The Greek's Week Ahead - Feb 11

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.

Last week was marked by the president's budget release, strong reports from the service and retail sectors, concerning news from sub-prime lenders HSBC and New Century Financial, a weak housing outlook from Toll Brothers and a warning from St. Louis Fed President William Poole. Ironically, this week, the market's year old love affair with Fed Chief Ben Bernanke could come to an abrupt end right on Valentine's Day. After a rough start, due to some loose lips in an interview with Maria Bartiromo, Ben has since won over the confidence of investors. The Fed's timing under his tenure, ending the long string of rate hikes in 2006, has piloted in a landingless economic transition, thus far.

However, Big Ben may face some challenges in 2007 that could truly test his stewardship of this behemoth of an economy. You see, the Fed had been counting on a cooling economy to loosen the job market and ease wage pressure on inflation. But, in the fourth quarter, GDP slammed the ball out of the expectations ballpark, posting growth of 3.5%, and the job market is as tight as ever with unemployment approximating 4.5%. If the economy does not cool, the employment environment might tighten even further, and with energy and food inflation looming and possible higher interest rates pressuring mortgage holders, a rise in the cost of living could impact American consumption. Demands should increase on employers to offer a more competitive salary in order to retain their best employees. In other words, we believe inflation looms as a serious threat.

Mr. Bernanke will have an opportunity to clarify the Fed's concerns and positions as he testifies before Congress on the 14th and 15th. This is the most important information available to investors in the week ahead, and we advise you to pay close attention because the market is itching for a reason to correct, in our view. According to Peter Lynch and history, the market declines 10% about every four years, so we are near due now. The S&P 500 Index has not declined 10% or more since the first quarter of 2003, though we are conveniently ignoring last year's early fall. Still, we think we have highlighted two significant risk factors that could drive either a dragged out decline or a one day drop in the year or so ahead.

In recent weeks, the possibility of a rate cut has been taken off the table, replaced by the chance of a rate hike. Wednesday, the Fed chief may shed some light on the likelihood of that move. Certainly, recent comments from regional Fed heads Poole and Plosser have not been encouraging. This is the kind of catalyst capable of turning this old bull around. We have really enjoyed a fine time for stocks, without even a 2% decline in 144 consecutive trading days and a rising market for eight consecutive months.

It's been a long while since we have experienced a one-day or multiple day market panic. September 11th is the most recent in my memory, and I certainly would rather not relive that kind of day. It was preceded by perhaps the Asian financial crisis, or the onset of the Gulf war and the famed Saddam sell-off of the early '90s. So what's next... Well, we think we've already discussed the catalyst most likely to drive that move as well. It's the uncertainty or chaos that will follow the destruction of Iran's nuclear facilities. What havoc might Iran deploy if any? The sinking of an oil freighter probably wouldn't do it, but how about the destruction of key Saudi-based oil facilities or the invasion of Iraq. I bet that would do it. The most likely events are already in our sights my friends, so all we have to do is keep our eyes open and hedge hedge hedge.

Seventy-five percent of the S&P 500 have reported their December-quarter earnings, and according to Thomson Financial, the streak of double-digit earnings growth is expected to extend through the fourth quarter. Standard & Poor's had estimated corporate earnings growth to dip below double digits this quarter. In our observation, this highlights a common conservative error trend among analysts, especially those short on due diligence, in rising markets and growing economies. When the market is in decline, we have noticed estimates typically overestimate actual results. What this says is that analysts typically lag the market. During my time on Wall Street, I was well aware of this common human tendency to avoid risk taking, and did my best to employ independent thinking. It's a shame that more analysts and those leading them are not willing to take chances and have more conviction in their own beliefs.

However, this case is a bit different. The majority of economists, along with the Fed, had been calling for economic growth to measure at a slower rate than what actually resulted in Q4. We can only assume that analysts arbitrarily applied this macroeconomic consensus view into their earnings models, but maybe didn't fully understand the macro driver impact to their specific firms' revenue and margin outlook. Thus, in this case, the safe general consensus view was likely applied to forecast the as expected economic slowing. I praise those who stood up and accurately called their covered firms' stronger than consensus view results, despite likely advice from detached managers telling them to factor in information in a manner they could measure. Now, let's take a closer look at the week ahead.

The Week Ahead

Vlad Putin shook things up over the weekend, stating that one nation was overstepping its bounds and pushing countries to seek nuclear technology in order to insure their own security. He said, the United States had overstepped its national borders in every way, and he voiced concern that NATO's expansion plans were threatening not progressive. So, we do not expect oil to open lower on Monday! Stocks might find it hard to head higher in early going also. Reporting earnings, expect Loews Corporation, Yum! Brands and Ecolab Inc. to post results.

Otherwise, Monday looks to provide a relatively quiet start to the week, as the New York Society of Security Analysts holds an insurance conference. Overseas, Japanese markets will be closed Monday, while the Reserve Bank of Australia will make its decision on interest rates. In Barcelona, the 3GSM Congress kicks off.

December international trade data will be reported at 8:30 a.m. Tuesday morning. The consensus of economists surveyed by Bloomberg expect the trade gap to have widened to $59.7 billion in December, from $58.2 billion in November. The driver behind the growing gap is expected to be the higher oil prices that persisted in December. Speaking of oil, the International Energy Agency prints its monthly oil-market report Tuesday.

Last week, HSBC and New Century Financial shook up the sub-prime market with bad news, and this week Capital One Financial has an opportunity to follow up, as it holds an investor conference call at 1 p.m. A conference I use to attend regularly kicks off on Tuesday, as the Wall Street Analysts Forum gets started. Reporting earnings on Tuesday, look for UBS, Metlife, Marsh & McLennan, KIMCO Realty, KB Homes, XTO Energy, Applied Materials, Altera Corp. and NVIDIA Corp.

All eyes will be on Capitol Hill on Wednesday, as the market's love affair with Fed Chief Ben Bernanke faces its toughest adversity. Mr. Bernanke will testify before the Senate Banking Committee, and we wonder if the specter of inflation fighting might be on his agenda.

January retail sales are widely seen rising 0.3%, compared to December's increase of 0.9%. In our view, recent retail sales data seem to indicate growth could surprise on the high side. December business inventories will be posted at 10:00 a.m., and expectations are for an increase of 0.1%, versus a rise of 0.4% in November. Wholesale inventories have weakened recently and capital investment was light late last year, but recent GDP growth may indicate a pick up in production and investment in the near future.

DaimlerChrysler will outline its plan to turn around Chrysler, while the earnings report calendar includes Progress Energy, Transocean and Genzyme.

Taking the baton from the Fed chief, U.S. Trade Representative Susan Schwab will discuss the Bush administration's trade agenda before the Senate Finance Committee on Thursday. Meanwhile, Mr. Bernanke turns his attention to the House Financial Services Committee in the second day of his testimony to Congress.

January import prices, which are scheduled to be reported at 8:30 a.m., are seen falling 1.0%, compared to a 1.1% rise in December. Also, the Treasury will report on net foreign purchases of U.S. securities. The month's industrial production, scheduled for 9:15 a.m., is expected to show a rise of 0.7%, versus an increase of 2.5% in December. Capacity utilization is expected to measure 81.7%, compared to 81.8% in December. The Philly Fed survey for February is scheduled for release at high noon. The Bloomberg consensus anticipates a reading of 4.1, versus 8.3 in January.

Overseas, Russian energy policy could come back into the spotlight, as Belarus is scheduled to increase transit fees 30% on Russian oil. Also, Ecuador could shake the Latin American market, as it is scheduled to make a $135 million payment on foreign bond debt, that some believe it could default upon.

The earnings schedule for the week concludes with reports from Biogen, Terex Corp. Laboratory Corp. of America, Ameren, Molson Coors Brewing Co., Agilent Technologies and Allied Waste Industries.

Friday looks poised to pack quite a punch with key housing, inflation and consumer sentiment data set for release. January housing starts are scheduled to be reported at 8:30 a.m., with the Bloomberg consensus expecting 1.6 million homes to have been started, versus 1.642 million in December. The January producer price index will provide some insight into the inflationary picture, with the consensus view for a decrease of 0.5% due to lower relative energy prices, versus a rise of 0.9% in December. At 10:00 a.m., the University of Michigan reports on February sentiment, with a consensus view for a reading of 96.5, versus 96.9 in January.

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