis yet.
Obviously there's a glimmer of hope that there's some sort of global coordinated action but this week I think we got a clue that it's too early, as China chipped in the minimum blind and the USA "checked." It's on Europe to figure this out on their own… for now.
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