U.S. stocks traded lower all session after disappointing sales and profit forecasts from tech bellwether Cisco Systems, but the market did rebound from the lows of the day in the afternoon.

I surprised to see Cisco get whacked as badly as it did – the stock was down 16.5% for the session, erasing nearly all of its gains since late August – and for the broad market to hold up like it did.  Reading the report last night I figured the stock would get hit by roughly 8% and the broad market by roughly 2%.  The bearish tone from Cisco – lower consumer demand, lower business spending, big sales his from state and local governments and rising input costs – all have negative implications for the overall economy.  But, the Fed is there, present like no time in the past, so calling these things more impossible than ever.

Basic materials and energy were the out-performing groups yesterday as the metals and agricultural components of the commodity index gained more ground.  Health-care and consumer-staple shares rounded out the four major industry groups that closed higher for the day.  Tech, telecoms and industrials led the six groups that lost ground. 

Market Activity for November 11, 2010

G-20 – Illusion of Progress

Treasury Secretary Tim Geithner engages in interviews and sound like he’s actually accomplishing something when nothing could be further from the truth.  And while I’m on interviews, CNBC’s John Harwood basically assured viewers a few days back that President Obama would come home with an agreement in hand on the U.S./Korean Free-Trade Pact (actually its remaining obstacles as the Bush Administration was able to accomplish only 85% of the accord).  But the process got Bernanke’d as the Fed’s continuous quantitative easing campaign, and the resultant slide in the dollar, has incensed Asian finance minister and politicians.  They’ll leave the G-20 meeting in Seoul with no agreement on that trade deal, which would have removed additional tariffs and opened up more of our goods to flow into the Korean economy.  

But back to Geithner, this guy never ceases to amaze me.  He walks around with this air of confidence and it’s so unfounded.  He goes over there with this fully gorked idea of setting limits on current account figures (setting trade deficits and surpluses for each of the G-20 members to +/- 4% of GDP, a figure I guess he came up with while coming his hair one morning) when it never had a snowballs chance in hell. He attempts to foster more domestic consumption in emerging economies when only time and increased wealth can deliver such a shift.  Beyond that, it’s just a senseless thing to focus on.   This isn’t going to fend off a currency war (as is part of the strategy), as political friction over currency rates is all about the Fed anyway (they control the supply of dollars) and they’re not going to stop until the world forces them to do so via the trade tensions that follow. 

Meanwhile, there was no talk – so far as we know from the reporting -- of the European peripherals (the big time government debt troubles in Ireland, Portugal, Greece and Spain); there was no focus on the rise in commodity prices and the resultant hit to profit margins; and most importantly there was no leadership from the U.S. on how we’re going to get the global economy back on the road of durable recovery by returning to free-market principles – the only way to ease the next round of economic weakness when governments (either voluntary or by force) must turn and get their debt situations in order. Instead, we choose to endeavor down this road of central planning as if the government has the answer -- the right level of trade for every economy in the world.

Sadly, the G20 meetings have become a joke. It’s like the UN, there’s no way to corral all of the cats.  When it was the G-5 back in the 1980s and then the G-7 in the 1990s, there was some ability to accomplish a goal.  Now that we’ve got 20 nations, and a China that has no historical semblance of unity as we have with Europe and Japan, these gathering have become a colossal waste of time and money.  Geithner’s agenda does worse, as it will only increase tensions. 

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We were without an economic release yesterday as it was the Veterans Day holiday and the bond market was closed.  Today we’ll get the first look at University of Michigan’s consumer sentiment survey for November (this is the preliminary look, they release the final result at the end of the month).  

Next week will be more exciting on the data front as we get retail sales (October), business inventories (September), industrial production (October), and Empire Manufacturing (November). 

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Have a great weekend!

Brent Vondera, Senior Analyst