Wake Up Call - Crop on This

Major U.S. equity indices have opened generally higher this morning, we think just on short-term exhaustion from this week's slide. As it's Friday, and tensions with Iran remain taut, we would expect equities to slide by the day's end. We think there are too many risk factors active to hold stock through the weekend.

Asia:
Hang Seng Index -0.11%; Shanghai/Shenzhen 300 -0.05%; NIKKEI 225 +0.14%; Taiwan TAIEX +0.46%; BSE SENSEX 30 +0.71%; KRX 100 +0.16%; Ho Chi Minh +0.25%

U.K., Europe & Middle East:
DJ STOXX 50 Index -0.17%; FTSE 100 -0.11%; CAC 40 -0.05%; DAX +0.35%; Russian RTS Index -0.09%; Tel Aviv 25 NA; Tadawul All Share NA; DSM 20 -0.36%


Key Headlines:

• *** Wall Street Greek predicted months ago that food inflation would develop into a real thorn in the Fed's side and impact the cost of living of Americans significantly. We argued that the prices of corn and grain surrogates like soy bean and wheat would likely all rise due to increased use of corn for ethanol production. Although the president argued during his State of the Union Address that he would take it slow with alternative fuel expansion plans, so as to not burden Americans, that's easier said than done George. Today's crop report showed planting plans ahead of forecasts, while soybean is losing acreage as a result. Soybean prices would be expected to rocket this morning, but remember, the market is efficient and some of this may be priced in. Now, corn may not weaken as much as you might expect, since the USDA has reported stockpiles of corn are down significantly. We need a big corn crop, due to the decrease of stockpiles. It seems clear to us that our forecast for the agricultural space is playing out. Food prices should continue to rise across the board, from grains to proteins, since feed prices are rising as well. This creates an inflationary burden for Americans.
• *** Personal income and consumption were both reported ahead of consensus estimates this morning, with income rising 0.6% in February, versus expectations for a 0.3% increase, as compiled by Bloomberg. Consumption rose 0.6%, versus expectations for an increase of 0.3%. So, economic growth indicators seem favorable, however, a key inflation figure followed closely by the Fed, the Core PCE deflator rose 2.4% in February, year over year, compared to a rise of 2.2% in January (revised from 2.0%). Wall Street Greek expects the market will view the report negatively on the whole, as, on its own, it allows for the Fed to hike rates. Clearly, the Fed does not move on any one single economic metric, but this provides no positive benefit for equities in and of itself, in our opinion.
• *** Iran's '80s politics are not flying with Europe, as its parade of prisoners and forced letters of admission are poking a thorn in the side of Europe, and Europe appears about full of it. It's ironic, because Europe was once open to discussion and diplomacy. I will never forget a discussion I had with a French U.N. delegate a couple years ago, when the diplomat argued with me that Iran wanted nuclear energy for peaceful purposes. I was shocked at the naivete' that can result from overexposure to diplomacy, and the willingness some diplomats have to agree for the sake of agreeing. Many seem to operate on the basis that all men share ideological views, when in fact, most men operate on selfish interests. You have to admire the diplomat's hope though, but left to that fool, Iran would threaten the sanctity of the world, in our view.

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Today's Key News - GDP, Who Cares?

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

Despite today's GDP revision and sturdy jobless figure, the NASDAQ is down while the S&P 500 and the Dow Industrials are just barely keeping their heads above water.

Asia:
Hang Seng Index +1.37%; Shanghai/Shenzhen 300 -0.51%; NIKKEI 225 +0.05%; Taiwan TAIEX +0.77%; BSE SENSEX 30 +0.74%; KRX 100 +0.79%; Ho Chi Minh +3.58%

U.K., Europe & Middle East:
DJ STOXX 50 Index +1.05%; FTSE 100 +0.91%; CAC 40 +1.42%; DAX +1.18%; Russian RTS Index +0.77%; Tel Aviv 25 +1.52%; Tadawul All Share -1.57%; DSM 20 -0.36%


Key Headlines:

• *** In a rare change for a third revision, Q4 GDP growth was revised higher to 2.5% from 2.2% previously reported (3.5% initially). This added lift to the market this morning by relieving some recessionary concern. Still, the news might lead some to consider the door opened wider for a potential rate hike to temper inflation, but there was some other noteworthy news in the report. Prices paid for personal consumption expenditures, excluding food and energy, were adjusted lower to a 1.8% annual growth rate in Q4, versus a previously estimated 1.9%. The inflation metric is favored by the Fed, and would seem to appease them. You already know Wall Street Greek's view of any inflationary figure that excludes the secular driven pressures on food and energy prices. Despite the good news, the market lacks the conviction to recover today. Wall Street Greek believes what is tempering enthusiasm, outside of all the usual suspects, is the fact that Q4 does not matter all that much anymore. Q1 is about to end, and indications are that GDP growth is slowing. Also, if Q4 GDP benefited from inventory growth, there may be increased risk that inventory was not sold off in Q4 and Q1 as anticipated, meaning a lesser degree of inventory replacement took place. Durable goods orders seem to support that argument. Also, Q4 investment in equipment and software was revised lower within today's report.
• *** Weekly jobless claims measured 308,000, below the 320,000 that was expected and the 318,000 that was reported for the prior week. Famed fixed income investor Bill Gross, during a relatively recent appearance on CNBC, pegged this metric as the most important economic indicator to follow in the near term. Wall Street Greek expects unemployment to increase as carpenters, electricians, plumbers, real estate agents, mortgage brokers, lending associates, and eventually, retail personnel hit the streets looking for jobs this year.
• *** Marc Faber, famous for predicting the market crash of 1987, was quoted by Bloomberg today saying "financial stocks are not performing well and this is usually a bad indicator for the market." Wall Street Greek agrees, if you caught our article today, which was reconstituted from last night's "Late Night With the Greek."

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Late Night With The Greek - Sometimes Bad Gets Worse

Another day, another depressant... Tuesday night, we discovered Beazer Homes (BZH) was being investigated by four different government agencies. That's a good starter for an evening of nightmares! Well, we knew the witch hunt had begun, so we should have expected this. You see, the drunken excesses of the housing party sprouted lenders galore. Heck, even WalMart was hoping to start up a lending unit it could carve some space for within its stores. A couple more years of the housing blast and, who knows, maybe we would have seen S&Ls in churches, or even a bank on a plane! Everybody was lending, and now everybody wants out.

GM sold off a big stake of GMAC at just the right time, and now Morgan Stanley wants to spin off its Discovery Card unit. Despite rumors that New Century may be days from bankruptcy, investment banks are buying subprime assets at pennies on the dollar, and hedge funds are receiving warrants and steep interest rates for lines of credit, keeping many players afloat. Now Beazer is being investigated, and Herb Greenberg reported today that several other home builders bear that same investigation risk related to lending activity.

Last month, the January durable goods orders report shook the very foundation of the market, followed by the sharp revision lower of Q4 GDP. Today, January's durable goods figure was revised to an even deeper level of concern, while the February report also disappointed the market. Meanwhile, Ben Bernanke told politicians in Washington today that he had not removed the Fed's inflation bias, which was the illusory driver of the market's rise last week.

All this bad news is hard to ignore. I see too many market enthusiasts reaching for the record of historic long-term stock gains for comfort, but that does not do anybody any good who is watching equity disappear. We are not yet at the point of inflection, in my opinion, and as I suggested months ago, I would be underweight the financial sector. It seems clear to me that the lending mess is spreading, and it's only a matter of time before traditional lenders like Wachovia (WB), Washington Mutual (WM) and Indymac (NDE) begin to report more significant deterioration. At that point, consumer confidence does not seem likely to hold up, and consumer spending should take a step back. At the same time, inflation staves off the Fed from acting swiftly to rescue the marketplace. And all this is happening just as we prepare for war with one of the world's most important suppliers of oil. I respect Cramer, but I think he, like many of the people too close to the situation are victims of history this time around. Things don't always happen like they did in the past. The market is dynamic, and we have to recognize when fundamental factors are changing. Rising food prices is one of those dynamic changes unrelated to seasonal or cyclical factors, but directly related to long-term shifts in resource usage and demand.

I still like Russian energy firms here if you're looking for medium to long term ideas in the sector. The Russians are positioning themselves for a meaningful shift in supply sources that could result from conflict with Iran. It seems clear that the U.S. will attempt to render Iran impotent militarily as quickly as possible, but we believe Iran will cause some damage to Saudi, and/or Kuwaiti and Iraqi facilities, driving oil prices higher than most anticipate. Russian resources stand to benefit significantly. Putin has been actively working to secure new deals with China this week, and Bulgaria, Italy and Greece last week.

Tomorrow:

Further revision of Q4 GDP is planned for report Thursday, but no change is expected from the last revision downward to 2.2% growth. Richmond Fed President Jeffrey Lacker will address an evening audience on inflation and unemployment. Remember, he's the guy who was calling for the Fed to raise interest rates over the past year, so don't expect a burst of sunshine from Jeff.

Brocade (BRCD) is scheduled to meet with analysts on Thursday, and earnings reports are expected from Carmax, A.G. Edwards, Family Dollar Stores, Solectron Corp., Worthington Industries, Stride Rite Corp., and The Finish Line. Cramer recommended Brocade ahead of this meeting, anticipating a revision of guidance higher. Brocade gapped higher on Monday as a result, but has since drifted back to near where it closed on Friday. Best wishes and sweet dreams folks, and don't go naked here, it's too darn cold out there.

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Wake Up Call - Housing Crisis

Good morning. Equities have opened broadly lower this morning, as four separate federal agencies are investigating Beazer Homes (BZH), and concerns have arisen that the housing sector may be in store for a second leg lower, as predicted by Wall Street Greek months ago. Oil prices are in flux as well today, as tensions rise with Iran.

Asia:
Hang Seng Index -0.78%; Shanghai/Shenzhen 300 +0.49%; NIKKEI 225 -0.64%; Taiwan TAIEX -0.73%; BSE SENSEX 30 -1.83%; KRX 100 -0.86%; Ho Chi Minh -0.24%

U.K., Europe & Middle East:
DJ STOXX 50 Index -0.54%; FTSE 100 -0.31%; CAC 40 -0.62%; DAX -0.71%; Russian RTS Index +0.83%; Tel Aviv 25 +0.01%; Tadawul All Share -1.57%; DSM 20 +0.39%


Key Headlines:

• *** News broke last night that Beazer Homes (BZH) was being investigated by four government agencies regarding fraud within its lending facilitation operations, and concerns have now arisen that other home builders who also have lending affiliations and operations may face risk. This news, combined with rising tensions regarding Iran, have housing stocks and equity futures lower this morning.
• *** The U.K. and U.S. have provided satellite evidence that indicates the abducted British sailors were taken within Iraqi waters, not Iranian as argued by Iran. Iran just announced this morning that it will release the only female sailor held, but this is not likely going to be enough to ease the tension. Russian intelligence reported that the American war games going on now in the Persian Gulf, include significant land troop activity near the Iranian border, and imply a massive initiative against Iran is in the works for the near term.
• *** Oil prices rocketed to $68 last night when a rumor spread that a U.S. Navy vessel had been fired upon by Iran. As the rumor was proven false, prices declined but are exhibiting increased volatility and an upward bias this morning. It is noteworthy that equities in Saudi Arabia have declined sharply over the past three days, as the integrity of information in Saudi Arabia may not be of the highest ethics. We have to question why these shares are moving, even as oil prices increase. Wall Street Greek believes Saudi Arabian facilities represent a key strategic target for Iran in any conflict. Today, Arab officials met in Riyadh to discuss regional issues.
• *** Durable goods orders for February disappointed, falling short of expectations, and orders even declined if you exclude transportation equipment. Also, January's extremely poor measure was revised lower, to a decline of 9.3%. Durable goods orders for February rose 2.5%, versus expectations for a 3.5% increase.
• *** Mortgage applications declined in the week ended March 23rd. Applications fell 0.2%, as refinancing applications fell 0.5%.

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Late Night With The Greek

As a prescient author wrote over the weekend, the market sailed some rough seas again today. The winds whipped up yesterday when new home sales were reported, and the seas just got choppier this morning after home builder, Lennar, reported quarterly EPS 73% below the prior year result and pulled this year's guidance. The guidance issue was clearly the driver behind the panicked reaction of the housing segment, after Lennar's CEO mentioned as recently as January that he thought his company might even exceed estimates this year. Now he seems incapable of even forecasting a range. Not that we blame him, but when CEOs of companies don't have a clue about their own market, that typically scares investors.

And then consumer confidence came in lower than expectations... Wall Street Greek wrote this in our most recent weekly warm up: "We believe confidence may have suffered more from recent subprime and global market scares, as recent retail sales figures have not been rich." The Conference Board's reading of consumer confidence measured 107.2, compared to Bloomberg's consensus expectation for 108.4. Confidence measured 112.5 in February. Not good.

On top of all this, and no doubt powered by election fever, Congress is now crucifying subprime lenders. Watch out, it gets worse! News broke this evening that the FBI and the U.S. attorney's office in Charlotte, N.C., along with the Internal Revenue Service and the U.S. Department of Housing and Urban Development are investigating Beazer Homes (BZH) for fraud. Oh my God! With all those government organizations investigating Beazer, who is watching the border?!?! I'm disgusted by this. For years, while the housing sector excelled, regulators, congressmen and news media noticed nothing wrong, and then the cycle turns sour and every Joe rounding the corner of a new housing development is under investigation. It's typical, disgusting, reactive behavior, and it's about time this country ask questions ahead of crises. Wall Street Greek was writing about the likely excesses that were born during the drunken housing boom ahead of time. We need to take responsibility for our society's mistakes, and not just seek out people to blame after the fact.

Oil prices shot up to $68 this evening on a rumor that an Iranian naval vessel had fired upon a U.S. warship. Shortly after the U.S. Navy killed the rumor, prices normalized. However, take note of Tony Blair's tough stance on the issue. He's a strong ruler, and an ideological man, and I think Iran gets the picture by now. I expect Iran to turn over those 15 British sailors soon enough, and if they do not, I expect serious consequences.

The Iranians appear to be trying to even the score after some of their own military personnel were taken custody by U.S. forces in Iraq. The U.K. has already disassociated the two events clearly and convincingly. If those men are not returned before long, you can expect the British to make their point. So, one thing seems certain, volatility is increasing in energy prices. We could go up sharply, down sharply or both before it's all over. We believe the most likely scenario would normally include the quick return of the sailors, but a madman is leading the insane asylum of Iran's government these days.

Straight from our weekly article, tomorrow...

Last month, the durable goods orders report shook the very foundation of the market, driving serious recessionary concerns, while optimists argued that inventory redux was in play. This time around, analysts are anticipating February durable goods orders will grow 3.5%, compared to January's troubling drop of 8.7%.

Ben Bernanke has a second opportunity to calm the market Wednesday, as in last week's policy statement, as he addresses the Joint Economic Committee on the economic outlook. His words will be closely followed, and we would anticipate him to provide that same perspective expressed within the statement. In other words, we expect him to have a nil to positive impact on trading Wednesday.

The Senate Finance Committee will hear experts on currency and the U.S. relationship with China. Seems like we can expect recent case crusader, Hillary Clinton, to pick up the gauntlet again for another publicity opportunity. In light of lending concerns, you may want to pay attention to Wednesday's investor forum held by GMAC and Residential Capital. Alcatel-Lucent will also meet with investors, while Paychex Inc. and Sonic Corp. are scheduled to report earnings.

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Today's Key News - Housing Double Dips

Good morning. Never fear, we will soon get back to providing our value-added viewpoints on topics. Today's issue of "Key News" is abbreviated however. "The Greek's Week Ahead" provides a detailed market-moving event planner for the rest of this week.

Asia:
Hang Seng Index -0.3%; Shanghai/Shenzhen 300 +0.72%; NIKKEI 225 -0.9%; Taiwan TAIEX -0.41%; BSE SENSEX 30 NA; KRX 100 +0.22%; Ho Chi Minh -3.54%

U.K., Europe & Middle East:
DJ STOXX 50 Index +0.08%; FTSE 100 +0.07%; CAC 40 +0.19%; DAX +0.5%; Russian RTS Index -0.72%; Tel Aviv 25 +0.63%; Tadawul All Share -1.02%; DSM 20 -0.2%

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The Greek's Week Ahead - Navigating a Minefield

The Greek's Week Ahead has been engineered to prepare you for the events that could impact your portfolio this week.

With economists divided, the Fed dependent on data, and the economy and inflation telling varying stories, equity markets are sailing a sea full of mines. Last week, we saw how hungry the market was for a catalyst to rise, as it reacted to the Fed policy statement in what we consider an excessive manner. Risks remain, concerns persist. The world is still full of reasons to maintain positions in gold and cash, as well as partaking in beta neutral strategies. The Fed seems confused as to the persistency of inflation, and despite its view for economic growth, the possibility of recession remains too high to ignore. Global markets continue richly valued, and geopolitical concerns surrounding Iran pose serious threat. For these reasons, we think it's too early to go bottom fishing, as you may just snag a mine.

Last week...

The market looked on the bright side of the Fed's policy statement, and the S&P 500 rose 3.5% on the week. The market was so very pleased that a line was removed from the statement about the possibility of additional firming. Even so, the Fed was clear about its concern regarding both inflation and housing recovery. Our take was that the Fed is more concerned about persistent inflation than the possibility of recession, as it clearly stated, "In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information." Still, the market was pleased with the Fed's expectation that economic growth should continue, and that inflation should moderate.

The housing sector received mixed signals last week, as a couple suffering subprime lenders found new capital sources, increasing the chances of their survival. The question remains, how viable is the subprime mortgage brokerage business going forward and how many players can it support in the near term. Clearly, regulators and other key sector facilitators will limit liquidity while raising credit standards.

Existing home sales came in favorable for February, rising 3.9% over January's result. Housing starts increased 9%, but permits declined. Further data showed that housing growth likely benefited from decreases in home prices. Wall Street Greek continues to believe the housing sector will not recover this year, as foreclosed upon homes and reduced contribution from subprime borrowers help to keep housing inventory up and prices heading lower. At the same time, we anticipate persistent inflation will keep pressure on rates and borrowers that are left carrying adjustable rate mortgages with increasing payments.

Remember when General Motors presciently sold off a huge portion of its interest in GMAC, just ahead of the subprime slide? Listen up, Morgan Stanley is now seeking to spin-off its Discover Card segment. We can at least speculate that this might portend a spreading of consumer credit problems. We anticipate a credit will tighten, and this great period of more than ample liquidity will end soon enough.

It's ironic that Iran steps up the tension exactly when we label it impotent in the near term. Yes, we who have been warning about the coming trouble with Iran for what seems like a lifetime, may have finally become tired by time. In our daily articles last week, we wrote that oil prices should head lower, despite the week's focus on Iran and the attention it was receiving from the United Nations Security Council. It figures Iran would go and commandeer a British vessel, which was itself inspecting a ship headed for Iran. Oil prices rose, and they should. Remember, the U.K. does not play games when hostages are concerned, or its territory. Remember the Falkland Islands! The longer Iran holds the Brits, the more likely England pushes Israel and the U.S. aside for its own pummeling of the Persian pain in the... So, our bearish call on oil prices is on hold for now. As long as Iran holds those men, the risk of war is intensified. We suspect they will not be held for long, after all, Britain was on its way out before this occurred. It would be downright dumb for Iran to keep the British in play by holding its sailors.

This week...

The housing sector will have more to say this week, with the new home sales report on Monday, Lennar's earnings report on Tuesday and February construction spending reported on Friday. Fed Chief Bernanke will have a second opportunity to sooth market concerns, or create an opportunity for it to second guess last week's reaction, when he addresses the Joint Economic Committee this week. As the data pours, the Fed and the market seem to be sailing through a bay of mines. Inflation threatens to the starboard, recession floats to the port, the fallout of housing exuberance chase at the stern, and dead ahead, war and terrorism related to Iranian nuclear development seem unavoidable.

Due to the Monday publishing of this week's article, we address the day's news appropriately after the fact. After last week's favorable housing data, Monday brought new home sales far below expectations for a 5.7% increase. In fact, February new home sales declined 3.9% when compared to January's already poor results. Sales were down 18.3% from a year ago, and the median price of a new home declined 0.3% from January. The worst news of all was that the inventory of new homes for sale increased in February, to 546,000, and the supply of unsold homes is at its highest level in 16 years. We view this as clear evidence that the market will worsen before it improves. February's data does not yet incorporate the impacts of the subprime mess, which include tighter lending standards and lower consumer confidence. We expect prices to weaken further and the home builders to continue to face a difficult environment this year.

On Monday, President Bush met with the leaders of the nation's three major automobile companies on the topic of alternative fuels. In the press conference that followed, the three proclaimed their support of the president's plan, which was outlined in this year's State of the Union Address.

In overseas news, Russia's President Putin received China's Hu Jintao. In the joint press conference that followed, the two announced their view that Iran should comply with the demands of the United Nations Security Council. The two are expected to sign significant energy deals. Putin has been on an active energy campaign of late. He just recently agreed to deals with Bulgaria, Greece and Italy for expanded distribution of energy resources to Europe. It sure seems to us as though Russia is positioning itself to be an important energy provider in the event of a Middle Eastern cutoff. We would take a look at Russian energy providers for investors looking for ideas in the energy sector. In other international news, the Bank of Japan released the minutes of its most recent meeting, in which it kept its benchmark rate steady at 0.5%.

Dollar General, Phillips-Van Heusen and Tiffany & Co. were scheduled to report earnings on Monday. Tiffany reported results ahead of expectations, excluding impairment charges. Kimberly-Clark is holding an investors' day Monday, while Boston Scientific is meeting with analysts at the American College of Cardiology conference.

On Tuesday, March consumer confidence is scheduled for report at 10:00 a.m. Bloomberg's consensus sees confidence at 108.4, compared to 112.5 in February. We believe confidence may have suffered more from recent subprime and global market scares, as recent retail sales figures have not been rich.

Housing takes the spotlight again Tuesday, as the House Financial Services Committee will discuss the topic of protecting home ownership and issues within the subprime mortgage market, as well as the topic of rising foreclosures. The day also provides a timely earnings report from Lennar Corp., one of the nation's more important home builders. The consensus of analysts sees Lennar's Q1 EPS measuring some 73% below the prior year's results. Also reporting earnings on Tuesday, look for reports from McCormick & Co., Gamestop and HB Fuller.

Last month, the durable goods orders report shook the very foundation of the market, driving serious recessionary concerns, while optimists argued that inventory redux was in play. Wednesday's report for February has analysts anticipating growth of 3.5%, compared to January's troubling drop of 8.7%.

Ben Bernanke has a second opportunity to calm the market Wednesday, as in last week's policy statement, as he addresses the Joint Economic Committee on the economic outlook. His words will be closely followed, and we would anticipate him to provide that same perspective expressed within the statement. In other words, we expect him to have a nil to positive impact on trading Wednesday.

The Senate Finance Committee will hear experts on currency and the U.S. relationship with China. Seems like we can expect recent case crusader, Hillary Clinton, to pick up the gauntlet again for another publicity opportunity.

In light of lending concerns, you may want to pay attention to Wednesday's investor forum held by GMAC and Residential Capital. Alcatel-Lucent will also meet with investors, while Paychex Inc. and Sonic Corp. report earnings.

Further revision of Q4 GDP is planned for report Thursday, but no change is expected from the last revision downward to 2.2% growth. Richmond Fed President Jeffrey Lacker will address an evening audience on inflation and unemployment.

Brocade is scheduled to meet with analysts on Thursday, and earnings reports are expected from Carmax, A.G. Edwards, Family Dollar Stores, Solectron Corp., Worthington Industries, Stride Rite Corp., and The Finish Line.

Friday finishes off the week with a mouthful of economic data to swallow. At 8:30 a.m., February personal income and consumption are scheduled for report. Personal income is expected to show a rise of 0.3% for the month, versus an increase of 1.0% in January, according to a Bloomberg survey of economists. The consensus also sees consumption increasing 0.3%, versus a January rise of 0.5%. This news, along with March Michigan Sentiment, should help the market better gauge the health of the all-important consumer. The sentiment reading is seen measuring 88.5, versus 88.8, according to Bloomberg's poll.

The Chicago purchasing managers report for March is due for release at 9:45 a.m., and the consensus sees a reading of 49.5, versus 47.9 in February. In a last battle to conclude the week, housing faces off against Bernanke once again. February construction spending data is planned for release at 10:00 a.m., and the consensus anticipates a decrease of 0.5%, compared to a decrease of 0.8% in January. This report might not accurately reflect the degree of weakness in residential construction, as the realities of weak new home sales may lag before construction drops off further. There are a significant amount of homes completed and still waiting for sale out there. Ben Bernanke will address the Fed Consumer and Community Affairs conference on the topic of financing community development. With recent saviors to subprime lenders arising from the hedge fund and investment bank community, we expect Mr. Bernanke's comments to be favorable to equity trading. The only significant earnings report for Friday appears to be that of Global Payments Inc.

We hope you found value in this week's edition. To receive "The Greek's Week Ahead" and our daily reports via email, click here and provide us with your email address. We respect your privacy and will never share your information with any third party. (disclosure)

Wake Up Call

Good morning. Today's issue is abbreviated, providing links to today's key headlines only. We hope you find this helpful to your daily preparation.

Asia:

Hang Seng Index +0.37%; Shanghai/Shenzhen 300 +1.76%; NIKKEI 225 +0.24%; Taiwan TAIEX +0.24%; BSE SENSEX 30 -1.22%; KRX 100 -0.11%; Ho Chi Minh NA

U.K., Europe & Middle East:

DJ STOXX 50 Index -0.06%; FTSE 100 +0.18%; CAC 40 -0.16%; DAX -0.02%; Russian RTS Index +0.60%; Tel Aviv 25 +1.24%; Tadawul All Share -6.05%; DSM 20 -1.15%

To receive our reports via email, click here and provide us with your email address. We respect your privacy and will never share your information with any third party. (disclosure)

Today's Key News - Sometimes a Hungry Market Finds Reasons to Rise

Good morning. U.S. equities have opened mostly higher today, still drunk from yesterday's jump on the Fed policy statement. We pose the argument that it was not the statement that started the rise, but a desperate hunger within the market for a positive catalyst. We find it difficult to believe the market did not already expect the Fed would avoid hiking interest rates in the near future, considering the faltering economy. Also, within its statement, the Fed reiterated its belief that economic expansion could ensue, which does not indicate a Fed cut is near. However, as weak a driver as it may be, beware standing before a charging bull. He would not know or care if he was right or wrong while running you over. In the medium term, we expect the Fed will break some hearts as economic data falters, and it resists cutting rates. Eventually, we expect the Fed will move to ease, but not before serious cause in light of the inflationary environment that persists.

Asia:
Hang Seng Index +0.89%; Shanghai/Shenzhen 300 +0.32%; NIKKEI 225 +1.49%; Taiwan TAIEX +0.86%; BSE SENSEX 30 +2.8%; KRX 100 +0.44%; Ho Chi Minh -1.06%

U.K., Europe & Middle East:
DJ STOXX 50 Index +1.58%; FTSE 100 +0.75%; CAC 40 +1.53%; DAX +2.04%; Russian RTS Index +2.43%

Key Headline News:

• *** The Fed kept rates steady, and the policy statement lost a line that the market interpreted as a shift in bias, away from tightening. Wow, the market reaction was surprising to us, only because we thought everybody knew the Fed was not likely to tighten. We got ahead of ourselves. We believe the market reaction was not on the Fed's decision, but that it was spurred by a hungry investment community that was starving for a reason or catalyst for markets to rise. Otherwise, it would have noticed this paragraph from the statement: "In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information." That said, here's another Kaminisism for you to take note of, "Do not stand in front of a charging bull, no matter how much smarter you are than it." Down the road, after likely further suspect economic data (we get leading indicators today), we expect the Fed will break the market's heart a few times, before finally cutting rates. Thus, we think a rally is likely here in the short-term, before a few more disappointing drops. Eventually, as we flirt with recession and stagflation, we expect the Fed will act, and at that time, the true sustainable rally could begin, in our view. However, that's a bit down the road yet to be excited about.
• *** Well, there was no sign of recession in the weekly jobless claims report. Claims declined during the week, and were 7,000 short of economists' consensus, as surveyed by Bloomberg. However, plenty of mortgage brokers, real estate agents and carpenters have plenty of time to file in the future. This, with credit concerns, threatens retail spending, which could drive your favorite store checkout counter to file in a second wave.
• *** A dollar short and a day late, as usual, Congress is looking to protect borrowers from predatory lending tactics and more. The risk facing lenders and brokers now is increasingly going to be from regulators, and it is almost surely going to be harder to borrow as these operators shiver in fear of the jail cell. What does all this mean for you, regulation too late, tighter credit and more pressure on the housing and financial sectors.
• *** Even so, KB Home reported results today that were not too scary, relatively speaking, though their CEO issued caution. The cancellation rate decreased to 31%, which still "sucks," but was at least better than last quarter.
• *** Motorola warned its first quarter would not meet its previous expectations as its CFO steps down (usually a bad sign), while General Mills exceeded estimates.

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Today's Key News - All Eyes on Fed

The Dow is lower this morning, impacted by Fedex, while the NASDAQ and S&P 500 are modestly higher. All eyes are on the Fed, as it concludes its two-day meeting this afternoon. There shouldn't be much to report regarding interest rates, but the ailing market wants some soothing medicine from the Fed within its statement. Comments from the regional Fed heads should be closely followed for clues during the remainder of the week. Earnings news is mostly driving the market this morning, and investors are finding some comfort in the reports from Morgan Stanley and Oracle.


Asia:
Hang Seng Index +0.82%; Shanghai/Shenzhen 300 +1.12%; NIKKEI 225 CLOSED; Taiwan TAIEX +0.27%; BSE SENSEX 30 +1.89%; KRX 100 -0.1%; Ho Chi Minh -0.5%


U.K., Europe & Middle East:
DJ STOXX 50 Index +0.36%; FTSE 100 +0.59%; CAC 40 -0.03%; DAX +0.17%; Russian RTS Index +0.82%


Key Headline News:

• *** All eyes are on the Fed today, as it will report its decision on interest rates at 2:15 p.m. EDT. Last time around the Fed announced its expectations for economic growth later this year. In light of the rising concerns about the subprime space, consumer spending and potentially employment, we speculate the Fed may temper its enthusiasm this time around. We do not expect the Fed to make a move today. More efficient financial markets have already tempered the impact of failing subprime lenders, adding liquidity support. Credit concerns may not require the Fed as much as in the past, giving it some leeway perhaps to stay firm against inflation. However, that kind of news is not calming to markets, but we expect Bernanke could reaffirm the Greenspan insurance plan, a sort of unwritten guarantee that the Fed would add liquidity if necessary.
• *** Despite relatively low rates, weekly mortgage applications fell in the week ended March 16th. Rates on 30-year fixed mortgages were slightly higher from the prior week by 0.03 of a percentage point. Still, tighter lending standards and a perhaps flooding home inventory market, with foreclosures portending to add some saturation, could lead prices lower. This threat, as much as anything, should limit the housing sector this year, in our view.
• *** A Merrill Lynch poll of portfolio managers showed a drop in confidence in U.S. assets. The poll was conducted in early March, and equities have risen some since. It's about time investors back up and take a second look at the economic situation and valuation. We expect this jolt of risk to not fade so quickly, and everything going forward depends on economic data and the true direction and health of the economy. Leading economic indicators are on the way tomorrow, and they are not expected to forecast a positive outlook.
• *** Morgan Stanley and Oracle reported strong quarterly EPS, while Fedex reported the effects of a slowing economy.

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Today's Key News - Thailand's Mistakes

U.S. equities are moving higher today, as new housing starts came in ahead of expectations. However, the report was not conclusive, as permits declined. Overseas, the Bank of Japan kept rates steady, and Asian markets were mixed but mostly positive. U.S. equities should tread cautiously as tomorrow's conclusion to the two day Fed meeting looms.


Asia:
Hang Seng Index +0.47%; Shanghai/Shenzhen 300 +0.5%; NIKKEI 225 +0.9%; Taiwan TAIEX -0.02%; BSE SENSEX 30 +0.48%; KRX 100 -0.02%; Ho Chi Minh -1.42%


U.K., Europe & Middle East:
DJ STOXX 50 Index +0.73%; FTSE 100 +0.41%; CAC 40 +0.81%; DAX +0.32%; Russian RTS Index -0.82%


Key Headline News:

• *** New housing starts for February were reported above expectations today, running at an annual pace of 1.525 million. The result was 9% above January's low reading. There is some indication that speculative building continues in some instances, we would expect with very small players, as housing completions dropped 9.4% and permits declined 2.5%. A report yesterday showed that sentiment among home builders fell this month compared to February, and that does not lead to expectations for a turn in trend. Further data, this week and next, will add clarification on home prices and existing home sales. We continue to anticipate that tighter lending standards and increasing foreclosures will add pressure to the housing market this year.
• *** The Bank of Japan kept rates steady today at 0.5%, but the news had just a slight impact on trading as it was widely anticipated.
• *** Concerns are increasing in Latin America about the U.S. economy, and the impact it could have on the economies of its neighbors. As a result, credit may tighten as lenders in the region take that risk into account.
• *** Thailand's non-elected government, which does not reflect the will of its people, continues to make economic mistakes, in our view. It's most recent error was in breaking patents to produce generic versions of drugs. While this should make those specific medicines cheaper for its citizens, it also discourages foreign investors from the country. Wall Street Greek strongly believes American consumers should be boycotting the goods of Thailand and Venezuela, and punishing these governments for recent anti-American, anti-democratic and self-serving efforts. We believe that in the long run, these governments will hurt their economies and their people. While we should help those who seek to help their people, we should also punish those who openly push against American companies, the American government and the American people.
• *** Accredited Home Lenders Holding received some support from a hedge fund today. Farallon Capital Management provided LEND with a five-year $200 million loan, for which it will receive 13% interest and 3.3 million warrants. LEND is coming up with capital to help it stay afloat, but it's doing so at high cost. Also, in the end, it will still be left operating in the mortgage business. Full Disclosure: We hold both long and short option positions in LEND.
• *** Russia is pressuring Iran, stating that if Iran does not halt uranium enrichment efforts, Russia will stop supplying Iran with nuclear fuel. There are so many different ways to read into this that we probably should not speculate. One thing is almost sure though, Russia likely has selfish reasons for its action, not a goal to act for humanity.

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The Greek's Week Ahead - The Good, The Bad & The Ugly

The Greek's Week Ahead has been engineered to prepare you for the events that could impact your portfolio this week.

This week, it's showdown time. While Clint Eastwood will not be on hand, we have some dastardly character actors for Wednesday's duel between the two baddest dudes in town. At high noon, or around 2:15 p.m. to be precise, the Federal Marshall, err, Fed Chairman Bernanke (The Good), will face off with inflation (The Bad). And hanging in the balance, the sweet Goldilocks economy (The Could Get Ugly).

Last week...

The experts debated the risk of the subprime sector squeeze possibly spreading into other portions of the financial markets. On one side of the table, Hank Paulson argued how well the economy was holding up, while on the other side, Alan Greenspan warned that the reach of the sector should not be discounted. The fact remains that as ARMS offered to both subprime and higher rated borrowers are adjusted higher, the trend of rising defaults and foreclosures are likely to escalate, in our view. Besides that wider range risk, as these assets default, investors in related securitized assets and derivatives, including many hedge funds, may begin to report significant losses. And the risk to the housing market could worsen as well. With credit tightening in the mortgage market, there is a two-pronged threat developing that could delay a housing recovery. The first is clear, as foreclosed upon homes return to market, adding to inventory, prices could weaken further. We previously reported that the incremental inventory impact here may amount to 500,000 homes or so, or about 1/12 of the recent annual sales rate. The second, less obvious factor, is that tightening credit that is arising from defaults, increased regulatory scrutiny and lender discrepancy threaten to slow the pace of new lending.

This week...

Clearly, all eyes will be on the Fed Chairman and the degree of threat he sees posed by lending issues and housing. Besides this, he must weigh the economic danger of inflation, as reported in last week's CPI and PPI data, and the weakness in manufacturing that was also seen.

On Monday, the U.N. Security Council will begin discussing its new draft of a stricter set of rules against Iran. Iran is actively lobbying the members of the council not involved in the drafting of the resolution, seeking help from the little guy nations, so to speak. Iran's leader, Mahmoud Ahmadinejad is playing the underdog card to the tee. He's formed a "Nonaligned Movement" and has traveled the globe befriending nations that individually are insignificant, but in aggregate could stand against the United States or at least have some impact upon it. Mahmoud plans to be in Manhattan for the vote this week or for whenever the vote is scheduled. We can expect another dramatic speech, and it seems likely that Venezuela's attention seeking and getting Hugo Chavez, who last week interviewed with Barbara Walters, could try to make the trip as well. Even so, with economic growth in question, barring any significant military activity by Iran, we expect the direction of oil to be lower in the near term. The market will be closed in Venezuela on Monday, as will markets in Columbia and Indonesia. Continuing with international news, Canada will present its annual budget on Monday.

Starting off an important week for housing, the housing-market index will be reported for March, with a reading of 38 expected, versus 40 in February. Henry Paulson will catch another opportunity to cheer lead, when he addresses the Inter-American Development Bank meeting in Guatemala. Reporting earnings in the U.S., expect news from Omnova Solutions regarding its fiscal first quarter.

Tuesday will bring data on housing starts for February at 8:30 a.m. Bloomberg's consensus expects starts to reach an annual pace of 1.45 million, compared to 1.408 million in January. And let's not forget, the Federal Reserve begins its two-day meeting on interest rates. There is not much other important news scheduled for Tuesday, except a closely followed report from the Bank of Japan with its resulting decision on interest rates. Recall, the Bank of Japan recently raised rates a quarter percentage point to 0.5%, so we do not expect further action this week.

Reporting earnings, look for Oracle Corporation, Adobe Systems, Cintas Corp., Commercial Metals Co., Factset Research Systems, Chaparral Steel, Progress Software, Superior Industries and Marcus Corp.

Wednesday brings the conclusion of the Fed's meeting, as a result of which, it is expected by most to keep interest rates steady. The market's keen eye will be focused on the accompanying statement of the Fed, and comments about inflation, housing, the economy and where future action might be biased.

Markets in Japan will be closed for the start of spring. Reporting earnings in the U.S., expect reports from Morgan Stanley, Fedex, Darden Restaurants, Ross Stores, Herman Miller, Clarcor, Charming Shoppes, AAR Corp., Stein Mart and Lindsay Corp.

On Thursday morning, we should have news from the European Central Bank, as it meets but is not expected to act on interest rates this time around. At 10:00 a.m., February leading indicators are seen declining 0.4% by Bloomberg's consensus of economists. This compares with a 0.1% increase in January. Considering the pace of recent economic data, leading indicators could prove critical for the week's direction of equities, and we anticipate stocks to drift lower.

Richmond Fed Chief Jeffrey Lacker will address a very apropos credit market symposium, while Strategas Research Partners hosts a strategy, economics and financial services conference.

Housing poses a significant obstacle to the market this week, and important home builder, K.B. Homes, will lead the earnings calendar Thursday. Also reporting earnings, look for Nike, General Mills, Conagra Foods, Jabil Circuit, Williams-Sonoma, Barnes & Noble, Palm, 3Com, Scholastic, Borders Group, Cato Corp., Fred's, and Cost Plus. Also, ADP will meet with analysts on Thursday.

On Friday, February existing home sales are scheduled for report at 10:00 a.m. The Bloomberg consensus view is for an annual pace of 6.3 million, versus 6.46 million in January. We expect housing to continue to "suck" quoting the words of a couple housing CEOs. They would know best.

Fed President Lacker is busy this week, as he will spend Friday participating in a panel on "Liquidity Risk in Credit Markets." Fed President Timothy Geithner will address the Richmond credit markets conference.

There's no earnings news planned for Friday, as far as we can see, but Take Two Interactive will be in the spotlight, as an investor group including S.A.C. Capital and Oppenheimer Funds moves forward with plans to replace the board and acquire the firm.

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Today's Key News - Food and Energy Matter

U.S. equities have opened trading modestly higher, after reading the CPI report as mild. The market focuses on the core CPI reading, which came in somewhat favorable, but we provide reasoning below why the headline CPI figure is becoming more important than core CPI, which excludes food and energy. Consumer sentiment, as measured by the University of Michigan was near expectations but slightly lower. We anticipate equities will decline today, based on the general signs of economic weakening and persistent inflation.


Asia:
Hang Seng Index -0.08%; Shanghai/Shenzhen 300 -1.56%; NIKKEI 225 -0.69%; Taiwan TAIEX +0.31%; BSE SENSEX 30 -0.9%; KRX 100 -0.03%; Ho Chi Minh +4.15%


U.K., Europe & Middle East:
DJ STOXX 50 Index +0.25%; FTSE 100 +0.03%; CAC 40 +0.21%; DAX +0.3%; Russian RTS Index +0.66%


Key Headline News:

• *** Today's CPI report showed a rise of 0.4% in February, versus expectations for an increase of 0.3%. Now pay attention, today you will hear expert after expert tell you that CPI does not really matter, and that you should focus on Core CPI, which excludes volatile food and energy. Wall Street Greek is telling you they are wrong. An important new factor is taking position in this dynamic marketplace that often misses changes. People just go on relying on the past to keep them safe from prediction error. The best forecasters are focused on risk, and notice changes in the dynamic marketplace. Food and energy have been considered less important than other factors within inflation measures because they are seasonal and often impacted by factors such as the weather. Droughts, floods and harsh storms can drastically change food prices from year to year, this is true. However, there is a new secular factor that makes changes in food prices critical to your forecasting. Improving health care globally is leading to longer life spans. In other words, people are living longer and thus consuming more food. Food resources are finding new uses. For instance, sugarcane and corn are now used for ethanol production. This leads to less food for eating, and drives prices higher. Developing nations are shifting from agricultural and commodity production to industrial production, and in turn altering from net exporters of foods to net importers in some instances. Again, less agricultural production means less food. More people, less food, means a secular supply/demand dynamic is taking its place in the market, and should be measured as a true driver of inflation, and not a seasonal or weather related problem. I see a similar situation within energy, though perhaps less true that the driver of food inflation. As we predicted in the past, Tyson Foods recently announced that rising feed costs would be passed on to consumers, driving the prices of proteins like poultry and beef higher. This all amounts to more sustainable pressure on the consumer, and is a reason why the Fed may soon face a dilemma between staving off recession and trimming inflation. In any event, it does not portend well for equity markets.
• *** We continue to anticipate crude prices face risk in the near term. Economic data is not going to prove positive in the next few months, in our view, and the economy is the most important driver of energy prices. Iran remains a threat, but barring a surprise bombing run by Israel, which remains possible, we do not expect Iran to be a lasting factor on oil prices in the near term. When the war starts, possibly by early 2008, well that's another story.
• *** Factors are in place to keep the shares of subprime lenders rising in the near term, but medium term threats remain likely to pressure the shares of many of them again. The investment banks and private equity look to be coming to the rescue, but keep in mind that bail out prices do not equal buy out prices. Still, this may help diversified firms stay solvent, while those with a continuing subprime business focus remain threatened. News of new funding sources for some troubled players today is supporting those shares.
• *** The University of Michigan reported its consumer sentiment index for March with a result of 88.8, down from February's 91.3 reading. The measure fell slightly short of consensus views. Still, overall, this keeps the pressure on equities, as consumer spending is critical for the American economy.

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Late Night With Markos

Good evening my friends. I felt a bit empty after not having authored anything all day, so bear with me... I thought a late night preview to Friday's trading day couldn't hurt. Tomorrow, I believe reality sets in, as investors realize that inflation is creeping while consumer confidence is waining. We get two key reports tomorrow in the CPI reading and the Michigan consumer sentiment survey.

Bloomberg's consensus is looking for a rise of 0.3% in February's CPI data, compared to an increase of 0.2% in January. CPI is generally considered more important than the PPI report, so pay attention for further signs of inflation, as it threatens your equity portfolio, in our view. Even though we called it, we were not happy to see food and energy prices driving higher PPI in Thursday's report.

February industrial production is expected to show an increase of 0.3%, compared to a 0.5% decline in January. Keep an eye on capacity utilization, as it is key this time around. February capacity utilization is seen measuring at 81.3%, versus 81.2% in January. We expect capacity utilization will come in below consensus, as last week's productivity result indicates idle capacity may exist in the system. Productivity weakness was also likely impacted by the work off of inventory though. Do not miss the 10:00 a.m. reading of the University of Michigan's sentiment measure for March. Again, signs of a cautious consumer could send equities to the critical care unit. Bloomberg's consensus is looking for a reading of 89.5 for March, versus a measure of 91.3 in February. Look for earnings reports from Anntaylor Stores, Kellwood Co. and Georgia Gulf Corp.

Iran will be back in the spotlight, but I expect oil wants to head sharply lower now, barring any irregular military activity or conduct by Iran and its egotistical leader. Ahmadinejad wants to come to New York next week with 25 security personnel, in order to be present when the Security Council meets to discuss and possibly vote on the new draft resolution. I get the feeling this could be the last time Mahmoud meets Manhattan. I'll be there again for a glimpse of this man who thinks he can change world order. Note, I didn't say "the world order."

Asian markets seem tense this evening/morning, and Japan is headed lower while the yen strengthens against the dollar. Shares are higher in Hong Kong at the start, but it'll be a long day, I suspect. I think the U.S. markets will give back a lot of ground on Friday, and please don't shoot the messenger... I also believe the subprime bounce will prove an anomaly, and a second chance for shareholders to escape many doomed players in the mortgage market.

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Today's Coffee - Market Wrap Up

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 market took a roller coaster ride today, but I would temper any excitement generated by the afternoon bounce if I were you. The troubles within the financial sector have not subsided overnight. A miracle did not befall those caught within a spreading credit crunch. Consumers did not all of a sudden find spending money inside their lunchtime fortune cookie. Those same issues that were here yesterday, remain burdensome today. Heading into the weekend, I once again cannot foresee this market comfortable enough to enter it long stocks.

OVERSEAS MARKETS
Yesterday's drastic drop shook international markets today, because Asia has much to lose from a weakening U.S. economy. America represents the most important export market for much of Asia, and markets from Tokyo to Singapore faltered as a result. The Hang Seng dipped 2.57%, the NIKKEI 225 sank 2.9% and the BSE SENSEX 30 fell 3.5%.

The concern spread to Europe, which would have to deal with a separate set of issues should the U.S. economy fall into recession. Credit spreads have started to widen as risk finds its way back into the investment equation. Investors are demanding higher returns for investments bearing greater risk. Credit risk spreads had dwindled to near nothing up until recently, but with the subprime sector in flux, warning flags were raised. Recent productivity data sounded the alarm for employment. If demand were to wain, then companies would be faced with an excessive workforce, and guess what, retail spending came in weak in February. The American consumer has at times held up this economy like Atlas held the world. If the consumer tightens his belt, unemployment will rise and GDP will flirt with recession, in our view.

As credit tightens, liquidity dries. Merger and acquisition activity has added lift to European shares over the past year, and likely helped to build a related premium into the price of European equities. Reduce that likelihood and European equities become pressured. The DJ STOXX 50 sank 2.9%, the DAX dipped 2.7% and the CAC 40 fell 2.5%.

In the U.K., the FTSE 100 fell 2.6%, despite the decreased unemployment reported today. This evening the CBI raised its expectations for economic growth to 2.9% from 2.7% previously, but the Bank of England is expected to raise rates again this year.

ECONOMIC DATA & ANALYSIS
The current account deficit narrowed to $195.8 billion in the fourth quarter, from $229.4 billion in the third quarter. The deficit benefited from lower oil prices and increased exports. The deficit has garnered much attention lately, due to the risk posed to interest rates and the value of the dollar should foreigners reduce ownership of American assets. Chinese plans to diversify its reserves added fuel to that fire this month.

Import prices rose just 0.2% in February, versus Bloomberg consensus expectations for a 0.6% increase. Excluding petroleum, prices actually decreased 0.1%, which likely comforted hawks within the Federal Reserve.

Tomorrow:
Don't miss Thursday's PPI report at 8:30 a.m. EDT. Bloomberg's consensus sees February producer prices rising 0.5%, compared to a decrease of 0.6% in January, due largely to higher oil prices. Keep an eye on how core PPI fairs, as the inflationary outlook holds great weight with equities. Still, right now the market is more concerned about the possibility of the economy slipping into recession, and it might ignore a slightly higher than expected result.

Also on Thursday, the treasury will provide a read on January international capital flows, and the March Philly Fed Survey will be posted. Philly Fed is widely expected to approximate 4.0, versus a measure of 0.6 last time. Retiree, and previous Fed Chairman, Alan Greenspan will find another microphone on Thursday too, so beware.

The earnings calendar includes Bear Stearns, Claire's Stores, Tektronix, Aeropostale, Children's Place, Pacific Sunwear, Winnebago Industries, American States Water, and Pope & Talbot.

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Wake Up Call - Recession Threatens

"Wake Up Call" has been designed to provide you with today's key news that may drive the market this morning.

International markets tanked overnight, and continue weak in Europe at this hour. U.S. equities are indicating a broadly, but somewhat mitigated lower open this morning considering yesterday's sharp decline. Economic news this morning was somewhat positive, but the market is more concerned about the outlook than old news. We are flirting with recession, and Wall Street Greek sees continued weakness for equities and energy commodities in the near future. For your in-depth weekly market-moving event planner, see "The Greek's Week Ahead."

Asia:
Hang Seng Index -2.57%; Shanghai/Shenzhen 300 -1.62%; NIKKEI 225 -2.92%; Taiwan TAIEX -1.48%; BSE SENSEX 30 -3.49%; KRX 100 -2.31%; Ho Chi Minh -3.8%

U.K., Europe & Middle East:
DJ STOXX 50 Index -2.09%; FTSE 100 -1.74%; CAC 40 -1.66%; DAX -1.78%; Russian RTS Index -3.65%; Tel Aviv 25 -1.98%; Tadawul All Share +0.48%; DFM General -1.33%

Key Headline News:

• *** Overseas markets weakened significantly overnight on concern about the U.S. economy. Asian stocks are especially threatened, as the companies they represent ownership in rely upon export sales into the critical U.S. market. Likewise, if liquidity dries up, European shares may lose the premium that has been built in on the prospect of acquisitions. M&A activity has been an important driver behind European equities' rise of late.
• *** Welcome back risk after your long vacation. Credit risk spreads are widening, as investors require higher rates of return before investing in riskier securities. Credit spreads had all but disappeared, and I even read an article this weekend that argued against the likelihood of recession, partly based on the fact that risk spreads were so tight. That's the thing with forecasts, you can't base them on the current environment. We retract our previously stated confidence in Ben Bernanke's view, and are increasingly seeing Hank Paulson as just another yesman cheerleader. It makes sense, as he did arrive on the scene from the corporate world where brown-nosing earns the appreciation of robotic managers. Not here pal! Recent productivity data implies the workforce is excessive, especially since inventory has been working off. So, we can expect unemployment to rise, in our view. Consumers already appear to be spending less, as indicated by recent retail data. If we lose the consumer, we are heading for recession, in our view.
• *** Lehman Brothers reported earnings a penny ahead of consensus views and mentioned subprime weakness. This news, despite the EPS result, is likely not good enough to appease market concerns for the investment banks' forward opportunities. LEH is down 1.4% in pre-market activity.
• *** General Motors reported a profit, but missed analysts' expectations for their fiscal fourth quarter on an operating basis. Otherwise, GM benefited from the partial sale of its GMAC finance arm, but reported weakness from the unit's operating contribution. The good news was that auto sales rose, versus expectations for a decline. However, GM shares were down 1.7% in pre-market activity as consumer weakness and tighter lending portends further doldrums for the sector. In auto related news, Chrysler has found some suitors, as Magna International Inc., Cerberus Capital Management LLC and a team led by Blackstone Group and Centerbridge Partners LP are rumored to be interested.
• *** Despite all the subprime issues, weekly mortgage applications rose last week on rates that were driven down by economic concerns. I just hope they didn't benefit any from desperate work of subprime brokers and lenders trying to stay afloat.
• *** The current account deficit narrowed to $195.8 billion in the fourth quarter, a greater narrowing than consensus expectations, from $229.4 billion in Q3. Improved exporting activity was partly accredited for the change.
• *** Import prices rose 0.2% in February, far below expectations. Excluding oil prices, import prices actually decreased. The inflation hawks at the Fed should find this news comforting.
  

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Check back in later today, as "Today's 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 - Sound the Alarm

Good morning. U.S. equities are dealing with more bad news from the subprime world again today and weak retail sales data for February reported this morning. Equity futures are indicating a broadly lower open today as a result. For your in-depth weekly market-moving event planner, see "The Greek's Week Ahead."

Asia:
Hang Seng Index -0.56%; Shanghai/Shenzhen 300 +0.92%; NIKKEI 225 -0.66%; Taiwan TAIEX +0.72%; BSE SENSEX 30 +0.62%; KRX 100 -0.41%; Ho Chi Minh -1.06%

U.K., Europe & Middle East:
DJ STOXX 50 Index -0.73%; FTSE 100 -0.68%; CAC 40 -0.77%; DAX -0.86%; Russian RTS Index -0.19%; Tel Aviv 25 -0.66%; Tadawul All Share +0.19%; DFM General +0.08%

Key Headline News:

• * February's retail sales report will be a negative driver today, as retail sales rose 0.1%, short of the consensus forecast for a rise of 0.3%. Sales excluding motor vehicles and gasoline, which increased in price last month, fell 0.3%, indicating a chip in the armor of the previously infallible consumer. After last week's posting of weak same-store results for February, we are officially raising the red warning flag on this economy. We think that today's news threatens equities significantly, and despite the IEA report on oil, we expect oil prices to decline as well. We would maintain a diversified portfolio by asset class, and also hedge risk with diversification and the use of short investment.
• * Subprime woes continue, as Accredited Home Lenders Holding Co. (LEND) said it would not file its 10K on time, and had experienced significant margin calls on its loans that it has thus far met. It also reported seeking waivers and extensions of waivers of certain financial and operating covenants under its warehouse and repurchase facilities. Shares of LEND are under significant pressure this morning, and rightly so, down 46% in pre-market trade, after declining 27% yesterday. It looks to us like LEND is heading the way of NEW. New Century reported today that the SEC opened an investigation upon it. NEW appears on the verge of bankruptcy, and its shares are down heavily again this morning in pre-market activity.
• * As we predicted, higher food prices are driving inflation, in this instance within China. Consumer prices in China rose 2.7% in February, short of Bloomberg's consensus view for 2.8%. The yen rose today, we believe in anticipation of rate hikes in China that could help to continue the carry-trade reversals of recent weeks. Also, weakness in the U.S. economy may be driving capital out of investments there, some of which may be funded with yen borrowings. At the same time, the recovering Japanese economy may offer investors in discussed markets a path from their endangered environments.
• * Goldman Sachs reported strong EPS growth, as was expected. Goldman's exposure to the subprime mortgage market is estimated by some experts in the middle of major investment banks, according to a report we caught on CNBC yesterday. GS shares are up 1.3% in pre-market activity.

You can receive our articles in your email inbox at the moment we publish 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 today, as "Today's 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)

Today's Key News for the Market

Please visit our front page to see the current news for the market.

Good day. U.S. equities are relatively unchanged after an unsettled start to the day. Trading in New Century Financial was halted before it could open this morning, as the company presented a liquidity situation that puts its solvency into serious doubt. Its peers are also trading lower today as a result, and the market is anxiously awaiting reports from Goldman Sachs, Lehman Brothers and Bear Stearns later this week. For your in-depth market-moving event planner, we suggest you read "The Greek's Week Ahead."

Asia:

Hang Seng Index +1.61%; Shanghai/Shenzhen 300 +0.18%; NIKKEI 225 +0.75%; Taiwan TAIEX +0.81%; BSE SENSEX 30 +0.14%; KRX 100 +1.5%; Ho Chi Minh +1.3%

U.K., Europe & Middle East:

DJ STOXX 50 Index -0.65%; FTSE 100 -0.2%; CAC 40 -0.52%; DAX +0.11%; Russian RTS Index +0.18%; Tel Aviv 25 +0.35%; Tadawul All Share -1.99%; DFM General -1.93%

Americas:

Dow Jones Composite +0.14%; S&P 500 -0.01%; NASDAQ +0.25%; Mexico Bolsa +0.09%; Brazil Bovespa -0.10%; Venezuela Stock Market Exchange -1.08%

Key Headline News:

• As we suggested Friday and again last night in the "The Greek's Week Ahead," concerns surrounding the subprime lending space are weighing on equities today. New Century Financial was halted in NYSE trading this morning after painting a troubling picture about its ability to remain solvent.
• Merger Monday provided a slew of new deals, including Ford's divestiture of Aston Martin to a U.K. led group; UnitedHealth Group's offer to acquire Sierra Health Services; and KKR's acquisition of Dollar General.
• With the health of the U.S. economy in doubt, crude oil is weakening today. Much of the media is attributing the weakness to seasonal weather patterns and OPEC, but we attribute the weakness largely to economic concerns. We anticipate this weakness could extend longer than a day, and possibly drive oil prices toward $55. Iran is seeking to address the United Nations, and the Security Council is stuck in the mud of diplomacy, so movement on the Iranian issue seems stalled. Also, Russia has perhaps developed an effective strategy, by publicly stating it would cease aiding Iran's nuclear plant work due to lack of payment. This seems like a clear smoke screen to ease U.N. pressure from Iran.

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The Greek's Week Ahead - March Madness!

The Greek's Week Ahead has been engineered to prepare you for the events that could impact your portfolio this week. I wanted to name this week, "The Week of Reckoning," but could not resist the obvious title tied to the start to the NCAA's annual tournament, which by the way is also fitting in our view. The week really is critical in deciding the direction of the market for the rest of the month and possibly for a while longer. Leading up to this week, U.S. equities fell and have since bounced. Now, the market must find its true direction. After all the reactionary fund flows have settled, money must find reason to flow somewhere. Unfortunately, we view catalysts in place for true March Madness that portends to turn buyers into April fools.

Last week, Alan Greenspan told us that we had a one in three chance of experiencing recession this year, while Hank Paulson said everything was just dandy. I have a tendency to believe the guy who is less impacted personally by the outcome. In this case, if Paulson's rosy view is wrong, he's in trouble. So, I'm going with Greenspan this time around.

I have noticed a lot of headlines these days repeating warnings I have already issued, and it's frightening that more and more people are agreeing with some of my greatest concerns. An article in Barron's this week raises the red flag about investor complacency amid escalating world conflict, a point we have harped on time and again. Also, a loyal reader recently sent me an Associated Press article about Tyson Foods' plan to pass through its higher cost of feed, with hikes in the prices it sells proteins to consumers to result. Recall, we voiced concern about the threat that food inflation poses to the Fed's ability to boost the economy through rate cuts, and we pointed to the broader impact of grain demand as the catalyst. It's just harder to cut rates in an environment of stagflation.

We warned on Friday that the weekend would bring a slew of new articles in the popular press that would highlight concerns about the subprime lending space, and low and behold, Businessweek was chock full of articles on the subject. Now, we know the politicians are reading this stuff, as evidenced by presidential candidate Hillary Clinton's statement on the risk of China's interest in our nation's debt just a few days after an article on the topic was published. I do not know what's scarier, the topic itself, or the fact that politicians, sometimes not so bright ones, are basing policy on it without considering all sides of the issues.

Last week...

Last week provided signs, bad bad signs. Last week provided signals that the subprime loan issue is not limited and has not yet peaked. Susan Bies reinforced some of that concern with her statement that, while "limited to a narrow sector, the subprime problem had just begun." She said that short term teaser rates were just beginning their adjustment phase, meaning rates for many borrowers were about to go higher. Businessweek highlighted that same concerning topic, reminding us that many subprime borrowers would not be able to refinance into long term fixed rate loans, especially now that lending standards are tightening. So, borrowers are going to find themselves with a much higher rate and monthly payment necessary to keep their homes, and if they want to sell, they are likely to find that the value of their homes has declined, perhaps to below the amount necessary to cover their mortgage in some instances. So, guess how far Businessweek estimates this risk extends... Businessweek says the size of subprime loans in aggregate that are set to readjust in 2007 is $265 billion.

Susan Bies says the risk is limited to the subprime sector, but we have to disagree. You see, as foreclosures increase, inventory in the housing market rises, and this risk was estimated last week at 500,000 homes. That's big and likely understated in our view. It's about one-twelfth the number of annual existing home sales, if we go by the most recent sales rate. So, if inventory increases, despite home builder efforts to reduce inventory, it means home prices could fall some more. That reduction in equity for all homeowners takes away a portion of an important liquidity source, home equity funding.

But that's not where the risk ends. Last week, we saw a light productivity number. Here's how we read this in simple English. If productivity is lacking, it most likely means we have too many workers providing products and services, which means the employment environment could be about to weaken. Hey, we know the Fed expects this to happen. It's kind of counting on it to reduce wage pressure on inflation. But, if employment weakens and liquidity dries some, then the reliability of the previously stalwart consumer to save our economic growth comes into question. And if the consumer stops spending, then my friends, it seems recession is likely. From where we stand today, this is not good news for stocks in our view. Considering the valuations of emerging markets, we could then be in store for a very significant global correction. We had an indication last week that consumer confidence is slipping. Also, February same-store sales were weak, and we think it had little to do with weather, which is where most of the reporting companies placed the blame.

This week...

This week is really a week of reckoning, as retail sales data will be reported for February. We think it's too early yet for business inventories to provide a sign of weakening, and should in fact look decent. But, CPI and PPI data will add their usual drama, giving indication of inflation. Capacity utilization portends to be weak in light of the productivity figure of last week, and March Michigan sentiment should prove frightening. On top of this, we will receive earnings reports from many major investment banks, and while the results themselves are expected strong, all eyes will be seeking indication that subprime troubles are spreading. Thus, while the direction of the investment banks might be difficult to determine, volatility is likely, in our view. There is risk to investors in securitized loans and that includes the banks and some big hedge funds that have thus far withheld information on the burden they have perhaps bourn.

Monday starts the week off quietly on the news front, but the weekend's doom and gloom articles portend to seriously hurt equities. Ears will be listening intently to Federal Reserve Governor Randall Kroszner, who will address the National Association for Business Economics on the dynamics of inflation on Monday. Also, the Treasury will release the federal budget balance for February, which is estimated by the Congressional Budget Office to be $123 billion in deficit.

On the corporate front, Jo-Ann Stores is scheduled to report earnings while several water companies present for investors at a Janney Montgomery Scott conference. Also, Texas Instruments will provide a mid-quarter update, while JDS Uniphase makes a commercial lasers presentation. Finally, Fidelity Research Institute will announce its findings on the outlook of retirement in the U.S.

At 8:30 EDT Tuesday morning, investors will get a first-hand look at how the consumer is faring, as February retail sales are reported. The consensus expects retail sales to show an increase of 0.3% in February, according to a Bloomberg survey. This report is critical, as any perceived weakness in consumer health could be the catalyst to drive a sustainable decline in equities. Retail sales were reported flat in January, and last week provided poor February same-store results, in our view. At 10:00 a.m., January business inventories are expected to be reported 0.1% higher, versus no change in December. A reading on the high side here could threaten stock stability as well, but we think the chances of this are smaller and the potency is weaker than the retail data.

Also on Tuesday, Treasury Secretary Paulson will tell a conference and the market about all he's learned recently on the issues affecting the competitiveness of the U.S. capital markets. President Bush will certainly grab some headlines as he travels to Mexico as part of his Latin American tour. In other international news, the OECD will provide an economic outlook for Europe, the U.S. and Japan.

Chevron is scheduled to meet with analysts on Tuesday. On the critical corporate earnings list, look for Goldman Sachs to report. Joining Goldman, expect reports from Kroger and Gymboree Corp. The reaction to Goldman's report could set the tone for the week for the investment banks and some commercial banks, as investors look for any signs of spreading of subprime woes.

Wednesday's news will include the 8:30 reporting of the current account deficit for the fourth quarter. Bloomberg's consensus expects the deficit to narrow to $203 billion, from $225.6 billion in the third quarter. Also, import prices are expected to have increased 0.6% in February, partly on higher energy prices.

ConnocoPhillips is scheduled to meet with analysts on Wednesday, while the Bank of America Consumer Conference will include presentations from Petsmart and Playtex. Reporting earnings, look for Lehman Brothers, Stage Stores, Hibbett Sporting, Pep Boys, General Communication, Cambrex, Hot Topic, Browne & Co., Biolase Technology and Miva Inc.

Don't miss Thursday's PPI report at 8:30 a.m. EDT. Bloomberg's consensus sees February producer prices rising 0.5%, compared to a decrease of 0.6% in January, due largely to higher oil prices. Keep an eye on how core PPI fairs, as the inflationary outlook holds great weight with equities. The treasury will provide a read on January international capital flows, and the March Philly Fed Survey will be posted. Philly Fed is widely expected to approximate 4.0, versus a measure of 0.6 last time. Retiree, and previous Fed Chairman, Alan Greenspan will find another microphone on Thursday, so beware.

The earnings calendar includes Bear Stearns, Claire's Stores, Tektronix, Aeropostale, Children's Place, Pacific Sunwear, Winnebago Industries, American States Water, and Pope & Talbot.

Friday brings big news, as the consumer price index is posted at 8:30 a.m. EDT. Bloomberg's consensus is looking for a rise of 0.3% in February, compared to a rise of 0.2% in January. CPI is generally considered more important than the PPI report, so pay attention for signs of inflation, as it threatens your equity portfolio, in our view. February industrial production is expected to show an increase of 0.3%, compared to a 0.5% decline in January. Keep an eye on capacity utilization, as it is key this time around. February capacity utilization is seen measuring at 81.3%, versus 81.2% in January. We expect capacity utilization will come in below consensus, as last week's productivity result indicates idle capacity may exist in the system. Do not miss the 10:00 a.m. reading of the University of Michigan's sentiment measure for March. As we stated earlier, signs of a cautious consumer could send equities to the critical care unit. Bloomberg's consensus is looking for a reading of 89.5 for March, versus a measure of 91.3 in February.

General Motors will report its delayed earnings for the fourth quarter, amid concern that it could be on the hook for some loans written in the mortgage market by a still partially owned subsidiary. Look for earnings reports from Anntaylor Stores, Kellwood Co. and Georgia Gulf Corp. Good luck with your tournament brackets, and we hope we have helped you in managing the March Madness.

(disclosure)