Wednesday's Brew - Feb 28

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. Well, we're almost through the trading day and the S&P 500, Dow Industrials and NASDAQ composites are all flirting with a 1% gain. While we predicted the recovery, there were three catalysts we thought threatened to extend yesterday's losses through today, but each proved benign.

OVERSEAS MARKETS

After yesterday's collapse in China and spread of weakness to the U.S., global markets felt the wave of repercussion today from Japan to England. The NIKKEI 225 fell 2.85%, while the Hang Seng slipped 2.46%. Still, the mainland Chinese market recovered after the Chinese government indicated that it had the interests of the financial markets in mind. The Shanghai and Shenzhen 300 Index rose 3.54% as a result.

The broad reaching DJ STOXX 50 fell 1.8%, but we expect it to recover tomorrow, considering the recovery in the U.S. The FTSE 100 slipped 1.8% as well.

In India, the government released its new budget report, which the market had anticipated might have a negative impact on shares. We were also concerned that it could provide a catalyst for a second leg lower today, due to rumors that it might include a new restriction on cement exports. The report was not as bad as we thought it could have been, and India's BSE SENSEX 30 slipped just 4.0%. Heck, our market falls a couple percentage points and there's a big hoopla, and the Indian market falls 4.0% and we call it "just 4.0%." The report included an increase of helpful subsidies for farmers, but also expressed inflation concerns. The government indicated its will to contain troublesome inflation, and this likely played a role in the greater decline of the Indian market today.

ECONOMIC DATA & ANALYSIS

We attentively awaited this morning's GDP revision, because we viewed it as a potential catalyst to take the market another leg lower. When fourth quarter GDP was reported up 2.2%, just shy of Bloomberg's consensus view for a 2.3% rise, we knew the path was clear for the market to rise. Well, we knew it could rise for at least as long as Ben Bernanke's testimony to the House Budget Committee. Mr. Bernanke was immediately asked to express his views on the stock market decline, and he proceeded to assure the politicians that he did not see any one factor that drove the market yesterday and felt it inappropriate to try to draw a connection. He did, however, say that there was a decent chance that economic growth could pick up later this year. The third obstacle to the day's recovery was now out of the way.

Still, not all the news was benign today. New home sales were reported for January, and fell far short of expectations. Bloomberg's consensus expected January sales to reach an annual pace of 1.08 million, versus 1.12 million in December. New home sales actually fell 16.6%, to an annual pace of 937,000. This was inconsistent with the existing home sales results from Tuesday, but fits into the puzzle of our housing theory. Remember, we said the salesman mentality would push home sales in January, as desperate real estate agents and mortgage brokers likely pushed through sales of existing homes. New homes were pushed in December, as home builders sought to make their numbers. So, a whole different set of incentives drove a different result.

Considering the early a.m. data releases, we expected the New York Fed President, Timothy Geithner, might have some important comments as he addressed liquidity and the financial markets. His voice was completely drowned out by the focus on the Fed Chief, in light of the market move of the day before. Still, what he said was notable. Geithner stated that the economy continues to show "remarkable resilience."

The National Association of Purchasing Management - Chicago posted its index measuring business conditions in the Chicagoland area. The consensus view provided by Bloomberg anticipated a reading of 50.0, but the actual result was lower, at 47.9. A reading below 50 indicates business contraction, but tomorrow's broader reaching ISM report may still show better manufacturing sector health.

COMMODITY MARKETS
With the Chinese financial markets threatened to collapse the Chinese and perhaps the global economy, commodity prices generally fell yesterday. Even today, we are surprised to see gold and many industrial metals still lower. We expect recovery as the market realizes Chinese demand will continue.

STOCK SPECIFIC NEWS
On the corporate scene, a House Judiciary subcommittee is holding a hearing about the proposed merger of XM Satellite Radio (XMSR) and Sirius (SIRI). There are significant regulatory barriers to overcome before this deal can occur, and we stated on Sunday that there could be opportunity on the short side of the two while the deal obstacles take the media limelight in the near term. United Technologies and Home Depot are holding investor meetings today, while Novellus is providing its mid-first quarter update. Reporting earnings today, look for Sprint Nextel, Edison International, Limited Brands, Barr Pharmaceuticals, Hospira, Centerpont Energy, Interpublic Group, Liz Claiborne, King Pharma and Dollar Tree Stores. market.

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Wake Up Call - Feb 28

Good Morning, hopefully... This morning, robotic experts on Wall Street will tell you to buy buy buy on the weakness. They will tell you that history shows us that it pays off months from now. History actually shows us that it pays off days from now, if not today, but people are afraid to go out on a limb and risk their reputations, so they hedge against their enthusiasm.

Well, guess what, we think the robots are right this time, but not because of history, but because of the underpinnings of yesterday's drop. The market fell yesterday on concerns that the Chinese government was about to push their financial markets into collapse. China has been attempting to pull the reigns in on speculative investment, and rightly so, but it has no interest in causing the collapse it is attempting to prevent. So, today, some reassuring commentary from officials calmed the stomachs of investors, and led to a recovery in China. Other Asian markets just followed suit after the American market decline, and they are now awaiting further signs from America before deciding if the sky is truly falling or not. We saw some danger for continuation posed by the Indian budget release and by a critical GDP revision this morning, but we feel both information bits are not powerful enough to drive further collapse. Therefore, we expect the U.S. market to recover strongly today. However, Ben Bernanke has the ability to make me look stupid, depending on how he reacts to the likely dramatic congressional questions posed to him today about the stock market decline. Though futures will likely prove meaningless in a wildly volatile trading day today, they are indicating a rise for U.S. equities at this minute.

Asia:

Hang Seng Index -2.46%; Shanghai/Shenzhen 300 +3.54%; NIKKEI 225 -2.85%; BSE SENSEX 30 -4.01%; KRX 100 -2.76%

U.K. & Europe:

DJ STOXX 50 Index -1.08%; FTSE 100 -1.1%; CAC 40 -0.96%; DAX -1.16%; Russian RTS Index -3.66%

Americas & Middle East:

Tel Aviv 25 +0.11%; DFM General -0.86%; Tadawul All Share -1.65%

KEY HEADLINE NEWS

• History shows us that the market typically rebounds the day after a large point drop (200 or more) in the Dow. While the robotic experts on Wall Street will tell you to buy, based on history, I think they are right this time around. Keep in mind, they will not always be right. Eventually, we will face a situation more dire than this that will place into question the stability of the world. Robots will tell you to buy on the day that follows that event too, but it will be up to you to measure the durability of the concern in question on that day and invest accordingly.
• Mainland Chinese stocks rebounded on Wednesday, as the government indicated its interests lie in preserving the stability of the market. With that important note, the rug that was pulled from under Chinese stocks, was replaced. However, take note of this event, because when a significant global issue arises, Chinese stocks and the global economy will be poised to collapse in a devastating manner.
• Europe followed a recent trend we have noted, where it takes its lead from the U.S. market. We anticipate European shares will recover before the close of the day.
• A critical revision to Q4 GDP came in at a level we think will be supportive of a U.S. stock recovery today. GDP growth was revised lower to 2.2%, from the early report of 3.5%. Expectations were for a revision lower to 2.3%, according to Bloomberg's survey. However, concerns are rising about U.S. economic growth. GDP is slowing, as evidenced by the durable goods report. Today, Ben Bernanke has the power to severely hurt or help the stock market. We would prefer he bite his tongue and stay focused on the issues he has highlighted in the past, inflation control and economic growth. His view of economic growth and the inflation outlook is critical to the market, so pay close attention to what he says today.
• While we had other significant reasons for concern yesterday, including a weak durable goods report and scary sub-prime news from Freddie Mac, Merrill Lynch's move to cut investment banks was reactionary in our view and typical of the heard mentality that will always exist within financial markets and the self preservation that exists within many analysts. While we are concerned that economic growth is slowing, and could still flirt with recession, we just think these guys picked the wrong moment for their cut.
• Many of my trader friends who have been fired over the past five years were likely smiling yesterday when the computer glitch occurred. It seems we still need humans in case the machines short circuit. Chalk one up for the humans!
• In our view, commodity prices fell yesterday because of the concern about the Chinese economy. Clearly, a financial collapse would be detrimental to the economy in China, but it has not occurred, so we would expect commodities to recover here.
• Mortgage applications rose last week, on lower rates. Our housing prediction played out yesterday, as we told you January would show an uptick in purchases. It plays into our logic theory about the mindset of a salesman. The "it'll be better next year" sales pitch by desperate real estate agents and mortgage brokers likely pushed sales in January, in our view. However, market conditions will prevail this year, and we continue to anticipate more housing weakness.
• European business confidence was reported strong today, and this should aid European shares once the American market starts trading higher, in our view.

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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)

Now What??? Don't Worry, We'll Tell You

We will help you answer that tough question on your mind that may have kept you awake all night, and that question is "now what???" As usual, we will go out on a limb and fill you in on our expectation for Wednesday and the year ahead, and how we expect markets to react globally. We will tell it like we see it not like we are expected to tell it (and that's where we vary from the norm), because that's what you deserve from your analyst, some guts and conviction and opinions that make a difference. You may not find it at the large firms where guys are afraid to stick their necks out, but you will always find it here.

Asian Contagion - We Called It!

We said this just two days ago, "Thus, high flying emerging markets seem destined for a tragic setback." "The point of all this drama is that we believe the sirens of globalization are drawing the unsuspecting sailors of global investment into a rocky shore." There are many reasons why you should be reading Wall Street Greek. We called the housing decline last year. We predicted the fallout within sub-prime lending. We correctly advised investors to buy back into oil at $50 and even correctly pegged the day of the bottom. And, this past weekend and yesterday, we predicted the collapse of the Chinese and other hot emerging markets, including India.

Quoting Wall Street Greek from Monday's copy of "Today's Morning Coffee":

"the Iranian issue threatens to crush emerging markets whose valuation-to-risk status we compare to walking on the ledge of a skyscraper."

"Mainland Chinese and Taiwanese shares opened up after a week of new year's celebration. The euphoria continued in China, despite a scary week off that included inflation fright in the U.S. on the CPI data and an intensifying Iranian situation. To be quite honest, we were surprised that the Shanghai and Shenzhen 300 Index rose 1.16% today."

Quoting Wall Street Greek from Sunday's copy of "The Greek's Week Ahead - Emerging Market Glam":

"Markets in mainland China and in Taiwan were closed all last week, so Chinese investors have a lot to swallow when shares begin trading again on Monday. During their week off, as investors in high flying Chinese shares celebrated their good fortunes from lunar 2006, the Core CPI index in the United States, China's favorite export market, exceeded growth estimates. This reminded global investors of the Fed's top concern, inflation, and the possibility of a Fed rate hike to control it. This is not a cure for a post new year's party hangover my friends. But that wasn't all that happened while the party rocked on."

"As we alluded to earlier, Iran defied the world, and its stubborn hardline rhetoric that seems to insure war's likelihood persisted as well. Iran is kind of critical to China. America does not buy any oil from Iran, but Iranian oil flows heavily to India and China. Last week, Russian, Indian and Chinese officials met to discuss a new alliance to balance against the power of America. So, what reason does India have to position itself opposite America? Well, there is the obvious American support of Musharraf's Pakistan? Yes, but India and Pakistan signed a nice treaty this past week, and we all know that America's support of Pakistan is just an Islamic radical fundamentalist's bullet in Musharraf's head away from nonexistence. (Whew! Take a breath here) So there must be another pretty important reason for India right? The energy resource provided from Iran is so important to both India and China, that conflict with Iran could send the valuation rich emerging markets into a steep downward spiral, in our view. Therefore, Wall Street Greek is presenting the award for markets most unlikely to repeat their stellar performances of 2006 to China and India."

And we continued...

"The point of all this drama is that we believe the sirens of globalization are drawing the unsuspecting sailors of global investment into a rocky shore. For all the progress of civilization since World War II, it seems mankind will have to take a step backward, before moving forward again. It may not happen with the impending Iranian conflict that threatens us now, but as global powers, Russia and China find themselves increasingly opposite the United States on so many issues, the flint is in place for the fire of world war. Thus, high flying emerging markets seem destined for a tragic setback. Iran's oil is just as important to China as impeding Iran's nuclear progress is to the United States."

So what is the Greek's most significant prediction this year? Read this, "Geopolitical Factor - Israel Will Do the Bombing."

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Monday's Brew - Feb 26

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. The excitement of merger Monday has helped the S&P 500 and Dow Industrials find higher ground near midday trading. The NASDAQ is lower at this hour, and we suspect equities will trend lower generally in the afternoon as we await a critical GDP revision later in the week and other important economic data. At the same time, the Iranian issue threatens to crush emerging markets whose valuation-to-risk status we compare to walking on the ledge of a skyscraper.

OVERSEAS MARKETS

In Asia, the Bank of Japan published the minutes from its January meeting today. The February meeting is the one within which they raised rates, so the NIKKEI 225 did not have much of a reaction, edging up 0.15%. Mainland Chinese and Taiwanese shares opened up after a week of new year's celebration. The euphoria continued in China, despite a scary week off that included inflation fright in the U.S. on the CPI data and an intensifying Iranian situation. To be quite honest, we were surprised that the Shanghai and Shenzhen 300 Index rose 1.16% today. The Taiwan TAIEX Index rose an equal degree, 1.16%, in its return to trading. The Hang Seng, which was open most of last week, dropped 0.98%. Pakistan's led all Asian markets on the downside today, as the Karachi 100 plunged 1.84%, as Dick Cheney landed to pressure the government into moving more aggressively on al Qaeda. The National Bank of Pakistan Ltd. contributed to the slide, as it fell after missing earnings estimates in its reporting period.

European shares were mostly positive into the afternoon, with the DJ STOXX 50 rising 0.28%. The FTSE 100 increased 0.48%, while the CAC 40 climbed 0.73% and the DAX rose 0.4%.

ECONOMIC DATA & ANALYSIS

Tomorrow starts a busy economic data week, but Monday is relatively light on news. In Washington, globalization and trade are the key topics under discussion at the National Governors Association meeting.

GEOPOLITICAL ISSUES

Monday's London meeting of United Nations Security Council members will shed first light on just how determined Russia and China are in avoiding an Iranian conflict. Iran was steadfast over the weekend, relating its program and nuclear efforts to a steaming train with no breaks and no reverse. Condoleezza Rice had a nice comeback, saying Iran needed something more like a "stop button." We published an article over the weekend focused on the topic of Iran, and how we expect things will play out. You may review it by clicking here.

COMMODITY MARKETS

Brent crude is up 0.79% at this hour, as the Iranian situation garners media spotlight. We suspect negative comments from China and Russia could cool energy commodities sometime soon. As we stated in our Geopolitical Factor article, China and Russia have significant interests in avoiding conflict with Iran. Thus, we suspect strong comments from the two to cool oil and gold speculation soon. Gold is up fractionally at this hour. Natural gas is 1.4% lower and this is worth noting. When the situation is truly serious, natural gas is likely to correlate positively with oil prices on a consistent basis.

STOCK SPECIFIC NEWS
On the corporate scene, Bank of America and Honeywell will hold investor conferences, while Nordstrom and DTE Energy Co. report fourth quarter earnings. There were a slew of deals announced today as well, including the buyouts of TXU and Station Casinos. We expect the deal activity is more reflective of a healthy liquidity situation than an undervalued equity market.

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Today's Key News - Feb 26

Good Morning. As a key U.N. Security Council meeting kicks off in London today, Iran remains on the minds of investors. Still, the S&P 500 and the Dow Jones Industrials have turned upward in early morning trading, while the NASDAQ remains in the red.

Asia:

Hang Seng Index -0.98%; Shanghai/Shenzhen 300 +1.16%; NIKKEI 225 +0.15%; BSE SENSEX 30 +0.12%; KRX 100 +0.06%: Taiwan TAIEX Index +1.16%

U.K. & Europe:

DJ STOXX 50 Index +0.4%; FTSE 100 +0.56%; CAC 40 +0.74%; DAX +0.58%; Russian RTS Index +1.77%

Americas & Middle East:

Tel Aviv 25 +0.17%; DFM General -0.67%; Tadawul All Share -0.35%; Mexico Bolsa +0.39%; Argentina Merval +0.79; Brazil Bovespa +0.27%; Venezuela Stock Market Index +0.01%

KEY HEADLINE NEWS

• World powers are meeting today in London to discuss a new set of harsher sanctions against Iran, after it failed to comply with the United Nation's demands to halt its heavy water activity and uranium enrichment. We authored a special report on the subject this morning, "Geopolitical Factor - Israel Will Do the Bombing".
• Petroleum prices are strengthening as the Iranian issue intensifies.
• Former Fed Chief Alan Greenspan stated today that a recession was a possibility for the economy in 2007.
• The National Association for Business Economics reported their expectations today that economic growth will slow to 2.7% in 2007, its most sluggish pace since 2002.
• Expressing concern that al Qaeda may be regrouping, Vice President Cheney landed in Pakistan today to urge the government to increase its efforts against the terrorist group.
• Preparations may be underway for an Israel's air attack of Iran, as a report states three Gulf states may have already agreed to the use of their airspace.
• Catch this week's issue of "The Greek's Week Ahead," your market-moving event planner for the week.

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)

Geopolitical Factor - Israel Will Do the Bombing

Tensions intensified after last Thursday's IAEA report indicated that Iran had stepped up its uranium enrichment efforts since being sanctioned by the United Nations in December. World powers are now scheduled to meet on Monday in London to discuss a new, harsher set of sanctions against Iran.

After North Korea agreed to back off its nuclear program, Iran has shown interest in what it might be offered as compensation for compliance to U.N. requests. However, Iran refuses to halt enrichment, the prerequisite laid before it for moving forward. Time and again, Iranian officials have publicly stated that they would not submit to the "bullying" of the U.S., just to reach the negotiating table. At the same time, the United States has no confidence that Iran is sincere in its offers to appease the world community's concerns about its "peaceful nuclear program." In other words, the U.S. is sure that Iran's statements are pure stalling tactics.

China brokered the North Korean deal, and it is likely necessary that a third-party nation play a significant role in the Iranian negotiations. In this case, we believe it would have to be Russia, Iran's closest partner in its nuclear efforts.

We believe it will ironically become more and more complicated for the U.S. to use force against Iran as the diplomatic process progresses. As a result of the Iraq campaign, and due to concerns that Iran could more significantly impact the global economy if confronted militarily, America is handcuffed. Also, we believe that as negotiations progress, it becomes more likely that Russia and China could present a serious obstacle to the use of military force on Iran. It is likely in America's best interest to provoke Iran into a mistake that would allow for retribution. Otherwise, the paralysis of analysis, and diplomacy, could position Russia into a more significant alliance with Iran. Considering Vladimir Putin's recent comments and actions, we do not view it out of the question for Russia to stand for Iran, depending on Iran's actions and statements during the process. This is why we fully expect Israel to act on its own at a time when least expected, and not long from today.

We believe the positioning of additional American troops in Iraq, along with a second aircraft carrier fleet in the Persian Gulf, are indicative of information sharing between Israel and America. We expect that the recent travels of Israeli and U.S. officials, including recent actions and plans of Condoleezza Rice, Dick Cheney and John Negroponte, are indicative of more preparations and communications with allies. For instance, Rice's strange meeting with Ehud Olmert and Mahmoud Abbas last week seemed like a good cover for another discussion with Israeli officials about Iran.

We anticipate that American forces are being positioned to contain an Iran that will undoubtedly lash out after it is bombed by Israeli forces, possibly aided covertly by the United States. It is in the United States' interest to protect vital petroleum producers and routes in the region and our own forces and interests in Iraq. In plain English, we believe an Israeli led bombing attack of Iran may be imminent, meaning within weeks or a few months.

Tony Blair's recent move to get his guys outta there, and recent statements he's made against military confrontation with Iran, seem to imply that he disagrees with the theoretical plan we suggest exists.

The pace of the filling of the strategic oil reserve implies an early 2008 American military effort. However, this nation must be well aware that Iran has studied our actions ahead of the recent conflicts with Iraq, and must also be concerned that Iran could act preemptively, as Iranian military representatives have suggested in the past. Thus, we suspect an illusory campaign is playing out before our eyes. Israel's timeline is not as long as the world community's, as Israel must survive within their own threatening Middle Eastern community. We believe Israel's illogical campaign against Lebanon was nothing less than a test of the military capabilities of what will likely become a front in the war that follows an Israeli bombing run against Iran. Despite congressional democrats' concern about Bush administration plans for Iran, we believe the U.S. is merely positioning forces to protect our interests in the region, while preparing to contain a retaliatory Iran and maintain the stability of petroleum distribution.

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The Greek's Week Ahead - Emerging Market Glam

The Greek's Week Ahead has been designed to provide investors with a stock market-moving event planner for the week. We have engineered it to prepare you for important news, information and happenings that are likely to impact your portfolio.

The week just passed was marked by Iran's continued defiance against the will of the world community, as it missed a key deadline to halt nuclear fuel efforts. As a consequence, it was a week in which oil blasted past the $61 mark, gold soared and stocks declined. It was a week in which investors were reminded of the unsure footing global stability stands upon. Therefore, the Wall Street Greek Award for leading actor in an antagonist's role goes to Iran. Iran is unable to accept this award due to new U.N. restrictions on its travel, so here to accept the award for Iran is its closest ally, Syria. Oh, they're not here either. How about Venezuela? No? Okay, let's move on...

Markets in mainland China and in Taiwan were closed all last week, so Chinese investors have a lot to swallow when shares begin trading again on Monday. During their week off, as investors in high flying Chinese shares celebrated their good fortunes from lunar 2006, the Core CPI index in the United States, China's favorite export market, exceeded growth estimates. This reminded global investors of the Fed's top concern, inflation, and the possibility of a Fed rate hike to control it. This is not a cure for a post new year's party hangover my friends. But that wasn't all that happened while the party rocked on.

As we alluded to earlier, Iran defied the world, and its stubborn hardline rhetoric that seems to insure war's likelihood persisted as well. Iran is kind of critical to China. America does not buy any oil from Iran, but Iranian oil flows heavily to India and China. Last week, Russian, Indian and Chinese officials met to discuss a new alliance to balance against the power of America. So, what reason does India have to position itself opposite America? Well, there is the obvious American support of Musharraf's Pakistan? Yes, but India and Pakistan signed a nice treaty this past week, and we all know that America's support of Pakistan is just an Islamic radical fundamentalist's bullet in Musharraf's head away from nonexistence. (Whew! Take a breath here) So there must be another pretty important reason for India right? The energy resource provided from Iran is so important to both India and China, that conflict with Iran could send the valuation rich emerging markets into a steep downward spiral, in our view. Therefore, Wall Street Greek is presenting the award for markets most unlikely to repeat their stellar performances of 2006 to China and India.

Besides headlining the meeting with its giant Asian neighbors, Russia has increasingly taken a position against the United States, throwing into question just what soul did George Bush see in Putin that foggy day when they first met. Maybe he was possessed that particular day by the souls of Russian reformists of the past. Just this past week, Russia blasted the U.S. for plans to position its missile shield in Eastern Europe. The U.S. made nice though, and the U.K. now seems like a good place to plant the defense shield. This week, when new U.N. meetings begin on what to do next about Iran, Russia is likely to stand strongly against harsh action, as is China. So, Wall Street Greek presents the award for best film to Russia, for its tragic love story, Soul Mates.

The point of all this drama is that we believe the sirens of globalization are drawing the unsuspecting sailors of global investment into a rocky shore. For all the progress of civilization since World War II, it seems mankind will have to take a step backward, before moving forward again. It may not happen with the impending Iranian conflict that threatens us now, but as global powers, Russia and China find themselves increasingly opposite the United States on so many issues, the flint is in place for the fire of world war. Thus, high flying emerging markets seem destined for a tragic setback. Iran's oil is just as important to China as impeding Iran's nuclear progress is to the United States. We will outline just how we expect the Iranian issue to play out, and Israel's likely key role, in an article we intend to publish tomorrow morning, so stay tuned.

Monday's London meeting of United Nations Security Council members will shed first light on just how determined Russia and China are in avoiding an Iranian conflict. In Washington, globalization and trade will be the key topics under discussion at the National Governors Association meeting. In Asia, the Bank of Japan will publish the minutes from its January meeting. On the corporate scene, Bank of America and Honeywell will hold investor conferences, while Nordstrom and DTE Energy Co. report fourth quarter earnings.

Tuesday starts the week's economic calendar off with a bang. Durable goods orders for January will be posted at 8:30 a.m. EST. The consensus view of economists compiled by Bloomberg sees durable goods orders declining 3.0%, compared to a rise of 3.1% in December. It will be important to study the details closely, as heavy defense and aircraft orders could skew the data. February consumer confidence will be reported at 10:00 a.m., and Bloomberg's consensus expects confidence to decrease to 108.7, from a reading of 110.3 in January. Also at 10:00, January existing home sales are scheduled for report, with a consensus view for 6.24 million, versus 6.22 million in December. We agree with expectations for a rise in sales in January, based on our previously outlined sales logic theory, where we expect mortgage brokers and real estate agents alike applied the "things will be better next year" sales pitch to push stubborn sales, temporarily lifting them.

A sort of off-Wall Street show could move the market Tuesday, with the report of the S&P/Case-Shiller home-price index for December. We expect home prices to slip further in 2007, but December's reading could still reflect the stubbornness of home sellers. Eventually, if you are looking to sell your house you have to swallow the market price, and we suspect financial needs will eventually overcome stubborn price seekers, leading to a lagging decline in prices.

On the geopolitical scene, North and South Korea are set to resume ministerial level talks on Tuesday. The corporate earnings schedule for Tuesday is heavy. Reports are expected from Target Corp., TXU, Federated Department Stores, CBS Corp., Vornado Realty Trust, Harrah's Entertainment, HJ Heinz, Public Storage, El Paso Corp., Autodesk, Autozone, RR Donnelley & Sons, Citizens Communications, Tenet Healthcare, Rowan Co. and Dynegy.

Tuesday's housing data will be followed up by Wednesday's new home sales report for January. Bloomberg's consensus sees January sales at 1.08 million, versus 1.12 million in December. Preceding the home sales data, a critical first revision to fourth quarter GDP will hit the news wires at 8:30 a.m. EST. This portends to be the most important news driver of the week. The consensus expects the first reported result, which showed growth of 3.5%, to be adjusted lower to 2.3%. A reading below the consensus view could spook the market, especially since recent consumer price data surprised on the high side. Considering the early a.m. data releases, it will be interesting to hear what New York Fed President Timothy Geithner might say on the day he is scheduled to speak about liquidity and financial markets. Also on Wednesday, the National Association of Purchasing Management - Chicago is scheduled to post its index measuring business conditions in the Chicagoland area. The consensus view provided by Bloomberg sees a reading of 50.0.

On the corporate scene, a House Judiciary subcommittee will hold a hearing about the proposed merger of XM Satellite Radio (XMSR) and Sirius (SIRI). There are significant regulatory barriers to overcome before this deal can occur, and there may be opportunity on the short side of the two while the deal obstacles take the media limelight in the near term. United Technologies and Home Depot are holding investor meetings on Wednesday, while Novellus will provide a mid-first quarter update. Reporting earnings on this day, look for Sprint Nextel, Edison International, Limited Brands, Barr Pharmaceuticals, Hospira, Centerpont Energy, Interpublic Group, Liz Claiborne, King Pharma and Dollar Tree Stores.

Thursday will be a busy day, full of data and news. With numerous articles published recently concerning Toyota's fear of the retribution it might receive from American car buyers should it surpass GM as the world's most important producer, Thursday provides the timely domestic vehicle sales report for February. Individual producers typically report their results at the beginning of the month, but this reading along with durable goods orders might provide signs of consumer strength.

January personal income and consumption are scheduled for release at 8:30 a.m. EST. Personal income is expected to rise 0.3%, compared to a 0.5% increase in December. Personal consumption is expected to increase 0.4% in January, versus a rise of 0.7% in December. Challenger, Gray & Christmas will report layoff announcements for February on Thursday, and we anticipate that the housing industry's weakness could start to show up in employment data soon, and within this report. January construction spending will certainly provide a good idea of how construction activity is fairing. Bloomberg's consensus is looking for a decrease of 0.5%, compared to a decrease of 0.4% in December.

The Institute for Supply Management will report its index on national manufacturing activity. The consensus view is for a February reading of 49.7, according to Bloomberg, versus a reading of 49.3 in January. A reading below 50.0 signifies contraction within the factory sector.

On the corporate scene, Capital One Financial is expected to address analysts and investors, while Dell, Viacom, Kohls, Staples, Gap, Fluor and Pall Corp. report earnings.

After a busy week, Friday should provide investors with an opportunity to digest the information. Still, the University of Michigan will provide its consumer sentiment reading for February at 10:00 a.m. Expectations are for a result of 93.5, versus 93.3 in January. Ben Bernanke is scheduled to speak in the evening at an economic conference held at Stanford University. American International Group will upset a handful of analysts by reporting its earnings on a Friday, forcing them to work hard rather than focus on their weekend plans. For those of you who have perhaps been misled by a few AIG analysts, maybe you can take solace in their suffering. Finally, the award for the most patience shown on a Sunday while her husband sits at the computer goes to my wife. Thank you dear.

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Friday's Brew - Feb 23

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. Outside of energy shares, and surprisingly a few semiconductor stocks, equities are broadly lower today across the U.S. Clearly, increased uncertainty surrounding an intensifying situation in the Middle East has investors wary of holding stock through the weekend.

OVERSEAS MARKETS

Markets in mainland China and Taiwan will reopen on Monday after a full week's celebration of the lunar new year. Shares in Hong Kong have traded most of the week, and the Hang Seng concluded the week with a decline of 0.47%, likely reflecting global volatility caused by geopolitical concerns. The NIKKEI 225 rose 0.44%, the second day of increase since a weak performance that followed the Bank of Japan's decision to boost rates.

Indian markets were the sharpest movers on the downside today. The BSE SENSEX 30 fell 2.77% on concerns that the government may announce steps to curb inflation when it makes its budget plans public next week. Specifically, there is speculation that the government could ban cement exports.

German business confidence fell in February. Still, the IFO Institute's Sentiment Index, which measures responses of 7,000 executives, declined to a still strong 107, compared to 107.9 in January. If we get away from the catchy headlines focused on the decline, we notice that February's reading was not far off from December historical high of 108.7, and still reflects a high level of confidence. The DAX rose 0.27% on the day.

Tony Blair openly raised concerns about military confrontation with Iran, not long after announcing he was getting his guys out of there. We go into great detail about how we think Iran will play out in the special geopolitical section within today's article. It's not out of the question that Blair does not know about the plan we theorize below, and it might explain his actions. The FTSE 100 rose 0.32% today, as perhaps Blair's actions appease and relieve a concerned populous. However, the move was not dramatic enough to be explainable, in our view. In fact, European markets were relatively quiet today on the whole. An outlier, the Russian RTS Index was up 1.5%, likely due to oil's recent climb.

ECONOMIC DATA & ANALYSIS

There was not much on the economic slate today. Dallas Fed President Richard Fisher addressed the topic of the U.S. economy in a global context. He said he remains vigilant on inflation, and that there are signs that inflation could abate, but there were also worrying factors. He indicated that he would be more comfortable if the growth rate of core prices were to moderate to below 2.0%. San Francisco Fed President Janet Yellen is also speaking today on the subject of the economic outlook.

GEOPOLITICAL ISSUES

Surprise surprise, Iran is on the radar again, after yesterday's IAEA report that the Persian nation had stepped up its uranium enrichment efforts since being sanctioned by the United Nations in December. World powers are now scheduled to meet on Monday in London to discuss a new, harsher set of sanctions against Iran.

After North Korea agreed to back off its nuclear program, Iran has shown interest in what it might be offered as compensation for compliance to U.N. requests. However, Iran refuses to halt enrichment, the prerequisite laid before it for moving forward. Time and again, Iranian officials have publicly stated that they would not submit to the "bullying" of the U.S., just to reach the negotiating table. At the same time, the United States has no confidence that Iran is sincere in its offers to appease the world community's concerns about its "peaceful nuclear program." In other words, the U.S. is sure that Iran's statements are pure stalling tactics.

China brokered the North Korean deal, and it is likely necessary that a third-party nation play a significant role in the Iranian negotiations. In this case, we believe it would have to be Russia, Iran's closest partner in its nuclear efforts.

I believe it will ironically become more and more complicated for the U.S. to use force against Iran as the negotiating process progresses. I believe that as a result of the Iraq campaign, and due to concerns that Iran could more significantly impact the global economy if confronted militarily, America is handcuffed. Also, I believe that as diplomatic process progresses, it becomes more likely that Russia and China could present a serious obstacle to the use of military force on Iran. It is likely in America's best interest to provoke Iran into a mistake that would allow for retribution. Otherwise, the paralysis of analysis, and diplomacy, could position Russia into a more significant alliance with Iran. Considering Vladimir Putin's recent comments and actions, we do not view it out of the question for Russia to stand for Iran, depending on Iran's actions and statements during the process. This is why we fully expect Israel to act on its own at a time when least expected, and not long from today.

We believe the positioning of increased American troops in Iraq, along with the addition of a second aircraft carrier fleet, are indicative of information sharing between Israel and America. We expect that the recent travels of Israeli and U.S. officials, including Condoleeza Rice, Dick Cheney and Negroponte, are indicative of more preparations and communications with allies. We anticipate that American forces are being positioned to contain an Iran that will undoubtedly lash out after it is bombed by Israeli forces, possibly aided covertly by the United States. It is in the United States' interest to protect vital petroleum producers and routes in the region and our own forces in Iraq. In plain English, we believe an Israeli led bombing attack of Iran may be imminent, meaning within weeks or a few months.

COMMODITY MARKETS

Shocker! Brent crude broke $61 today and was just below that mark in mid-afternoon trade, up 0.56%. The confrontation with Iran is clearly driving energy commodities again today. Natural gas is down 1.09%, however, as unseasonable temperatures warm the northeast. Natural gas prices should be volatile in the months ahead, as the Iranian issue and global warming jostle to impact the price in either direction. Gold, another beneficiary of the uncertain future of the Middle East, is up another 0.67% at this hour.

STOCK SPECIFIC NEWS
Earnings reporters today include Clear Channel Communications, Nicor, Inc. and Lowe's Company. Lowe's beat EPS estimates today, while posting an EPS decrease compared to its prior year result. Same-store sales fell 5.3% in the quarter, but LOW shares are up 4.0% today on the result and the company's 2007 growth forecast.

KL A-Tencor announced a large share buyback plan and its shares are up 4.3% today, perhaps partly behind the reason the SOX Index is defying the broader market move.

We have not reviewed the K.B. Homes situation in depth, but based on what I have read so far, it appears that the company has taken appropriate steps with its old CEO and the H.R. representative involved. I would expect that any decline in the price that creates a valuation differential between the firm and its peers, outside of any other important fundamental difference I may not be aware of, should create an opportunity for arbitrage as that difference is recovered. However, any naked long position is subject to the effects of a weak housing market, in my view, and should also be hedged against. This is not a recommendation, just an opinion, and please read my disclosure statement below.

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Wake Up Call - Feb 23

Good Morning. With oil crossing the $61 mark, major U.S. markets are indicating a lower open to start the day. Ahead of a weekend, and with a key meeting of world powers scheduled for Monday in London, two U.S. aircraft carrier fleets positioned in the Persian Gulf, and hard-line defiant rhetoric being broadcast out of Iran, we would be surprised if the market were not to close lower today.

Asia:
Hang Seng Index -0.47%; Shanghai/Shenzhen 300 CLOSED; NIKKEI 225 +0.44%; BSE SENSEX 30 -2.77%; KRX 100 +0.34%: Taiwan TAIEX Index CLOSED

U.K. & Europe:
DJ STOXX 50 Index +0.34%; FTSE 100 +0.19%; CAC 40 +0.19%; DAX +0.26%; Russian RTS Index +1.51%

KEY HEADLINE NEWS

• World powers are scheduled to meet on Monday in London to discuss a new, harsher set of sanctions against Iran, after it failed to comply with the United Nation's demands to halt its heavy water activity and uranium enrichment. Iran has shown interest in what might be offered to it for compliance, but refuses to halt enrichment, the prerequisite for moving forward. We expect to have much to say about this in "Today's Morning Coffee" later.
• While in Australia, Vice President Dick Cheney expressed caution and skepticism regarding the recently agreed upon deal with regional wild card, North Korea. He said Pyongyang would be closely watched, to insure it complied with the agreement. Cheney was pleased with the role China played in making it happen.
• Lowe's beat EPS estimates today, while posting an EPS decrease compared to its prior year result. Same-store sales fell 5.3% in the quarter, but LOW shares are up 4.3% in pre-market activity on the result and the company's forward growth forecast.
• German business confidence fell in February. Still, the IFO Institute's Sentiment Index, which measures responses of 7,000 executives, declined to a still strong 107, compared to 107.9 in January. If we get away from the catchy headlines focused on the decline, we notice that February's reading was not far off from December historical high of 108.7, and still reflects a high level of confidence.
• Below, please find the remaining articles from our key "Headlines" section, which can be found updated daily in our sidebar within the site:
  Chrysler's Been Shopped Around
  Yen Still Weak
  U.K. May Host Missile Defense Shield
  Blair Shell-Shocked, Opposes Force for Iran
  North Korea Experimenting with Uranium Too
  

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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)

Thursday's Brew - Feb 22

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. Fear that tensions surrounding the Iranian nuclear issue could escalate into something more threatening, seems to have a hold of stocks today. Energy futures are trading higher, as are gold stocks for a second day in a row, while the major U.S. equity indices are lower.

OVERSEAS MARKETS

The European Central Bank met today, but was not scheduled to make a decision on interest rates. Readings were taken on business confidence in France and Italy. Insee, the French national statistics office, produced its index measuring the confidence of French manufacturers. The index reached 107 this month, compared to 106 in the previous two months. The CAC 40 was 0.23% higher on the news.

In Italy, the Isae Institute reported its index on Italian business confidence, and it measured 95.4, up from a revised 94.7 in January. The Milan MIB 30 Index rose 0.52% on the news. Germany's DAX appreciated 0.46% today, after the country's budget deficit was reported down to 1.7% of GDP in 2006, compared to 3.2% in 2005. This was likely due to strong economic growth and lower unemployment.

Asian stocks were hot today, despite yesterday's CPI data out of the U.S., its most significant export market. We can only speculate that commentary from Fed governors yesterday, which was construed as indicative of a Fed that was not imminently expected to raise interest rates, helped Asian shares. The NIKKEI 225 jumped 1.09%, after just a weak move that followed the Bank of Japan decision yesterday. The Hang Seng Index climbed 0.76%, while Australia's S&P/ASX 200 rose above 6,000 for the first time.

On the day the IAEA reported that Iran has defied the United Nations resolution requiring it to stop nuclear fuel work, the Tel Aviv 25 Index edged up 0.08%, while Saudi Arabia's Tadawul All Share Index rose 1.23%, likley on oil strength.

ECONOMIC DATA & ANALYSIS

The Conference Board posted its Help-Wanted Advertising Index, but as we have noted in the past, the index is relatively useless these days as it does not include job postings on the net. The index measured 32 for those who have to know.

Weekly jobless claims were reported down 27,000 for the week ended February 17th, when compared to the week just prior. Still, claims at 332,000, were 7,000 above economists' expectations. The level continues to represent one of a healthy job market, in our view.

COMMODITY MARKETS & GEOPOLITICAL NEWS

Oil is once again the hot topic today, as the IAEA reported that Iran had not ceased uranium enrichment, but had in fact stepped up its efforts. Brent crude futures were 1.9% higher as we wrote this, despite a build in crude inventory reported today. As expected, rhetoric and tension surrounding the Iranian issue has built in intensity today.

As we predicted a few weeks ago, we believe refiners entered maintenance season earlier than usual due to the relatively mild winter, leading to a larger than anticipated draw in heating oil and gasoline reported today. Refineries operated at 85.2% of capacity in the week ended February 16th, versus analysts' median consensus for 86.9%, based on a Bloomberg survey. The low level of capacity usage is likely related to maintenance work, in our view. Heating oil futures are up 2.4%, while gasoline is up 2.3% at this hour.

The safe-haven gold offers investors has it down just 0.18% today, after rising sharply yesterday. Our favorite in the industry, Yamana Gold (AUY), has performed well when compared to the market since we recommended it months ago. Forgive my laziness to look up the price appreciation since that article, and please feel free to do so.

STOCK SPECIFIC NEWS
E*Trade Financial Corporation is holding its analysts day today, while separately, the Pacific Crest Digital Media and Entertainment Forum is taking place in New York. Reporting earnings, look for CMS Energy, Health Management Association, Keyspan, PG&E, Patterson Co., Safeway, Williams Co., Ensco International, Penney J.C., Newmont Mining, Sempra Energy, Chesapeake Energy, H&R Block and Intuit.

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Today's Key News - Feb 22

First we must apologize for today's time of delivery. Persistent connection issues from 6:00 a.m. this morning with Google's Blogger program played havoc with our delivery today and of late, but we wish to assure you that we hope to soon launch our own website, where you would be assured more regular delivery. For those of you who have come to rely on our "Wake Up Call" article for your news summary, please find the key news from our "Headlines" section provided below.

IAEA Report Says Iran Failed to Meet Deadline
Harsher Sanctions Loom for Iran
Tales From the Dark Side
Weekly Jobless Claims Improve Off Last Week's Big Number
Crude Supply Builds While Distillates Decline
Toll Brothers Lowers Home Delivery Forecast, Reports EPS
Gold Drops After Yesterday's Rise
CNN's Stock Watch List

Wednesday's Brew - Fb 21

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. The Dow Industrials, S&P 500 and NASDAQ Indices are all lower through midday trading, driven by this morning's report of a higher than expected increase in consumer prices.

OVERSEAS MARKETS

Concluding its two-day meeting, the Bank of Japan raised the government benchmark rate a quarter percentage point today, to 0.5%. The decision passed on an 8 to 1 vote, but the bank indicated that there were few signs of inflation, and that it expected the economy to continue growing. The BOJ also stated that it would proceed slowly with any future adjustments. Full text of the BOJ statement provided is available here. The NIKKEI 225 slipped 0.14% today on the news.

While markets in mainland China will be closed all week, shares in Hong Kong reopened trading today. The Hang Seng Index performed without a post New Year's hangover, climbing 0.41% on the day.

While Asia was closed before the news broke in America, Europe was impacted today by the CPI data release. The DJ STOXX 50 Index was down 0.71% as a result, in our view. Despite Tony Blair's announcement that Britain would sharply reduce its troop levels in Iraq soon, the FTSE 100 was preoccupied with the American CPI report as well. The FTSE Index dipped 0.53% on the news, through late afternoon trade. The CAC 40 was down 0.49%, while the DAX slipped 0.35%.

ECONOMIC DATA & ANALYSIS

The January Core Consumer Price Index, which excludes volatile food and energy, was reported today 0.3% higher, a reading above the median expectation for a 0.1% increase, as compiled by Bloomberg. Year over year, core consumer prices rose 2.7%, ahead of the 2.6% reported in December. The Fed's preferred figure is the personal consumption expenditures index, which the Commerce Department reported on February first. That index rose 2.2% in December, and remained above the 2.0% level that sets off the Fed alarm. The CPI information was the main reason stocks opened lower today, as it's well understood that the Federal Reserve is focused on keeping inflation under control.

Last week's PPI data revealed inflation levels that the market could embrace, but today's CPI data, which is held closer to the hearts of Fed governors, showed the unexpected tick higher. Fed Chief Bernanke's warm words last week were enough to persist as long as today's data did not raise eyebrows. However, in light of the result, we believe any market rise that may have been driven by the Federal Reserve's golden forecast, has now been tarnished some.

As if a poor CPI reading wasn't enough to cut the market's party short, weekly mortgage applications showed housing continues weak. Mortgage applications declined 5.2% in the week ended February 16th, despite a decrease in borrowing rates. The purchase index, which measures new loans for home purchases, fell to its lowest level since October 2006, while refinancing activity declined 5.4%. We believe this data provides evidence for our thesis that housing has not yet bottomed, and that 2007 will mark another year of decline in starts and pricing.

January Leading Indicators were reported today at 10:00 a.m., and the consensus of Bloomberg economists expected an increase of 0.2%. The actual reading showed an increase of 0.1%, lower than expected. Though positive, the weaker than expected reading when combined with the CPI data provides a clearly negative environment for stocks today.

Also important today, the Fed will release the minutes from its January meeting. While the result of the meeting itself had a positive impact on equity markets, the contents of the minutes could have a completely different result. The Fed's brief statement following the meeting contained language referencing the ongoing risk that inflation could pose, and the fact that the Fed might have to act against it. Therefore, we expect the minutes to show hawkish discussion regarding inflation, and with this morning's CPI measure, this could impact the market rather negatively later today. In other news, Fed Vice Chairman Donald Kohn is addressing a group in Washington.

COMMODITY MARKETS & GEOPOLITICAL NEWS

Today marks the 60-day deadline for Iran to cease nuclear fuel activities, including uranium enrichment, as imposed by the United Nations. The International Atomic Energy Agency (IAEA) is scheduled to report today on the progress of Iran, and its compliance or noncompliance. It has become clear that Iran has remained steadfast in its efforts, and the report should show that Iran has continued enrichment.

With the USS Stennis now the second U.S. aircraft carrier present in the Persian Gulf, tensions have risen. Iran continues to test new and old missile technology, implying that it is preparing for an attack via the air. It's new air defense system is now reinforced by state of the art Russian technology, and its home grown missile system includes an ability to reach U.S. forces in Iraq and Israel, Saudi Arabia and Kuwait.

While Congress has acted to pass legislation denying the president his Iraq troop increase and to require he consult and receive Congress' approval for any initiative against Iran, these measures are nonbinding, because we believe they conflict with constitutional law. We suspect the President has positioned forces to defend allies and U.S. forces in the region, and anticipate it equally likely that Israel could push forward alone or in concert with the United States. We view Israel's time-line even shorter than the term constrained Bush. The current pace of filling of the strategic oil reserve implies an early 2008 U.S. initiative, but Israel may be more concerned with the pace of Iran's enrichment progress. WTI crude futures are fractionally lower this morning.

STOCK SPECIFIC NEWS
Kellogg Co. is presenting at the Consumer Analyst Group of New York meeting in Arizona, while the earnings report schedule for Wednesday includes Medco Health Solutions, TJX Companies, Analog Devices and Whole Foods Market.

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Wake Up Call - Feb 21

Good Morning. At the open, major U.S. markets have opened broadly lower, following Core CPI data that exceeded expectations and renewed concerns that the Fed may still need to raise rates to tame inflation.

Asia:
Hang Seng Index +0.41; Shanghai/Shenzhen 300 CLOSED; NIKKEI 225 -0.14%; BSE SENSEX 30 -0.46%; KRX 100 -0.12%

U.K. & Europe:
DJ STOXX 50 Index -0.73%; FTSE 100 -0.69%; CAC 40 -0.34%; DAX -0.54%; Russian RTS Index +0.75%

KEY HEADLINE NEWS

• The Consumer Price Index for January was reported at 8:30 a.m. The Core CPI figure, excluding volatile food and energy, rose 0.3%, ahead of the Bloomberg survey median expectation for a 0.1% increase. Year over year, core consumer prices rose 2.7%, ahead of the 2.6% reported in December. The Fed's preferred figure is the personal consumption expenditures index. The Commerce Department reported on February first that the index rose 2.2% in December, and remained above the 2.0% level that sets off the Fed alarm.
• Concluding its two-day meeting, the Bank of Japan raised the government benchmark rate a quarter percentage point, to 0.5%. The decision passed on an 8 to 1 vote, but the bank indicated that there were few signs of inflation, and that it expected the economy to continue growing. The BOJ also stated it would proceed slowly with any future adjustments. Full text of the BOJ statement provided here.
• Weekly mortgage applications declined 5.2% in the week ended February 16th, despite a decrease in borrowing rates. The purchase index, which measures new loans for home purchases, fell to its lowest level since October 2006, while refinancing activity declined 5.4%.
• The British are leaving! The British are leaving! The Brits have had enough, as Tony Blair announced that Britain will reduce its troop count in Iraq sharply.
• Following the deadline expiration today, the International Atomic Energy Agency (IAEA) is expected to report that Iran has defied its 60-day ultimatum to suspend nuclear fuel activities. We expect rhetoric from all sides to tick up today and tomorrow.
• This week has its share of key economic news, corporate events and important Fed appearances. See our report, "The Greek's Week Ahead" for all the details.

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Tuesday's Brew - Feb 20

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. We welcome in the year of the pig, and wish our friends in Asia and those all over the world celebrating the lunar new year, happy new year! The S&P 500 and NASDAQ indices are modestly higher in early afternoon trade, while the Dow Industrials are lower. We do not expect much conviction from the market today, ahead of tomorrow's key Core CPI report at 8:30 a.m. EST.

OVERSEAS MARKETS

Various markets in Asia were closed today, as lunar new year is celebrated. Markets in China and Taiwan will be closed all week, while the market in South Korea was closed yesterday only. In Japan, the NIKKEI 225 was nearly unchanged today, as the Bank of Japan began a two-day meeting that will culminate with tomorrow's decision on the benchmark rate. The short-term government set benchmark rate is currently 0.25% in Japan.

European bankers and investors are hopeful that the BOJ might raise rates tomorrow, helping to lift the yen, and aid the competitiveness of European goods versus Japanese products. The broad reaching European DJ STOXX 50 Index was down 0.26% today, while the CAC 40 fell 0.46% and the DAX slipped 0.06%. In London, the FTSE 100 declined 0.50% today.

ECONOMIC DATA & ANALYSIS

The University of Michigan’s American Customer Satisfaction Index was reported today, and showed Publix, Kohl's and Costco ranked atop consumer preferences. The State Street Investor Confidence Index was also reported today, with a reading of 90.4, compared to a reading of 85.0 in January. The index measures confidence by looking at actual levels of risk in investment portfolios, and the recent measure shows an increase in confidence.

In geopolitical news, Vice President Dick Cheney met with Japanese Prime Minister Shinzo Abe today, where they likely discussed the North Korean Sham, I mean deal, agreed to last week.

COMMODITY MARKETS

Heating oil futures lead all commodities lower at this hour, down 3.25%. As warmer temperatures overcome much of the previously freezing Northeastern U.S., market players are anxiously anticipating the end of winter and decreased demand for heating fuels. Natural gas is also lower by 1.6% today. However, we must caution here, as Iran faces an important U.N. imposed deadline tomorrow.

Wednesday, the IAEA will report on Iran and let the world know whether it has complied with a U.N. resolution requiring it to halt uranium enrichment activities. In all likelihood, Iran will not have complied, and rhetoric is likely to intensify. Much has been going on behind the scenes as well. The USS Stennis steamed into the Persian Gulf this week, and the U.S. is better prepared now to defend the tight channel at the Strait of Hormuz, as well as the assets of oil producers Kuwait and Saudi Arabia. The Ayatollah Khomeini met over the weekend with Syria's Assad, while Condoleeza Rice met with Ehud Olmert of Israel. Thus, while fuel prices moderate, we believe they are tethered a bit by the ongoing geopolitical risk tied to Iran. Still, WTI Crude is down 2.9% in the early afternoon.

Gold is 1.75% lower today, as the dollar gains, due to the stable picture painted by Fed Chief Ben Bernanke last week in his testimony to Congress. In any event, we believe today's downward movement of most commodities, while representative of short-term conditions, does not reflect the direction we anticipate commodity prices will run over the longer term period we define over the next two years.

STOCK SPECIFIC NEWS
Corporate news has really taken the lead today, with several events kicking off across the nation and with key corporate earnings reports from important housing and consumer health barometers, Home Depot and WalMart.

The Consumer Analysts Group of New York kicked off its conference in Arizona today, with Kraft, General Mills and ConAgra among early presenters. Individually, EDS is holding an analyst meeting in New York, while Airbus is outlining its restructuring plan in Toulouse, France. Microsoft’s Bill Gates is scheduled to speak to the Canadian Chamber of Commerce in Ottawa on this day as well.

Home Depot and WalMart reported earnings for their respective fourth quarters this morning. Also reporting earnings today, look for Alltel Corp., Firstenergy, Genuine Parts and Hewlett-Packard.

Home Depot (HD) reported EPS in line with estimates, while posting a same-store sales decline of 6.6%. Recent housing data showed a sharp drop-off of starts in January, and housing investors will likely have a keen eye set on Home Depot today and Lowe's, which reports on Friday. Home Depot will not provide financial guidance until its annual investor conference on February 28th. HD shares were just slightly lower at the hour of our publishing, after starting the day approximately 1.7% down.

WalMart (WMT) reported quarterly EPS three cents ahead of Thomson Financial compiled consensus estimates, even before a $0.02 tax benefit. Revenues grew 10.9%, though they missed analysts expectations. The company provided a fiscal first quarter EPS guidance range of $0.68 to $0.71, generally above the $0.68 consensus compiled by Thomson Financial. WMT shares are up 3.0% in early afternoon trading.

Sirius (SIRI) and XM Satellite Radio (XMSR) have agreed to merge, but the deal faces serious regulatory obstacles, including an FCC provision against the merger. The company and analysts alike expect the expense structure to benefit from a combined entity. The problem is, if the only two providers of satellite radio services were to merge, a lack of competition might hurt the consumer. SIRI was up 7.6%, while XMSR was 10.9% higher in early afternoon trade. The increased benefit to XMSR is likely due to the structure of the deal, and the fact that going into it, XMSR traded at a valuation discount to SIRI (we base our valuation on trailing price-to-sales comparisons).

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Wake Up Call - Feb 20

Good Morning and happy new year to our Asian friends celebrating this week. At the open, major U.S. markets are modestly lower on a light news week. A handful of announced mergers are monopolizing news wires today, including a deal agreed upon by Sirius and XM Satellite Radio. However, the FCC is likely to have something to say about that.

Asia:
Hang Seng Index CLOSED; Shanghai/Shenzhen 300 CLOSED; NIKKEI 225 -0.01%; BSE SENSEX 30 -1.04%; KRX 100 +0.32%; Ho Chi Minh CLOSED

U.K. & Europe:
DJ STOXX 50 Index -0.4%; FTSE 100 -0.5%; CAC 40 -0.52%; DAX -0.34%; Russian RTS Index -0.29%

KEY HEADLINE NEWS

• WalMart reported quarterly EPS three cents ahead of estimates, before a $0.02 tax benefit. The company provided fiscal first quarter EPS guidance range of $0.68 to $0.71, generally above the $0.68 consensus compiled by Thomson Financial. WMT shares are up 2.7% in early trading.
• Home Depot reported EPS in line with estimates, while posting a same-store sales decline of 6.6%. The company will not provide financial guidance until a February 28th presentation. HD shares are down 1.7% in early trading.
• Sirius and XM Satellite Radio have agreed to merge, but the deal faces serious regulatory obstacles, including an FCC provision against the merger.
• As the USS Stennis steams into the Persian Gulf, Iran is attracting significant attention this week. A U.N. deadline written into the resolution against Iran's nuclear fuel activities, calls for Iran to cease enrichment by tomorrow, and the IAEA will report then on Iran's activity.
• This week has its share of key economic news, corporate events and important Fed appearances. See our report, "The Greek's Week Ahead" for all the details.

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The Greek's Week Ahead - The Year of the Pig

The Greek's Week Ahead has been designed to provide investors with a stock market-moving event planner for the week. We have engineered it to prepare you for important news, information and happenings that are likely to impact your portfolio.

The week just passed was marked by the benign testimony of Fed Chairman Ben Bernanke before Congress. The grizzly Fed chief pacified a concerned market, providing his astute view that economic growth was likely easing at a satisfactory pace, while inflation would likely abate over time. He presented Goldilocks in all her stunning glory. The market responded appropriately, with three consecutive days of appreciation in the Dow.

The week was not without its share of concerning data though, as the annual pace of housing starts declined 14.3% in January alone, raising eyebrows and concern that the powerful housing market might still lead us into recession. In fact, housing starts were down 37.8%, year over year, certainly a decline worthy of concern. The housing news was enough anyway to take the Fed inspired market fire down a notch to a sizzle.

At the end of the week, some key inflationary data settled stomachs a bit, as the core PPI result showed that year over year producer prices had risen just 1.8%, below the Fed alarm threshold of 2.0%. The week ahead has the opportunity to provide the market with confirmation that prices are indeed coming into line, as the consumer price index is reported.

On Monday, markets in the U.S. and much of Asia will be closed, as Americans celebrate President's Day and the Chinese ring in the year of the pig. Ominous indeed for superstitious investor types, especially after the spirited rise of Chinese shares last year. Markets in China and Taiwan will be closed all week, while the South Korean market closes for just the day.

Condoleeza Rice met with Palestine's Mahmoud Abbas and Israel's Ehud Olmert today in Jerusalem, marking the first such meeting since Palestine's Fatah and Hamas parties came to agreement on a unified structure. The meeting seemed to bear no fruit, as Rice concluded it with a solo ninety second press briefing without a Q&A session. One has to wonder if Rice is not in the region for a different purpose. Over the weekend, Syria's Assad traveled to Iran to meet with the Supreme Leader, after which the Ayatollah Khomeini issued the standard U.S. will not succeed in the Middle East statement.

Tuesday will be chock full of corporate news. Headlining the slate, key housing and consumer health barometers Home Depot and WalMart are scheduled to report earnings for their respective fourth quarters. They’ll be reporting alongside Alltel Corp., Firstenergy, Genuine Parts and Hewlett-Packard.

The Consumer Analysts Group of New York kicks off its conference in Arizona, with Kraft, General Mills and ConAgra among early presenters. Individually, EDS will be holding an analyst meeting in New York, while Airbus is scheduled to outline its restructuring plan in Toulouse, France. Microsoft’s Bill Gates is scheduled to speak to the Canadian Chamber of Commerce in Ottawa on this day as well.

The only economic data release of note on Tuesday is the University of Michigan’s American Customer Satisfaction Index, but it is unlikely to impact the direction of stocks. Vice President Dick Cheney will meet with Japanese Prime Minister Shinzo Abe, where they will undoubtedly discuss the North Korean Sham, I mean deal, agreed to last week.

Wednesday will clearly be the most important day of this week, providing the market with critical economic news. January's Consumer Price Index is set for release at 8:30 a.m. EST, and the consensus of economists surveyed by Bloomberg sees a headline reading showing growth of just 0.1%, due to lower energy prices during the month. The market will be keen on seeing the Core CPI number, which excludes volatile food and energy prices, and the consensus sees Core CPI up just 0.2%. If this metric proves mild, this will provide confirmation of last week's data and news that indeed Goldilocks rules. We would expect the market to move strongly higher as a result.

A second key report could also move the market Wednesday. January Leading Indicators will be reported at 10:00 a.m., and the consensus of Bloomberg economists sees an increase of 0.2%. The combination of these reports could provide support to the Goldilocks case or contradict it completely or partially, and thus play a role in the direction of stocks. We anticipate a mild Core CPI result and leading indicators measure to add further support to the placid picture Bernanke is painting.

Hold on, there's more. The Fed releases the minutes from its January meeting on Wednesday. While the result of the meeting itself had a positive impact on equity markets, the contents of the minutes could have a completely different result. The Fed's brief statement following the meeting contained language referencing the ongoing risk that inflation could pose, and the fact that the Fed might have to act against it. Therefore, we expect the minutes to show hawkish discussion regarding inflation, and depending on the CPI measure, this could impact the market negatively on Wednesday.

Earlier in the day, the world will be focused on Japan, as the Bank of Japan ends its two-day meeting with its decision on interest rates. Short-term rates in Japan were recently at 0.25%. Following the decision, BOJ Governor Toshihiko Fukui will hold a news conference to discuss the Bank's decision. Recently, the European Central Bank has expressed concern about the depreciating yen, versus the euro, and we expect European markets will be hopeful for a rise in Japanese rates. Thus, this decision could impact European shares as much as those in Japan.

In other news, Fed Vice Chairman Donald Kohn will address a group in Washington. Kellogg Co. is scheduled to present at the Consumer Analyst Group of New York meeting in Arizona. The earnings report schedule for Wednesday includes Medco Health Solutions, TJX Companies, Analog Devices and Whole Foods Market.

With seemingly all the week's information compacted into Wednesday, Thursday's relative quiet should provide ample opportunity to digest the data. Noteworthy events scheduled for Thursday include a meeting of the European Central Bank. However, the ECB's congregation this time around is not planned to include a decision on interest rates. The Conference Board will post its Help-Wanted Advertising Index, but as we have noted in the past, the index is relatively useless these days as it does not include job postings on the net.

E*Trade Financial Corporation will hold an analysts day on Thursday, while separately, the Pacific Crest Digital Media and Entertainment Forum takes place in New York. Reporting earnings on Thursday, look for CMS Energy, Health Management Association, Keyspan, PG&E, Patterson Co., Safeway, Williams Co., Ensco International, Penney J.C., Newmont Mining, Sempra Energy, Chesapeake Energy, H&R Block and Intuit.

There's not much news on tap for Friday, outside of a couple key Fed representative appearances. Dallas Fed President Richard Fisher will address the U.S. economy in a global context, while San Francisco Fed President Janet Yellen addresses the economic outlook. Earnings reports are scheduled from Clear Channel Communications, Nicor, Inc. and Lowe's Company to round out the week.

(disclosure)