Interest Rates - Inflection Point

Today was a key day for interest rates and equity markets alike. We believe it marked an inflection point, from which expectations for a rate cut, turned toward a general market outlook for a rate hike in 2007.

The GDP report this morning started the day off on the right foot, but the news should not have surprised anyone. Estimates for the most important metric of economic health gradually rose during the month, from 2% on January 1st, to 3% recently, among experts measured by Bloomberg. Economists have increasingly gained confidence in the growth measure due to strong reports from leading economic indicators.

Fourth quarter GDP came in even stronger than anticipated, at 3.5% in the advanced report that will be adjusted as much as twice in the weeks to come. Growth was driven by the strength of the American consumer, despite a 19.2% drop in construction spending. However, prices increased 2.1%, and still measure above the Fed's target range of 1-2%.

As important as the GDP data was, the most important news of the day came from the Federal Reserve at 2:15 p.m., when the Board of Governors reported their decision on interest rates. The Fed kept interest rates steady, as was widely anticipated. Still, market participants were closely attuned to the official statement from the Federal Reserve for possible signs of the direction of their future actions.

In recent statements, the Fed has brought focus to its concern about inflation. With economic growth apparently sustainable despite housing weakness, we expect the Fed will now focus more on getting inflation down into its target range of 1-2%. So, you might understand our surprise when major financial media referred to the official statement from the Fed as "perfect." When reporters went so far as to label the economy "Goldilocks," we were forced to author this note.

Earlier today, we published the official statement from the Fed so that our subscribers might read it for themselves. We would like you to pay close attention to the two paragraphs that follow:

"Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.

The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

As you can see, the Fed never mentioned the possibility of easing interest rates, while they explicitly noted the potential for a firming action. As we have noted in the past, we view food and energy pressures intense enough to drive overall inflation. Healthy economic growth and strong employment only add to the pressure. We believe that between today and the release of the FOMC meeting minutes, in which we expect a hawkish tone to be revealed, the market should recognize the risk and correct. Still, we must note the accuracy of the Bernanke run Fed to date, and take some solace in that. However, if the Fed were forced to act to stifle inflation, we expect investors buying into the Goldilocks theory would be eaten alive by the three bears. (disclosure)

FOMC Official Statement

Below you will find, word for word, today's official release from the FOMC Board of Governors.

Release Date: January 31, 2007

For immediate release:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.

Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters.

Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.

The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh.

Wake Up Call - Jan 31

Good Morning. At 9:40 a.m. EST, U.S. markets are broadly lower following weakness in Asia and on the strength of the GDP report. We believe economic health allows the Fed to target inflation more aggresively, and we expect equity investors to carefully watch Fed tone in their statement this afternoon. We anticipate that tone to be hawkish, and to reflect concern for food and energy price inflation.

Asia:
Hang Seng Index -2.06%; Shanghai/Shenzhen 300 -6.53%; NIKKEI 225 -0.61%; BSE SENSEX 30 -0.85; KRX 100 -0.74%; Ho Chi Minh +1.85%

U.K. & Europe:
DJ STOXX 50 Index -0.42%; FTSE 100 -0.25%; CAC 40 -0.48%; DAX -0.1%; Russian RTS Index +1.02%

KEY HEADLINE NEWS

• Fourth quarter GDP grew 3.5%, exceeding economists' consensus view for 3.0% growth, as measured by Bloomberg. GDP was fueled by strong consumer spending, while home construction fell at a pace of 19.2%. Remember, it was just early January, when economists had widely anticipated 2.0% growth, and the Fed also anticipated less growth than experienced. We reiterate our view that this and recent data showing economic health will intensify the Fed's focus on inflation. We believe the Fed will provide hawkish commentary in this afternoon's statement, while keeping rates unchanged. Prices, excluding food and energy, rose 2.1%, still above the Fed's target range of 1-2%. We expect significant pressure from both food and energy prices in 2007-2008, and anticipate the Fed will act to hike rates before cutting them. All this boils down to a negative impact to equities, if the tone and actions of the Fed reflect our view. Soon enough, we believe it will have to.
• A preliminary report from ADP Employer Services indicated private employers likely added 152,000 jobs in January, versus consensus expectations for 130,000.
• Boeing reported earnings, beating estimates and raising guidance.
• Chinese shares tumbled on increasing awareness of their strong gains and hefty relative valuation.
• See "The Greek's Week Ahead" for the day's and week's economic playbook.

We urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors.

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Check back in later this morning, as "Today's Morning Coffee" will outline in greater detail the day's activity in overseas and commodity markets, and provide economic data & analysis and stock specific news. (disclosure)

Tuesday's Brew - Jan 30

Enjoy your fresh coffee with our summary and analysis of the market activity of the day and a medley of important information you should find useful. U.S. markets are mostly higher today, as the Federal Open Market Committee meeting kicks off. Tomorrow brings a slew of key economic news that should increase trading volatility.

OVERSEAS MARKETS

Japanese household spending declined 1.9% in December, which may keep the Bank of Japan on the sidelines regarding interest rates. Household spending has declined twelve months in a row in Japan, and this data only helps support the case to keep rates unchanged there. Equity investors found the data mildly positive, as the NIKKEI 225 edged upward 0.11%.

The Hang Seng jumped 1.11% Tuesday, while the SHSE-SZSE 300 Index declined 0.97% amid speculation that the Chinese government might continue with further monetary policy restraints. Indian and Pakistani markets were closed on Tuesday.

European shares were mostly on the rise today, with the DJ STOXX 50 Index 0.58% higher, while the FTSE 100 inched up 0.1%. The DAX jumped 1.06% today, possibly benefiting from the depreciating yen.

The most interesting international news these days is mostly coming out of South America, due to increasing anti-American sentiment and the potential for an adjustment to the sovereign debt situation. However, today was relatively quiet. The Brazil Bovespa Stock Index rose 0.94%, while the severely depressed Venezuela Stock Market Index drifted higher 0.15%.

ECONOMIC DATA & ANALYSIS

January consumer confidence was reported by the Conference Board today at 10:00 a.m. EST. A consensus of economists surveyed by Bloomberg saw the index measuring 110.0 compared to 109.0 in December. The actual measure slightly exceeded expectations, at 110.3. A recent report from the University of Michigan also showed confidence high among consumers, and lower gasoline prices have likely played a role in that regard.

However, we do not expect low gasoline prices to hold, while we estimate food prices will increase across the board. As we have outlined in the past, our view on food is based on rising demand for corn, and resulting price increase for its surrogates, wheat and soybean. As the price of feed increases, and we heard this again over the past two days from poultry producers Tyson Foods and Pilgrim's Pride, the price of proteins are likely to rise across the board as well. We anticipate food producers will pass price increases on to consumers, and thus inflation should be buoyed by rising food and gasoline prices. With an economic picture of health becoming more and more clear with each economic data bit, we expect the Fed will raise rates again in 2007. We anticipate hawkish commentary in the Fed statement tomorrow, and in the later release of the meeting minutes. We believe a sharp correction in equities between tomorrow and the release of the Fed meeting minutes is very possible. Weakness in the U.S. market would likely spread to high flying emerging markets and Europe in our view.

COMMODITY MARKETS

As we predicted, the many analysts forecasting the demise of natural gas were too early. In recent reports we mentioned that the many weeks of winter that lay ahead provided enough opportunity for weather to play short-term havoc with natural gas prices. We stated that we anticipated the recent drop in prices was overdone. Keep in mind, we still expect natural gas to weaken ahead of summer, until tensions with Iran escalate into conflict, but we felt it was too early for a trend to be sustainable. Today, nat gas is up 5%, while heating oil is 0.72% higher.

Remember, we told you last week that if refiners were transitioning early to produce gasoline over heating oil and other distillates, then we could be in for a surprise on heating oil supply in coming weeks, should the weather remain cold. WTI crude oil futures are up 0.87%, due to the weather and on secular geopolitical drivers that brought the price back from the depths of $50, as we predicted two weeks ago Thursday.

Today's news regarding Saudi Arabia that is grabbing headline attention is not worth noting, but we must clarify the situation to you, as we did in "Wake Up Call" this morning. The Saudi cuts grabbing headlines among naive reporters this morning are just follow through on the already agreed upon reductions. CNBC finally figured this out about a half hour ago, and clarified on why oil prices were not reflecting this dramatic news.

STOCK SPECIFIC NEWS
The long anticipated release of Microsoft's Windows Vista operating system brightens the view for the tech giant today, after its quarter reported last week was impacted by the product's delay.

UPS reported fourth-quarter EPS of $1.04, in line with the consensus view, as compiled by Thomson Financial. However, UPS shares are down 3.3% in morning trade as the company's guidance for '07 presented an expectation for EPS growth of 6-10%, to $4.10-$4.25. UPS shares are on the slide today because the analysts' consensus view was for $4.27 in 2007, according to Thomson Financial.

Procter & Gamble (PG) exceeded analysts' quarterly forecasts on revenues, and earned $0.84 a share, versus the $0.83 anticipated by analysts surveyed by Thomson Financial. P&G also raised its guidance for 2007, from $2.97-$3.02 to $2.99-$3.03, as it showed strength across product lines.

Merck & Co.'s fourth quarter report showed the pharmaceutical maker earned $0.50 before acquisition and restructuring charges, compared to analysts' consensus for $0.51, as compiled by Bloomberg. Thomson Financial showed consensus expectations at $0.50. Merck's results were hurt by weaker Zocor sales.

Others reporting earnings Tuesday include Wyeth, 3M Company, Allstate Corp., Colgate-Palmolive, Illinois Tool Works, Countrywide Financial, AFLAC Inc. and Chubb Corporation.

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Wake Up Call - Jan 30

Good Morning. At 9:00 a.m. EST, earnings news and the beginning of the two-day Fed meeting seems to have investors enthused, as S&P 500 and NASDAQ indices futures indicate a higher open to start the day.

Asia:
Hang Seng Index +1.11%; Shanghai/Shenzhen 300 -0.97%; NIKKEI 225 +0.11%; BSE SENSEX 30 CLOSED; KRX 100 +0.61%; Ho Chi Minh +2.7%

U.K. & Europe:
DJ STOXX 50 Index +0.3%; FTSE 100 -0.06%; CAC 40 +0.19%; DAX +0.67%; Russian RTS Index -1.24%

KEY HEADLINE NEWS

• Procter & Gamble Co. (PG) exceeded analysts' quarterly forecasts on revenues, and earned $0.84 a share, versus the $0.83 anticipated by analysts surveyed by Thomson Financial. P&G also raised its guidance for 2007, from $2.97-$3.02 to $2.99-$3.03, as it showed strength across product lines.
• Merck & Co.'s fourth quarter report showed the pharmaceutical maker earned $0.50 before acquisition and restructuring charges, compared to analysts' consensus for $0.51, as compiled by Bloomberg. Thomson Financial showed consensus expectations at $0.50. Merck's results were hurt by weaker Zocor sales.
• As scheduled, Saudi Arabia is cutting production further starting February 1st. This is not new news, but is receiving attention as if it were this morning.
• Microsoft's Vista operating system launched today, and is already being challenged in Europe by the company's rivals, who claim it presents an anti-competitive threat.
• Japanese household spending declined in December, and may keep the Bank of Japan on the sidelines regarding rate change, in our view.
• As we have outlined in the past, Hugo Chavez is seeking to broaden his powers, following in the footsteps of Castro.
• At 10:00 EST, the Conference Board will release its data on consumer confidence. See "The Greek's Week Ahead" for the playbook.

We urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors.

You can receive "Wake Up Call" in your email inbox at the moment we publish it to the site. Just click here and provide us with your email address. We respect your privacy, and never share your information with third parties.

Check back in later this morning, as "Today's Morning Coffee" will outline in greater detail the day's activity in overseas and commodity markets, and provide economic data & analysis and stock specific news. (disclosure)

Wake Up Call - Jan 29

Good Morning. The time is 9:15 a.m. and ahead of a very busy economic data slate this week, the S&P 500 and NASDAQ Indices are indicating a slightly lower open Monday.

Asia:
Hang Seng Index -0.22%; Shanghai/Shenzhen 300 +2.55%; NIKKEI 225 +0.28%; BSE SENSEX 30 -0.5%; KRX 100 -0.56%; Ho Chi Minh +2.13%

U.K. & Europe:
DJ STOXX 50 Index +0.09%; FTSE 100 +0.14%; CAC 40 +0.51%; DAX +0.3%; Russian RTS Index -0.56%

KEY HEADLINE NEWS

• Federal Reserve Chairman Ben Bernanke and European Central Bank Chief Jean- Claude Trichet may find that lower oil prices lead to inflation more effectively than higher prices. The concern is that the sharp drop in prices seen in January could act as a strong economic stimulus at a time when economies in Europe and the United States do not need it. We here at WSG clearly do not see a threat from prices, as we anticipate a relatively short-lived time period before prices rise again.
• Facing the many challenges of individual nationalistic goals, the WTO has been working on the sidelines of the World Economic Forum in Davos to improve the efficiency of global trade. Though stumbling blocks remain, some world leaders have expressed hope for progress.
• Microsoft Vista goes on sale tonight at midnight.
• Verizon Communications Inc. said its fourth quarter profit was impacted by network investment.
• French financial newsletter La Lettre de l'Expansion broke a story today that Sanofi-Aventis may have signed a pre-merger agreement with Bristol-Myers Squibb, which would create the world's largest pharmaceuticals company.
• Citigroup agreed to buy Prudential's internet bank, Egg, for $1.13 billion.
• Merrill Lynch & Co. announced it will buy First Republic Bank, a servicer of the wealthy.

We urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors.

You can receive "Wake Up Call" in your email inbox at the moment we publish it to the site. Just click here and provide us with your email address. We respect your privacy, and never share your information with third parties.

Check back in later this morning, as "Today's Morning Coffee" will outline in greater detail the day's activity in overseas and commodity markets, and provide economic data & analysis and stock specific news. (disclosure)

The Greek's Week Ahead - Jan 28

After a lower move for stocks last week, investors will look to the Fed and GDP, as well as corporate earnings reports for direction in the week ahead.

Last week, the president surprised us and the Democrats with a compelling State of the Union Address. He skillfully controlled the ovation in his favor, with Democrats often finding themselves confused as to how to react to his comments without offending the American public. Still, we do not expect much to be accomplished by the divided branches of government over the next two years.

One-quarter of the companies in the S&P 500 Index reported earnings last week, and nearly another quarter of them will report this week, including Procter & Gamble, Altria, Time Warner and Exxon Mobil. Some significant NASDAQ components are scheduled to report as well, including Google and Amazon Corp. Thomson Financial currently estimates earnings for the S&P 500 Index to grow less than 10% in the fourth quarter of 2006, marking the first time in five years the index will have grown at a rate below double-digits.

Despite the slew of earnings reports on the slate for this week, we expect economic data to drive the market, keyed by the advanced GDP report and Fed meeting statement on Wednesday. With a good deal of encouraging data preceding this week's report, we anticipate the Fed to focus even more on inflation. Suddenly, the seemingly overly cautious Richmond Fed President, Jeffrey Lacker, who has continually voted to raise rates, is looking more and more like the voice of reason. We expect the market to pay close attention to average hourly earnings and prices in the future, as we believe a rate increase is now more likely than a decrease.

Monday represents the quiet before the storm, as a light data schedule will allow market participants to ease into the groove. No economic data is due for release. Preparations will begin for peace negotiations regarding the Palestinian territories. Sure seems a dollar short and minute too late, as Gaza stands on the brink of civil war. Months ago, we highlighted our concern that American and Iranian interests would fertilize a rift between the Palestinian political groups, Fatah and Hamas. In recent weeks, America has authorized funds for Mahmoud Abbas' Fatah party, while Egypt has gone so far as to ship arms to Abbas with the permission of Israel. At the same time, Hamas leaders traveled to Iran and have vowed to never accept Israel as a sovereign nation. A unified government looks like an impossibility for the Palestinians, and yet another opportunity seems lost. Companies scheduled to report earnings on Monday include Verizon Communications, Schering-Plough, Phelps Dodge Corp. and Sysco Corporation.

Tuesday starts the data parade with the 10:00 a.m. January consumer confidence report from the Conference Board. A consensus of economists surveyed by Bloomberg sees the index measuring 110.0 compared to 109.0 in December. A recent report from the University of Michigan showed confidence high among consumers, and lower gasoline prices have likely played role in that regard.

The long anticipated release of Microsoft's Windows Vista operating system should brighten the view for the tech giant on Tuesday, after its quarter reported last week was impacted by the product's delay. Others reporting earnings Tuesday include Procter & Gamble, Merck & Co., Wyeth, 3M Company, United Parcel Services, Allstate Corp., Colgate-Palmolive, Illinois Tool Works, Countrywide Financial, AFLAC Inc. and Chubb Corporation. In overseas activity, Indian markets will be closed on Tuesday.

Wednesday will be a telltale day for the week, with critical data revealed. The markets will anxiously await the 8:30 a.m. advanced report of fourth quarter GDP. Estimates for the most important metric of economic health have gradually risen during the month, from 2% to now 3% among experts measured by Bloomberg. Economists have gained confidence in the growth measure due to strong reports from leading economic indicators.

The most important news of the day is likely to come from the Federal Reserve at 2:15 p.m., when they report their decision on interest rates. The Fed is widely anticipated to hold rates steady this time around, but market participants will be closely attuned to the official statement for any sign of a future rate hike. In recent statements, the Fed has brought focus to its concern about inflation, and with economic growth apparently sustainable despite housing weakness, perhaps the Fed will now act more aggressively to bring inflation down into its target range of 1-2%.

At 10:00 a.m. EST, the National Association of Purchasing Management - Chicago issues its purchasing managers index. Bloomberg's consensus of experts forecasts a reading of 52.0, versus a revised 51.6 measure for December. The measure will be viewed as a prelude to the ISM data release on Thursday. Also on Wednesday, December construction spending will be reported and Bloomberg's consensus forecasts no change for December, after November showed a decrease of 0.2%. The commercial construction market has remained healthy, but recent new home sales may not signify strength in construction, as homebuilders eat through a fatty layer of excess inventory that remains from the days of housing strength.

President Bush is scheduled to speak in New York City on economic conditions, while former Clinton aides Robert Rubin, Alan Blinder and Lawrence Summers testify in Washington before the Joint Economic Committee on how to create prosperity for middle class America. Treasury Secretary Henry Paulson will testify to the Senate on economic and exchange rate policy this same day.

The earnings schedule for Wednesday includes Altria Group, Google, Time Warner, Boeing, Eli Lilly, Gilead Sciences, Dominion Resources and Starbucks.

In our view, Wednesday's news overshadows Thursday's data releases that might otherwise significantly impact the market. At 8:30 a.m. Thursday, December personal income and consumption will be posted. Bloomberg's consensus sees December personal income rising 0.5%, compared to a November increase of 0.3%. Consumption is seen increasing 0.7% in December, compared to a 0.5% rise in November. January ISM is scheduled for release at 10:00 a.m. EST, and the consensus view is for a measure of 51.8, compared to a December reading of 51.4, according to Bloomberg.

The long awaited oil production cut of 500,000 barrels a day is slated to begin on Thursday, but last week's announcement by the U.S. government that it would begin filling the strategic oil reserve, shed clarifying light on why OPEC remained so patient in the face of collapsing oil prices during January. Automakers will report January vehicle sales Thursday. Last week, data showed that Toyota narrowed the gap between it and GM to just 162,000 vehicles in 2006.

Challenger, Gray & Christmas will issue its report on January job cuts, but recent data has provided evidence of a continued healthy job market. Friday brings more important employment data. The earnings reporters for Thursday are Exxon Mobil, Comcast, Anheuser-Busch, St. Paul Travelers, Valero Energy, Marathon Oil, CVS, Boston Scientific, Raytheon and Apache Corp.

After an unexpected rock solid report showing 167,000 nonfarm jobs created in December, January nonfarm payrolls are seen increasing by 145,000 on Friday, according to Bloomberg. In the past, we have observed significant revisions to data provided by this report, so its reliability is somewhat questionable. Unemployment is seen mirroring December's rate of 4.5%. The most closely watched measure within the report, however, will be average hourly earnings. The Fed will want to see tame wage inflation, and the market will view any significant increase in wages threatening to interest rates and equity and bond markets. Average hourly earnings are seen increasing 0.3% according to Bloomberg.

December factory orders are set for release at 10:00 a.m. EST, with the consensus view for a rise of 1.8%. This report gives more complete information than the durable goods orders report of the prior week. Finally, the University of Michigan's report on January consumer sentiment is scheduled for Friday, and is seen measuring at approximately 97.7, versus a measure of 98.0 previously.

Chevron and Simon Property Group are scheduled to report earnings on Friday. We think it's worth noting that Tehran will host a meeting of the Non-Aligned Movement, during which Iran is expected to display its nuclear progress. We believe this effort is designed to instill confidence in the group that Iran can stand up to the pressure of the United States and Europe.

Our Superbowl XLI pick is the Indianapolis Colts, but we recommend you see www.MondayMorningMehta.com for a more detailed analysis of the American classic. We hope you found value in this week's edition. In order to receive "The Greek's Week Ahead" in your email inbox the moment it is published, click here and provide us with your email address. (disclosure)

Friday's Brew - Jan 26

Enjoy your fresh morning coffee with our summary of the market outlook for the day and a medley of important information you should find useful. U.S. markets are broadly lower today, as robust durable goods orders and encouraging new home sales, combined with inflation levels above Fed target, means a rate cut is likely off the table, in our view. However, if inflation recedes, we could be experiencing an extremely soft landing, and eventually equity markets should reflect that health.

OVERSEAS MARKETS

Shares in China were impacted today by news out of the World Economic Forum in Davos, Switzerland. In a speech to some of the world's most influential people, Chinese Central Bank Deputy Governor Wu Xiaoling, said that China would impose environmental rules on manufacturers in order to improve the efficiency of energy usage, impact pollution, and slow China's economic growth. That last part displayed to Chinese investors that the government means business, and that it intends to restrain inflation. Further rate increases are widely expected within China, and it's clear that the government is concerned about inflation and acting upon it. As a result, the Hang Seng fell 1.88%, but the Shanghai and Shenzhen 300 Index climbed 2.45% as the massive force of speculation is hard to slow, though not so tough to crash.

The Philippine SE Index sank 3.4%, after a big rise higher in recent trading. We believe the volatility seen within the hot markets of mainland China, Vietnam, the Philippines and others, is indicative of trading within markets where valuation is stretched and extra sensitive to news. Thus, we feel that many of the world's emerging markets are highly exposed to the risk of severe correction.

Europe is broadly lower today also, with the DJ STOXX 50 down 0.81%. Most of Europe's major markets are experiencing similar declines. With Hugo Chavez now threatening to send the American Ambassador home, The Venezuela Stock Market Index is down another 1.28%, but we recommend you not look for value there. Despite the sharp drop experienced in Venezuelan shares over the last few weeks, investing there is analogous to trying to catch a falling machete, let alone a knife.

ECONOMIC DATA & ANALYSIS

December Durable Goods data was reported this morning, and showed a very strong 3.1% rise, compared to an increasing consensus view for a rise of 3.0% and versus revised November growth of 2.2%. Even excluding very strong demand for commercial aircraft, durable goods orders were healthy across many industries, including automobiles. The strength of orders was widely unexpected just two weeks ago, and recent signs from other economic data led Economists surveyed by Bloomberg to gradually raise their forecasts for durable goods, in our observation.

We have seen the same kind of increases for GDP, which is scheduled for advance report next week. It is now clear to most that a rate cut is off the table, and we may even see another rate increase, should inflation prove troublesome. If not, then this was the softest landing anybody could have asked for, and the economy and equity markets should reflect that health in 2007.

Still, keep an eye on housing and its interrelated risks with inflation, mortgage rates, defaults and foreclosures. December new home sales were reported at 10:00 a.m. EST, and, as we expected and outlined in "The Greek's Week Ahead," showed the effects of active marketing and price reduction among home builders that we mentioned previously. In other words, we expected new home sales to show up better than existing home sales results.

New home sales for December increased 4.8% to an annual pace of 1.12 million. The consensus view posted by Bloomberg expected new home sales of 1.052 million, compared to revised higher November sales of 1.069 million. December housing starts data previously reported gave us some insight into this growth.

COMMODITY MARKETS

Well, we told you this morning, and it's playing out today; natural gas is 2% higher, while heating oil is up 1.4% and crude is rising 1.05%, as a sweeping extreme cold freezes the Northeastern United States. Traders are very sensitive to weather patterns, and though we agree that natural gas should decline if the winter seems to be wrapping up prematurely, there are still significant weeks of winter left to play havoc with pricing. So, what I'm saying is the analysts predicting that natural gas prices are going to collapse, are too early, though they may be correct. Still, the floor for nat gas is limited with Iran hanging in the balance. We also outlined why in "Thursday's Coffee," and it's greatly due to the increasing substitution of natural gas for other energy and fuel sources. Also, global warming poses a medium term risk, should warming tip the balance, and lead to an extreme and swift change to colder temperatures. (If you are confused, review yesterday's article)

Nickel is up 1.9%, and Jim Cramer detailed the situation very well this week on his show "Mad Money." Nickel is widely used to harden other metal compounds, and the nickel market is a relative monopoly controlled by Companhia Vale ADS (RIO). Cramer listed RIO as one of a handful of international stocks he considers worth buying.

GEOPOLITICAL NEWS (not otherwise covered)

NATO ministers meeting in Brussels agreed to bolster their efforts to maintain control of Afghanistan ahead of a suspected planned Taliban offensive. The U.S. has committed another $10.6 billion toward the cause.

Meanwhile, Iran is rumored to be working toward firing off a satellite launching missile. This is yet another sign that Iran may be working hand-in-hand with North Korea. What if Iran, Syria, Venezuela and North Korea have decided not to wait their turns in line for a U.S. whipping. What if instead they have decided to come to the assistance of one another should one be engaged by the U.S. Did you know that such an agreement already exists between Syria and Iran? Well it does, and was signed quite a long time ago, when Iran realized it could organize some of our enemies. What if the rumored assistance of North Korea to help Iran test a nuclear explosive device is more than that. What if Iran with its millions in oil generated wealth has already purchased and controls nuclear weapons. What if it has already smuggled such weapons across the porous American border. What if Iran rushes its massive forces across the Iraqi border and is welcomed as liberator. What would stop Iran from forcing its way into Kuwait, and how would Saudi Arabia react. The answer is this, oil prices would skyrocket until we could restore the Middle East to stability, and while there is no doubt we are capable of doing so, a great deal of havoc and chaos could be accomplished before that.

STOCK SPECIFIC NEWS
Friday's earnings reports included Caterpillar, Honeywell International and Halliburton. Caterpillar (CAT) shares are up 2.6% in late morning trading, as it provided EPS guidance for 2007 that fell within the analysts' consensus range, as compiled by Thomson Financial.

GM announced today that it will delay its earnings report and restate earnings back to 2002. Everything is okay though, as GM previously understated its results and there was no impact to cash flows. Also, the company released news that it would report a profit for the fourth quarter. GM shares are down 0.9% in morning trading. The decline in GM may have more to do with Toyota than with its own news, as Toyota posted its vehicle production data for 2006 today. The company generated global production growth of 10%, and the gap between it and GM was just 162,000 vehicles. It seems like Toyota is likely to surpass GM as the world's largest automobile producer in 2007.

You can receive "Today's Morning Coffee" in your email inbox at the moment we publish it to the site. Just click here, provide your email address, and we will add you to the distribution list. We respect your privacy, and never share your information with third parties. (disclosure)

Wake Up Call - Jan 26

Good Morning. The time is 9:00 a.m. and major U.S. equity markets are indicating a broadly higher open. The Dow looks set to rise the most, thanks to strength from Caterpillar after its earnings report, which was not as bad as whispered.

Asia:
Hang Seng Index -1.88%; Shanghai/Shenzhen 300 +2.45%; NIKKEI 225 -0.21%; BSE SENSEX 30 0.00%; KRX 100 -0.88%; Ho Chi Minh -1.43%

U.K. & Europe:
DJ STOXX 50 Index -0.39%; FTSE 100 -0.15%; CAC 40 -0.14%; DAX -0.12%; Russian RTS Index -0.86%

KEY HEADLINE NEWS

• GM announced today that it will delay its earnings report and restate earnings back to 2002. Now take a breath... Everything is okay, as GM understated its results and there was no impact to cash flows. Also, the company released news that it would report a profit for the fourth quarter. We expect the stock to rise or hold steady today, and GM shares are relatively unchanged in pre-market activity.
• Toyota posted its vehicle production data for 2006 today. The company generated global production growth of 10%, and the gap between it and GM was just 162,000 vehicles.
• Another WSG prediction is playing out, as hog farmers brace for further increases in feed prices. Food inflation is on its way to your dinner table, and the American consumer's savings from lower gasoline prices will be eaten for lunch.
• WSG predicted the oil price bottom last week (see for yourself) as it tested $50, and we're telling you now that today's extreme cold in the Northeastern U.S. should add further lift to oil and natural gas prices.
• December new home sales are set to be reported at 10:00 a.m. EST today.

We urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors.

You can receive "Wake Up Call" in your email inbox at the moment we publish it to the site. Just click here and provide us with your email address. We respect your privacy, and never share your information with third parties.

Check back in later this morning, as "Today's Morning Coffee" will outline in greater detail the day's activity in overseas and commodity markets, and provide economic data & analysis and stock specific news. (disclosure)

Thursday's Brew - Jan 25

Enjoy your fresh coffee with our summary of the market outlook and activity for the day and a medley of important information you should find useful. U.S. markets are broadly lower today, after an increase in weekly jobless claims and greater than expected decrease in existing home sales in December.

OVERSEAS MARKETS

Shares in China were impacted by economic data. A government report showed that GDP grew 10.7% for the year, exceeding the 10.4% rate of growth in 2005. However, during the fourth quarter, growth slowed to a 10.4% rate, while consumer prices in December were 2.8% higher than the prior year. The combination of price inflation and a slowing economy concerned traders, in our view. The recently strong Shanghai and Shenzhen 300 Index fell 3.3%, as all of the mainland's indices collapsed. The Hang Seng Index dipped 0.73% on the day, as Chinese investors found no safe haven. We reiterate a recently stated recommendation that investors should consider taking money off the table from the high-flying and relatively more expensive Chinese markets.

In Japan, the NIKKEI 225 edged lower 0.28%, as the Japanese trade surplus increased less than was expected. The surplus increased 22.8% on strong import growth and amid speculation that U.S. market demand weakness played a role. Japan, as a developed market, is finding increasing export competition from emerging markets in its region, and import growth of 7.6% is undeniable and should grow over time, despite blame being attributed to commodity prices. In the future, automobile exports may be cannibalized some by Toyota's efforts to shift more production to U.S.-based assembly plants. India's market was one of few Asian markets to show strength today, as the BSE SENSEX rose 1.2%.

Europe was weak today as well, and the DJ STOXX 50 declined 0.25%. Germany's DAX dipped 0.43%, as business optimism in the world's third largest economy decreased in January. However, January's measure was not far off December's mark, which was the highest since German reunification began in 1991. Still, directional change matters in moving markets, maybe more than anything else, in our view.

ECONOMIC DATA & ANALYSIS

December existing home sales fell 0.8% to an annual rate of $6.22 million homes, lower than Bloomberg's consensus view for 6.25 million and below the 6.27 million measure in November. Indications have been that the housing market had strengthened in early 2007, but we have been stating our view that housing should weaken further this year. We continue to theorize that new home sales will outpace existing home sales, as home builders accept the reality of necessary price cutting at a faster pace then home owners, and as they sell through their inventory. Also, home builders are adept at providing incentives to prospective purchasers, where existing owners are much less active despite the desperate pushing of commission hungry real estate agents. New home sales will be reported tomorrow. What we found surprising was that the median price of a home was unchanged at $222,000.

Weekly jobless claims were reported at 325,000, well above expectations for 305,000. Seasonal factors may have come to play since last week was holiday shortened. Data before today had been very strong, and even this measure is not alarming in our view.

The Kansas City Federal Reserve Bank will report on the state of its manufacturing sector on Thursday. Finally, the help-wanted advertising index will be posted, but this metric is in need of a makeover, as it excludes on-line services like Monster and Career Builder.

COMMODITY MARKETS

The EIA inventory report on natural gas was released this morning. Yesterday, natural gas prices fell in sympathy with heating oil, as the distillates report indicated growth in supply. However, growth in distillates was greatly driven by a strong build in gasoline stocks, as heating oil inventory decreased. We advised traders to take a short-term long position in natural gas. Well, we got one right and one wrong, after predicting the buy entry point for oil on last week's inventory report.

The EIA's report on natural gas showed a seasonal draw of 179 bcf, in line with expectations but surpassing last year's draw of 76 bcf and the historical five-year average drop of 160 bcf for the calendar period. Traders are arguing that natural gas was over-bought, and analysts are arguing that there is not much winter left to eat into the nations supply. This view is driving natural gas prices lower 3.4% today. Despite our admitted error on the short-term trade idea, there are a few reasons why we remain positive on natural gas and oil.

A severe cold front is going to freeze traders in Chicago and New York over the next week, and the forecast into February is for continued normal winter weather patterns. El Nino was suppose to cause a mild winter this year, but NOAA recently adjusted their forecast, indicating El Nino would make less of an impact. Al Gore's film, An Inconvenient Truth, and the views of most scientists globally, indicate that global warming could eventually lead to a dramatic and swift shift in temperatures colder. Reason being, the polar ice caps are melting, bringing fresh water levels up within the ocean and impacting the gulf stream and other warming currents. Eventually, the impact of this change is expected to put North America and Europe into a deep freeze. This is not happening now, but perhaps the unexpected easing of El Nino this year is an indication of such pending impact over the next few years. The rate of melting is dramatic enough to make that statement. I highly recommend readers see the documentary. Before I saw it, I was like most of you who just raised an eyebrow as I suggested renting the film. Now, I might vote for Al Gore if he were to run for president, and I am a republican who favors confronting Iran.

The second reason I favor remaining long energy is the announcement from the government two days ago that it would begin refilling the strategic oil reserve. We calculated how long it should take the government to do so at the rate it stated, and it comes to 360 days. Did you know the U.S. government filled the strategic reserve before bombing Iraq and liberating Kuwait? Did you also know the U.S. government filled the reserve just before invading Iraq again a few years ago? So, I do not think it is coincidence that we are filling the strategic reserve now, ahead of the confrontation I anticipate with Iran in 2007/2008. According to the timeline created by the reserve build schedule, which is to start in the spring, the event would take place in early 2008. However, we anticipate an earlier war, possibly even begun with a preemptive strike by Iran and allies.

As natural gas is increasingly becoming more and more a substitute for oil, it should rise along with it as tensions escalate toward conflict. Natural gas already competes with heating oil to warm homes and it provides an increasing portion of the nations electricity. Hydrogen powered fuel cells, which use natural gas as an input, could eventually supplant some of the country's gasoline demand. However, currently, hybrid engines, ethanol and bio-fuel are more effective in doing so. Still, hydrogen fueled distributed power plants are taking share of the generation market, especially where energy independence is important for strategic reasons or where industrial waste can be used to generate hydrogen, like in water treatment facilities and breweries for instance. So, for these reasons, I believe investors should retain long-term positions in natural gas stocks, or build them during the summer should prices decline into the summer as some analysts are predicting.

STOCK SPECIFIC NEWS
This mornings earnings headliners were Ford, AT&T, Dow Chemical, Bristol-Myers Squibb, Cardinal Health, Lockheed Martin, Baxter International, Kimberly-Clark, Southern Company and Occidental Petroleum. Today's afternoon schedule includes Microsoft, Amgen, Franklin Resources and Hartford Financial Services.

Expectations based on Thomson Financial:

Company / EPS estimate for quarter

Microsoft (MSFT) $0.23

Amgen (AMGN) $0.95

Franklin Resources (BEN) $1.51

Hartford Financial (HIG) $2.26

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Wake Up Call - Jan 25

Good Morning. The time is 9:10 a.m. and major U.S. equity markets are mixed this morning. While a report from Ford drives the Dow and S&P 500 futures lower, Ebay's earnings news has the NASDAQ looking up.

Asia:
Hang Seng Index -0.73%; Shanghai/Shenzhen 300 -3.3%; NIKKEI 225 -0.28%; BSE SENSEX 30 +1.22%; KRX 100 -0.18%; Ho Chi Minh -2.71%

U.K. & Europe:
DJ STOXX 50 Index +0.13%; FTSE 100 -0.3%; CAC 40 -0.25%; DAX -0.17%; Russian RTS Index +1.21%

KEY HEADLINE NEWS

• While Ford's earnings miss is driving the S&P 500 lower, Ebay's report is driving the NASDAQ higher in pre-market activity. AT&T reported strong results as well.
• China's GDP growth, at 10.7% in 2006, exceeded its growth of 10.4% in 2005. However, it appears that Chinese government efforts, combined with the slowing of the U.S. economy, have been a bit effective in controlling economic expansion. China's GDP growth in the fourth quarter calmed to 10.4%. The nation with the world's fourth largest economy has raised interest rates a couple times and increased reserve requirements for banks in an effort to restrain speculation and control inflation. Still, consumer prices showed a 2.8% jump in December, compared to 1.5% for all of 2006.
• Business optimism in Germany, the world's third largest economy, decreased in January. However, January's measure was not far off December's mark, which was the highest since German reunification began in 1991. Still, directional change matters, and the DAX is lower today by 0.17%.
• Japan's trade surplus missed expectations, while increasing 22.8% on strong import growth and amid speculation that U.S. market demand weakness played a role. Japan, as a developed market, is finding increasing export competition from emerging markets in its region, and import growth of 7.6% is undeniable, despite blame attributed to commodity prices. In the future, automobile exports may be cannibalized some by Toyota's efforts to shift more production to U.S.-based assembly plants.
• A Russian smuggler was arrested in Tbilisi, Georgia attempting to sell 3.5 ounces of highly enriched uranium, while claiming he had much more.

We urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors.

You can receive "Wake Up Call" in your email inbox at the moment we publish it to the site. All you have to do is click here and provide us with your email address. We respect your privacy, and never share your information with third parties. Check back in later this morning, as "Today's Morning Coffee" will outline in greater detail the day's activity in overseas and commodity markets, and provide economic data & analysis and stock specific news. (disclosure)

Wednesday's Brew Ja 24

Enjoy your fresh coffee with our summary of the market activity and outlook for the day and a medley of important information you should find useful. U.S. equity markets are broadly showing their approval of the president's State of the Union Address, as stocks are rising across major indices. Don't miss our short-term buy recommendation on natural gas within the "Commodity Markets" section below.

OVERSEAS MARKETS

Recently positive economic indicators, including the Conference Board's leading indicators released yesterday and University of Michigan's measure of consumer sentiment released Friday, drove Asian exporters higher again today. Korea's KRX 100 climbed 1.35%, India's BSE SENSEX 30 rose 0.49% and Taiwan's TAIEX rose 1.06%.

U.K. economic growth, as measured by GDP, showed improvement of 0.8%, its greatest rate of growth since 2004. This might normally have concerned equity markets, raising the specter of a possible rate hike, but the minutes of the Bank of England's January meeting showed its recent hike passed by just one vote. This seemed to console the market, as the FTSE 100 rose 1.4%.

The Venezuela Stock Market Index is down again today 0.68%, after dropping sharply over the past two weeks on the recent policy decisions of Hugo Chavez's administration.

ECONOMIC DATA & ANALYSIS

Today allows Maria Bartiromo to utter her second favorite word, "Davos," which follows only "folks" on her list of linguistic loves. The World Economic Forum kicks off in Davos, Switzerland.

The Mortgage Bankers Association reported its survey of loan applications today. Last week's housing data and strong application numbers were overlooked by the market, as it focused on inflation concern. Today, the MBA reported that in the week ended January 19, U.S. mortgage applications declined. Loans for home purchases were down 8.4%, while refinance mortgages fell 9.6%.

Higher interest rates were widely blamed for the drop, as rates on 30-year fixed rate mortgages edged up 0.03 percentage points during the week. The increase for 15-year mortgages was just 0.01%.

We have another explanation for the decline, which we believe is just part of the longer term downtrend in housing and a saturated refinance market. As we also stated in "Wake Up Call" earlier this morning, we previously discussed the sales efforts of mortgage brokers, real estate agents and home builders. We published our opinion more than once now that salesmen would paint a rosy picture for skeptical buyers, using the "it will be better next year" sales pitch to encourage customers on the fence to pull the trigger on a home purchase or refinance. We have also noted several times that we anticipate a short-term uptick in housing early this year, before a second leg lower in 2007. Now, we must also note that economic data has been very encouraging since our view was first expressed, and this may help soften the downward trend we anticipate in 2007.

COMMODITY MARKETS

Two key data points got a second look Wednesday, as the Department of Energy reported on U.S. crude oil and distillates inventory. Recall that last week's numbers sent oil back to retest $50. We then issued our timely buy call on oil, forecasting the bearish data and predicting the subsequent price slide. We expected this week's data to be insignificant, due to its following of President Bush's State of the Union Address.

Still, crude oil inventory grew, but growth in distillates inventory, which includes heating oil, surprised the market today. With the onset of a cold spell last week, analysts had greatly anticipated a draw in distillates and heating oil. Distillate inventory grew by 700,000 barrels, where analysts had been expecting an 800,000 barrel decline.

Analysts and the market may be missing the whole story this morning. The distillates rise was greatly impacted by growth in gasoline supply, while heating oil actually declined. It may be that refiners are already undergoing maintenance to prepare for the summer driving season. If this is so, and the winter were to get suddenly colder, as is anticipated, then heating oil stocks could dramatically decrease over the next few weeks due to a lower degree of production. Heating oil inventory declined by 1.5 million barrels during the week. Gasoline inventory grew by 4 million barrels. Near contract heating oil futures are down 2.1% today, while crude oil is approximately $53.84, down 2.18%.

We think there is another opportunity... The recently higher price of oil and relatively low price of natural gas may have led many consumers to convert from heating oil to a natural gas fueled heating source. Now, heating oil did in fact show a decline this week, but whether there is conversion occurring or not, we expect natural gas to also show a draw tomorrow. Natural gas is down 2.74% today in sympathy with petroleum, and we believe a buying opportunity has been created due to the misinterpretation of today's oil data. In plain English, we would buy natural gas today for the short-term trade.

STOCK SPECIFIC NEWS
Earnings reports for Wednesday include McDonald's, Qualcomm, Conocophillips, Abbot Labs, Wellpoint, Ebay, Exelon Corp., General Dynamics and Corning.

McDonald's (MCD) is down 1.25% after its EPS report today; Advanced Micro Devices (AMD) shares are down over 8% after its report; Yahoo! (YHOO) is up 7.6% after announcing it will speed its "Project Pajama"; Broadcom (BRCM) is up about 4.2% after announcing an earnings restatement and a charge on options; ConocoPhillips (COP) is down fractionally after its EPS report.

You can receive "Today's Morning Coffee" in your email inbox at the moment we publish it to the site, by clicking here and providing your contact information. We respect your privacy, and never share your information with third parties. (disclosure)

Wake Up Call - Jan 24

Good Morning. The time is 9:45 and major U.S. and European equity markets are broadly higher, after Asia mostly advanced as well. It appears investors digested the president's State of the Union address well. We expected him to keep commentary on foreign policy low-key, avoiding alarming phrases such as "axis of evil," and we believe the president made the most of a very difficult situation. We will provide a more detail analysis in "Today's Morning Coffee."

Asia:
Hang Seng Index +0.25%; Shanghai/Shenzhen 300 +1.13%; NIKKEI 225 +0.57%; BSE SENSEX 30 +0.49%; KRX 100 +1.35%; Ho Chi Minh -2.34%

U.K. & Europe:
DJ STOXX 50 Index +0.78%; FTSE 100 +1.29%; CAC 40 +0.85%; DAX +0.75%; Russian RTS Index +0.72%

KEY HEADLINE NEWS

• It is our pleasure to provide readers with the Transcript of the President's State of the Union Address from last evening.
• The President's speech highlighted health care, energy and Iraq, as expected. President Bush attempted to woo the angry Democrats back with a sincere heartfelt plea, but much of the commentary returned by Democrats after the speech seemed focus on a lack of cooperation before their newly gained majority, and expressed a grudgeful distaste for the handling of Iraq. We believe that after the warmth of the patriotic address fades, this government will have difficulty accomplishing anything over the next two years. However, we were impressed with the continued effort to reduce gasoline consumption, but the timeline is not aggressive enough in our view. Wall Street Greek has gone on the record for years recommending our government spend billions on alternative energy initiatives rather than on fixing the Middle East, and let them drown in their oil! At least then, our enemies and friends in the region will have to face the true source of their problems and stop blaming the United States as the source of all. We admit, this view is naive due to other interests, but it retains some truth.
• Weekly Mortgage Applications slipped this week after rising last week. Higher rates were generally blamed for the decrease, but Wall Street Greek previously discussed the sales efforts of mortgage brokers, real estate agents and home builders. We published our opinion that salesmen would paint a rosy picture for skeptical buyers, using the "it will be better next year" sales pitch to win over customers on the fence. We previously noted that we anticipated a short term uptick in housing, before a second leg lower in 2007. Now, we must also note that economic data has been very encouraging since our view was expressed, and this may help soften the downward trend we anticipate in 2007.
• U.K. economic growth in the fourth-quarter, measured by GDP, rose 0.8% from Q3, marking the strongest growth for the region since 2004. The pace of annual growth rose to 3.0% from 2.9%. However, we believe the chances of a February hike in rates by the Bank of England are decreased, as the minutes of the last meeting showed the January hike only passed on a vote of 5 to 4.
• A bunch of high-profile corporate earnings were reported last night and this morning: Advanced Micro Devices (AMD) shares are down over 6% after its report; Yahoo! (YHOO) is up near 6% after announcing it will speed its "Project Pajama"; Broadcom (BRCM) is up about 2.5% after announcing an earnings restatement and a charge on options; ConocoPhillips (COP) is flat after its EPS report.

We urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors. Check back in later this morning, as "Today's Morning Coffee" will outline in greater detail the day's activity in overseas and commodity markets, and provide economic data & analysis and stock specific news.

You can receive "Wake Up Call" in your email inbox at the moment we publish it to the site. All you have to do is click here and provide us with your email address. We respect your privacy, and never share your information with third parties. (disclosure)

Tuesday's Brew - Jan 23

Al Gore and George Bush lock up in another battle for the attention of the populous on Tuesday. Al was enthused to see his global warming documentary, "An Inconvenient Truth," nominated for an Oscar, while President Bush will address the nation on the state of the union, which is rumored to show a timely switch in the administration's view on climate change. Strangely to us, through mid-afternoon trade, the U.S. markets are broadly higher ahead of the President's speech. We strongly anticipate an end of day downturn in equities.

OVERSEAS MARKETS

U.K. shares shook off news that industrial producer prices rose at a strong pace in December. The news sent the British pound appreciating against the dollar today, as it raises the specter of risk that further rate hikes are likely from the Bank of England. The FTSE 100 still inched up 0.15% on the day. The DJ STOXX 50 rose 0.14%, and there was not much change throughout European markets.

In the Middle East however, ahead of President Bush's State of the Union Address, concern levels were raised. Saudi Arabia's Tadawul All Share Index dipped 1.49%, but the DFM General Index in the U.A.E. jumped 1.7%. Rising oil prices likely played a role in the mixed performances. Also, the disruption in Lebanon, where a general strike led to street fires and caused a government warning of the potential for a coup attempt, kept its market closed.

The Venezuela Stock Market Index fell another 2.3%, after dropping sharply Monday on Hugo Chavez's radical nationalization plans. See yesterday's commentary...

ECONOMIC DATA & ANALYSIS

The Conference Board reported its December leading economic indicators index today. The index showed a 0.3% rise, compared to a revised November reading of no change. The growth exceeded the most recent Bloomberg consensus reading of 0.2%, and indicates the economy may show stronger growth in 2007 than previously estimated. Economists forecasts for fourth quarter GDP are on the rise, and are now providing a median estimate of 2.5% growth, versus 2.0% in early January, according to Bloomberg News. We view this news powerful, and believe the Fed is now clearly more likely to raise rates before cutting them. We still believe the Fed will likely keep rates steady at the end of its two-day meeting, which concludes on January 31st.

Today, the Federal Reserve Bank of Richmond reported on manufacturing within its region, and showed a contraction of manufacturing activity as well as slower service sector growth. However, the survey also showed improved expectations for 2007.

COMMODITY MARKETS

Commodities are broadly higher today as Middle East tensions rise. After receiving the complete order of anti-aircraft missiles it dealt for from Russia, Iran has begun military maneuvers involving missile tests. The USS Stennis continues to steam toward a February arrival into the Persian Gulf. Today, Nicholas Burns, undersecretary of state for political affairs said, "Iran is going to have to understand that the United States will protect its interests if Iran seeks to confront us."

We thought the statement was interesting, and may perhaps reveal intelligence or concern that Iran could be planning a preemptive strike. Mr. Burns also commented that the U.S. would protect its interests and allies in the region, which touches on our view that Israel may not find Iran's bull's-eye before oil producing Iraq, Kuwait and Saudi Arabia do. However, Iran continues to do its best to pull its neighbors into its corner without force, arguing that they should abandon alliances with the U.S. to form a strategic union to protect the region's interests.

Indeed, we believe Iraq would succumb to Iran quickly, through the aid of its Shiite populous. Iran could in fact be viewed as a liberator in Iraq. It would be interesting to see, in this day of Al Jazeera, what would happen on the streets of Pakistan in that scenario. We will soon publish an aforementioned article, Geopolitical Factor, reviewing the range of scenarios we see possible and the the risks we anticipate the market faces this year and next.

Gasoline, heating oil and crude oil are all higher today, each rising over 2%. Natural gas is up 1.6%, as cold weather continues across North America. The president's address tonight is likely to further outline efforts to wean the nation from its dependence on foreign oil. Even so, any conflict with Iran over the next two years would clearly precede our energy independence. Highlighting geopolitical risks, a handful of kidnappings in Nigeria has reaffirmed concerns in that region.

Corn is only 0.68% higher today, despite speculation that the president might urge further ethanol usage within the country. If Bush does so, it should raise concern at the Federal Reserve, because a supply demand imbalance within the market for corn has already started other surrogate foods, like soybeans and wheat, higher as well. If feed prices increase, we should see increases in the price of hogs and cattle too. Also, wild weather patterns pose risk, as we saw in the California freeze. It created nearly $1.0 billion in damages to citrus and other crops.

In the most recent PPI data, early signs of food driven inflation were apparent, and food prices have the ability to drive overall inflation. Thus, the Fed may be forced to slam the breaks on the economy due in part to rising food prices.

STOCK SPECIFIC NEWS
Companies reporting earnings on Tuesday include Bank of America, Johnson & Johnson, Wachovia Corp., United Technologies, Du Pont, Yahoo!, EMC Corp. and Burlington Northern. Wachovia Corporation, the fourth largest bank in America, posted EPS before merger charges, of $1.21, versus expectations for $1.18, as measured by Reuters. The 34% growth in earnings was driven by the company's acquisition of Golden West Financial and higher fee income. WB shares were up about a half of a percentage point through mid-afternoon trade.

Bank of America earned $1.19 a share before merger and restructuring charges, ahead of the $1.18 consensus view, according to Thomson First Call. Still, BAC shares were down 0.71% in afternoon trading.

This afternoon's big report will come from Yahoo!, but expectations are not high, as the company's efforts to catch up with Google in ad revenue are not expected to show progress until the summer. YHOO shares were down approximately 0.8% through mid-afternoon.

We hope you enjoyed today's issue. You can receive "Today's Morning Coffee" in your email inbox at the moment we publish it to the site. All you have to do is click here and provide us with your email address, and we will add you to the distribution list. We respect your privacy, and never share your information with third parties. (disclosure)

Wake Up Call - Jan 23

Good Morning. The time is 9:45 AM EST, and the S&P 500 Index has opened slightly higher while the Dow Industrials and the NASDAQ have opened lower. We anticipate a cautious market today, ahead of what President Bush might say in the State of the Union Address this evening.

Asia:
Hang Seng Index -0.01%; Shanghai/Shenzhen 300 +0.68%; NIKKEI 225 -0.09%; BSE SENSEX 30 -1.18%; KRX 100 +0.13%; Ho Chi Minh +1.26%

U.K. & Europe:
DJ STOXX 50 Index -0.15%; FTSE 100 -0.28%; CAC 40 -0.54%; DAX -0.44%; Russian RTS Index +0.68%

KEY HEADLINE NEWS

• President Bush faces a tough and skeptical crowd tonight that will be dominated by the stoic angry faces of Democrats like Hillary Clinton, Barack Obama and Nancy Pelosi. The president enters the historic speech with his lowest approval rating since taking office, one which challenges the lows of Nixon. According to a CNN/Opinion Research Corporation poll, Bush's approval rating stands at 34% entering the State of the Union Address.
• The State of the Union agenda typically drives the shares of some industries in the days that follow it, and we've already noticed early activity in the shares of alternative energy firms, which benefited last year. This year's speech is said to focus on a handful of key topics, keying on health care reform. Maybe the Republicans foresee a serious challenge from Hillary Clinton and might attempt to exploit her historical health care wound during the upcoming campaign. All signs point toward a Bush focus on health care tax deductions, a permanent extension of the temporary tax breaks the president has initiated and social security reform. Rumor has it energy could come up again like last year, and the topic of Iraq seems certain to turn the event ugly. I expect to hear boos from the Democrats, at the mere mention of Iraq. As we outlined in detail in "The Greek's Week Ahead," Iran is the hot topic that could push oil prices back up to $60 in a matter of days. We suspect alternative energy stocks and defense stocks might benefit from the president's address as well, depending on how the tone and delivery come across. However, it seems safe and wise for the president to highlight domestic issues and avoid the hot topics we outlined above, so keep that in mind when planning your short-term strategy. Without insight into the speech, we cannot say for sure which health care firms benefit or could be negatively impacted, however, our preview of his plan provides this insight. It seems to help the poor and uninsured, providing a standard tax deduction for health care expenses. Low end retail would seem the best beneficiary, as the poor find more capital within their wallets. Discounters and WalMart for instance, seem like clear beneficiaries from a financially empowered low-end consumer. However, we are not sure this will be obvious to the market, and the impact is not direct and thus difficult to measure. Direct impact might be found within medical service providers, as medicine becomes more accessible to the poor. You want answers and we are not afraid to face up to the challenge, so in summary, though difficult to assess ahead of the speech, the entire health care sector looks like a beneficiary. Still, keep in mind that the devil may be in the details, and remember that any benefits from the speech are short-term drivers. Long-term impact depends on the passage of laws without veto, and Congressional cohesiveness, which seems unlikely over the next two years.
• Iran's agents are active this morning, severely disrupting daily life in Lebanon. A general strike including the blocking of roads and the filling of the air with fire and smoke, may in fact be the first phase of a coup plot. At least the Lebanese government seems to believe so.
• The British pound gained further strength against the dollar today, as a report showed industrial producers were able to raise prices at a strong pace. This increased speculation that further rate hikes are likely from the Bank of England, and boosted the pound.
• Wachovia Corporation, the fourth largest bank in America, posted EPS before merger charges, of $1.21, versus expectations for $1.18, as measured by Reuters. The 34% growth in earnings was driven by the company's acquisition of Golden West Financial and higher fee income. Yahoo! is set to report its earnings this afternoon, but expectations are not high, as the company's efforts to catch up to Google in ad revenue are not expected to show progress until the summer. WB and YHOO shares are both fractionally higher this morning.

We urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors.

You can receive "Wake Up Call" in your email inbox at the moment we publish it to the site. All you have to do is click here and provide us with your email address. We respect your privacy, and never share your information with third parties. (disclosure)

Monday's Brew - Jan 22

Perhaps due to concern over what the president might say on Tuesday, or maybe due to geopolitical stresses like Iran's just announced war games or Venezuela's decision to take control of foreign owned assets with a plan to maybe pay later, U.S. equity markets are broadly lower today.

OVERSEAS MARKETS

It was a good day in Asia as the markets were broadly higher. The Hang Seng Index climbed 2.19%, the NIKKEI 225 inched higher 0.66%, the Shanghai-Shenzhen 300 Index jumped 3.97%, Korea's KRX 100 rose 0.32% and the BSE SENSEX 30 was up 0.19%. We believe Asian markets broadly benefited from the strong consumer confidence metric out of the University of Michigan on Friday. Spending Americans are a good thing for these net exporters into the huge North American market.

After starting the day well, following Asia, Europe weakened through afternoon trading in sympathy with troubled American shares. The DJ STOXX 50 dipped 0.65%, the CAC 40 fell 0.62%, the FTSE 100 slipped 0.3% and the DAX sank 0.89%. Shares in Germany suffered despite a lower than expected level of growth in producer prices. We can only speculate that investors in Germany may be concerned that the ECB's efforts to slow economic growth could impact Germany more than other European nations, but we note that this is pure speculation. If you have greater interest, we suggest you consider researching the topic further within the German press, using www.newspapers.com.

Hugo Chavez shook South American markets again today. Well, he had the whole weekend to grow his insane crooked ideas into theories. So, on his radio and television show, "Hello President," Chavez declared that he would move to nationalize strategic assets first, and pay later, if at all. The Venezuelan Stock Market Index is currently down another 7.7%, as it appears Mr. Chavez does not understand or care about the financial ramifications of his comments. He is effectively discouraging all foreign investment from his country and maybe some domestic as well. At the same time, he is pushing his finger into the nose of the greatest military power on the face of the earth. We believe that if American firms are damaged, and shareholders of those firms are impacted, the American government will act in an effective manner to sway Mr. Chavez to the side of logic. We had much to say about this topic in this morning's "Wake Up Call," and suggest you take a look.

ECONOMIC DATA & ANALYSIS

After good news from the Philly and New York Federal Reserve branches last week, the Chicago Fed chimed in with its monthly economic report on Monday. The index measured +0.04, compared to a revised lower -0.3 in November. The mild result should have little impact on equities in our view.

The Conference Board will report its December leading economic indicators index, with a consensus view for a 0.3% increase, according to a Bloomberg News poll, compared to a 0.1% rise in November. Barron's reported a consensus forecast for an increase of 0.2% in December. We think that with the Fed and the markets clearly focused on inflation now, any reading out of line on the high side is likely to spook the market, for fear of spurring a Fed rate hike. Speaking of the Fed, San Francisco Bank Chief Janet Yellen is scheduled to speak in Nevada on Monday, and might bring some light to the Fed's initial reaction to the leading indicators data.

For the week's complete economic data release and news schedule, your basic market-moving event planner, see our article, "The Greek's Week Ahead."

COMMODITY MARKETS

With a convincing cold sweeping over North America, traders are buying into the possibility that winter has finally arrived. Natural gas leads all commodities higher today as a result, up 2.4%. Crude started the day higher, with news that Iran was preparing military exercises and perhaps banning IAEA inspectors from crossing its borders. At the same time, oil producing Venezeula threatens the stability of oil flow under its radical leader. Finally, the market must be tense ahead of tomorrow evening's State of the Union Address.

Last year, President Bush made his famous "addicted to oil" statement, and acted to increase ethanol usage within the year. This year, I think you can expect more initiatives on the alternative energy front, but there is some risk that the president could provide indication of his plans for Iran. We expressed our views in Wake Up Call this morning, and suggest you read the article. We expect the reaction of the markets will greatly depend on if the president provides insight into potential military plans for Iran in the coming year, as we expect. If it becomes clear that Iran is threatened, we expect oil to start higher Wednesday, and to not look back.

STOCK SPECIFIC NEWS

Corporate news is likely to lead the market this week due to a slew of earnings reports on the slate, and today started the week off with Pfizer's report. Pfizer beat consensus expectations by a penny, but revenue growth was anything but stellar. The company announced a significant restructuring plan in its conference call today, and expects to cut 10,000 jobs. PFE shares are down 1.2% at this hour.

Intel cut a deal with Sun Microsystems, in which Sun will use chips from Intel in some of its servers. It's also been reported that Intel will endorse Sun's Solaris operating system. INTC shares were up fractionally, while SUNW was down slightly.

Look for reports from American Express and Texas Instruments today as well.

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Wake Up Call - Jan 22

Good Morning. The time is 9:55 AM EST, and the U.S. market is broadly lower outside of some light strength from the energy and semiconductor sectors.

Asia:
Hang Seng Index +2.19%; Shanghai/Shenzhen 300 +3.97%; NIKKEI 225 +0.66%; BSE SENSEX 30 +0.19%; KRX 100 +0.32%; Ho Chi Minh +0.45%

U.K. & Europe:
DJ STOXX 50 Index +0.19%; FTSE 100 +0.31%; CAC 40 +0.29%; DAX +0.09%; Russian RTS Index +1.14%

KEY HEADLINE NEWS

• The National Association of Business Economists survey showed increased domestic business demand for goods and services, but also showed decreased capital spending plans for 2007. This seems to provide evidence of business owners' and executives' contrasting view of economic conditions between today and tomorrow, and may help to spur a self-fulfilling prophecy in that regard.
• Hugo Chavez is pushing his luck with the United States, as he indicated on his weekly radio address that the government takeover of strategic industries would precede compensation to current owners. It's very clear that there is no hope for foreign investment in Venezuela as long as Hugo Chavez reigns. During his TV broadcast, "Hello President," Chavez commented on varied topics including Brazilian dancers and even went so far as to say to the U.S., "Go Home Gringos!" This paranoid leader is pushing himself into a corner, but it was interesting that the process of nationalization of strategic businesses has sped up just after Chavez met with Mahmoud Ahmadinejad. We suspect a power loving Ahmadinejad may be planning a coup of his own in Iran, to take power from the Ayatollahs. We also believe that the two nations may be actively preparing for preemptive strike on America and its allies in the Middle East and South America. Iran announced plans for new war games involving its missile forces, as the USS Stennis steams toward the Gulf region. History shows us that in war, surprise is a commonly employed strategic tactic, and Iran has learned well from the destruction of Saddam's Iraq. We believe Iranian forces would be viewed as liberators in Shiite majority Iraq, and gain millions more in manpower to face off against American allies Kuwait and Saudi Arabia. Ahmadinejad may be ignorant when it comes to history, but he appears to us a thousand times wiser than Saddam Hussein regarding military and political strategy. We view this as the creeping catalyst that carries the potential to rescue your energy investments, while crashing emerging markets globally. Remember, you heard it hear first.
• Corporate news is likely to lead the market this week, and today started the week off with Pfizer's earnings report. Pfizer beat consensus expectations by a penny, but revenue growth was anything but stellar. The company is expected to announce a wide ranging restructuring plan in its conference call today. PFE shares are up fractionally in early trading.
• Intel cut a deal with Sun Microsystems, in which Sun will use chips from Intel in some of its servers. It's also been reported that Intel will endorse Sun's Solaris operating system. INTC shares were down fractionally in early activity, while SUNW was down 1.4%.

Check out "The Greek's Week Ahead" for your weekly market-moving event planner. We also urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors.

You can receive "Wake Up Call" in your email inbox at the moment we publish it to the site. All you have to do is click here and provide us with your email address. We respect your privacy, and never share your information with third parties. (disclosure)