U.S. stocks rallied as the broad market extended the latest bounce to three sessions, recouping most of last week’s losses.  But in the final minutes the major indices gave back much of the gains as the Financial Times reported that various euro-zone governments still have no appetite to bail Greece out as that country’s funding hole continues to widen.

Watching this market, one minute euphoric that the next rescue is just around the corner and the next commiserating that policymakers will leave things to their own devices, would be comical if the economic and fiscal situation of Western society weren’t so troubled.

Basic material, industrials and energy led the rally.  Utilities, financials and consumer staples were the underperformers.

This latest three-session rally is largely about the EU/ECB coming up with some big-bang plan to erase the debt problems that currently plague Western Europe.  But the EU is taking on even more debt -- and potentially even deeper consequences as the relatively healthy economies of Germany and France backstop yet more toxicity -- and all to escape the default of a tiny economy like Greece and an even smaller Portugal.  For some time now we’ve mentioned that a Greek default wouldn’t be all that bad, outside of the first few weeks of the event.  But instead they continue to delay the inevitable. Instead, they (and we can say us as we engage in the same practice) continue to try to solve the problem with the same policy (more debt) that got them into the problem.

It seems to me the market should shake in fear on the purported policy decisions that will add the very leverage that brought us to this state in the first place – that to me seems to bring on far more trouble down the road than a Greek default would cause in the short term.  But then again, the markets have been so manipulated and distorted by this culture of never-ending bailouts that a short-term mindset dominates the marketplace.  The up, down and nowhere market environment continues.

Indeed, the short-term focus among Western-economy policymakers’, which will continue to have detrimental effects on multi-year growth potential, is not only highly annoying but flat out moronic.  Just as our own policies have tried to do, the Europeans are attempting to buy time. But if rapid economic growth fails to ensue, then you’re not buying time at all. Our policymakers are idiots.

Market Activity for September 27, 2011

Sector Activity for September 27, 2011

Until November 18

The latest congressional standoff has come to an end as the main obstacle to passing a continuing resolution that’s needed to keep the government from shutting down evaporated.  The obstacle had revolved around funding for FEMA as the emergency management agency was stating it had run out of money.  Republicans therefore demanded that cuts take place in other parts of the budget in order to fund FEMA; Democrats just wanted to fund FEMA.

But now FEMA says it has the funds to operate for a while longer – assuming no disasters hit.   It’s been reported that they actually stated that, that they have enough funding assuming no disasters hit.  Yes, this comes from the Federal Emergency Management Agency.  Of course, this is government’s way around a budget problem, just let it go underfunded and when a disaster hits, then fund it and blow the budget into even larger deficit.

So as we stated on Monday, Congress would find a way to keep things going…until November 18 when this all comes full circle again as we still don’t have a fiscal year 2012 budget in place.

S&P CaseShiller HPI

The CaseShiller Home Price Index reported that home prices rose a seasonally-adjusted 0.05% in July (just shy of expectations).  On a non-adjusted basis, which may be the more appropriate number to watch as several government interventions have rendered the seasonally-adjusted number about useless right now, the index measured prices rose 0.91%.  The CaseShiller number is a three-month average so it includes May, June and July data – thus it benefited from the slight bounce off of the nine-year low hit in February.

On a year-over-year basis, the index had prices down 4.11%, which is a bit better than the -4.40% expected.

The less lagging home-price indicators (specifically the NRA’s new and previously-owned home sales reports) have shown prices falling again in July and August.  Thus, the August and September CaseShiller figures are likely to show the same as it no longer has the benefit of the May and June price bounce.

Consumer Confidence

The Conference Board’s gauge of consumer confidence came in a bit shy of expectations at it printed 45.4 for September (expected at 46.0), but the August reading was revised up to 45.2 – it had initially been reported at 44.5 last month.

The present situation side of the index fell nearly two points to 32.5, the fifth-month of decline.

The expectations reading (respondents’ view of things six months out) increased 1.6 points to 54.0.

The number of respondents stating jobs were “hard to get” hit a 28-year high.  Although, the concerning reality is not so much the fact that this figure hit nearly a 30-year high, but that it has been at this very elevated level for longer than any time in the measure’s 44-year history.

Richmond Fed

The Richmond Fed’s gauge of factory activity within the Federal Reserve’s fifth district improved in September but remained in contraction territory for a third-straight month.  The measure rose to a reading of -6 from the -10 in August.

New orders fell to -17 from -11 (worst reading since April 2009); order backlog remained deep in contraction at -23 (up a bit from -25 in August); capacity utilization improved to -11 from -14;

the average workweek fell to -7 from -5; the number of employees jumped though to +7 from +1.  So the average workweek fell deeper into negative territory but the number of employees rose – that spells a shift to part-time work.

This Richmond number marks the fourth regional manufacturing report for the month of September to print contraction – three of which have reported negative readings for three-straight months now.  The Chicago survey continues to buck this trend as auto and steel production continues to hold that region up.  We get that Chicago reading on Friday.

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Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900