U.S. stocks were able to break a four-session losing streak on Friday, a series of losses that measured 7%, as a combination of things took place on Friday – surely some short covering, some “bargain” hunting and then there was also talk of several more policy proposals coming over the next few week.

Consumer discretionary, tech and financials led the bounce.  Energy and basic material shares remained on traders’ sell list as metals and energy prices closed down again yesterday.  Consumer staples also closed lower.

The price of crude closed at $80/bbl, trading below that mark for much of the session.  It’s not like oil companies can’t make big margins at $80, but the concern is the price continues to slide as the chance of recession has spiked.  The metals complex was led lower by the prices of silver, nickel and copper.  Dr Copper, as people like to call it because its direction often corresponds with the economic path, has slid 22% in three weeks.

Early trading suggest we’ll extend that Friday bounce to a two-session winning streak as European bourses are up about 3% across the board and U.S. futures point to a strong open.

The IMF met in Washington this weekend but nothing occurred, except for an admission from its Managing Director LaGarde that the IMF doesn’t have the resources to meet Europe’s potential lending needs.  Nonetheless, the West will continue to obfuscate rather than solve (which only economic growth and time can do) its debt problem.

As we continue down this road of obfuscation, what’s helping things this morning is the belief that the ECB, in addition to buying government bonds, will restart its covered bond purchase program in an attempt to free up bank balance sheets and spur more lending.    Obscuring debt with more debt (whether it comes from the IMF, the EFSF (EU bailout fund), the ECB, or our own central bank), will only drag out this period of stagnation.  There is no will to engage in the policies that will spark longer-term growth because of the economic pain that may take place in the short term.  The sad reality is that what we’re doing fails to deliver even a short-term benefit.  More in the full Insight.

Market Activity for September 23, 2011

Sector Activity for September 23, 2011

Quick Fixes All Around, and Here We Go Again

The G-20 finance ministers issued a statement Friday morning, pledging to address rising risks to the global economy and pushing Europe to contain its sovereign debt crisis – as if they can.  But it was a weak attempt at stabilizing the market as they won’t discuss taking actual steps until October – sounds like they’re expecting a Greek default next month as  more countries show serious hesitancy toward providing that country with more bailout funds.  (Greece is so done it’s obvious, but we continue to play the game.)

And then we had this talk that the ECB will roll out another 12-month loan program to the banks -- not that covered bond thing talked about above but something in addition to that.  I don’t know what this does to ultimately cure the issue, since the ultimate problem is one of insolvency.  There’s already a six-month facility currently in place and the prior 12-month loan program hadn’t stopped us from deteriorating to this point.  But they will engage in more stabs in the dark.

With the way things are going, we should expect the Fed to roll out another large round of QE to pump more money into the markets in the hope to elevate stocks – Bernanke clearly knows the straits this economy is in, and while there’s nothing he/they can do about it, he doesn’t see things that way and is willing to try anything.  (Just read his past speeches, he’s not afraid to “experiment.”   The rest of us should be very afraid though as central bank experiments often come back to haunt.)

So the environment of quick fixes will continue and that means more of the same for the economy and the markets – up, down and nowhere.

And speaking of more of the same, just eight weeks removed from that highly publicized debt-ceiling battle that was supposed to bring wonderful improvements to our budget, here we are again facing a government shutdown.  Not that I personally fear a government shutdown, I wish we could permanently eliminate vast expanses of this financial wasteland, but it is another uncertainty for the markets.

Why are we facing this again?  Because the government’s fiscal year ends on September 30 and Congress has yet to approve the 2012 budget.  Thus what is needed is a continuing resolution to finance the government through November, but one side wants to spend $3.5 billion more than the other so we’re seeing another impasse.  In the end, Congress will very likely end up funding things until November arrives and we go through the whole process yet again.  Bottom line:  We continue to run harmfully deep deficits as there has been zero done to get this house in order.

What we’re watching is a pathetic display of leadership all around.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900