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6/20/2012 1:46 PM
Nothing but Fed
By Charles Payne, CEO & Principal Analyst
Okay, this is the kind of action I try not to quantify as it is mostly an exercise in futility as is the notion of common sense. The Fed did what it hinted it would do and kept the door open to additional action. In the meantime, the kneejerk reaction was to sell the news. This is the same as a child embarrassing a parent in a supermarket aisle after being told to leave the Cap n Crunch on the shelf and grab the King Vitamin. Markets always move to influence policy initially and it takes a good night sleep before adult-like thinking takes over. I'm not surprise and neither are the folks at the Fed, which gets back to my frustration at the ritual that has to be played out when it is certain there will be Cap n Crunch served before this is all said and done.
Twist and Shout
By Carlos Guillen
The time is here, and very shortly the Federal Open Market Committee (FOMC) will be disclosing its projections for the economy. As expected, the FOMC's statement made at 12:30 has confirmed what most on the Street had already predicted, that is an unchanged Fed Funds rate and an extension of their current $400 billion "Operation Twist" program, which was scheduled to expire at the end of this month. The FOMC also reiterated that it sees exceptionally low rates through at least late 2014 and that it is prepared to take further action "as appropriate." Investors' initial reaction was rather negative, with the Dow Jones Industrial Average dropping 60 point in just one minute of trading. Perhaps the reason for the sharp drop was a "sell on the news" reaction or just a disappointment that the FOMC did not put forth another round of quantitative easing (QE3), which may have been the hope rather than the expectation. Whatever the case may be, stocks immediately bounced back to regain the losses after the statement was made.
On another note, According to the Mortgage Bankers Association, applications to refinance Federal Housing Administration-backed mortgages rose to an all-time high last week, more than doubling from the previous week. According to the association's vice president, Michael Fratantoni, the strong uptick in FHA refinance applications was due to changes announced by the administration in March. On the other hand, despite historically lower interest rates, applications for all types of mortgages dropped 0.8 percent last week from the week earlier when it gained 18 percent.
On the European front, Greek politicians reached a deal today to form a new government that promises to uphold the nation's financial commitments but also seeks to renegotiate its unpopular bailout agreement. The conservative New Democracy party, which won this past Sunday, will form a coalition with the Socialist Pasok party and the smaller Democratic Left party. This is clearly a step in the right direction; however, with Germany taking a rather tough stance on maintaining the already established austerity deal with Greece, it is certainly going to be a bumpy road ahead in trying to renegotiate the bailout agreements made back in March.
In all, the FOMC's statement has turned into a positive market reaction with the Dow now up in Green territory, after being down in the red earlier. Perhaps, the market is now anticipating that Ben Bernanke will bring more to the table or perhaps it is just more volatility as a result of the comments. Let's see what else Ben has to say.
Procter Worth the Gamble?
By David Urani
All-important Dow component and household product conglomerate Procter & Gamble (PG) gave a guidance update today, putting the stock down more than 3%. They said net sales growth is going to be negative 1-2% versus its previous estimate of a 1-2% gain. The first item of note is that currency exchange is expected to impact sales by 4%. Obviously the potential breakup of the European Union has weighed on the euro and as a result international companies are having to deal with the fact that the relatively strong dollar means overseas profits aren't going to be quite as strong.
And of course, with that weakness in the euro is an underlying crisis in that economy which is weighing on P&G's "market growth rates." Perhaps not a big surprise, but importantly it's a major bit of guidance for the April - June period that suggests ongoing troubles in the global economies are continuing to weigh on growth projections. Consequentially, P&G plans to invest further into its stronger growth markets, and to cut jobs elsewhere.
That being said, P&G hasn't exactly been a stellar performer of late, having significantly underperforming the S&P (by about 10%) over the past year. We also see that perhaps management has been stumbling to keep up with the competition, as they cite "market share softness." The company has shown a desire to alter its strategy, including its agreement to sell the Pringles business last year (that deal with DMND later broke down and K snatched it up this February) as it re-focuses on other divisions.
I think what we see here is another warning shot for multinationals operating in Europe and other slowing global markets, as one could have expected, but perhaps also a household name that has grown a little complacent recently.
Mylanta isn't going to help the 0.9 million barrel buildup in gasoline inventories last week; the Street was looking for a drop of 1.7 million barrels, likely on seasonal factors. The really surprising figure came from crude oil, which was up 2.9 million barrels (versus expectations of -0.2 million) to the highest level since 1990.
Of course, petroleum buildup used to be sort of a good thing back when oil was above $100 per barrel but now that we're just above $80 it's a bad thing and the market flinched on it. It means demand is pulling back, and this time it's not about prices. There's a chance there was some extra reluctance to take delivery of oil ahead of today's Fed decision, so we'll be keeping an eye out to see if this trend holds next week.
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