Auto Storm Brewing

An eerie calm seems to have beset auto shares today. It's a kind of calm before the storm, and the type of storm that could shake the market's confidence in consumer strength to its very core. On Friday, a high level sales executive at Ford Motors (F) confirmed what executives at General Motors (GM) have been warning of for several weeks. It seems April auto sales have fallen off of a cliff, and tomorrow, they will be reported.

George Pipas, Ford's Chief Sales Analyst, was quoted in a CNN Money article as saying that sales were down approximately 10% in April. Pipas said, "We're not even close to where we expected to be in April." Now, it seems likely that weather played a role in the weakness, with April measuring as one of the coldest in forever. Still, what troubles us is the implication that auto industry weakness may be providing about the overall state of consumer spending strength. Also, the weakness may portend later discovery that auto sales, like home sales, had also been boosted by less than critical lending standards, and this could uncover some skeletons within auto lending.

There are an awful lot of factors in play that are pressuring the pockets of the American consumer these days. Adjustable rate mortgages are repricing, raising the monthly mortgage payments due for consumers who may have purchased homes that it turns out they could not afford. Meanwhile, gasoline expenditures, a common expense for Americans, are increasing as refinery constraints limit production heading into the peak demand summer driving season. If that weren't enough, food prices are rising as well, another regular expense for all Americans. While all these costs are rising, credit availability is likely decreasing, making it difficult for the American consumer to keep up his spending ways.

When I set out to write this article, it was going to be a piece dedicated to helping you find the best investments in the auto and related sector. However, in light of the news pending for tomorrow, and my view that the market will draw a broad conclusion from it about the state of consumer health, I am taking a negative position on the entire sector for now. Ford (F) ran up last week on a narrower than expected loss, and the shares benefited until Friday's story caught some eyes. General Motors (GM) reports later this week, but that report could prove meaningless depending on April's results. Ford trades at about a tenth of trailing twelve months sales and about 4.9X operating cash flow. General Motors (GM) compares with a price-to-sales ratio of 0.09. In an environment that could be deteriorating over the near term, I wouldn't look to either of these for share strength. Toyota (TM), which is now the top player in the world based on sales, trades at 1.19X sales and boasts positive earnings with a P/E of 12.9X forward 12 month earnings. With growth estimated at nearly 10%, the stock may become attractive on any overall industry weakness reported tomorrow.

One stock I definitely like on weakness is DaimlerChrysler AG (DCX). The shares have been on a tear since the market became aware that Chrysler was for sale, and with plenty of private equity out there to bid the price up, it seems Daimler will benefit. The shares aren't cheap anymore though, as a result, trading at 21X '07 estimates. We would avoid the shares of Magna International (MGA), which reportedly has emerged as a front runner to acquire Chrysler. We expect Magna could lose business with other highly competitive automobile manufacturers should it acquire a stake in Chrysler. We would view signs that Magna might be falling out of the race as positive for the shares' long-term outlook.

So, net net, I think the best bet for the short term is a short position on the weakest players in autos, with a focus on Ford and GM. With GM's earnings report just days away, I wouldn't fall in love with the position. A trade is a trade, and if the data doesn't move the stocks, I would move my investment elsewhere no matter. Also, a short on Magna seems okay for a longer duration, since the shares have benefited from its pursuit of Chrysler, something we view as a negative for the value of MGA's ongoing operations. Depending on the impact, if any, we might use the weakness as a second opportunity to own DCX ahead of the sale.

Remember though, the most important take-away from tomorrow's likely auto sales weakness is that the pillar of strength holding the American economy may finally be cracking. Last week's GDP data, combined with today's personal consumption weakness and tomorrow's auto sales slump, may portend a tightening of the consumer wallet. Wall Street Greek predicts this will drive the American economy into recession this year. It's a ballsy prediction, the kind you only get from a true independent equity research provider, and one that is not afraid to stick its neck out for what it sees, no matter who else views it that way. We expect the market to begin acting like a recession is possible, and with the Fed handcuffed by persistent inflation, we expect that reaction to drive shares lower.

Full Disclosure: We plan to take a short position in Ford today, but may not depending on price. We plan to reverse that position tomorrow, but may decide not to depending on circumstances. 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)

The Greek's Week Ahead - Autos Crashing the Party

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

Although I'm wary of garnering the tag of permabear, I have some more bad news for you this week. But hey, don't shoot the messenger! Last weekend, we told you the Dow Express would face a real challenge in the Advance GDP report, and well, the Dow stormed through it like a trooper. You know, I favor large cap multinationals for the equity portion of your capital allocation, but I must warn that I would reduce equity exposure overall now.

The Advance GDP report came in expectedly (at Greek HQ anyway) short of consensus expectations, and at 1.3%, it even worried me. We have to put durable goods orders and labor strength into perspective. A lot of those orders are feeding the global market. Also, the labor strength we have experienced to date may also be benefiting from corporations' success overseas, and don't get me wrong, that's a good thing. We would be in full blown recession by now otherwise.

Here's why I'm worried despite all that. In recent weeks, General Motors (GM) executives have been sounding the alarm that April auto sales were looking weak across the industry. I think many observers read into it like we did, that things were bad for the embarrassed GM, which was bleeding share to the Japanese, and it was sadly seeking to shift focus to the entire industry. But then on Friday a key Ford sales exec came out and called April industry sales well below forecasts. Ford just reported a better than expected quarter, but please recall that the quarter ended in March. What was also concerning was the mutually determined cause of the problem, an increasingly cash strained consumer. There's probably a little more to it than that, but rising gasoline prices and prices of basically everything else are certainly a factor here.

Still, there really is probably more to it than inflation unfortunately. Remember months ago when Wall Street Greek warned that General Motors' sale of a large portion of GMAC, its finance unit, was foreboding. We recognized that lending standards would harden and credit would tighten across the asset spectrum, after housing came under scrutiny. The overly levered consumer was going to find capital for automobile and other purchases harder to come by, we said. While lenders are doing everything they can to keep people from falling into foreclosure, they're also not letting similarly classified new borrowers into the game anymore. With regulators coming down harshly on subprime sharks, lenders are wisely taking a closer look at borrowers across the capital needs universe these days.

Now, while we clearly would short the recently hot Ford Motors (F) and General Motors (GM), in the very near term, since GM's earnings report on Thursday could move its shares upward or downward, the core of our concern is this. If the consumer can't get his hands on credit anymore, she is not likely to spend as much as she use to either. She may have a job, but her mortgage payment is adjusting higher, while her weekly gas and food expenditures are increasing. That's a lot to bear all at once.

The consumer has been the pillar of strength for the American economy, holding it up during tough times. So, what we are trying to say is, Atlas is getting tired now. Wall Street Greek sees recession on the horizon, and that's a ballsy call when Ben Bernanke is predicting recovery this year. Ben will have a microphone on Monday, so let's see how he feels after Friday's GDP stumble.

The week ahead...

We'll jump right back into economic data early Monday morning, with the 8:30 a.m. EDT report of March personal income and consumption. Bloomberg's consensus sees income increasing 0.6%, the same as February. Spending was generally viewed strong in March, so the consensus view for a 0.54% increase may be accurate. February spending increased by 0.6%. The drop-off should arrive with April's data, as cold weather combined with tightening lending standards and rising costs begin to starve the consumer, we believe.

At 9:45, the April Chicago PMI is due, and the consensus sees a measure of 54.0, versus 61.7 in March. Also, the Dallas Fed will provide its regional manufacturing production index data. Construction spending for March is expected to have risen 0.2%, when reported at 10:00. Spending increased 0.3% the month prior. This data is probably not important, however, since new and existing home sales have already provided a clear picture of the ailing state of housing.

As alluded to earlier, Fed Chief Ben Bernanke is penciled in to provide the keynote address to the Montana Economic Development Summit at the University of Montana. Big sky country could bring a big dive for equities if Bernanke expresses new concerns about the economy.

Earnings season is still running full steam ahead, and Monday's reports include Alberto-Culver (ACV), American Home Mortgage Investment (AHM), Anadarko Petroleum (ADO), Centex (CTX), BE Aerospace (BEAV), Covance (CVD), FEI Company (FEIC), Florida Rock (FRK), Kellogg (K), Loews Corp. (LTR), Nam Tai Electronics (NTE), Tyson Foods (TSN), Verizon (VZ) and others. It will be interesting to see how well Kellogg and Tyson Foods have pushed through rising costs of grains and feeds, respectively. It was not so long ago that Tyson warned that it would do so to relieve a trend of rising feed costs that is pressuring its margins across proteins. We wouldn't expect a good report from AHM or Centex, considering the problems within their respective industries.

Tuesday is "D" day, meaning Detroit, as automakers report April sales. Given the recent warnings from GM and Ford, we are expecting ugly news. We expect poor data would build upon Friday's GDP first see and begin to weigh on equities. Wall Street Greek views this news the most important catalyst of the week. At 10:00 a.m., the Institute for Supply Management will issue its report for U.S. manufacturing activity in the month of April. Bloomberg's consensus view sees April ISM at 51, versus 50.9 in March. I continue to view manufacturing data less significant than that of the larger service sector. Also on Tuesday, the National Association of Realtors will present its index for pending sales of existing homes in March, less significant as last week's data.

Tuesday's earnings slate includes Amkor Technology (AMKR), Archer Daniels Midland (ADM), Buffalo Wild Wings (BWLD), Cephalon (CEPH), Hanover Compressor (HC), Headwaters (HW), Imperial Sugar (IPSU), Marathon Oil (MRO), Masco (MAS), MetLife (MET), Pilgrim's Pride (PPC), Plantronics (PLT), Sirius Satellite Radio (SIRI), SOHU.com (SOHU), Steve Madden (SHOO), Techne (TECH), Under Armour (UA), Yum! Brands (YUM) and others.

March factory orders are scheduled to be announced at 10:00 a.m. on Wednesday, and the consensus expectation is for a rise of 2.0%, compared to an increase of 1.0% in February. The Mortgage Bankers Association reports weekly mortgage activity on Wednesday. Weekly data largely reflects changes in interest rates, while the four week moving average allows for a better view of trend, in our view. Also, the weekly petroleum status report has attracted close attention recently as gasoline prices rise on steep draws of inventory and concern over supply stocks heading into the summer driving season. We anticipate oil prices will begin to ease some, as economic doldrums portend to reduce domestic demand despite ongoing refinery needs and the stocking of the strategic oil reserve.

Wednesday's earnings reports include AGCO (AG), Aqua America (WTR), Applebee's International (APPB), Barrick Gold (ABX), Biogen Idec (BIIB), Blockbuster (BBI), Cal Dive (DVR), CIGNA (CI), Clorox (CLX), Credit Suisse (CS), Devon Energy (DVN), Haemonetics (HAE), MasTec (MTZ), Sprint Nextel (S), Tetra Tech (TTEK), Teva Pharmaceuticals (TEVA), Transocean (RIG), ValueClick (VCLK) and more.

At 8:30 Thursday morning, first quarter productivity will be reported, with Bloomberg's consensus view expecting an increase of 0.8%, versus 1.6% in Q4. Also on Thursday, the very important ISM non-manufacturing report is due, with the consensus view for a reading of 53.5, compared to last month's 52.4. Last month's measure was expected to measure higher. Weekly initial jobless claims are expected to reach 320,000, a healthy level in our view. The head of the European Union's Economic and Monetary Affairs Commission is scheduled to speak in Belgium on the introduction of the euro into Central Europe.

Thursday's earnings reports include Celgene (CELG), Chesapeake Energy (CHK), Corrections Corp. of America (CXW), Dean Foods (DF), Gartner (IT), General Motors (GM), Green Mountain Coffee (GMCR), Hain Celestial Group (HAIN), Jones Soda (JSDA.OB), Koppers Holding (KOP), Nabors Industries (NBR), Noble Energy (NBL), Starbucks (SBX), Steinway Musical Instruments (LVB), U.S. Physical Therapy (USPH), United Rentals (URI), World Wrestling Entertainment (WWE) and more.

At 8:30 Friday morning, the Labor Department releases its employement situation report for April. You should recall March's report, which showed growth in nonfarm payrolls of 180,000 and shocked the market. This time around the consensus is looking for much less growth of 100,000 jobs. Unemployement is seen edging up from March's 4.4%, to 4.5%. Average hourly earnings are seen rising 0.3% month to month. Wall Street Greek agrees that unemployment should edge higher this month, as we expect further losses within construction, mortgage lending and other industries to sway the measure. New York Fed President Timothy Geithner will reflect on "Reflections on the Changing Global Economy," and perhaps comment on the employment figures, so stay tuned.

Friday's earnings reports include news from Apartment Investent & Management (AIV), Eastman Kodak (EK), PSEG (PEG), Weyerhaeuser (WY) and others. We hope you found this week's independent research value-added, and look forward to keeping you informed in the week ahead.

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Poison Apple

Is there a poison apple in your portfolio? You may not think so, but I would not own the shares of this seemingly juicy fruit, despite solid earnings momentum and a valuation I view inexpensive relative to growth.

The shares of Apple Inc. (AAPL) rose 1.1% on Friday, after climbing 3.7% Thursday, the day after the company posted stellar quarterly revenue and earnings growth. Revenues climbed 21% in the company's fiscal second quarter ended in March, boosted by expanding sales into Europe. Apple's top line was driven by 36% growth in Mac shipments and a 24% increase in iPod sales. Earnings per share soared 85%, as gross margin widened by 500 basis points to 35.1%. However, the company's guidance for the fiscal third quarter did not excite, with revenues seen approximating $5.1 billion and EPS $0.66, a penny short of the consensus view compiled by Thomson Financial. AAPL's iPhone launch isn't expected until June, and thus, will not impact the coming quarter in a meaningful way, according to Apple.

Earnings for the quarter of $0.87 far exceeded the analysts' consensus view for $0.64, and analysts generally viewed Apple's Q3 guidance as conservative rather than foreboding. If we adjust the estimate for the fiscal year ended September '07, which is just six months off, upward for this quarter's rise and subtract a penny for Apple's lower Q3 guidance, earnings for FY 07 should reach $3.47. This looks understated to us, but let's work with a conservative figure. AAPL closed at roughly $99.92 on Friday, giving the shares a P/E of 28.8 on the estimate six months forward. The consensus growth estimate for the next five years is 20%, again likely understated. So, a conservatively estimated PEG ratio on this data measures 1.44, not bad considering the fractional time period to realize the earnings.

Now, let me tell you why I wouldn't own the shares despite a valuation I would normally consider decent for a high growth firm with such positive momentum. This here apple is poisoned. I saw an analyst interviewed on CNBC after the earnings report and he was very positive on the company. However, when asked about the risk related to the options pricing question, and the possibility that Steve Jobs could be implicated, he brushed it off like a non-issue. Here's the problem, it isn't! Any sensible analyst must measure and know what risk lies in an event that is clearly possible. It's called scenario analysis and event risk. It should play into AAPL's valuation at all times, but at a discount for the possibility that it will not occur and incorporating the time frame of possibility. I saw another analyst interviewed and asked how he felt about the valuation after the shares were up so much in after hours trading, and he said, "well I would have to go back and update my model first." I can sympathize a bit, but his answer just highlighted the poor guy's inability to see the forest for the trees, unfortunately a common problem among overburdened analysts. I saw it time and again in my time working for an independent equity research provider that asked their analysts to follow 30-40 stocks without an assistant. Most analysts on the sell-side follow 12 to 15 names with an assistant, so a great deal of personal sacrifice is necessary to do the job right, and considering the lower pay scale at this firm, that was a tough choice. However, it was one I made every night as I turned the office lights off, while my supervisors slept peacefully at home.

If the CEO of Apple were anybody but Steve Jobs, I believe the valuation would be impacted in a more meaningful way and the Board of Directors would not be issuing a vote of support, but pressuring the CEO to announce his resignation. Apple's CFO during the time of the decision to price the options stated that he informed Jobs of the economic impact of the decision. It seems to us like Jobs has claimed ignorance to the issue, which by the way, is not a viable defense for a crime last I checked. It also seems clear to us that the CFO had an important stake in making the statement, but that doesn't necessarily make it false.

Steve Jobs is an iconic leader, and clearly a man who will be recognized in history for his contributions to society. For this reason, everybody wants to find him innocent, but is that fair to the individuals found guilty for similar decisions? Now, at this point, it would be a bit presumptuous and even irresponsible to assume guilt or innocence. That decision will be up to the SEC and potentially other parties. The thing is, the SEC is an objective judge, and I anticipate there is a decent chance that its future actions and possibly later decision could be a negative catalyst to AAPL shares. Besides, Jobs is a big fish, and one that, if caught, would send a message across the spectrum of American industry.

If Jobs is found guilty of a crime, I believe the shares are not pricing that risk in appropriately, and that's a subjective read on my part. For a more scientific value assignment to this risk, we would have to compile a large group of similar situations and compare valuations of subject companies to like peers. That discount we assume exists would then be applied to Apple's stock, and we would compare that value with the stock's current price. My subjective estimate is that AAPL is not properly discounted for this, but the event risk is that Jobs is found guilty, and that potential news would price in the full value of losing such an important visionary, a critical asset.

So, why own this stock when a world of others exists, especially if the risk is understated. If understated, we cannot benefit properly from mispricing when the situation passes, if we expect it to pass calmly. I respect Steve Jobs, but I would not own Apple shares today. I would look to unload the stock as volume resulting from the earnings news fades. With this issue overhanging, it should not take long for that to happen, and momentum chasers might even drive the shares lower on strong volume before it can. In any event, I would not hold Apple now, and if I miss a great gain that's only because I couldn't find it in another stock, in my view.

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Wake Up Call - Advance GDP Could Derail Dow Express

All major U.S. indices have opened lower, and international markets are broadly lower, after the Advance GDP report for the first quarter showed U.S. economic growth well below expectations, at a weak 1.3% level. At the same time, the Core PCE, a Fed barometer on inflation that measures consumer prices ex- food and energy, increased 2.2%, versus 1.8% in the fourth quarter. The title of the most used word in business America will likely change hands today, from "subprime" to "stagflation." It's a scary scenario that portends to keep the Fed handcuffed as the economy weakens. Wall Street Greek sees serious potential for the economy to slip into recession this year, despite the success of America's multinational corporations. While we view large-cap multinationals as the preferred place for equity investment, the "Dow Express" could be derailed today.

Asia:
Hang Seng Index -0.68%; Shanghai/Shenzhen CSI 300 %; NIKKEI 225 -0.17%; S&P/ASX 200 -0.98%; Taiwan TAIEX -0.63%; BSE SENSEX 30 -2.25%; KRX 100 -0.77%; Ho Chi Minh NA

U.K., Europe & Middle East:
DJ STOXX 50 Index -0.89%; FTSE 100 -0.77%; CAC 40 -0.46%; DAX -0.52%; Russian RTS Index -1.7%; ASE General -1.22%; Tel Aviv 25 NA; Tadawul All Share NA; DFM General NA

Our value-added take on today's key news:

• *** The first quarter Advance GDP report showed the economy likely grew 1.3% in the first quarter of 2007, a sharp drop from Q4's growth of 2.5% and well off the 1.8% consensus view of economists. The result was in fact grazing the bottom of the range of views that extended to 1.2%. In our weekly article appropriately entitled "The Dow Express' Week of Reckoning", we said "a poor measure (would be viewed) as a red flag for stagflation." Weak GDP growth, combined with a high reading on the Core PCE, which showed a 2.2% annual consumer price rise, will raise red flags across the country. The Fed and economists alike will grow very concerned that the second and/or third quarter could slip into recession. Housing once again impacted GDP significantly in a negative way, while consumer spending held up. However, consumer spending is likely going to weaken in coming quarters as capital becomes harder to come by to fund automobile, home and other purchases. Wall Street Greek believes there is a high probability that the economy will slip into recession this year. Also, we think prospering American multinationals will come under Congressional pressure to pay more taxes to make up for the decreased impact of their sales on the economic health of Americans in general. Wall Street Greek expects the "Dow Express" will be derailed temporarily here. Still, in our asset allocation, we would shift capital out of mid-cap and small-cap shares, into large cap multinationals on weakness, if you have not done so already.
• *** At 10:00 a.m., the University of Michigan's consumer sentiment reading is expected to match March's 85.3 figure. This news could compound or ease the market's reaction to the GDP and inflation data.
• *** Fed officials Yellen and Fisher expressed continued concern about inflation in speeches yesterday. The Fed is effectively handcuffed regarding its ability to rescue the economy, due to the combination of housing weakness, economic growth slowdown and inflationary persistence. We see troubled times ahead as inflation is impacted by secular trends in food and energy that cannot be discounted as seasonal effects.
• *** Earnings season has produced an illusory sense of well-being as low ball estimates set by safe-playing, weak-willed analysts have for the most part been exceeded. But, we knew they would. There is real economic health reflected in the move of the Dow, however, as they benefit from the weaker dollar. We continue to favor the shares of large-cap multinationals, or any American firm selling overseas and advantaging competitively. Microsoft (MSFT) reported earnings ahead of estimates; Waste Management (WMI) topped analysts estimates; Burger King (BKC) beat estimates.

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Wake Up Call - An Apple a Day Would Keep Recession Away

S&P 500 and NASDAQ Index futures are indicating a continued rise today, and with no catalyst to debate the issue until tomorrow's GDP report, the morning should be positive. As we enter the afternoon, Wall Street Greek anticipates some profit taking ahead of the Advance GDP report. See our value added take on today's key news below, and also "The Greek's Week Ahead" for your weekly market-moving event planner.

Asia:
Hang Seng Index +0.64%; Shanghai/Shenzhen CSI 300 +1.31%; NIKKEI 225 +1.12%; S&P/ASX 200 +0.39%; Taiwan TAIEX +0.19%; BSE SENSEX 30 +0.08%; KRX 100 +0.91%; Ho Chi Minh NA

U.K., Europe & Middle East:
DJ STOXX 50 Index +0.31%; FTSE 100 +0.38%; CAC 40 +0.2%; DAX +0.64%; Russian RTS Index -0.09%; ASE General +0.27%; Tel Aviv 25 +1.52%; Tadawul All Share NA; DFM General -0.27%

Our value-added take on today's key news:

• *** Here in the heart of earnings season, stock specific news is driving the momentum of the market. See Yahoo!'s earnings calendar for today. Ford (F) reported a significantly narrower loss than was anticipated, as it benefited from cost cutting and strong European sales. Exxon Mobil (XOM) reported an 18% profit rise, as strong refining profits on widening margins offset the impact of lower relative Q1 oil prices. Several home builders reported results last evening and this morning, with a recurring message. Pulte Homes, the country's second largest builder reported a larger loss than the consensus saw, while not providing June quarter guidance. This is the trend among home builders, and does not exhibit confidence in any recovery this year, as we have been warning since we began this service. We think this clearly evidences the value of our high quality independent equity research focus, because many talking heads had been speaking of a housing recovery as recently as early this year. As we begin to publish equity research, we think you will gain a clearer view of that value add.
• *** Apple (AAPL) reported blow out earnings, while providing forward revenue guidance short of expectations. AAPL shares are up 7.7% in pre-market activity, but Wall Street Greek is advising you to look to exit and/or short the shares as volume fades. Let the hungry funds and momentum chasers drive this stock up, and as the news fades, look to exit or take a short interest in the shares. AAPL's guidance for the forward quarter may just be conservative forecasting, or it may portend a real slowdown. There are no ifs, however, in our view that the SEC will prove a negative catalyst for AAPL, as it shows that nobody is above the law. Steve Jobs has achieved an iconic level near, perhaps a distant second, to Bill Gates, and nobody in the media seems to want to implicate him. However, the media has a way of really savoring the demise of the great. Somebody once said, "Show me a hero, and I'll show you a tragedy." Wall Street Greek expects jobs to be implicated in wrongdoing here.
• *** Weekly initial jobless claims were reported this morning at 321,000, short of the consensus expectation for 329,000, and well below last week's reading of 341,000. Labor pressure on inflation likely persists as a result, and expect this data to become more important in reflection at a later date.
• *** Oil prices are easing a bit after yesterday's boost from the gasoline draw. News that Iranian and European views may be closing the gap between them has oil giving back a little. However, that news is emanating from Iran and to be blunt, is bull... The real catalyst that could drive oil lower, starting on Friday, or even today, is the Advance GDP report due Friday. If the forecast is short of estimates, or even meets the weak number seen of 1.8% growth for Q1, we suspect oil might give back ground.

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Wake Up Call - Really Durable Goods

Major U.S. indices have opened up nicely this morning, driven by better than expected March durable goods orders and some more strong EPS reports from America's large multinationals. Today's drivers are Boeing and PepsiCo, and others. At 10:00 this morning March new home sales will be reported, and could impact trading. See "The Greek's Week Ahead" for your weekly market-moving event planner.

Asia:
Hang Seng Index -0.18%; Shanghai/Shenzhen CSI 300 +0.09%; NIKKEI 225 -1.24%; S&P/ASX 200 -0.34%; Taiwan TAIEX -0.75%; BSE SENSEX 30 +0.57%; KRX 100 -0.83%; Ho Chi Minh +2.03%

U.K., Europe & Middle East:
DJ STOXX 50 Index +0.52%; FTSE 100 +0.58%; CAC 40 +1.3%; DAX +1.0%; Russian RTS Index +0.55%; ASE General +0.87%; Tel Aviv 25 +0.39%; Tadawul All Share +0.97%; DFM General -0.92%

Our value-added take on today's key news:

• *** The March durable goods orders report this morning reinforced the strength of global demand seen also in the performance of the large multinationals driving the Dow this week. March orders rose 3.4%, exceeding expectations for a 2.5% increase. Orders excluding expensive transportation equipment, which can skew the reading, increased 1.5%, again beating estimates for an increase of 1.1%.
• *** Pending 10:00 a.m. report, March new home sales are seen rising, to 890,000 from 848,000 in February. The existing home sales market dwarfs new sales, and should be viewed as the more important barometer of housing health and its impact to the economy. New home sales can help us to measure housing health's current impact to the home builders specifically, in our view.
• *** Today's earnings calendar is a full one. See Yahoo!'s schedule for today's EPS reports. Boeing reported earnings ahead of expectations, but in keeping forecasts for the full year unchanged, it has kept the share rise tempered. PepsiCo (PEP), another large multinational, exceeded estimates today as well.
• *** Weekly mortgage applications rose 3.6% in the week ended April 20, driven by a decrease in mortgage rates.
• *** Wall Street Greek told you when the news broke that Steve Jobs seemed liable to us, and that no CEO should be held above the law, no matter how important he may be to an industry. Apple's (AAPL) ex-CFO is claiming that he informed Jobs of the earnings implication to the options pricing decision. We believe that it's likely the SEC will be a negative catalyst to the shares, as Jobs comes under intense scrutiny.

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Today's Key News - The Horse is Farting

U.S. equities have opened mixed, but the Dow, S&P 500 and NASDAQ indices all show modest gains. Earnings highlight the news this morning, with positive reports from AT&T (T), Lockheed Martin (LMT) and Texas Instruments (TXN). However, key housing and consumer confidence data is on tap for 10:00 a.m.

Asia:
Hang Seng Index +0.08%; Shanghai/Shenzhen CSI 300 +0.4%; NIKKEI 225 -0.02%; S&P/ASX 200 -0.34%; Taiwan TAIEX +0.43%; BSE SENSEX 30 +1.5%; KRX 100 +0.56%; Ho Chi Minh -2.75%

U.K., Europe & Middle East:
DJ STOXX 50 Index -0.49%; FTSE 100 -0.51%; CAC 40 -0.22%; DAX -0.61%; Russian RTS Index -0.26%; ASE General -0.48%; Tel Aviv 25 NA; Tadawul All Share +0.42%; DFM General-0.36%

Our value-added take on today's key news:

• *** April consumer confidence will be reported at 10:00 a.m., and despite recently strong retail sales, higher gasoline prices and a deteriorated housing sector should be expected to drive confidence down, in our view. Bloomberg shows a consensus expectation for a decrease in April confidence to 105 from 107.2 in March.
• *** March existing home sales are widely expected to have declined to 6.4 million, from 6.69 million in February. And the rug of comfort underneath the dwindling number of housing bulls still left, is pulled away...
• *** Whenever Alan Greenspan has a microphone and an audience of reporters, you should know about it. Alan has been invited to give the keynote today at the "Boomertirement" industry extravaganza in New York.
• *** The Bank of Canada will provide its decision on interest rates.
• *** Earnings season gets heavy today. Check out Yahoo!'s earnings calendar here. Lockheed Martin (LMT) beat estimates and raised guidance; Texas Instruments (TXN) exceeded estimates and raised guidance; AT&T (T) exceeded forecasts; BP's (BP) profit fell 17%.
• *** Toyota's Q1 sales exceeded those of General Motors (GM) and though GM cries that it takes a full year's results to mark the victory, Wall Street Greek says that victory is inevitable. Yesterday, GM executives once again highlighted weakening industry trends impacting 2007, including the crunch of tightening credit standards. Seems like Toyota (TM) is navigating those same waters just fine though; a lot of heads may still roll at GM and Ford (F).
• *** Investors in subprime mortgages stand to lose a bundle, above their already counted losses. This article from Bloomberg tells you where the risks lie steepest. We anticipate losses could put some focused, leveraged investors' solvency into question, and yes, we are talking about hedge funds.
• *** Ahmadinejad reaches out once again to Bush for a one-on-one meeting. The writing is on the wall. You can almost hear the words coming out of his mouth now, for when a nuclear weapon explodes on American soil and is traced back to Iran. "I tried." A favorite proverb of my father's seems to apply nicely here, "o' aloghos klanee - the horse is farting." In other words, nobody is listening to Ahmadinejad's banter.

(disclosure)

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The Greek's Week Ahead - Dow Express' Week of Reckoning

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

Get out of the way of that freight train! It's the Dow Express, and the conductor with his head cheerfully peering out the window is Warren Buffet, since he wants to own railroads these days. The Dow busted through record territory last week, but wait, what is all the hoopla about? We can only point to earnings, and there were some positive things to read from the week's reports. Still, let's face it, earnings growth on the whole is going to stink this quarter, relatively speaking. So why is the Dow flying high... Well, you see, the Dow is composed of large multinationals that are doing an awful lot of exporting these days, and despite a slumping domestic economy, they're doing alright overseas.

Caterpillar (CAT), a Dow component, gapped open higher on Friday and ended the day 4.7% above Thursday's close. The heavy equipment maker posted earnings before gain on security sale that was above expectations, though the company still showed a decline versus the prior year period. Still, anticipated U.S. softness was nearly completely offset by growth overseas. CAT went even a step further and raised its guidance for the year. About a week ago, the International Monetary Fund confirmed that global resiliency would be reinforced by international strength, even despite slowing U.S. growth.

Honeywell International (HON), another Dow component, also gapped higher on Friday and closed up 4.8%. Honeywell reported revenue growth of 11%, while exceeding both sales and earnings expectations. HON also raised guidance for 2007. While much of HON's performance can be attributed to the current and future demands of the U.S. military, the company's CEO attributed solid airline industry demand for HON's products to the healthy global economy.

Multinationals are certainly benefiting from the weakening dollar, as their offerings become more price competitive overseas as a result. Wall Street Greek has favored large caps along with every other Tom, Dick and Harry since last year, but nobody has really told you why and which ones. We have painted the picture for you here, other than the attractive valuation and "it's about time" argument, it is the large multinational corporations that are benefiting most from a cheaper dollar.

Now let's look at the week ahead...

Caterpillar (CAT) will follow up its good news from last week with an analysts' day on Monday. The start to the week looks otherwise quiet, depending on international activity or surprises of course. Look for earnings reports from Amgen (AMGN), Texas Instruments (TXN) and Kimberly-Clark (KMB) to get us warmed up.

The week of reckoning officially begins on Tuesday. All of last week's gains will be asked to show the ID's that got them through the door, and all those player haters that snuck in behind CAT, HON, Schlumberger (SLB) and Google (GOOG) could be asked to leave the party. The week of reckoning has three key components: housing, consumer confidence and the kingpin, the first reading of Q1 GDP.

April consumer confidence will be reported at 10:00 a.m., and despite recently strong retail sales, higher gasoline prices and a deteriorated housing sector should be expected to drive confidence down, in our view. Bloomberg shows a consensus expectation for a decrease in April confidence to 105 from 107.2 in March. Also at 10:00, March existing home sales are widely expected to have declined to 6.4 million, from 6.69 million in February. And the rug of comfort underneath the dwindling number of housing bulls still left, is pulled away...

Whenever Alan Greenspan has a microphone and an audience of reporters, you should know about it. Alan has been invited to give the keynote at the "Boomertirement" industry extravaganza in New York Tuesday. Internationally at our back door, the Bank of Canada will provide its decision on interest rates.

Earnings reports are scheduled for AT&T, Inc. (T), Du Pont (DD), Occidental Petroleum (OXY), Lockheed Martin (LMT), Burlington Northern Santa Fe (BNI), Northrop Gruman (NOC), Amazon.com (AMZN) and others.

Last week's gains face another challenge from an important precursor to GDP, the 8:30 report of March durable goods on Wednesday. The consensus view compiled by Bloomberg shows expectations for an improvement of 2.5% growth in March, from 1.7% in February. March new home sales are also seen rising, to 890,000 from 848,000 in February. Relative to home sales and in light of the subprime mess, the Mortgage Bankers Association is scheduled to hold a national policy conference on Wednesday. Clearly some noteworthy news could result.

Internationally, markets in Australia and New Zealand will be closed on Wednesday. Vladimir Putin will give his annual address to the Federation Council. It's possible that he could announce plans for the election of his successor. Last week, there was some speculation that Putin might limit the candidates to individuals he hand selects.

Wednesday's earnings reports include Conoco Phillips (COP), SEI Investments (SEIC), Genzyme (GENZ), PepsiCo Inc. (PEP), Apple Inc. (AAPL), Boeing (BA), Qualcomm (QCOM), Wellpoint (WLP), Exelon (EXC), United Parcels Services (UPS), Anheuser-Busch (BUD), Corning (GLW), Colgate-Palmolive (CL) and General Dynamics (GD).

On Thursday, weekly initial jobless claims are seen measuring 329,000 for the week ended April 21. Fed Governor Mishkin, and Presidents Fisher and Yellen are all scheduled to speak on Thursday. Reporting earnings, look for reports from ExxonMobil (XOM), Countrywide Financial (CFC), Fortune Brands (FO), Microsoft (MSFT), 3M Company (MMM), Comcast (CMCSA), Bristol-Myers Squibb (BMY), Dow Chemical (DOW), Valero Energy (VLO), Travelers (TRV), Franklin Resources (BEN), Halliburton (HAL), Hartford Financial (HIG), Cardinal Health (CAH), Southern Co. (SO) and many others.

Drum roll please.... At 8:00 Friday morning, the Advance GDP report is likely to impact the market one way or another. Remember, last quarter the initial reading of 3.5% was revised much lower by final reporting, to 2.5%. This time around, economists are looking for growth of 1.8%, according to Bloomberg. Both the growth information and inflation data will be closely reviewed by the market, and we think a reading above or below the consensus GDP view will be received negatively. We anticipate the market will view strong growth as conducive to a Fed rate hike for the purpose of containing inflation, and a poor measure as a red flag for stagflation. But that's not all... The employment cost index is expected to show a rise of 1%, and the market will be closely attuned for signs of labor wage pressure on inflation. At 10:00, the University of Michigan's consumer sentiment reading is expected to match March's 85.3 figure.

Besides this critical domestic data, the Bank of Japan is due to decide on interest rates. The BOJ is expected to keep rates steady though. Reporting earnings, look for Baidu (BIDU), Burger King (BKC), Cameco (CCJ), Waste Management (WMI), Chevron (CVX) and others. Man that's a busy day, with so many factors in play, and I certainly won't attempt to make odds on it. I think a bet on volatility is a safe one for Friday though. We hope you found value in this week's article and thank you for your interest.

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Today's Key News - Googlemania!

Major U.S. equity indices have opened broadly higher with conviction this morning, after solid earnings reports from Google (GOOG) overnight and Caterpillar (CAT) and Schlumberger (SLB) this morning. The Dow broke through into record territory almost immediately at the open, despite weakness in Pfizer (PFE) and McDonald's (MCD). We should clarify our China call from yesterday for those of you who may be thinking, "hey Greek! what the hell?!" Remember, Wall Street Greek believes a Chinese government reactionary response intended to quell growth will be the catalyst to drive a global market correction. We expect that near future response will include a steeper interest rate hike than most anticipate.

Asia:
Hang Seng Index +1.31%; Shanghai/Shenzhen CSI 300 +4.41%; NIKKEI 225 +0.46%; S&P/ASX 200 +0.69%; Taiwan TAIEX +0.69%; BSE SENSEX 30 +2.04%; KRX 100 +1.32%; Ho Chi Minh -2.93%

U.K., Europe & Middle East:
DJ STOXX 50 Index +1.59%; FTSE 100 +0.89%; CAC 40 +1.86%; DAX +1.55%; Russian RTS Index +2.35%; ASE General +1.41%; Tel Aviv 25 NA; Tadawul All Share NA; DFM General NA

Our value-added take on today's key news:

• *** Earnings and options expiration are driving Spring fever this morning in equities.
• *** Google (GOOG) reported earnings overnight that exceeded analysts' estimates. Google reported quarterly earnings growth of 69%. Revenues soared 63%, and the company took approximately 48% share of the Internet search market in March, according to comScore Media Metrix. Yahoo! (YHOO) reported earlier this week and disappointed investors betting on the whisper of a solid quarterly impact from its new Pajama offering.
• *** McDonald's (MCD) reported first quarter profit growth of 22%, driven by strength in Europe and the popularity of new U.S. menu items. We would look closely at the restaurant sector, as unhedged players may not be able to raise menu prices in line with the pace of component food prices. Since Wall Street Greek believes rising food prices are a secular trend, the margins of restaurants on the whole should be squeezed over the long term, unless price pressure is transferred to consumers. In that event, we anticipate the overall market would see weakness and consolidation within the industry would follow. The market would no longer be able to support the same amount of players, in our independent research view.
• *** H&R Block (HRB) is selling its subprime lending unit, Option One Mortgage, to an affiliate of a private equity firm. There are two things we want to point out regarding developments within subprime lending. Diversified lenders are selling out of the sector while those remaining must still contend with a difficult operating environment. While consolidation is likely to reduce competition within subprime, sales of subprime units simply shift the risk to a new firm, typically at a discounted price. Thus, we would sell short the shares of those players remaining in operation within the subprime sector and without significant diversification of risk. Those firms' shares are seeing appreciation on news of these sales by peers, but we contend that the earnings reports of still at risk firms will shed light on the subprime specific weakness that remains. So, the share rise offers opportunity for short entry into subprime pure plays. Clearly, firms that have or can sell subprime operations, may offer upside opportunity, but remember you don't get the best price on forced/pressured sales, so the value add may be questionable. For some of these firms, like perhaps Fremont General (FMT), the alternative was bankruptcy risk, so the sale made sense in our view.

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Today's Key News - China Heat May Burn

Major U.S. equity indices are lower this morning but showing some built up resistance to troubling Asian news. However, your favorite independent equity research provider thinks the big hit is yet to come. We anticipate China's reactionary response could include a sharp hike of interest rates that we expect will shock investors into a second sharp global sell-off. Wall Street Greek is not limited by corporate layers or tempered by job insecurity, and is thus not afraid to go out on a limb versus just describing your current weather.

Asia:
Hang Seng Index -2.3%; Shanghai/Shenzhen CSI 300 -4.67%; NIKKEI 225 -1.7%; S&P/ASX 200 -1.15%; Taiwan TAIEX -1.4%; BSE SENSEX 30 -0.38%; KRX 100 -1.5%; Ho Chi Minh -0.3%

U.K., Europe & Middle East:
DJ STOXX 50 Index -0.72%; FTSE 100 -0.48%; CAC 40 -0.68%; DAX -1.15%; Russian RTS Index -1.98%; ASE General -0.59%; Tel Aviv 25 -0.4%; Tadawul All Share NA; DFM General +0.02%

• *** China tops the headlines today, as first quarter economic growth rocketed 11.1% higher, beating expectations for a 10.4% rise. This ignited concern that the reactive Chinese government might move to curb inflation by raising rates. March CPI in China rose at a 3.3% annual rate, above the government's red flag threshold of 3.0%. A rate hike of sharp proportion seems imminent to us, and the recent surge of Chinese mainland shares and volatility this year, increase the potential for another sharp correction that Wall Street Greek believes would be exacerbated by the government move to cut rates. We anticipate the degree of rate cut will be more than a moderate one this time around. Wall Street Greek is making its second prediction for a China meltdown, and last time we caught it two days ahead of time. Although global markets could prove more resistant in the short term, we anticipate they will eventually be impacted by the Chinese government's moves. Also, Q1 GDP is reported later this month for the U.S., but we view persistent inflation threatening to equities despite the health or weakness of the report.
• *** Global markets are showing signs of the beginning of impact, led by Asian shares lower today.
• *** While jobless claims came in slightly lower than the week prior, they were high enough last week to take the four-week moving average up. The service sector played a role this month, which we find concerning. However, we expect weakness mortgage lending and the end of the tax season to drive near term employment impact to services. Wall Street Greek anticipates next month's employment situation report will show a rise in unemployment to 4.5%, after reaching 4.4% this month.
• *** Earnings season gets busy today, as many of America's great corporations report results. Merrill Lynch (MER) exceeded estimates, as did Bank of America (BAC), while Altria Group (MO) disappointed today.

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Today's Key News - Tech Tornado

Major U.S. equity indices are trading broadly lower on earnings day disappointments from the likes of Yahoo! (YHOO), Abbott Labs (ABT) and IBM. We also got some more bad housing data that indicates foreclosures are on a steep rise. This morning's copy is abbreviated, as we are currently working on the next value added copy of "Today's Morning Coffee." Find today's individually selected "Key Headlines" below.

Asia:
Hang Seng Index -0.06%; Shanghai/Shenzhen CSI 300 +0.64%; NIKKEI 225 +0.8%; S&P/ASX 200 +0.81%; Taiwan TAIEX +0.55%; BSE SENSEX 30 +0.48%; KRX 100 +0.39%; Ho Chi Minh +3.67%

U.K., Europe & Middle East:
DJ STOXX 50 Index -0.4%; FTSE 100 -0.63%; CAC 40 -0.45%; DAX -0.94%; Russian RTS Index -1.28%; ASE General -0.93%; Tel Aviv 25 -0.44%; Tadawul All Share +1.69%; DFM General +0.85%

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Today's Key News - Data Looks Okay

Major U.S. equity indices are broadly higher today on perceived less than potent inflation data from the March CPI report and solid earnings reports from companies in the health care and even financial sector, like Johnson & Johnson (JNJ) and Wells Fargo (WFC).

Asia:
Hang Seng Index +0.15%; Shanghai/Shenzhen CSI 300 +0.85%; NIKKEI 225 -0.57%; S&P/ASX 200 -0.18%; Taiwan TAIEX -1.05%; BSE SENSEX 30 -0.65%; KRX 100 -0.18%; Ho Chi Minh -1.76%

U.K., Europe & Middle East:
DJ STOXX 50 Index +0.22%; FTSE 100 -0.24%; CAC 40 -0.02%; DAX +0.27%; Russian RTS Index -0.89%; ASE General -0.32%; Tel Aviv 25 -0.1%; Tadawul All Share -1.82%; DFM General +0.95%


Key Headlines:

• *** March consumer prices were reported this morning, and the Core CPI figure rose 0.1%, less than the consensus estimate of 0.2%. The headline figure, which we view important and prescient to future core movement, increased 0.6%, in line with expectations. Persistently high oil and food prices portend to drive core prices higher as manufacturers and service providers alike incorporate the price pressure on distribution, production and other operational costs into the prices of goods and services. For example, restaurant operators will not bear the rising price of food to the detriment of their bottom line. Also, whether a product comes from China or Detroit, higher oil prices portend to lead to an increase in the price of that product. In other words, Wall Street Greek anticipates inflation will remain stubbornly present and could force the Fed to raise rates, barring significant economic weakness.
• *** March housing starts rose modestly above expectations. Don't get too excited by media exaggeration of the housing news. Starts rose to an annual rate of 1.518 million, compared to expectations for an increase of 1.495 million, as compiled by Bloomberg. The data showed growth in single family development partly offset by weakness in multi-family structures, where more subprime borrowers likely shop. This plays into our "best of breed" view in favor of Toll Brothers (TOL) over the other industry participants, if you have to own a home builder. However, the industry still "sucks," borrowing the words of a couple top housing executives. Yesterday, the National Association of Home Builders Index indicated that home builders' confidence has slipped.
• *** Earnings season is underway, so don't miss the earnings report schedule, provided by Yahoo!.
• *** Industrial production decreased 0.2% in March, but take a closer look. Utility output played a huge role in the direction lower, as warmer weather decreased energy needs. Factory output actually rose 0.7% in March, and this is a positive sign for capital goods demand.

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The Greek's Week Ahead - Nothing is Black and White

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

In light of the whole Imus versus Al Sharpton or Imus and the Rutgers women's basketball team issue, or pent up aggression and hidden racism that may exist beneath the surface of a good deal of Americans, whether black or white, I thought I would draw an analogy to the economy, since that's what we talk about here...

It seems every talking head views it their responsibility to take a side behind Imus or behind the view that he should be canned, as his sponsors effectively decided in the end. It's insane that racism is still such a sensitive topic, and a bit hypocritical as well. You know, sometimes its cool, and other times it fires people up enough to get a national witch hunt going. Last night I watched a show called "I Love New York, The Reunion" and one of the characters was labeled "White Boy" by the lead character "New York." Now, "gnatty headed ho" has a ring of angry racist guy who woke up on the wrong side of the bed and had a shot of whiskey for breakfast to it. But I don't appreciate the term white boy either. It carries a tone of weakness, or nerdiness, and it's definitely not positive.

I'm white by the majority's eye, but I've experienced racism by people who view themselves perhaps whiter than me, or maybe purer, or maybe more American because my father was first generation. I even had a close friend once tell me I didn't have the right to stand to the national anthem. That incensed me. He was young, but that was a view clearly shared by his ignorant family. Still, he was a good friend and I took it upon myself to help him grow. I think he understood better when I told him how my father had volunteered to serve in Korea for the right to be an American. Though his offer was not accepted, I think that speaks for how American we are.

Then, in adulthood, I experienced an ignorant East Side white woman talk about the "dirty Greek street vendor" she would never buy a hot dog from. That woman was my boss at the time, and it happened in the office. And my first cousin sells hot dogs! And guess what, for a week, after her mother had passed away, I sold hot dogs as a street vendor to let her get some rest. And I've worked in a diner serving "cheeseburger, hamburger Pepsi", no less. I must really be a dirty Greek.

But I was not always so open-minded either you know. After the ignorant boss, I worked for a gay gentleman. I appreciated that guy as a person and an analyst, for the most part, because I saw how he felt. He felt alienated, like he couldn't trust anyone. He taught me to lose my homophobia, along with a few important business concepts I keep in my analytical toolbox still, and I'm glad I had the opportunity to work for him, because he was smart and the only boss I learned a thing about stocks from.

After him, I worked for an idiot who I once had to teach how to use a PEG ratio as a forecasting tool. Now, for most of us, that's asking a lot, but for a Director of the Health Care sector, it's pretty much expected. I mean it's first grade math for analysts, and he still doesn't get it... and you're still buying the stocks he's recommending. He didn't like me because I didn't fit into his box. I came to work a half hour after him, and he didn't like that. It didn't matter that I was still in the office when he left at 4:30, and still there late every night when he was in his little bed for his little brain.

You know what I really didn't like about him. I didn't like the endless homosexual innuendos he made about Greeks and me in my presence and the tie he drew between Greek invention and it. Somehow, he always failed to note that a good deal of the words he attempted to use properly were from Greek origin, or that the democracy he enjoyed living under was conceived in ancient Greece. I could go on and on about the contributions of Greek culture to society, but that's not what this is about. However, if you are Greek and insulted or just insulted by this guy, contact me. In any event, I think now you can understand why I want to be my own boss.

Back to the point, shall we? Humanity is driven by its primary need, survival. Humans seek to group, for survival's sake. It's that whole safety in numbers thing. So people seek out people like themselves to group with, and label the people on the other side of the river, their common enemy. Sometimes it's the river that divides, sometimes it's an ocean, and sometimes its a race or a religion. Since humanity is humanity's worst enemy, a paranoid mistrust, also born from that survival gene, keeps us from aligning with that ultimate group, the brotherhood of man.

If you don't believe me just look around. The Soviet Union divides, Europe forms a union, al Qaeda seeks to pervert a religion to unite a people. It's all about grouping and regrouping. Eventually, probably after another unfortunately horrible war to drive home the fact, men will unite behind humanity, if we survive. We just have to think past our daily grind and our present enemy to experience the epiphany toward that end. God help us make it that far...

My point here is, nothing is black and white. It's a gray world, said nicely by one of my favorite bands, "Live." Economists, strategists and analysts are also survivalists, and they also seek to draw lines and choose sides. Their divisions don't spawn wars though, and that's great because there would be an awful lot of them, despite the whole herd mentality deal. So, every expert has to know what direction the economy is heading in, after all, they are paid to do so. And so, you see, Imus versus Sharpton is the same as recession versus recovery, in a really perverted way that it might take the influence of drugs to understand.

Here's a deeper theory. The domestic economy is stressed by housing weakness and manufacturing sector slippage, but global demand and opportunity are feeding revenue growth for large American multinationals. The question is, how much stress can the American consumer and economy handle before the international support gives.

American corporate executives are faced with a dilemma. Standard & Poor's has been providing an aggregate forecast for single digit earnings growth for a couple of quarters now, but American firms just won't die. This quarter, the estimates are down to around 3.5% or so, which seems just crazy to me. Even if GDP slips to 2% growth in Q1, there's still global strength, as seen by the IMF, to support earnings. Even so, if earnings keep softening, bottom line minded managers are going to increasingly consider reducing workforce. I think we are already seeing the beginnings of this in the financial sector, and Citigroup (C) was just the latest company to announce a cut last week. It's going to be a gradual thing of course, but with an exponential growth rate. Maybe we'll start to see regional banks or large U.S. banks join the ranks of corporate cutters HSBC and Citigroup soon. Disappointing earnings reports provide the right kind of cover for such moves and we'll get some important reports this week from the likes of Wachovia (WB), Washington Mutual (WM), Wells Fargo (WFC), Bank of New York (BK), Bank of America (BAC) and US Bancorp (USB).

Rising gasoline and food prices are no easy swallow, and persistent inflation and solid employment only portend higher rates and more difficult mortgage payments for home owners/consumers. The service sector is our weight bearing wall here. We can't lose that. All we need now is a geopolitical catalyst to send emerging markets careening. Iran fits the bill. Let's zoom in a little and look at the week ahead.

This week...

With an early first look last week, most expect the March retail sales report to provide pleasant news on Monday. Bloomberg's poll shows expectations for a 0.9% rise in sales, ex-autos, and 0.6% increase if you include them. I would call it an ailing segment if Toyota wasn't doing so well, but...

The 8:30 report of the Empire State Manufacturing Index is seen reaching a measure of 10.0, according to Bloomberg. Last month's expectations were gravely disappointed when the index measured 1.9, versus expectations for a reading of 16. Domestic manufacturing is weak and the market knows it, so a poor reading shouldn't move the market dramatically lower, in my view. The business inventories report at 10:00 is likely to be an important driver for the market, as an improved inventory to sales ratio would satisfy bulls. Inventories are seen rising 0.3% month to month.

In the early afternoon, the National Association of Home Builders provides its Housing Market Index. The consensus view expects a reading of 35 on the figure. In any event, the insiders have not proven prescient, but it looks like they have finally all swallowed the reality pill, so maybe it will be worth a look. Dallas Fed President Richard Fisher will have a microphone and an audience on Monday, so keep your ears attuned.

A.G. Edwards kicks off its Media & Entertainment Conference in Vegas, while Citigroup (C), Wachovia (WB) and Eli Lilly (LLY) start off the earnings calendar.

A slew of economic reports will get us started on Tuesday. At 8:30, the Consumer Price Index release will garner all attention for signs of that nasty inflation nuisance. Bloomberg's consensus sees a rise of 0.6% on the headline figure and 0.2% on the core number. Need we repeat that the Fed is closely watching inflation? If this figure is heavy and Q1 GDP shows better than expected growth later this month, the market is likely in for a long summer. That said, Tuesday's news has the potential to turn that resilient bullish sentiment negative on its own if the figure exceeds the consensus estimate. Also an 8:30 news breaker, March housing starts hit the wire with a consensus view for 1.49 million. This could help to confirm the early reports of a weak spring selling season.

While you are still swallowing the CPI and housing news, 9:15 brings March Industrial Production and Capacity Utilization, with consensus expectations for no change in production and utilization of 81.9%, compared to 82% in February.

Tuesday's Fed tour features New York Fed Chief Timothy Geithner at a dollar/euro conference. On this last day for tax filing, expect earnings reports from Johnson & Johnson (JNJ), IBM, Wells Fargo WFC), U.S. Bancorp (USB), Yahoo! (YHOO), Washington Mutual (WM), EMC and Intel Corporation (INTC).

Wednesday's busy earnings calendar includes Motorola, JP Morgan Chase, Abbott Labs, United Technologies, Kraft Foods, Ebay, Allstate, Gilead Sciences, and the Bank of New York. CIBC's energy conference kicks off in Toronto on Wednesday, and the large IPO of MetroPCS Communications is planned.

Wednesday's oil & distillates inventory report may show further capacity usage at refineries eating into crude stocks, verifying the driver for higher oil prices of late.

On Thursday morning, initial weekly jobless claims are expected to decline to 320,000. The Philly Fed Survey follows New York's report, with expectations set for an index measure of 1.0, after only reaching 0.2 last month and disappointing consensus views for 5.0. Most will be eagerly anticipating the U.S. Conference Board report of March Leading Indicators at 10:00 a.m. Bloomberg's consensus sees growth of 0.2%, after a decrease of 0.5% last month.

On Thursday, look for earnings reports from Bank of America, Altria Group, Google, Merck & Co., Merrill Lynch, Wyeth, UnitedHealth
Group, American Express, Schering-Plough, Baxter International, Capital One Financial, and Union Pacific Corp.

Behemoth earnings reporters on Friday include Schlumberger, McDonald's, Caterpillar, and Honeywell International. Hank Paulson could stir up trade concerns when he discusses China in a Washington assembly. Also, Fed Governor Frederic Mishkin will speak about the topic of U.S. and global economies.

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Wake Up Call - Screw the Core, Watch the Headline

The S&P 500 and NASDAQ Index futures are indicating a modestly higher open, while the Dow looks to start the day lower, possibly impacted by the details of General Eletric's (GE) earnings report. It looks like the market is still buying into the "core" figures in the PPI and CPI reports. We are pounding the table, so pay attention. People are starting to catch wind to the blowing we've been sending your way for months. With secular drivers pushing food and energy prices, the headline figure is important! To briefly retouch on the issues. Industrial growth in India and China have turned China into a net importer of grains, while ethanol production is adding a use to the demand picture for corn, impacting all surrogate grains, feed prices and the prices of proteins. Nothing impacts the American wallet more than food and energy, and it cannot be ignored. The Fed is not missing the picture, so you should pay attention as well.

Asia:
Hang Seng Index -0.19%; Shanghai/Shenzhen 300 -0.23%; NIKKEI 225 -1.01%; S&P/ASX 200 -0.36%; Taiwan TAIEX -0.9%; BSE SENSEX 30 +2.06%; KRX 100 -0.56%; Ho Chi Minh -1.42%

U.K., Europe & Middle East:
DJ STOXX 50 Index +0.73%; FTSE 100 +0.43%; CAC 40 +0.62%; DAX +0.63%; Russian RTS Index +1.59%; Tel Aviv 25 NA; Tadawul All Share NA; DFM General NA


Key Headlines:

• *** As Wall Street Greek has told you in the past, and we are pounding the table now, screw the Core PPI figure, and pay attention to the headline figure. Secular dynamics are in play driving energy and food prices higher, and they should not be written off as seasonal changes have been in the past. The headline Producer Price Index for March rose 1%, ahead of consensus expectations for an increase of 0.7%, but lower than February's 1.3% rise. Consensus compiled by Bloomberg.
• *** Oil prices are firming at current levels, and we tied it together for you yesterday. Refiners are increasing capacity usage to catch up with gasoline demand and stockpile drift, so with OPEC having tightened the supply, oil should now rise and at least hold this base, in our view. We turned bullish on oil again yesterday.
• *** Earnings season is underway, so don't miss the earnings report schedule, provided here by Yahoo!. General Electric reported earnings that were in line with expectations, while Samsung showed lower profits than a year ago.
  

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Wake Up Call - Good News Scarce Today

Major U.S. equity index futures are indicating a lower open today on a set of bad news drivers. Import prices came in well ahead of expectations for March, while jobless claims were reported ahead of expectations. At the same time, Fed commentary last evening sent a hawkish scare into equities, along with yesterday's FOMC meeting minutes release. Oil threatens higher as well, with the IEA accusing OPEC of overly tightening production. Not an ounce of good news, outside of relatively strong March retail sales reports, but even that is being qualified by retailer commentary about a not so hot start to April.

Asia:
Hang Seng Index -0.34%; Shanghai/Shenzhen 300 +1.77%; NIKKEI 225 -0.73%; S&P/ASX 200 +0.11%; Taiwan TAIEX -0.11%; BSE SENSEX 30 -0.53%; KRX 100 +0.58%; Ho Chi Minh -0.69%

U.K., Europe & Middle East:
DJ STOXX 50 Index -0.48%; FTSE 100 -0.26%; CAC 40 -0.55%; DAX -0.41%; Russian RTS Index -0.63%; Tel Aviv 25 -0.34%; Tadawul All Share NA; DFM General -0.11%


Key Headlines:

• *** This morning's sun brought along a report of higher than expected import prices for the month of March. Import prices were reported up 1.7%, versus expectations for an increase of 0.7%, due largely to higher energy prices. Excluding energy, prices rose 0.3%. Export prices also increased, and after yesterday's FOMC meeting minutes release and the discussion of several regional Fed presidents, it's clear the Fed is very concerned about inflation.
• *** Weekly initial jobless claims rose 19,000 over last week, and exceeded expectations for claims of 320,000 as the figure reached 342,000. This was the first bit of contradictory data after last week's jobs report, but the increase is being attributed to seasonal patterns (Easter & teacher layoffs) and is not large enough to note just yet.
• *** March retail sales are coming in strong for the most part, as we foretold in "The Greek's Week Ahead." Sales likely benefited from seasonal bonus spending, favorable weather and the Easter holiday. That said, many retailers are warning that April is not trending so well.
• *** Earnings season is underway, so don't miss the earnings report schedule, provided here by Yahoo!.
• *** The International Energy Agency warned today that OPEC has overly tightened production. We are reconsidering our view on oil, from bearish to neutral/slightly bullish. It's clear that refinery capacity usage is intensifying to meet demand for gasoline and to improve the stockpile situation. On that underpinning, we anticipate that crude may continue to show poor weekly builds or even a draw in the near future as refiners rush to meet the summer driving season demand for gasoline.
  
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Today's Coffee - Housing Double Dips

Remember months ago when Wall Street Greek warned about the housing double dip that portended for 2007? No, the permabulls barked! They said economic growth would strengthen, employment was healthy and housing demand would resume. Yeah, so, what does the one-year chart to the right depict then, a ski jump ramp? No, it's the price movement of D.R. Horton's shares over the last twelve months. Kind of looks like a double dip in progress to me...

DR Horton (DHI) announced yesterday that sales orders had fallen off a cliff in the quarter ended in March, falling 37%. DHI also said its cancellation rate was 32% above the historical range. Things are not really getting better either, according to DHI's CEO, who indicated that the seasonal spring selling season was not exhibiting its usual strength.

The housing ship is like the titanic, hard to turn. However, when it turns, it's hard to stop the turn as well. Housing is a huge industry, full of interrelated cogs and wheels that fail to operate properly when one is pulled from its position. So, subprime lending has effectively been shifted out of position, and lending across the spectrum of the mortgage industry has been impacted as a result.

The intensified regulatory scrutiny that followed increased defaults has raised the standards of mortgage brokers and lenders like Fremont General (FMT), Countrywide Financial (CFC), traditional savings & loans like IndyMac Bancorp (INDY), loan wholesalers, and the buyers of pooled mortgage backed securities like Fannie Mae (FNM) and Freddie Mac (FRE). So, when you hear people say the subprime suffering is contained, you have to ask, contained to where.

The chart to the right is that of Beazer Homes (BZH), a home builder that is suffering from the overall demand softness brought about by industry factors, and if you notice that steeper dip at the end, by company specific drivers. The witch hunt that followed the sudden concern of politicians and federal agencies charged with protecting the unsuspecting public from predatory lending standards, showed up at Beazer's doorstep. The company is under investigation for the lending practices of one or more of its local managers. It would be nice if the Feds were more proactive and less reactionary, but that's life.


Lennar Corp. (LEN), another double dipper, had to bear some added embarrassment over and above that related to its stock weakness, when LEN's CEO recently had to eat his words. Stuart Miller uttered these infamous words in January, "As long as the current environment of strong employment, low interest rates and a healthy economy continues, Lennar will meet or exceed its 2006 earnings." See that hump in LEN's one-year chart, that statement probably helped the shares get there. Then, in late March, LEN's management pulled guidance for 2007 completely, citing a deteriorated industry environment. It's a little scary to see industry insiders get blindsided.

Even the chic of the publicly traded home builders have not been immune to the sector sickness. However, the chart for Toll Brothers (TOL) shares seems to show less of second slide than peers. Clearly, TOL's buyers are not going to be subprime borrowers, but if lending tightens across the board, and if the economy and/or stock market weaken, TOL seems likely to slip further as well.

So, where do you invest in the sector then. Heck, if I do not have to be long this group, I would not be long any names, but if I had to own a name, I would buy TOL on days the industry slides as a group or after it next reports a weak quarter. For those of us with more freedom, I think you have to seek short opportunities still, especially within the subprime or better mortgage lenders, whose business portends to continue to suffer, despite their still solvent status. Some of the more traditional savings & loans or players within the Alt A space might offer more opportunity for downside surprise, but the subprime space should also get uglier as more loan payments reset. Double dippers may be pariah on the social scene, but they offer opportunity for capital appreciation as short investments.

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Wake Up Call - Traders Give Their Take on Employment

Major U.S. equity indices appear set to open strongly higher today, as traders are interpreting Friday's employment situation report favorable for equities. While there is no question, strong employment implies a healthy economy, traders could have found concern in the number, and the possible pressure labor could apply to inflation. Therefore, some might worry that the Fed could find catalyst to raise interest rates. But, for now, good news is good news. Still, despite the near term strength we see, we think equities could face more obstacles as economic data portends to continue weakening. Oil prices are softening, as we forecast over the weekend and late last week. While there is good reason for gasoline to rise, we viewed the continued strength in oil illogical after the Iranian/U.K. sailor crisis was diffused and as economic health remained in question.

Asia:
Hang Seng Index NA; Shanghai/Shenzhen 300 +2.23%; NIKKEI 225 +1.48%; S&P/ASX 200 NA; Taiwan TAIEX +0.65%; BSE SENSEX 30 +2.5%; KRX 100 +0.99%; Ho Chi Minh +0.72%

U.K., Europe & Middle East:
DJ STOXX 50 Index NA; FTSE 100 NA; CAC 40 NA; DAX NA; Russian RTS Index +1.37%; Tel Aviv 25 NA; Tadawul All Share -0.8%; DFM General -0.22%


Key Headlines:

• *** Today, equity investors get their first chance to display their take on Friday's employment situation report. Asian markets rallied this morning on the news. It looks like good news is good news, at least at the open. In other words, the strong employment report looks to be viewed as reassuring on the health of the economy, rather than being seen as a catalyst for the Fed to act on inflation in the near term.
• *** Monday's earnings report schedule includes Delta & Pine Land (DLP), Laidlaw International (LI), Schnitzer Steel Industries, Inc. (SCHN), The Mosaic Company (MOS), Cascade Corporation (CAE) and more.
• *** The geopolitical focus is on Iraq and Iran again today. A huge anti-U.S. rally has been charged up by Moqtada al-Sadr today, as he may come out from cover to address the crowd. Meanwhile, Iranian President Mahmoud Ahmadinejad is to make an important nuclear announcement in a speech at the Natanz nuclear facility. Also, Iran declared today "National Nuclear Day," and as a result, some are speculating that Ahmadinejad will announce the completion of the nuclear fuel cycle at industrial scale production. tick tick tick, can you hear that? That's the clock on Israel's patience running down.
• *** Oil prices seem to be on a gradual slide, as Wall Street Greek theorized they would over the weekend and last week. As outlined above and in this week's "The Greek's Week Ahead - The Permabull May Charge."
• *** News broke today that Warren Buffet's Berkshire Hathaway has taken a leading (10.9%) interest in Burlington Northern Sante Fe Corp.
  
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The Greek's Week Ahead - The Permabull May Charge

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

The tone of trading this week is widely anticipated to be driven by Friday's employment situation report, which blew experts away by showing nonfarm payrolls rose by 180,000, well ahead of the consensus view for 135,000 reported by Bloomberg. We agree that the market should benefit, for the short term, but interestingly enough, CNBC showed data on Friday that Mondays following a positive Good Friday employment report are typically down days for equities. We believe this is likely due to increased concern for a Fed rate hike that would be intended to cool economic growth, but this time around, with the economy still expected to weaken, this concern may not take hold immediately.

We expect the market to buy deeper into Bernanke's view that the economy will slow this year, while avoiding recession, and that inflation might ease. Let's be clear here though, we are not necessarily agreeing with Ben, just attempting to interpret the market's sentiment, which is far more important than reality for short term traders.

The intuitive group of you may be questioning how employment is holding up so well, with unemployment reported down to 4.4% in March. How can this be possible, with so many important domestic economic indicators showing weakness? Here's how. Economists at UBS measured foreign sales of companies in the S&P 500 made up 29% of their total sales in 2005. Globalization is your friend my dear readers. Healthy and growing foreign markets are generating growing revenue streams for American companies, and helping to dilute the impact of variations in domestic demand for products and services.

And like pouring your last bottle of water out while traversing through a vast desert, the democratic majority within Congress that is seeking to make an impact, perhaps before carefully considering the complete set of dynamics in play, has picked now as the time to start a trade war with China. Protectionist behavior will only isolate America and push foreign partners toward a viable alternative in Europe. We say, let the French start the trade war, as they inevitably will, and let's reap the benefits. Or at least wait until we are in economic recovery.

We have some serious concerns regarding China again. The mainland equities markets have surpassed previous highs, despite continuing intent by governing bodies to contain expansion. Emerging markets remain in position for disappointment at the slightest catalyst. Still, a permabull mentality exists in the marketplace, and there is good reason for it. When a trend like the consistent upward rise of equities since the early 1900s exists, who can blame men for expecting it to continue. Anyone who publicly doubts such a trend can continue is labeled mentally suspect and publicly ostracised, like say Al Gore. That's why people like these, with the courage to stand behind an argument that eventually proves true should be regarded as genius and ballsy for that matter. Well, they are ballsy whether they're right or wrong, and genius if they are correct.

While equities should rise in the short-term, because the permabull majority is hungry for a reason to buy stocks, we expect a second dip before equities truly start to recover. The dip would be driven by further economic weakness we see in the near term. We qualify this longer term growth outlook, however, as only possible if war does not occur with Iran. The problem is, I am one of the ballsy few who expect war to occur with Iran, spread to Syria, Lebanon and Iraq, impact Saudi Arabia and Kuwait, and send oil prices skyrocketing. That's a big problem, but one I do not expect to develop in the second quarter. If I had to place probability on the timing of it, I guess it would be divided like this: Q2 10%; Q3 20%; Q4 20%; Q1 '08 30%; Q2 '08 20%. We have a lot of expensive military assets in place, troop levels rising, strategic oil reserve storage building and everything falls into place in the first quarter of next year. Questions remain as to how patient Israel is, how unpredictable Iran is and how clever Russia and China are. While the American military is sure to quickly severely impact Iran's ability to counter, it's likely Iran has plans of its own to react quickly and with impact. Also, the pride and determination of the Iranian people will lead to ongoing problems, as we will not occupy Iran or contain Iranians, while Iran will continue to seek revenge. If escalation of conflict and global military build continue, we think permabulls are in for an eventual shock that could threaten to turn many rich investors to paupers, at least those not holding physical gold. But, for now, gold and oil should weaken in the near term, while stocks should enjoy further strength this week.


This Week...

Earnings season kicks off this week with the traditional report from Alcoa Incorporated (AA) on Tuesday. Still, the week's earnings schedule and economic calendar are relatively light. On Monday, in international news, the Bank of Japan will begin a two-day monetary policy meeting. The meeting is not expected to result in any significant policy decision or action. Delta is holding its shareholders meeting Monday, while Delta & Pine Land Co. (DLP) is scheduled to report its fiscal second quarter earnings.

The first quarter earnings season officially kicks off on Tuesday with the report from Alcoa Inc. (AA). The consensus is looking for EPS of $0.75, versus $0.70 from a year ago. Also reporting earnings on Tuesday, expect fiscal third quarter news from Electro Scientific Industries (ESIO). The Bank of New York (BK) and Morgan Stanley (MS) are holding shareholder meetings Tuesday as well. Meanwhile, Suntrust Robinson Humphrey's 36th annual institutional investment conference kicks off in Atlanta. The week's Fed tour begins with Frederic Mishkin's monetary policy address at Bridgewater College in Virginia.

Wednesday brings the Fed into focus, with the release of the March 21 FOMC meeting minutes. This text will be minutely explored, as the Fed's initial statement sent equities soaring, before Ben Bernanke's followup a week later brought them back to earth, as he reinforced the need for an inflationary bias. Ben will be on hand to answer questions that may arise, as he addresses market discipline and regulation before a public forum. Chicago Fed Chief Michael Moskow will speak to the economic outlook later that evening.

The Treasury is scheduled to release the federal budget balance for March on Wednesday. The consensus of experts surveyed by Bloomberg expects the deficit to measure $89 billion, compared to $85 billion a year ago. The weekly petroleum status report from the Energy Information Administration will be closely followed by commodity and equities traders alike, after last week's report showed a draw of gasoline that placed inventories in the lower half of historic levels for this time of year. This kept oil prices relatively high, despite the end of the Iranian/U.K. sailor situation.

CIBC World Markets' annual biotechnology and specialty pharmaceuticals conference kicks off in New York on Wednesday. Reporting earnings, look for reports from Bed Bath & Beyond (BBBY), Ruby Tuesday (RI), Christopher & Banks (CBK), Apogee Enterprises (APOG), and Angelica Corporation (AGL).

Thursday brings key data from the retail industry, as the sector reports their March sales. While sentiment has shown weakness of late due to the subprime mess and poor economic readings, March sales may still prove solid as retailers benefit from weather and seasonal bonus spending.

The day also brings the first opportunity for contradictory data about employment, as weekly jobless claims are reported. Bloomberg's consensus sees jobless claims rising to 320,000, still not enough to debate for weakness. March import prices are scheduled for release at 8:30 a.m. EDT, with the consensus estimate seeing a 0.7% increase, compared to a 0.2% rise last month. The figure excluding fuel prices will get greater scrutiny, as monthly changes to the headline figure are sensitive to changes in oil and fuels.

Standard & Poor's Emerging Markets Seminar is scheduled for Thursday, while the earnings report calendar includes LAM Research (LRCX), MGIC Investment (MTG), Polaris Industries (PII), Pier 1 Imports (PIR), and Cost Plus Inc.(CPWM).

Two 8:30 a.m. economic reports will likely guide the day's trading on Friday. The producer price index for March is expected to show a rise of 0.7% on the headline figure and an increase of 0.2% on the reading less food and energy prices. As we've discussed in the past, we continue to argue that quarterly growth including food and energy should be considered in critical Fed decision-making, as we see secular drivers taking food and energy prices higher, despite seasonal influences. February international trade is expected to show a widening deficit, to $60.3 billion, from $59.1 billion in January, according to Bloomberg. Finally, the revision to the University of Michigan's consumer sentiment index for April is expected to measure 87.5, down from the preliminary reading of 88.4.

In Washington, the G7 Finance Ministers are scheduled to discuss the reformation of the International Monetary Fund, as well as other issues. The only key earnings report scheduled is General Electric's (GE) first quarter report. GE is seen earning $0.44, versus $0.39 last year.

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