Week 30 Performance.....What the heck is going on out there?

Legendary Green Bay Packer football coach Vince Lombardi used to echo the phrase, "what the heck is going on out there" when things weren't going as expected.  Well this is precisely how we could sum up this week's economic and perplexing market events.


Let's begin with Tuesday's late heroic effort by the Fed to change the direction of the markets in the last hour of the trading day.  With the DJIA down over 200 points the WSJ releases a story that the Fed stands ready to make a move if growth does not pick up soon.  Losses were almost cut in half and we were on our way to a rally that would last the rest of the week.


Then on Thursday, Mario Dragi, head of the European Central Bank announces that the ECB stands ready to do whatever it takes to support the European Union.  In essence his statement put the floor in the markets which were just ready to touch or break through a key technical support level.


If that wasn't enough news worthy drama, on Wednesday former Citibank head Sandy Weill announced on CNBC that the big banks should be broken up.  I guess he is now a believer in "too big to fail".


With all that being said, Friday's GDP number came in at a 1.5% which may have been better than the 1.2% consensus estimates but was well under the annualized 2% number that is critical to keep the economy moving forward.


We also had some major earnings releases including misses by Apple and Facebook which filed it's report for the first time as a publicly traded company on Friday.  The real story behind the results thus far this earnings season has been the misses in revenue.  It has been reported that nearly 60% of those companies who have released earnings have missed on the revenue line.


Companies can massage earnings but revenues are a bit harder to smooth out.  The revenue misses are confirming that the world economies are indeed slowing.  So the challenge then becomes how do you devise an investment strategy around a slowing global economy?


In our view you can still find companies that are growing revenue which we believe is one of the key metrics to follow.  They're just a little harder to find.


So what was so perplexing in this week's market action?  You have to ask yourself if you have a slowing economy and central banks willing to take on more debt why are the markets rallying?  We don't believe that additional quantitative easing will do much to boost economic activity.  Right now you have a crisis of confidence with uncertain headwinds such as the looming fiscal cliff, a tight presidential election in the US, and still no specific plans to fix the European debt crisis.


Consumers just aren't willing to open up there wallets facing this wall of uncertainty.  Throw in anemic job growth and you still have a large group of Americans struggling to cover the basics.  We will be paying close attention to the monthly auto sales releases as we believe that this could be a good leading economic indicator.


We were quite active in the markets this week adding the following positions:

• Buffalo Wild Wings - Although consumers may be tightening their wallets we believe this company can still grow in the face of some headwinds such as rising input costs and a slower overall economy.
• Ford Motor - From a technical standpoint this stock came down to our buy target.  As noted below we believe that monthly auto sales will be a telling sign as to the overall health of the economy.  We believe that Ford with a strong dividend and balance sheet is a moderate risk position we are willing to take on
• Novartis - We have had a high rating on this name based upon our fundamental analysis.  Again this company has a string balance sheet and pays a healthy dividend which we believe is better than hold cash and prevents more upside than risk.
• Kronos - A name which most people might not know, KRO is a chemical company that produces a product used in virtually ever color pigment.  The stock has rated out very high from a fundamental standpoint and looked to be bottoming from a technical standpoint.
• Connoco Phillips - Again this is a name with a strong balance sheet and healthy dividend.  We see a low level of risk being in a position such as this vs. staying in cash.  We also believe that oil will eventually head higher but may experience some turbulence as the economy continues to slow.
• Merk - We hope that people are seeing our consistent theme in strong balance sheet and good dividend payers as Merk is such a company that fits this mold.
• Apple - We see the earnings miss as a small blip on the Apple radar screen.  The miss was largely attributed to lower iPhone sales as people are likely waiting for the new iPhone 5 to come out in October.  

The Week Ahead

This will be a another big week with economic data and a full slate of earnings releases.  The most important driver this week will likely be on Friday when the US jobs report is released.  As noted previously, we believe that auto sales will be a telling economic indicator.  Strong sales might give the economy hope that consumers are still willing to show some confidence.

The FOMC reconvenes this week beginning on Monday and will release it's statement on Tuesday which could send the markets in a decided direction depending if QE 3 is expected.

• Mon -  Dallas Fed Mfg Survey
• Tue -  Personal Income and Outlays,  Employment Cost Index,  S&P Case-Shiller HPI,  Chicago PMI,  Consumer Confidence
• Wed -  Motor Vehicle Sales,  Challenger Job-Cut Report,  ADP Employment Report,  PMI Manufacturing Index,  ISM Mfg Index
• Thu -  Jobless Claims
• Fri -  Employment Situation,  ISM Non-Mfg Index

With so much activity going on this week we will keep our watchlist close and our sell list even closer.

Have a great week!

DreamWorks Capital Management
FREE Seminar:  Our next finance seminar will be on Tuesday September 18th at the The Community House.   The topic will be Balancing Your Changing Investment Needs: Emergency Fund, Investments, Retirement, Education, and Philanthropy.  We will cover significant points regarding creating, developing, and executing on your wealth management plan.  We hope to have another interactive group, so be sure to sign up by emailing me directly at pfenner@dwcmllc.com or by contacting The Community House at 248-644-5832.  There is no charge and light refreshments will be served.