The Day Ahead: Feeling Oxygen Starved?

 | Jun 18, 2013 | 8:00 AM EDT
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The walls are closing in. On each wall is a poster with black ink on a white background that reads: "TAPER!" In case you are wondering, there are four posters in this slowly shrinking room.

Maybe this is only a room that I occupy, or perhaps you lay claim to the identical one down the hall in a maximum security building. I bet there is a certain feeling of being starved for oxygen in this market. All attention to detail in the research process and the ensuring confidence to pull the buy trigger means a hill of beans in TaperLand.

This daily back and forth is excruciating, provided you continue to heed the words of book pumpers that in the same vein of Jack Bogle, believe the market is a bunch of noise to be ignored. I don't share this view, holding a personal preference for starting with a baseline macro thesis that feeds into a relevant outlook on the broader market before selecting a sector, and then a stock, for clients.

Thus far in June I have made a whopping three calls for clients: one short, two longs. The recommendations all emphasized they are longer-term in nature (in my world this is six to 12 months) and driven by research that should flesh out the true value of the company one direction or another.

Outside of those three calls, a recommendation of cash has been king. So I sit back, letting the forces of evil wage battle in the daily scrum. The fact is that the market acts like a dog in its inability to hold gains and wild gyrations on mere musings rather than substance.

Is this type of market, directionless, worthy of loading up on risk for the sake of doing so? Nope. Do me a favor; add these items to the notepad.

  • Look at how stocks are not trading predominantly on their individual fundamentals. A Financial Times story breaks and suddenly the S&P 500 is off 0.8% from its session high by 3:30 p.m. EST. The market also is clearly awash with excess liquidity as the 0.8% also reflected movement on commentary from the G8. That article signaled lessening downside risk to global growth (in other words, there is less inclination for s-t-i-m-u-l-u-s). Nuts! But, these are collectively great tells that equity values have been artificially inflated and are prone to a readjustment as reduced liquidity opens the door for stocks to trade on corporate fundamentals (here, that would be off peak profit margins).
  • Taper, taper, taper or not, we are receiving early indications that the second quarter of 2013 ended poorly for many companies. Kudos DuPont, Texas Instruments, and Terex for helping to shed light!
  • Do you "get" the impact of liquidity being sucked from the global financial system? To snag a taste, look no further than the performance of these overseas markets last week: Buenos Aires (-7.24%); Manila (-6.86%); Sao Paulo (-4.43%); Hong Kong (-2.81%).

Your Daily Dose of Punditry

"I've always thought that the best part of this country is that we get to create our own futures." -- Charles Schwab in his rather compelling new TV ad. Technically,  yes per the Constitution; but technically, no per the powers afforded the Federal Reserve.

Whirlpool: Cool Appliances, Potentially Dirty Stock

I went live today with a sell rating on Whirlpool (WHR) shares following a chat with the company (because that's what I do, talk to companies). Being brief, the call is rooted in increased concerns on how rising interest rates will influence appliance demand in the second half of 2013 and the first half of 2014, as well as a slowing in productivity gains. Throw in the fact that the U.S. market share frankly has underwhelmed during the year, plus housing recovery. If you would like additional color on this, send me an email.

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