Today's Coffee - Hamas, Housing and Yahoo!

In this issue, I cover the day's economic data & analysis, geopolitical concerns in Palestine and Iran, and stock specific issues at Apple (AAPL), Yahoo! (YHOO) and Microsoft (MSFT).

Economic Data & Analysis

May Housing Starts

May housing starts were reported at an annual pace of 1.474 million, compared to 1.502 million in April, but starts came in about in line with the low bar set by economists. New building permits were reported running at an annual pace of 1.501 million, up from April. Yesterday's housing index also confirmed that home builders agree on an outlook that is not rosy. I expect some more builders to go bankrupt before all is said and done. I read some 50 subprime lenders have gone under so far.

In reading the economist's statement in today's Bloomberg article, the one concerning the housing numbers, I noticed his current view compares well to some of the things I wrote way back in January. YES, tighter credit standards that resulted from the subprime debacle are impacting lending, and YES, rising interest rates are affecting the trend of increasing foreclosures. I am going to create a mechanism for readers to better search my records, and also highlight some of the prescient forecasts made over past months. It's a little difficult to do now, especially considering the way I labeled articles early on. The site is littered with articles from December through April discussing the double dip that I expected in housing, which has since proved true.

But, what you need to know today is how things are going to look in the future. My view is that after a modest recovery in GDP is reported for Q2, we should see consumer softness bring GDP down again later this year, possibly into recession. So, I see this current rise of interest rates as short lived, since I would anticipate rates will once again price in an increased probability of a Fed move to inspire investment. However, I do expect continued pressure on rates from Chinese divestiture of treasuries or reduced purchases of them, and from persistent inflation. The investment issue should become a real problem if we enter combat with Iran as well. I spoke of stagflation late last year, and I still believe there is a decent chance we could see it. In any event, I expect a severe correction to global equity markets directly related to the confrontation of Iran that is approaching.

International Council of Shopping Centers - UBS Same-Store Sales Report

I don't see this data reported anywhere else, but it's important for future retail sales reports. So, by following it, you are getting ahead of the game. It looks like consumer spending could be softening. Last week's report showed a week-over-week rise of 1.0% and year-to-year change of 2.1%. This week, the data showed a week-to-week decrease of 0.1% and smaller year-over-year rise of 1.9%. This was the week before Father's Day, so you would have expected growth in the weekly comparison, unless Americans our honoring their father's less than usual. Judging by the amount of people on the train this weekend, I don't think that's the case. So, maybe pop only got a bottle opener this year instead of the surf 'n turf he's become accustomed to. We'll monitor this report for you every Tuesday. Incidentally, the less reliable Redbook Report showed an increase of 2.0% year-over-year.

State Street Investor Confidence Index

We told you over the weekend, in "The Greek's Week Ahead - The Father of the Next Recession," that the State Street Index, which takes a look at the amount of risk within portfolios, was not likely to show as meager a confidence view as the Michigan Survey. June's report measured 97.2, versus 91.2 in May.

Geopolitical Issues

Palestine

As we anticipated, Israeli tanks are on their way to the border with Gaza. Israel is not going to allow a militant rival, and illegitimate government to rule the region. Hamas should have foreseen this, and Iran is not going to come to their aid either. Now, Hamas, and thousands of innocent Palestinians are caught in the trap with the sea to their backs.

I believe Mahmoud Abbas has once again made a significantly flawed decision. After Prime Minister Haniya's home was attacked by grenade launcher, he should have denounced the illegal action and sought to prosecute the Fatah members who perpetrated it. I don't give a damn about what violenced preceded it, after all, he was a government official. The only way Abbas can defeat the popularly elected Hamas, is by uniting Palestinians. I repeat, he should burn the Fatah Party flag and the Hamas flag, and call on Palestinians to unite. He should restore his government through new elections and beg Israel to remain across the border.

What actually is going to happen is that he is using Hamas' rebellion as a tool to remove the group. However, the casualties of this effort will be the Palestinians in Gaza who are about to be run over by Israeli tanks. In the end, the cornered Hamas will bite, and I anticipate the bitten will include Mr. Abbas. I think he is targeted as I write this article, and I expect he will have moved on from this world before the end of the summer. However, he has made his own bed. By siding with America and Israel, and against a good portion of his own people, including those who voted Hamas into power, he's like a bleeding old shark among a frenzy of his kin. The best thing he could do now to preserve his survival is to resign, but if he has vision, he will unite his people and not divide them. I can say one thing with certainty, I will not be at the funeral.

Iran and the Oil Card

Today, Iran's OPEC representative confirmed that, in fact, Iran will use the oil card if necessary. The guy actually smartly included the U.S. in his statement, saying that if America could keep the "use of force option" on the table, Iran could keep its oil card as well. By doing this, he places the blame for Iran's future action that will impact the entire world square on the U.S. Some of the discussion seemed to indicate that Iran might not lash out at its neighbor in Saudi Arabia, as we anticipate here. However, I still expect that a desperate Iran will first strike Kuwait and Iraq, and eventually attempt to damage Saudi Arabia's oil infrastructure.

Remember that when following Iran, Mahmoud Amadinejad is the President, but the head of state is Iran's Supreme Leader. Clearly, Amadinejad has bigger dreams and may some day become the Supreme Leader, but today, Ayatollah Khameini makes the final decisions.

Company Specific News

I think I have to address Yahoo! (YHOO) and Apple (AAPL) today, as both shares are active on news. Yahoo! replaced its CEO with one of its founders, and I think this will be good for the company in terms of vision. However, I do not think it increases the chances of a Yahoo!/Microsoft (MSFT) merger. The reason I believe this, is not scientific. This business is an imprecise mix of science and art. My intuition tells me that the founder of a company, who cares so much about the performance of the company he founded that he returns to run it after already getting rich from the effort, is a guy who is not going to succumb to his competition or merge with it.

Apple's IPhone will soon be available at a store near you, possibly even at the ailing Best Buy (BBY), which reported softer than expected profits today. AAPL stock has run up ahead of the release, as the product is viewed as a blockbuster. But is it? Recent surveys raise concern about the price point, but Wall Street Greek anticipates wireless telecommunications providers will pick up a good portion of that cost to win market share. It's the kind of product that could inspire you to switch service providers. Net net, though, I think the stock will soften on the news, just as it ran up ahead of it, but will prove a winner in the end. Yes, I am eating crow. The SEC looks to be letting Jobs slide on the options issue, and it's unfortunate, because from my perspective, it doesn't seem quite fair. Still, any investor in AAPL must be aware that a bomb could drop any day, should the SEC want to pursue the issue. Otherwise, I think quarterly results will be lifted by this product. It seems to me like a real winner. Hey, what do I know, I'm just going on perception here, but it's that same perception that told you Mitt Romney would be president. He now leads the GOP candidates in the important early states... I am going to cover commodities in tomorrow's issue, with the Petroleum Status Report. Thanks for your interest.

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