MARKET SUMMARY

Nothing great, but another start at a relief rally gives it a shot.

Futures were lower to start the week, but it was no washout to the downside, or at least it surely did not look to be that. Stocks traded lower on worries about our old friend the EU and the Greece bailout. The money is available to Greece, but not really. The EU insists that Greece must pass its austerity measures in order to get the money. Every heard the one that starts ‘it will be a cold day in hell when . . ?’

Markets were rattled and lower across the world. Citi stepped in and did the honorable thing as it downgraded the financial stocks for 2011 and 2012. GS again downgraded its GDP outlook for the US. As John McClain said in ‘Die Hard’ as he dropped the dead body onto the police car, ‘welcome to the party pal!’ Harsh reality is hitting home. The economic data is on a 6 month slide straight down, making that 3.2% GDP in Q4 look like a miscalculation that wasn’t even close enough for government work.

Moreover, in the ‘we knew it all along’ category, statistics were released showing that banks are holding more deposits than loans outstanding. As of 2008 loans topped deposits. At the same time bank treasury ownership rose from 1.08T to $168T. It is clear that banks are not interested in new loans after $2T in losses and write-downs (Bloomberg data), preferring instead, as I have written over and over, to the guaranteed return of US Treasuries, even as low as they are. If you get money for free and have no strings attached, do you do it the old fashioned way that requires wit, craftiness, and business acumen or do you just take the sure thing with the treasuries? At least it is sure for now. The US does have a $14T debt and about $60T in owed entitlements.

The point: this is no recovery, at least not in the traditional US sense where businesses across the board enjoy solid gains. If the economy is expanding and the future is viewed as bright, banks WANT to lend money because they can generate better returns than on overpriced bonds on deals that are almost as sure as the bond deals. The extra potential earnings certainly more than covers the gap in risk. When banks, despite their claims on the financial stations (and to the Administration as you would expect), refuse to lend money because they prefer to take in a low guaranteed yield on bonds, it is clear the economic activity is paltry. It didn’t take this data to prove the slowdown or in reality that we never really left the recession; it simply provides clear additional support that the US economic woes continue and may get significantly worse before anything improves.

TUESDAY

A little economic data is mixed in with the pure technical position of the market. The economic data is the May Existing Home Sales report. The technical position is the hold at support that Monday started to yield a bounce. This market is famous for one-day wonders, bounces that only last a session.

This one looks as if it has some more behind it. Looks have been deceiving thus far, but you have to keep looking at the good risk/reward possibilities. Maybe not a week’s worth, but some more upside after Monday. The Dow and its big names look ready to recover some lost ground. The Dow itself is on its third upside day, moving solidly back into its range. Even the small caps are in on the action, back in their range as well. NASDAQ is a real anchor, however, unable to get things moving. It is in great position to bounce, just not showing a lot of power with heaving hitters such as AAPL and GOOG still languishing. Their rebounds off the lows Monday may propel them to a bounce of their own.

We have picked up some upside already as the market set for the bounce and there look to be some stocks that can still provide some upside return on a continuing bounce. The plan is continuing to pick up a few upside, let the current upside we had in hand continue to recover, when the move runs out of gas bank some gain, lose those that rebounded but are struggling, and then pick up some more downside. Still looking at any upside move as just a relief bounce. Unless it can show us something else.

Jon Johnson