- Same old debt issues once again start the trading week lower.
- Geithner attacks the banks, correctly stating their interests are not aligned with the economy, but who insured that was the case?
- GS lowers its economic outlook through 2012
- USA Today cuts to the chase, says our debt is $62T
- AAPL holds up NASDAQ ahead of IBM big earnings. Can the pullback and some good earnings provide the impetus to overcome the downside momentum.

MARKET SUMMARY

Another weak start to another week.

Last week ended on a higher note as investors, after a selloff most of the week held NASDAQ, SP500, and SOX at support, positioned nicely to make a higher low and rebound as earnings unfold. After the surge off of support to end June and start July the indices tested that move with tests of key support at the 50 day EMA for SP500 and NASDAQ. Great setup.

EU Bank issues.

Then came Monday, and as was the case last week, this week started off negative as the debt issues arose yet again. The week ended with the EU’s bank stress tests, but the fix was in as the ‘test’ overlooked key weaknesses. Not sure what kind of stress was being measured but from talking with some bank analysts it was about as tough as someone scrapping their fingernails across a blackboard.

So investors took little solace in the ‘passing grade’ given the EU banks. When the IMF started talking about a second Greek bailout, investors sold Europe again.

US Debt issues.

The US was not the safe haven, however. Treasury Secretary Geithner granted CNBC an interview and Geithner delivered two main thrusts. First, he stated that default was ‘off the table.’ Was there some new weekend deal the secret meetings struck (yes they are secret, off the daily agenda meetings. So much for C-SPAN debates.)? No, Geithner pieced together an argument that only a first year law student would think was great: the McConnell fallback plan allowed for a debt ceiling increase and the House Leader had discussed a debt increase based upon other concessions. Thus, concluded the Treasury apprentice, default was off the table. Brilliant. Brilliantly idiotic.

Geithner somewhat salvaged himself with his next comments, stating that the US banks’ interests were not in line with the overall US economy. Some said he was attacking the banks. In reality he was simply making an observation. Banks are not lending despite their CEO’s appearing on the financial stations extolling their grand lending programs. A program doesn’t mean they are lending. Indeed they are taking the money they borrow from the Fed for 0% and purchasing bonds to gain the yield. Pure profit. There is no incentive to lend.

THAT is the key. Our government specializes in paying people to do something and then acts surprised when they do it. The policies in place encourage banks, who are still losing money, to borrow and get guaranteed results. Why would they risk a guaranteed return, especially when their other assets are still non-performing? So Geithner is correct saying the banks are not doing what the Administration wants, but it is because the Administration’s policies they are not falling in step. Complain all you want, but if your policies promote a certain kind of activity, you will get that activity. If they taxed everything banks did but lending, then banks would likely lend more.

USA Today added to the worry though the paper stated nothing really new as others have made the calculations before, but it is good to keep it out in front of the nation. $14+T is the figure commonly bandied about in the news media as the US debt number. USA Today reported the US debt is actually $62T when you properly account for Medicare and Medicaid. $500K for every household as one put it. Not sure if that is accurate but it is sobering.

Stocks struggle once more.

The news was down enough to push futures lower, and stocks spent the first half of the day making lower lows. They bottomed at lunch and started back upside, but it was slow going. Higher highs and higher lows into the close, but they got nowhere near turning positive. They cut 1+% losses to 0.8% or so, but any way you slice it the session was negative.

NASDAQ -0.9%; SP500 -0.8%; DJ30 -0.75%; SP600 -1.4%; SOX -1.4%

Negative bias continues, but with some silver linings. Again market leadership held up with their near support tests as many posted nice recoveries off intraday selling. NASDAQ as well managed to recover and hold its 50 day EMA on the close. SP600 rebounded to close at its 50 day EMA as well. The buyers are not in charge but they continue to lurk. They have every reason to pack their bags and leave for the rest of the summer, returning in the fall, but they are staying. Question is whether they will be strong enough to maintain a higher low here at mid-range or if the indices have to make a full test of the range.

TUESDAY

Housing starts and building permits are the scheduled data, along with a flood of earnings results. After hours Monday IBM announced great results but was down initially. When its guidance came out it reversed course and traded higher though just 3 clicks. When you are at 175 points, 3 is almost nuisance value. Still would like a split out of Blue, but it is not yielding the goods yet. Would like the stock to get split up so we would have more positions to write calls off of as it moves higher and then needs to test.

The market is well aware of the pathetic economic data and the budget crisis. It is selling but not imploding, likely anticipating a debt deal as well as the Fed to step in at some point with some more stimulus. Goldman Sachs downgraded its view of the economy last Friday and it added some to that, saying it anticipated 8.75% unemployment at the END of 2012. That is virtually no improvement. Thus far we have no net new jobs added in this ‘recovery.’ Unemployment at that level would mean virtually no net new jobs added through the end of 2012. That is not a forecast, that is a horror story.

Those numbers are consoling investors with the idea there will have to be some form of further stimulus. That Fed stimulus goes straight to the market because banks and others are putting it right into commodities and stocks. Thus while the gains may be illusory, built upon liquidity as they have been this entire move, investors are more than happy to buy equities as a result and make some money to offset the shredding of the dollar, inflation, and longer-term economic malaise. Not a pleasant prognosis for the economy, but Fed stimulus builds up equities prices.

As for the near term the market has pulled back ahead of earnings and the indices find themselves at some support. Good results such as IBM could help spark a move upside, but it likely takes more, e.g. INTC and others to help out as they did last time. They got the move going. After hours Monday IBM was not shoving stocks up ahead of it. Moreover, with CSCO announcing 6,500 layoffs after hours (10% of its workforce), the mood may be a bit more dour than it was after IBM announced.

Near term downside bias remains with the wrinkle of the indices at support and in position to bounce with the right impetus. Many leaders are still holding up well as noted earlier. Individual stocks are moving well on earnings. The market is where it could move. Just not sure the earnings will give the market overall the push to break higher from here versus a test further in it the range.

New downside positions from here are a bit more problematic, but if the bounce fails our existing positions will reap us great reward as the indices trade lower in the range. Looking mostly at upside tonight in the event the indices decide to hold mid-range and bounce. There are some ripe pullbacks in position to move, and if they go we will go with them.