What I’m Watching This Week – 2 July 2012

That Boom Boom Boom you’re hearing…that probably isn’t just firework

Last week’s EU Summit demonstrated that perhaps the EU leaders are more closely in tune to the reality of contagion than I’ve given them credit for.  The EU Summit produced an agreement to stabilize the regions bank’s and alleviate concern that banks will fail.  They also agreed to drop requirements that taxpayers get preferred creditor status on aid to Spain’s banks, which opens the way to recapitalize lenders directly without bailout funds once Europe sets up a single banking supervisor.   This permits the ESM bailout facility to directly provide bailouts to banks, thus relieving the current system of rendering the loan to the government and further impairing its credit rating.  Spanish and Italian bond yields dropped sharply on Friday, representing a substantial easing of the European debt crisis, which has recently been the main factor holding back the U.S. economy.  I’m, of course, optimistic that all the necessary gears will turn in synchronicity.  One thing I can take from this is the validation of a process of negotiation and compromise.  Something our own elected officials prove themselves completely ignorant of and repetitively incompetent in general.

Speaking of our team, Congress approved legislation on transportation and student loans, with significant bipartisan support.  As we move deeper into summer and ahem, election season, it is the “Silly Season” you know, expect the unexpected and believe none of it.  Now what about that fiscal cliff?  Unsurprisingly, the U.S. Supreme Court’s ruling to uphold Obamacare had a mixed impact on health care stocks with hospitals and Medicaid insurers moving higher while commercial insurance company stocks closed lower. The sector had played both sides of the fence and now that a decision has been made, clarity and transparency rule the day; the posturing can cease and profits will increase.  For some of you, the immortal words of Johnny Rotten will ring true, “Ever feel like you’ve been had?”

For this week, I don’t anticipate all too much activity.  Monday we’ll receive the ISM manufacturing index and then things will get quiet until Thursday when we will get the ECB rate decision, ADP private payrolls, and initial jobless claims.  Friday will bring the employment report.  Otherwise most trading activity will be light with many on vacation through the holiday.  Oh yeah, I expect there will be fireworks come Thursday and Friday.  This week may mark an especially important time for most investors.  You weren’t naive to think that Mr. Volatility was going on holiday also did you?

I’m allowing my optimism to remain strong going in to July, although the market of late seems to be inhabited by the hordes of amateurs interpreting rumors and political noise, there are many positives leading towards gain, most right in front of your face and not hidden behind a tree or something.  Also understand that Markets are by no means “efficient”, As Mr. Warren Buffett says, he would be on a street corner selling pencils from a tin cup if markets were efficient.

Happy Fourth of July !!!