Stocks write ode on a Grecian yearn

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Many analysts say a Greek default is inevitable. | AP

Updated: June 19, 2011 2:21AM

People in Greece went back to rioting last week, and the stock market didn’t care for it a bit. There was a selloff Wednesday, although by the end of the week, nerves on Wall Street calmed.

The market is moving into the second stage that characterizes trading upon a crisis or a negative surprise. The first stage is a fast bailing out of stocks, sometimes in a panic. But the second stage is when traders say, “Enough of that. How can we make money off of this?”

Greece is not a trivial matter. Many analysts are certain that its default is a “when,” not an “if.” Its situation is liable to cause extreme pain to banks in Europe and the malady will spread over here. But economies are not dominoes and the United States, far larger than Greece and with lower debt levels, is under no threat. Nevertheless, the Greek tragedy serves as a warning about unsupportable spending levels and the civil unrest we risk if politicians put off essential choices and reforms.

Nervous investors, as they often do, are seeking safe harbor in the U.S. dollar. Despite all the dollar doomsayers who have published their views, the idea that it could lose its status as the world’s reserve currency is looking ridiculous. What would replace it? The euro might not survive Greece. China’s yuan? It’s a bubble economy, the source of cyber attacks on American enterprise, and with a lousy record for respect of intellectual property.

For all the dollars that the United States has printed for the financial crisis, worldwide money still flows in. Prices on the 10-year Treasury have risen to the point at which its yield, which moves in the opposite direction, is less than 3 percent.

Jack Bouroudjian, a longtime trader at the Chicago Mercantile Exchange who is CEO of Index Futures Group, believes the action in Treasuries bodes well for U.S. stocks. In a blog post about the Greek crisis for CNBC, Bouroudjian wrote, “The market’s pullback these last five to seven weeks is right in that 7 percent sweet spot. The 10-year [Treasury] is a loaded spring, and eventually all that cash will find its way back to risk assets.”

Money seeking risk is just what the blasé market needs.

SLOWER GROWTH: No, this isn’t about the economy. It’s about plant growth, the essential business of Scotts Miracle-Gro (SMG), producer of lawn fertilizer and weed killer. The company has lowered its sales outlook and seen its shares tumble about 15 percent in the last month. And it’s all about the weather.

The wet and cool weeks Chicagoans have complained about have kept them from going to the Home Depot and stocking up on Scotts products for their lawns. Management now expects fiscal 2011 sales to be in line with the prior year’s, compared with a previous forecast of 4 percent to 6 percent growth.

Analysts at William Blair & Co. wrote that Scotts “remains well-positioned for the long-term,” with “a strong innovation pipeline and unrivaled execution capabilities.”

What’s in the innovation pipeline? According to CEO Jim Hagedorn, it’s a product for growing medical marijuana.

“I want to target the pot market,” he told the Wall Street Journal, which observed that a company that makes weed killer aspires to make killer weed. I couldn’t do better than that line.

SOUR OUTLOOK: Dean Foods (DF) shares have ridden a mini-rally in the last six months, going from less than $9 to more than $13, driven in part by optimism from management expressed in the first-quarter earnings report. But Morningstar analyst Erin Lash published a warning on the stock, arguing that its level might not be sustainable.

The dairy giant operates on an impressive scale, which Lash duly notes. But she warned that the competitive pressures are growing; after all, consumers have little brand loyalty to milk. Retailers make it easy to switch because they often use private-label milk as a loss leader.

Lash is also concerned about management upheaval and Dean’s substantial debt load. The company could fall out of compliance with covenants in its bank credit facility, she wrote. DF closed Friday at $12.66.

MORE ON MLPs: My reference last week to master limited partnerships, companies involved in production and storage of energy, as “handy little income producers,” generated word from Dallas-based SteelPath Fund Advisors that it offers what it calls the first mutual funds devoted to the sector. It offers various classes of shares in the MLP Alpha Fund, the MLP Income Fund and the MLP Select 40 Fund.

The funds have been around since March 2010 and don’t carry ratings yet from Morningstar or Lipper. Information is available at steelpath.com.

CLOSING QUOTE: “The stock market doesn’t like rioting — it never does and it never will. The guys with the cigars say, ‘I don’t like this. This is making me uncomfortable. It’s time to get to the sidelines.’ ” — Jeffrey Friedman, senior market strategist, Lind-Waldock, as told to the Wall Street Journal