Firewalls
Market Commentary
By WSS Research Team

Perhaps an even more dire approach to the European economic crisis than bailouts is the notion of firewalls. The IMF scored more donations to add to its "global firewall" which seems like getting airplanes that can scoop up water from lakes to fight raging forest fires. It's always a desperate and often futile way to dose a problem that ideally should have been addressed before getting out of control.

The fresh donations are from reluctant BRIC nations and Mexico; all have previously been reluctant to see their recent fortunes, earned through hard work and low wages, go to pay off the lavish lifestyle of Europeans. There is an amazing storyline when you think that these countries, former colonies of European nations, are now being asked to erect a firewall to save the continent. Moreover, IMF bailouts of third world nations in the past have come with serious austerity attached to teach recipients the value of smart economic policy.

$43.0b China
$10.0b Mexico
$10.0b Brazil
$10.0b Russia
$10.0b India

The IMF firewall fund is now at $456.0b including moneys committed in the spring from Japan, $60.0b, while the UK, South Korea and Saudi Arabia pledged $15.0 billion each.

There is no doubt the IMF will play a role in the ultimate funding of broke or heavily indebted European nations, which means Americans will have a lot of skin in the game, too. On that note its good seeing other nations put up more cash but this also means they have more to lose than in the past. Them having more to lose means our percentage of global economic dominance is waning.

It's time for those trying to solve this issue to find a way to go on the offensive and to speak honestly to potential recipients of the money. It's time for those nations that have squandered greatness to learn the value of smart economic policy - they only need to look at former colonies.

Today's Session

The market feels like it dodged a bullet. Yesterday could have been a disaster with the focus shifting so intently on Spain and Italy, but this might be where screaming value means plain old screaming. Facebook is on fire, Oracle posted strong earnings that reflected software sales of $11.0 billion and earnings of $0.82 that helped operating margins come in at all-time record 46% while operating cash flow hit $13.7 billion. Then there's FedEx (FDX) which looked to open lower, but did not, just as I thought; I combed the numbers and there was no reason for the negative initial reaction (some upward pressure on salaries and purchased transportation).

Economic Data

Housing starts and permits out this morning are more or less a wash. Starts at annual rate of 708,000 missed consensus of 720,000 but April was revised higher to 744,000 from initial reading of 717,000. The big news comes from permits, which came in near a four-year high of 780,000.

It still rubs me the wrong way that single family permits are up 19,000 while 5+ units (condos) are up 40,000.

Bottom Fishing

I sense tepid bottom fishing going on in the last few sessions, with social media stocks leading the way. NASDAQ in general has been encouraging, the action there means investors are tip-toeing away from the comfort and yields of blue chips to find principal growth. It's only a trickle, but I think these are smart investors.

Waiting for QE
By Carlos Guillen

Investors are momentarily taking a look at other things that are not euro zone related, as favorable housing data and the possibility that the Fed will put some form of liquidity in play are coming together to distract eyes that have been fixed on Europe. While no one knows how long this distraction will last, at least it is having a nice effect on equity markets so far during this first half of trading, lifting the Dow Jones Industrial Average over 110 points.

Part of the rather encouraging data today was that housing permits shot up sharply during May, rising to 780,000 from the 723,000 level reached in April and landing above the Street's consensus of 725,000. Home builders appear to be more confident that the supply demand dynamic for new homes is improving and, as such, they requested more permits to build homes and apartments than they have in the past three and a half years, giving markets an indication that the housing market is slowly recovering. While housing starts of 708,000 in May did not meet the Street's estimate of 719,000, the Commerce Department revised its April figure to 744,000, up from 717,000, representing the fastest building pace since October 2008. Also encouraging was that starts of single-family homes rose for a third consecutive month during May, increasing 3.2 percent from that of the prior month. So the combination of strong building permit growth, which is a proxy for future construction, combined with strong single family starts is clearly coming together to give investors some confidence that the housing sector is holding up well.

Also helping to lift equity markets today is the belief that the Fed will provide some form of liquidity tomorrow in order to spur economic growth. Economists of at least three major banks, including Goldman Sachs, JPMorgan, and Morgan Stanley have expressed their belief that the Fed will likely put forth more operation Twist at its two-day meeting that starts today. Given such conviction, a failure to provide any form of liquidity tomorrow will likely disappoint many market participants and lead stocks lower.

Back in the euro zone, things are a bit calmer after Greece won national elections over the weekend, but the results were inconclusive, and the potential for more trouble in the debt stricken nation continues to pose a threat to the region. Germany remains firm on maintaining the original Austerity plans for Greece, meaning no time extensions for debt payments. So the tug of war continues. However, this is having a rather negative effect on the German psyche as shown by the nation's investor confidence that fell in June by the most in 14 years. German investor confidence plunged to -16.9 from 10.8 in May, representing the steepest decline since October 1998 and landing lower than Economists' forecast of a drop to 2.3.

Despite the uncertainty that remains in the euro zone, investors are looking here at home for some solace, expecting the Fed to step in and boost liquidity, but this is still just speculation, and it seems that investors will be highly disappointed if this does not come to fruition. In the mean time, let's hold on to our seats as the ride is going to get a bit rough.

Home Construction Holds Up
By David Urani

Housing starts data out this morning supports yesterday's modest increase in the NAHB's Housing Market Index. While overall headline starts were down 4.8% month to month in May, the decline was due to volatility in apartments and condos; single family units increased by 3.2% to 516k. Meanwhile, permits for single family construction were up 4.0%. Again, we will say that it's somewhat of a surprise that building activity has been able to increase amid the global market scare. However we will also reiterate that a lot of the support for new construction comes from the fact that, believe it or not, supply is low in some regions including parts of California. The pace of completions actually slowed by 4.8% to 598k, indicating that there was some room to increase construction plans.

We are somewhat encouraged by the confidence homebuilders have, but we are still lacking solid evidence on the demand side. The single family starts data shows that activity was up in the West and South, but down in the Northeast and Midwest. Again, this supports the idea that supply is lacking in some regions, but demand still could have decelerated overall. But still, the fact that starts and permits held up at all is a little encouraging considering the global circumstances, and given the nice upside moves in homebuilding stocks over the past couple of days you could say the Street was looking for more damage.

Job Openings

We already knew the job market was bad in April, but the BLS released its JOLTS survey to give us a little more detail. It turns out that job openings were down a whopping 8.7%, and that was the biggest drop since mid-2009. In the meantime, new hires were down 3.7% to the lowest level since December. Luckily though, separations actually fell by 1.9% for the month. Consequentially, hires were able to stay just slightly above separations, meaning net job growth. However, we know that the global markets worsened in May and thus it will have been difficult for net employment to stay above water.

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