Thoughts from Joe - July 20, 2012

Top Eight

1. The IPO market is attempting a comeback after Palo Alto Networks and Kayak priced above their ranges and rallied on Friday.  This week marks the most active IPO week post-Facebook with over $600 million raised.  Next week, eight companies could go out raising north of $900 million.  The IPO market is definitely back!
   
2. The Spanish bailout came through this week, but indicators continue to point to trouble ahead.   Yields on Spanish 10-year bonds have swung from 7 percent down to 6.77 and back up to 7.23 at the end of the day Friday.  The new Euro-era high in yields is a strong indicator that markets do not believe Spain can be saved.  The dominos are falling and Spain won't be the last.
   
3. Fed Chairman Ben Bernanke appeared before Congress this week providing a downbeat assessment of the economy.  In a slight disappointment to the markets, Bernanke offered no hint of QE3 anytime soon.  The concern over QE3 is distracting from real economic challenges.  Even those that want QE3 realize it is not a long term solution to economic woes.  The sooner Washington begins to deal with our true issues - mortgage financing, fiscal issues, defining new regulations - the sooner recovery will come.
   
4. KKR plans to offer funds to retail investors.  The two funds will focus on investment grade and high yield debt and will be run by the firm's asset management subsidiary.  A good diversification of income stream or monetizing the firm's good name?  Time will tell.
   
5. The IMF lowered its forecast for global economic growth.  Increasing signs of weakness due to the ongoing European debt crisis and slowing emerging economies were seen as the primary causes.  In other news, an economist who worked for the IMF for 20 years resigned in shame wishing to call attention to the lousy job the IMF has done as the world's economic watchdog.  Funny how representatives, congressmen, presidents, and now even economists feel the ability to speak more freely and rationally after resigning.
   
6. Fed's Beige Book says growth was "Modest to Moderate" in June.   The report provides anecdotal evidence of economic activity from the country's 12 Federal Reserve district banks and confirmed Bernanke's testimony in Washington.  No surprises here.  Incidentally, retail sales fell precipitously in June; however there has been some encouraging news in the housing market lately.
   
7. IRS data suggests cash held overseas by corporations could be as high as $5.1 trillion.  This issue is growing as a political football to be used by our two parties this fall.  Unfortunately, our economic problem isn't the amount of cash flowing through the system, but the system itself.
   
8. Banks could face foreclosures from HOAs.  Banks who have foreclosed on properties associated with HOAs or condominium associations are facing liens after failing to pay dues.  The housing market failure's ultimate twist?

Key Indices

Source: Bloomberg

Looking Ahead

• Next week will be rather sleepy in terms of economic data.  We will get more data on housing (new home sales) , durable goods, and the initial estimate for second quarter GDP (Bloomberg survey estimates +1.4 percent).
• Earnings releases include:
  • Monday:  VMWare
  • Tuesday: EMC Corp, Netflix, TripAdvisor, Juniper Networks, Broadcom, Polycom, Apple
  • Wednesday: Alexion Pharma, SolarWinds, Teradyne, Zynga, Cadence Design, Citrix, Equinix, Akamai, AOL
  • Thursday:  Watson Pharma, VeriSign, Gilead Sciences, QLIK Technologies, Ariba, Acme Packet, Amgen, Amylin Pharma, Celgene, Facebook
  • Friday:  Acme Packet, Freescale Semiconductor
• IPOs on the docket include Hyperion Therapeutics and E2open, Inc.