5 things to know for the week ahead
Posted
Jun 12 2009, 01:14 PM
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Minyanville
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This post was written by Minyanville Executive Editor Kevin Depew.
1). Credit crisis abating
Last week I talked about rising bond yields affecting equity prices and how the most-watched events of the week would be the Treasury auctions. I was wrong. I began this week fiercely determined to remain awake long enough after churning out one of these daily columns to closely monitor three days' worth of Treasury auctions; the 3-year, 10-year and 30-year auctions collectively known as "refunding," a *** misnomer that was probably once an inside joke that just happened to stick. So much for that. The action isn't in Treasury funding at all, but corporate issuance.
On Tuesday, the following note on Anadarko Petroleum (APC) scrolled across my Bloomberg screen:
* ANADARKO PETROLEUM TO SELL $750 MILLION OF 5-, 10-YR DEBT
But that's not what happened. As it turned out, demand was so strong APC boosted the size of its sale from $750 million to $900 million. As well, the spread (the difference in yield for this debt above Treasurys) estimated to be in the 305-337.5 basis point range, actually came in lower, 295 to 325 basis points.
OK, that's one company, but all told there were more than $2.2 billion in corporate bonds issued last Tuesday, in spite of a record $71 billion the Treasury is raising over the next couple of days.
This means only one thing: The credit crisis, for now, is abating. It doesn't matter what stocks think, not right now. What matters is that the credit market is seeing new demand for debt issuance. This credit buying will eventually spill over into equities, as happened in 2003. Of course, at the end of the day the debt crisis remains, but that's a story for another day.
2. TARP paybacks
If you don’t remember TARP, it stands for Troubled Asset Relief Program. The idea behind the program was the U.S. government would buy equity in financial institutions in order to keep them from going under during the financial crisis.
The government set aside $700 billion for this program. The good news is that after more stimulus from the government -- printing money -- the banks -- well, some of the banks anyway -- can now pay the government back the money it loaned them.
The Treasury is allowing 10 banks to repay up to $68 billion. These TARP repayments will begin Wednesday when JPMorgan Chase (JPM), Morgan Stanley (MS) and American Express (AXP) are expected to make payments.
Now, this has been seen as a non-factor by Wall Street, but combined with signs the credit crisis is abating, don’t underestimate the positive psychological signals being sent here.
3. 944.43
Having said that, 944.43 has been the S&P 500 battleground over the past nine consecutive sessions.
944.43 is the TD Absolute Retracement level from the March 6 low. See chart here.
What we have been watching for is a qualified break of that level to signal the SPX is ready to put that in the rear-view mirror and attempt to scale to a new level above 1,000. Thursday's higher close following a prior down close "pre-qualified" that level as a potential breakout, but in order to meet all the requirements we needed for Friday's open to be above Thursday's close. That was not the case, so the battleground level remains.
Meanwhile, note that Thursday's high, 956.23, finally met the TD Propulsion Up Exhaustion level at 954.12 (shown in light blue on the chart).
All of this increases the probability that the significance of 944.43 remains valid as a ceiling, and that the churn is closer to wearing out buyers than eliminating sellers.
4. Dude, Dell is making a deal
On Thursday, Dell (DELL) CEO Michael Dell said his company is interested in making an acquisition in servers and other corporate data services. Dell said, “We are focused on data centers, service, software, servers and storage. Those are likely areas for Dell to use its capital for non-organic growth.”
Now that we know Dell is on a shopping spree, who will it possibly buy?
Research firm Kaufmann came out with a note of potential acquisition targets, saying it would make more sense for Dell to acquire a smartphone maker, such as Palm (PALM) and Motorola (MOT). The firm said Dell should look this direction -- instead of the one mentioned by the CEO -- because it would be a bold step allowing Dell to go head to head with Apple (AAPL) and Research In Motion (RIMM) in the fast-growing smartphone market.
Whoever Dell buys, expect the deal to come sometime this summer.
5. The socionomics of pandemics
The main tenet of socionomics is that social mood drives social action, not the other way around. This view upends traditional causality and how events are presented in the media. For example, it would be a natural assumption by most people that pandemics, such as the rapid spread of the H1N1 "swine flu" virus, would cause people to become more negative and fearful. The reality, however, may be that negative social mood trends make people more susceptible to pandemics.
This thesis was recently outlined in a new publication from the Socionomics Institute, called "The Socionomist."
"Socionomics posits that the trends in social mood -- widely shared feelings including those of optimism and pessimism -- unfold in a hierarchical pattern of similarly shaped waves that are visible in charts of stock prices, our most sensitive meter of social mood. Major epidemics occur near lows in social mood -- often near significant, fearful bottoms in stock prices -- and can persist well into the subsequent uptrend."
The silver lining here, if there is one, is that the potential peak of the spread of the H1N1 pandemic, which the CDC believes may occur later this year and early next during the typical flu season, will likely coincide with a significant low in stocks, if we have not already seen it.
Take a look at the charts here compared side-by-side. The first chart, from Realty Trac, shows a map of incidence of foreclosure. The second one shows incidence of H1N1 spread via MSNBC.
Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Contributor Kevin Depew.
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