U.S. stocks rebounded Monday following six-straight sessions of decline.  The impetus behind the move appeared to be specific comments from Chinese officials that they’ll implement additional easing measures and from German and French officials stating they will do everything they can to keep Greece from exiting the euro zone.  (Gee, I wonder why they’re working so hard to convince markets that tiny Greece, who never should have been accepted into the zone in the first place, will stay?  Of course, that’s a rhetorical question; we discussed a couple of main reasons yesterday morning.)

Basic material (that group as the leader is all you need to know that this was a more-monetary-action-is-coming led bounce) and industrials led the rally.  Telecoms, utilities and consumer staples were the laggards.

Financials were in the middle of the pack yesterday, but have gotten clocked over the past six weeks -- as well they should have as the early-year run up was a joke, a move without any merit whatsoever in my opinion.  The group was the year’s best-performing sector at (up 22.9%) as of early April when the broad market topped out.  Now that gain has been trimmed to just 6.6% and it wouldn’t surprise me to it end the year as the worst-performing sector – which would make it two years in a row.

On the Euro scene, most of those major stock indices bounced from last week’s drubbing.  The Spanish and Italian markets were the odd ones out as Spain fell deeper below the 2009 low and Italy within 3% of that mark.  The latest rumbling was that Greece won’t be the first country to leave the zone, but Germany.  No one should take such talk in the least bit serious though as that would be beyond catastrophic for everyone – but for sure the Germans are extremely fed up with this whole experiment.  There is one thing that should be taken seriously.  While Germany is fiscally fit and economically strong (for a European country), they are not big enough to bail the entire euro zone out of its social-entitlement road to collapse.  They need France to make any resuscitation even remotely possible, and they lost Paris with the election of the full-blown socialist Francois Hollande.

On the Asian scene, the economic landing in China appears to be harder than expected – apparent by reported declines in steel and cement imports (and default rates on payments for those shipments), not so much by the GDP numbers, but as I’ve said, you can’t trust numbers that come from a Communist government.   The weakening has prompted Chinese Premier Wen to pledge more growth, which means lending and bank reserve requirement will be loosened, and probably dramatically.  Although, we’ve seen this game before and all it leads to is another round of weakness and then yet further easing.  However, previous implementations of Chinese easing (or Cheasing) had helped the U.S. stock market rebound, which is pretty much the reason I bring the whole discussion up.

Brigid Jones-Mook talks about women and finances in this CBS 1120 (KMOX) interview.  Click here to listen to the clip.

U.S. stocks fell for a sixth-straight session Friday, and for the third-straight week, as the vaunted Facebook IPO provided zero help – in fact it probably helped to pressure the overall market.  This three weeks of weakness, coming off the April 2 multi-year high, has the broad market down about 9%.  We are in May after all, which is nearly perfectly mirroring the trend of the past two years – the market topped out on April 23 in 2010 and April 29 last year.  I’ll give it another 5-10 percentage points of decline before Bubble Ben and The Draghi enter again.

Well, the Facebook IPO with expected to come with a bang, but it was more like a fizzle and would have been worse without support from the underwriters.  After an 18% pop out of the gate the stock succumbed to flippers as it quickly retreated back to the $38 price at which it came out – and by watching the bid side of the market, the only thing that held it from falling further were those underwriters vigorously supporting that $38 level.

So I guess the valuation of 107 times earnings – earnings that fell 12% in the latest quarter – did matter to some people; I was expecting most buyers to careless about such fundamentals.  Not helping matters was the fact that NASDAQ was unable to send trade confirms out in a timely manner when the stock opened (so the market had no idea if positions were actually filled or not) – and that was after a delayed opening as NASDAQ fumbled the ball all over the field.

We talk a lot about Europe lately (and for obvious reasons) but I don’t touch on the BRICs that often, unless it comes to disparaging the misguided theory of decoupling – and here I go again.  To my knowledge, the term decoupling began to pop up in late 2007 – it’s the thought that the major emerging markets (Brazil, Russia, India and China) will show little-to-no adverse economic effect when the developed world goes into recession.  Beyond the fact that very loose monetary policy within the developed world is the main reason at least two of these economies have been able to show strong growth at times in the first place – loose monetary policy that specifically drives oil prices higher and thus energy-heavy Brazil and Russia benefit greatly -- the BRICs have empirically shown the decoupling theory is a joke; these economies do get hit, and their respective stock markets clocked, along with everything else (and come on, it’s not what GDP prints but what the stock indices do that the vast majority of investors care about).   More beyond the click…

U.S. stocks took it on the chin yesterday – down five days in a row and 11 of the past 14 sessions -- as the day’s economic data all disappointed and the European crisis looks set to rage.   Where are you Mr. Bernanke, or are you just waiting for that 15-20% decline before riding to the rescue, as was the case the two previous years.    We’re only down 8% from the April 2 multi-year high at this point. 

All of the major sector groups declined for the day, with telecoms, utilities and consumer staples faring the best.  Consumer discretionary and financials got hammered by 2%, with basic material and industrial shares close behind to round out the worst-performing groups. 

While stock traders wait, bond traders waste no time getting in front of future Fed buying by pushing the long-end of the Treasury curve higher (higher in price/ lower in yield) – the

10-year yield fell to 1.69% (lowest closing yield ever) and the 30-year to 2.80% (still above the low mark of 2.52% hit in December 2008).   Gold lovers are also showing their confidence Bubble Ben will step back in, pushing Au up $55 over the past couple days.

European stocks got hit again along with Spanish and Italian sovereigns. The yield on the Spanish 10-year closed at 6.36% (nearing that 7% mark that pushed Greece in need of bailout) and the Italian 10-year is up to 5.90% (the Italian economy has barely grown for a decade and is currently in recession again; this makes financing what is the world’s third-largest debt load about impossible).  In addition, as we mentioned yesterday, the ECB has suspended lending to the most under-capitalized Greek banks (guess Draghi has finally realized the risk he’s taken on) and Moody’s downgraded 16 Spanish banks (the ratings agencies are always so ahead of the curve).  

So we have a number of things hitting the fan again, and the only hope right now is the hope that has prevailed for years now, that central banks will come with yet more liquidity injections to keep the European banking system from collapse, prevent current euro-zone countries from becoming former euro-zone countries, hold corporate earnings from declining and incite another rally in stock indices.  But this behavior does come home to roost, if for no other reason it incentivizes governments, plenty of financial institutions and a heck of a lot of households to carry on with the activity that got us here in the first place.  And it’s in that matter for which – and to borrow and modify a phrase from Rick James -- hope is a dangerous drug. 

U.S. stocks began yesterday’s session higher, at least partially driven by positive economic headlines (although those headlines were a bit deceiving, as explained beyond the click).  But it was a rumor, floated about a half hour into the session, that the ECB may soon roll out LTRO3 (the third massive cash injection to the banks), which propelled the major indices to the highs of the session.  The move was fleeting though as Mr. Draghi (ECB president) commented on Greece by stating that while he wants the country to remain in the euro zone, the central bank won’t compromise its principles to continue saving it – and saving it they most certainly have been doing as they’ve continued to lend to severely undercapitalized Greek banks. 

Commodity prices continue to go lower along with stocks – declining much more aggressively in fact.  They never really ramped higher when stocks bounced enthusiastically off of last October’s recent lows, and have declined 12% since March as stocks are down just 6%.  As you know, I generally focus on the energy segments, as that’s what inflicts the biggest pinch on consumers – crude down to $93/bbl and front-month gasoline down to $2.91 from the $3.42 hit back in March; the pump price is lower too but has remained sticky at $3.72. 

Below is a look at a basket of commodities.  It certainly has a deflationary feel to it, but I’m not going there quite yet.  Suffice it to say, with all of the liquidity central banks have pumped into the system, the fact that this index isn’t raging tells us a great deal about the economy’s structural issues. 

Yesterday we had the release of the minutes (notes basically) from the last FOMC (Fed policy-setting committee) meeting, but they were pretty much uneventful.  The minutes explained that the Fed is ready to provide further accommodation if the recovery falters…blah, blah, blah, we know this; the whole world knows this. 

The more interesting comments came from the Bank of England’s (British central bank) Mervyn King as he upped his stagflation forecast – that is, he lowered the economic growth forecast (which is already in recession), while raising the inflation forecast.  And even beyond that, made a point of saying the central bank is setting up contingency plans as they expect the financial storm currently brewing in the euro zone to hit them.  His actual statement: “I don’t think anyone is under any illusion that we’re not going to be affected by this.”  He went on to state, “[o]ur banking system is exposed to the euro area.  We are certainly going to be affected.”  And they’re not going to be the only ones, financial markets are way too interconnected.  

U.S. stocks were set for a higher open yesterday as pre-market trading was goosed by euro-zone GDP coming in at 0.0% (yes, we’ve been reduced to rejoicing over anything that isn’t preceded by a negative sign).  And the broad market did enjoy a fleeting uptick when official trading opened, but it was quickly faded as the Greek fiasco dominated the headlines again -- their final attempt at forming a coalition government went down in flames.  The equity-market setback marked the ninth losing session in 12. 

The day’s economic data was mixed, but I would say biased to the positive side.  That seemed to assist the major indices in bouncing back to positive territory on a couple of occasions, but the European problems were too much to offset – joining the Greek political issues, and the heightened risk they’ll leave the euro zone, were Spanish and Italian yields continuing to back up and equities markets getting slammed with Spain’s sinking deeper below the 2009 low. 

The most amusing news of the day (since no one was harmed) was that the just inaugurated French President Hollande’s plane was hit by lightning as he was en route to visit German Chancellor Merkel with an agenda to get the EU to ease back on their austerity plans.  The pilots returned the plane to France due to the incident; Hollande later boarded another plane and eventually made it to Berlin. 

I doubt nature’s attempt at electroshock treatment will prove efficacious – it’s probably impossible to convince a rabid Socialist that Europe’s social model will only lead to the euro-zone’s ultimate demise -- but it was quite the message nonetheless. 

Oh, and on those foreign-law Greek bonds that matured yesterday, the government chose to pay bondholders.  So congrats to the hedge funds that held out, unwilling to take the restructuring that involved Greek-law bonds and the 50% haircut that came along with it (a haircut that’s closer to 95% now as the newly swapped bonds trade at just 12 cents on the euro).  But the redemption was just €430 million of the €6.4 billion in foreign-law bonds outstanding.  So whether they’ll be able to redeem those bonds in full remains a big ongoing question.

More on Europe and U.S. economic data beyond the click…

The simple graphic below shows a world map that isn’t based on geography, but on the size of each country’s public stock market.  It’s fascinating to see how different the world looks when organized by something other than land mass.

The slide is a nice reminder that the U.S. is still the largest and most important market in the world. Still, there are plenty of well developed markets elsewhere worthy of investment dollars. 

Click here to see the world by market capitalization.

When we founded Acropolis (ten years ago this August), we were early adopters of Exchange Traded Funds (ETFs) for stock investments.  We didn’t begin using bond ETFs until 2007 and they are now an important part of our strategy.

Bond ETFs are a remarkable innovation because in addition to enjoying all the benefits of stock ETFs, they also bring the bond world from a negotiated market to the exchange which increases price transparency and, in turn, lowers costs.  Most investors don’t realize it, but bonds don’t trade on an exchange.  They trade in a negotiated market where private dealers all over the country trade directly with each other over the phone or electronically. To find out more, read the Seeking Alpha article I wrote on this subject here.

We are very proud to have had Matt Tucker come to our office earlier this year. Matt is one of the key figures in the development of bond ETFs.  He and his team at iShares produced the first bond ETFs that have blossomed into a remarkably large industry in a very short time.  Read our interview with Matt here.

St. Louisans frequently talk about the corporate headquarters lost over the years, but we have our share of success stories as well and right now the brightest stock located in our fair city is Express Scripts (ticker: ESRX).  

Most retail consumers hadn't heard of ESRX until they stopped working with Walgreen's at the end of last year, but that deal (or no-deal) was a reflection of just how powerful ESRX has become.  For long-term shareholders, it has been a wonderful investment, up more than 23 percent annually over the last decade while stocks in general posted single digit returns.

Although we wish we had been shareholders earlier, we don't think it's too late to buy stock.  ESRX is now the largest pharmacy benefit manager and should benefit from their scale in this important segment of the healtchare industry.  

As usual, the Spotlight Stock isn't meant to be a hot tip, but an example of how we evaluate companies and their valuation.

Read the Spotlight Stock article here.

U.S. stocks fell for a fourth day in five but continue to hold in there quite well considering the economic numbers we’ve seen from key emerging markets, trouble rising again in Europe, our own generally weak economic figures, and the JPM fiasco.  It’s got a certain Bernanke-waiting-in-the-shadows feel to it, along with an overall view that the current market valuation of 13-14 times earnings buoys us from any real downside.

Utilities, consumer staples and health care were the best-performing sectors, but they too lost ground for the day.  Financials were the worst hit sector for a second-straight session.  Energy, basic materials and consumer discretionary shares were also among the biggest losers.  

The price of crude continues to drop along with rising concerns that the global economy will get walloped again.  (It’s too bad that’s what it takes to send oil to a still very high $94.80/bbl; this doesn’t have to be the case as I’ll remind everyone that crude averaged $20/bbl during the back-half of the 1990s when real GDP growth averaged 4.75% -- we’re averaging well less than half that right now.)  This move is reminiscent of the very same slide that occurred last year at about this time.  The price of front-month gasoline has dropped back below $3/gal.  However, the price at the pump is still at an unhelpful $3.72 for the national average.

So after a few years of bailouts and masking over serious structural issues in Europe, we are fast approaching the resolution of the euro-zone plot.  That is, we’ll find if it holds together or begins to break up with the Greeks being the first to exit.  The latter of course was always the likely development as it is only nonstop bailouts that have kept the zone from collapse, and it’s financial system from the chaotic event that certainly has the potential to make late 2008 in the U.S. appear somewhat tame.

And in terms of Greece, today we’ll see if they decide to pay the €430 million owed to untendered maturing foreign-law bondholders.  Those bonds were not part of the PSI (the coordinated debt restructuring that handed investors new bonds with longer maturities for the one’s the Greeks were about to default on – new bonds BTW that currently trade at 15 cents on the euro).  If they pay, they’ll need more bailout funds released almost immediately just to pay for social services, pensions and public-sector wages.  If they don’t, then anyone still pretending they haven’t already defaulted will finally be forced to concede. 

And beyond Greece, we’re seeing Spanish sovereigns blow out to higher yields (prices down) again, with the 10-year well above 6% at 6.23%.  Continued beyond the click…