Interpretting the Fed for You

(Stocks in this article: NYSE: ABX, NYSE: PTR, NYSE: PG, NYSE: KMB, NYSE: CL)

You can throw everything away! I mean regarding the FOMC Policy Decision and Statement, nothing matters except a few critical words. You need only concern yourselves with two sentences, and I'm disappointed with most popular media outlets I've seen touting today's activity as a catalyst for $100 oil, when in fact, it is a catalyst for $70 oil.

The sentences in question are these: "The Committee judges that, after this action, the upside risks to inflation roughly balance the downside risks to growth. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth."

In common terms normal people not fluent in Fed speak can understand, this statement reads, "We are adopting a neutral bias, but we may change this depending on circumstances in the future." The Fed's words, "after this action" mean "this is the last cut you can count on folks." The word "balance" means neutral.

The market, traders and everyone seem confused, based on the stagnant response and subsequent modest rally. I think traders waited for a bomb to go off, and when none did, started buying. However, as market strategists and economists from Wall Street to Newport Beach comb through this statement today, and as Fed representatives find microphones over the coming weeks, it will become clear that The Greek speaks from wisdom.

So, the important question now is, how does a neutral bias impact stocks moving forward? Well, considering stocks (S&P 500 Index) rose 8.5% from the Fed's emergency meeting on August 16 to October 30, I would say stocks move lower now. My reasoning is simple yet invaluable. In the past (read Greenspan era), sharp initial action by the Fed to spur economic expansion has always been followed up by a string of lesser cuts. If this second reduction of the Fed Funds target rate was just telegraphed as the last, then the market has to realize that we are diverging from historic trend and it can't count on future rate cuts. Therefore, it can't bank on the catalyst it has since August. The rug is effectively pulled out from under the market and the growth hoax is pulled off.

All the cyclical and low quality sectors that had shown the beginnings of recovery, should now find question, and lose capital support. I expect biotechnology shares to give up ground, to name one industry. Also, dollar pressure is effectively removed now, allowing it to stabilize, while oil and gold should give up ground as a result. I continue to favor short positioning on big oil stocks, especially the bubblistic PetroChina (NYSE: PTR) and gold price beneficiaries like Barrick Gold (NYSE: ABX), which has risen 48% through Wednesday afternoon.

I would buy defensive names. Despite also rising since September, consumer staples like Procter & Gamble (NYSE: PG) look interesting. PG went on sale yesterday and trades at a P/E/G discount to its sector and its close peers Kimberly-Clark (NYSE: KMB) and Colgate-Palmolive (NYSE: CL).

I would be surprised if it took longer than a couple days for the market to realize the Fed has adopted a neutral bias, and I’m sticking with this gutsy call.

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Procter & Gamble Goes on Sale (NYSE: PG)

(Stocks in this article: NYSE: PG, NYSE: CL, NYSE: KMB, NYSE: CAT)

The shares of consumer staples provider Proctor & Gamble (NYSE: PG) had a nice run since September, but are being reevaluated now due to margin pressures. I think after near-term adjustment, these shares should come back to favor for two simple reasons. First and foremost, PG offers products that provide sales stability and the wherewithal to survive trying economic times. Secondly, premium brand champions should have pricing power, and find ability to shift rising commodity and energy costs to the consumer, unless things get really bad.

Both Procter & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL) reported quarterly results on Tuesday. These, and like companies, are benefiting from global growth on a softening dollar, while offering an ability to traverse economic troughs. However, PG fell 4% on Tuesday, as despite beating estimates by a penny before a nonrecurring item, the company only raised its full-year forecast to a range meeting analysts’ consensus. More importantly, the company pointed to margin pressures born from higher commodity and energy prices. I believe this is the theme driving PG and the shares of other companies with similar risks now.

Colgate-Palmolive (NYSE: CL) also beat estimates by a penny Tuesday, but offers a stock that has run up since September and a valuation I view pricey. Its shares were lower in the pre-market on Tuesday, but recovered to close the day 1.3% higher. I expect that if not for PG’s important margin notation, CL would have been free to fly yesterday, pricey or not. As a result, my feeling is that the near-term movement has offered opportunity to enter the shares of PG.

Despite my concerns for the likes of econo-sensitive multinationals like Caterpillar (NYSE: CAT) and others, I think investors should search the multinational bathwater for global consumer staples opportunities. Unlike Caterpillar, demand for staples is not going to wane with cyclical trough. While tough times might lead you to limit your vacation extravagances or seek out more sales over the holidays, it takes really trying times to lead you to switch toothpaste or bathing soap brands. Thus, premium brands hold customer loyalty, and I believe provide at least some pricing power.

In early October, Kimberly-Clark (NYSE: KMB) cited higher raw material and energy costs as necessitating the raising of prices of consumer tissue and baby and child care products in 2008. I believe it’s only a matter of time before PG and others follow suit. PG is up this year, especially since September, and so I wanted to see it settle over the near-term, before looking to buy. The shares already started to recover ground yesterday, and are up today.

There’s one other point I seek to make. Remember, bad news for most stocks is usually a capital driver into consumer staples shares. I believe the Federal Open Market Committee offered a policy statement on Wednesday that will be viewed as not expansionary enough, and offering a forward neutral bias. Thus, I expect stocks that have benefited since the Fed’s change of direction back in mid-August will give back capital now. I expect capital will also flow out of gold and energy shares, on ensuing dollar stability or strength. All this capital will need a place to go, and the recession resistant consumer staples sector still seems like a great place for it.

As the dust settles, I would look to buy Proctor & Gamble (NYSE: PG). All of these diversified product companies face the same stresses, so as PG goes on sale, it offers a bargain versus peers who have yet to warn. P&G raised its fiscal ’08 (June) earnings forecast to $3.46 to $3.49, about in line with the $3.47 consensus estimate already in place (revised higher to $3.48 today). Now trading at approximately 19.9X that consensus view, the shares sport a hefty 1.7 P/E/G ratio. However, this compares to a sector average and measures for peers CL and KMB all above 2.0, according to data from Yahoo! Finance and Capital IQ. Thus, market leader, PG, presents value on a relative basis.

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Morning Report: Economic Data Heavy Day

(Stocks in this article: NYSE: ABX, NYSE: PTR, NYSE: MER, NYSE: MAN, NYSE: RHI, NYSE: KFT, NYSE: ALU, Nasdaq: IACI, Nasdaq: WBSN, Nasdaq: GOOG, NYSE: DB)

Futures Prices are mildly positive this morning, on a day that promises to be filling on information. Call it Data Heavy Wednesday, as nine important economic reports reach the market. Data overload may overcome traders today, with the culmination at 2:15, when the FOMC makes its long anticipated rate decision and announcement.

Economic Checklist:

1. The Mortgage Bankers Association reported its weekly Purchase Applications, showing the continuation of a trend. Refinancings continued to drive application activity, as applications rose 3.8% driven by 9.2% higher refinancing activity on the lowest 30-year mortgage rates since May. Does this mean go out and buy Countrywide (NYSE: CFC) after its recent positive outlook spurred its shares to rocket last week? I would not touch these stocks ahead of the Fed action this afternoon. There's too much risk, but you might consider a play on volatility, using options to create a straddle position. It seems likely that today's action could drive sensitive shares sharply in either direction. Your risk is if data overload paralyzes traders and inactivity forces you to eat your likely hefty option premium.


2. ADP offered its Employment Report for October, showing a 106K increase in jobs during the month, versus a revised 61K rise in September. This bullish number does not support a Fed cut, but may not play a role in the Fed's last minute considerations either. Recently beaten down shares of Manpower (NYSE: MAN) and Robert Half Int'l (NYSE: RHI) should draw some capital from this news. I prefer the shares of MAN of the two, based on earnings expectations changes and price strength, but both trade a P/E ratios below their growth expectations. Since my long-term view remains negative on the economy, I would not stay long these shares for too long a period.


3. Q3 GDP Advance Report - GDP growth at 3.9% beat Bloomberg's consensus of economists' view for a 3.2% Real GDP increase. Despite concerns for Q4 and 2008, this bullish data makes it all the more difficult for the Fed to be overly aggressive regarding an ease. Forward looking Mishkin or not, the likelihood of a 50 point cut seems impossible now, while inaction seems even more possible. Considering bond yields odds-making was driven by the old news of credit woes (Merrill (NYSE: MER)) and housing trouble (existing home sales report), the "Growth Hoax" scenario I laid out last week seems all the more likely. Remember, in this scenario, dollar drop beneficiaries like gold and oil stocks, and low-quality shares, would give back their new found riches. I would sell Barrick Gold (NYSE: ABX) and other high flying gold stocks, and I would also unload PetroChina (NYSE: PTR) and other big oil names.

Market-Moving News

• CNN Money: Asian Markets Mixed


• Financial Times: London Equities Hold Steady


• CNBC: Mortgage Refinancings Rose Last Week


• ADP Employment Report October - Up 106K, Vs. Revised September 61K Rise


• Bloomberg: Q3 GDP Report (+3.9% Beats Consensus +3.2%)


• ECONOMIC REPORT: 9:45 October Chicago Purchasing Managers Index (Consensus 53.5)


• ECONOMIC REPORT: 8:30 Q3 Employment Cost Index (Consensus +0.9%)


• Platts: Crude Prices Stabilize in Europe


• DailyFX: Fed Move Promises Volatility


• Bloomberg: Bank of Japan Holds, Lowers Growth Outlook


• ECONOMIC REPORT: 10:00 September Construction Spending (Consensus -0.5%)


• ECONOMIC REPORT: 10:30 EIA Petroleum Status


• ECONOMIC REPORT: 2:15 FOMC Announcement


• ECONOMIC REPORT: 3:00 Farm Prices


• Bloomberg: European Inflation Hot


• TheStreet.com Earnings Calendar


• AP/Yahoo!: Kraft (NYSE: KFT) Feels Heat of Rising Foods Costs


• MarketWatch: Alcatel-Lucent (NYSE: ALU) Posts Loss, Cuts Jobs, Russo on Hot Seat


• IAC (Nasdaq: IACI) Profit Falls


• CNN Money: Deutsche Bank (NYSE: DB) Profit Jumps


• TheStreet: Websense (Nasdaq: WBSN) Bests Estimates


• AP/Yahoo!: Google (Nasdaq: GOOG) Social Network Search


• BBC: Monks Return to Burma Streets


• NBC11: Earthquake Hits Cali


• Economist: Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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Sell Your Gold and Oil Now

(Stocks in this article: NYSE: ABX, NYSE: PTR, NYSE: XOM, NYSE: NEM, NYSE: GFI, NYSE: GG, NYSE: MER)

While gold hits new highs, I am boldly arguing that the price of the commodity and related shares should peak this week on the Federal Open Market Committee Policy Statement. I believe the impetus for dollar decline will be withdrawn, and gold and oil prices will appropriately recede. Thus, I advise investors to take profits in their high flying gold and big oil stocks ahead of the meeting.

Since before the last Fed cut in September, the dollar has dived while stocks have run up into this meeting on expectations of a history that repeats itself. In the past, big Fed easings have been followed by trend of continued rate cut, but things threaten to be different this time around, and this view is not unshared. Up until last week, many on the street, myself included, thought Fed inaction was at least as possible as a 25 point cut.

News flow abruptly changed that view, but I see this as a clouding factor. Last week's unraveling at Merrill Lynch (NYSE: MER) and the reported existing home sales weakness were viewed by the market as catalysts for cut. However, your columnist here points out that this was just the reporting of old bad news, though $2 billion more of it for Merrill. The important thing is that this was news the Fed was well aware of way back in August when it held its emergency meeting.

Thus, today, I advise that even a Fed 25 point cut might not be enough to sustain some of the recent rise of certain asset classes (read gold and oil). I expect the Fed will follow its action, or inaction Wednesday, with warning of dollar and inflation dangers. It's entirely possible that the Fed could communicate a neutral bias moving forward and point toward the solid Q3 GDP report expected that same day for support.

Now, it’s important to note that the third quarter GDP figure will likely be significantly inflated by improvement in the trade deficit. This improvement is due to dollar softness and related export strength, and ironically, also because of lighter domestic consumer spending and import softening. Therefore, I view the expected Q3 GDP strength as built on a false foundation.

In light of my Fed expectations, I am pounding the table, advising you to take profits in your gold and oil stocks for the near term. Shares of Barrick Gold (NYSE: ABX) are up 43% (through Friday) since their August 16 close, and I think it’s time to abstain from greed. Likewise, shares of Newmont Mining (NYSE: NEM) are up 21% and will report earnings on Wednesday. Goldcorp (NYSE: GG) has soared 55% and Gold Fields Ltd. (NYSE: GFI) is up 33%. Unless you foresee significant war breaking out in the next month, I think you have to trade in greed for dollars now.

Oil giant Exxon Mobil (NYSE: XOM) is up some 14% over that same time span, and we would take some profits there as well. PetroChina (NYSE: PTR) looks like an even wiser sell at this point, up some 96% during that span.

It takes guts to make this call as gold and oil hit new highs Monday, but if the Fed indicates further easing is suspect, the dollar should find some footing and these commodity plays become played out at least in the near-term.

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Growth Hoax! What If The Fed Surprises the Market?

(Stocks in this article: Nasdaq: FCEL, Nasdaq: ACAD, Nasdaq: ACOR, NYSE: CRL, Nasdaq: CBST, Nasdaq: DNDN, NYSE: DNA, Nasdaq: GERN, Nasdaq: GILD, Nasdaq: IDEV, NYSE: MDZ, Nasdaq: PGNX, Nasdaq: QGEN, Nasdaq: UTHR)

At times like these, when the Fed seeks to stimulate economic expansion, the sector that should benefit most is “low quality.” However, I view the current market environment illusory, and providing a sort of growth hoax that I expect will be exposed after the Fed's Halloween meeting. Due to my view that the Fed might let the market down with rate inaction or a policy statement that indicates an inclination for forward neutral bias, I looked for short ideas where stocks that have run higher on expansionary rate expectations could give back gains after Halloween.

Expansionary measures are meant to help firms find capital to finance growth at times when a little extra incentive is useful. In that type of environment, the firms that benefit most are the ones financing growth in ways other than through the use of operating cash flow. These are riskier firms, the kind without earnings but with high hopes and debt. At the risk of getting too technical... They benefit also because most, if not all, of their value is found in the terminal portion of the discounted cash flow model, the part outside of the forecast period and most sensitive to changes in cost of capital.

In the period after the start of the Fed's most recent expansionary spurring, you remember the one after the tech bubble burst in 2000-2002, there was an initial premature market rebound before the realization of a tough environment sent stocks lower. However in 2003, when it was clear Fed support would help the economy find traction, it was the "low quality" shares that outperformed.

That period taught me a lesson that I noted well. I learned that lesson as I watched a sell recommendation rise ahead of many of my better run "buy" names. That sell idea that burned the painful, though useful, memory into my young analytical skull was FuelCell Energy (Nasdaq: FCEL), which soared 99% that year. The company was still far from showing signs of operational success, but the stock soared as "low quality" names outperformed. It was a clear case where not so hot operations (read bad company) matched with a scorching hot stock (read good stock).

The current period is considered by many as marking the start of Fed expansionary efforts, and may be behind the outperformance of "riskier" industries of late. For instance, the S&P Biotechnology group was up 9.8% in the 13 weeks through October 12. Over that same 13-week period, the Information Technology (+4.2%) was second in sector performance only to energy (+4.3%), but $80+ oil has a lot to do with that sector's leadership.

I believe the rug (or ruse) of Fed bias is about to be pulled out from under the market. If this latest Fed maneuver is representative of a "one and done" type move, as I outlined on the day of the cut, then the current market run may be short-lived for these names. The hoax would be exposed and the old favorite defensive names would come back to favor, while riskier stocks would lose their luster just as they were starting to polish up. The way to play this ahead of Halloween, is to go short the industries and stocks that got hot around the cut for no other specific reason, and long the names that got cold around that same time.

The Biotechnology Industry has outperformed over the last 13 weeks (Oct 12), while the similarly cyclical Semiconductor Equipment (-1.3%) and Semiconductor (3.2%) industries lagged. I suspect this could be because of market concern that a global economic slowdown could occur and that a U.S. recession is still in the cards.

In compiling the list of short ideas below, I considered names in the Biotech Industry, and also the Life Sciences Tools & Services Industry, which is up 7.8% during the period studied. I screened looking for $5+ stocks of $500 million market cap or more with Standard & Poor's Quality Rankings (Earnings and Dividend Rankings) of B or less (low quality). I also sought 13-week appreciation of 10% to 50%. As you get toward the high end of this range there is likely to be some significant stock specific reason behind the move.

The screen resulted in a lucky group of 13 names. I list them for you below, and in a follow up article I hope to produce, I will pick through the individual stories to try to choose the best few potential near-term losers for you. There is an important caveat to this thesis. If I am wrong on the Fed rate decision, and the Fed cuts rates by more than a quarter point or leaves open the possibility of future rate cuts on Halloween, these shorts should be immediately reversed and you are well served to have stops in place to protect yourself.

Short Plays on Fed Inaction If rates are held steady, these names could suffer
Company	Ticker	Price	Market Cap (millions)	Quality Rank	13-Week Price Appreciation
Acadia Pharmaceuticals	ACAD	$15.00	$554	N/A	47%
Acorda Therapeutics	ACOR	$19.88	$565	N/A	34%
Charles River Labs	CRL	$56.72	$3,850	N/A	40%
Cubist Pharma	CBST	$22.26	$1,250	C	32%
Dendreon	DNDN	$7.54	$637	N/A	42%
Genentech	DNA	$74.43	$78,370	N/A	13%
Geron Corp.	GERN	$7.24	$546	C	17%
Gilead Sciences	GILD	$43.10	$39,940	B-	23%
Indevus Pharma	IDEV	$7.90	$602	C	11%
MDS	MDZ	$21.81	$2,670	B	26%
Progenics	PGNX	$23.74	$613	C	10%
Qiagen	QGEN	$20.79	$3,130	N/A	42%
United Therapeutics	UTHR	$71.74	$1,510	B-	19%

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Morning Report: Fed Starts Its Engines

(Stocks in this article: NYSE: PG, NYSE: CL, NYSE: PTR, NYSE: ABX, NYSE: UBS, NYSE: CFC, NYSE: KMB, NYSE: CAT, Nasdaq: SIRI, NYSE: PMI, NYSE: F, NYSE: Q)

Futures indicate a lower open for stocks as the anxiety intensifies on Wall Street regarding the pending Fed decision. The FOMC begins its two-day meeting today that will culminate in its decision and policy statement tomorrow afternoon. Yesterday we outlined our expectations and continue to recommend the shorting or exit from gold and big oil shares, including names like Barrick Gold (NYSE: ABX) and PetroChina (NYSE: PTR), which have banked big appreciation over the period since the mid-August emergency move from the Fed. I continue to feel strongly about this action, and today offers investors even better exit points or short points to take action from.

Consumer staple providers Procter & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL) reported quarterly results today. These companies are benefiting from global growth on a softer dollar, while offering stability of sales and ability to traverse economic troughs. However, PG is down 2% in the pre-market, as despite beating estimates by a penny and raising its forecast to a level only meeting analysts consensus, the company pointed to margin pressure from higher commodity and energy prices. This is the theme driving these shares now.

However, I see pricing strength in providers of premium brand consumer staples (unless things get really bad), and I would expect PG and others to follow the lead of Kimberly-Clark (NYSE: KMB), and raise prices. PG is up this year, especially since September, and so I would give its shares some time to settle over the near-term, and depending on Fed catalyst, look to buy on weakness later. Remember, bad news for most stocks is usually a capital driver into consumer staple shares.

CL also beat estimates by a penny today, but also offers a stock that has run up since September and a valuation that looks pricey to me. Its shares are down in the pre-market, and my feeling is that the day and near-term might offer better opportunity to enter multinational stocks in the consumer staples sector. Despite my concerns for the likes of Caterpillar (NYSE: CAT), I think within the bathwater that could be thrown out on the dollar finally finding footing, investors could find new opportunty to enter global consumer staples shares later and maybe as soon as this afternoon.

Later this morning, The Conference Board will report its Confidence Index, and Bloomberg's consensus of economists is looking for an October measure of 99.0, compared to September's reading of 99.8. I would not be surprised to see the measure come in lower, as the University of Michigan metric of consumer sentiment surprised on the down side last week. This would offer more bad news for the fringe retailers in what I view as a saturated retail environment. I'll take a closer look at which players might meet their maker in a future article.

Oil prices have come off yesterday's highs, as comments from Qatar's OPEC minister have helped raise confidence that the group is attentive. Mr. Attiyah commented that OPEC would boost production if it saw a physical need for it. We may have gotten a look into OPEC's collective mind, as Attiyah likely offered a hint of things to come should war break out involving Iran. Still, this is another reason to short big oil and PTR especially over the near-term. I continue to expect the dollar to find footing post the Fed meeting, as the FOMC could discuss dollar concerns and a forward neutral bias. This would likely help the dollar and hurt oil and gold prices.

Market-Moving News

• CNN Money: Asian Stocks Mostly Lower


• Financial Times: FTSE Rally Fades


• ICSC - UBS: Weekly Same-Store Sales Report


• ECONOMIC REPORT: The Conference Board's Consumer Confidence Index October 10:00 AM - Consensus 99.0


• Bloomberg: Paulson Says U.S. Economy Not Bottomed


• AP/Yahoo!: Fed Meeting Begins Today


• DailyFX: Fed Trick or Treat?


• Platts: Qatar's Attiyah Says OPEC Will Act On Physical Supply Need


• AP/Yahoo!: P&G (NYSE: PG) Bests Forecasts


• AP/Yahoo!: Colgate-Palmolive (NYSE: CL) Profit Up 22%


• Financial Times: CountryWide's (NYSE: CFC) Mozilo Strikes Back at Gov't


• Bloomberg: European Retail Sales Fall in October


• CNBC: German Unemployment Drops


• ICSC - Holiday Sales Forecast


• TheStreet.com Earnings Calendar


• AP/Yahoo!: Sirius (Nasdaq: SIRI) Narrows Q3 Loss


• AP/Yahoo!: PMI Group (NYSE: PMI) Swings to Loss


• AP/Yahoo!: Ford's (NYSE: F) Carrot


• AP/Yahoo!: Qwest (NYSE: Q) Finds Tax Benefit


• Financial Times: UBS (NYSE: UBS) Forecasts Return to Profitability


• BBC: Blowing Up Musharraf


• Economist: Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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Morning Report: Commodity Plays Played Out

(Stocks in this article: NYSE: VZ, NYSE: MER, NYSE: F, NYSE: HUM, NYSE: RSH, NYSE: UBS, NYSE: GPS)

The tone of trading today is likely to be driven more by expectations and anticipation than on actual news. This week's Federal Open Market Committee Policy Statement is as anticipated on Wall Street as this year's Halloween candy harvest is to every child waking up this morning. Wall Streeters are also as anxious as your kid is about the potential success or failure of the effort.

Since the last Fed cut in September, the big 50 point move, stocks have run up into this report on expectations of a history that repeats itself. In the past, big Fed easings have been followed by trend of continued rate cut, but things threaten to be different this time around. Up until last week, many on the street, myself included, thought Fed inaction was at least as possible as a 25 point cut.

Last week's unraveling at Merrill Lynch (NYSE: MER) and existing home sales weakness were viewed by the market as catalysts for cut. However, your daily columnist here points out that this was just the reporting of old news, and news the Fed was well aware of in August when it held its emergency meeting.

Thus, today, we advise that a Fed 25 point cut might not be enough to sustain some of the recent rise of certain asset classes (read gold and oil). We expect the Fed will follow its action with wording warning of dollar dangers, and a forward view based on the continued following of data. It's entirely possible that the Fed could communicate a neutral bias moving forward and point toward the solid Q3 GDP report expected that same day. GDP of course is benefiting from an improved trade deficit, which in turn benefits from a weaker dollar and thrifty American consumer (ironic). Therefore, GDP strength is built on a false foundation.

In light of this view, we would advise taking profits in your commodity based stocks in gold and oil for the near term. Shares of Barrick Gold (NYSE: ABX) are up 43% since their August 16 close. We think it's time to take profits in ABX and other gold shares. Oil giant Exxon Mobil (NYSE: XOM) is up some 14% over that same time span, and we would take some profits there as well. PetroChina (NYSE: PTR) looks like an even wiser sell at this point, up some 96% during that span. If the Fed indicates further easing is suspect, the dollar should find some footing and these commodity plays become played out.

Market-Moving News

• CNN Money: Asian Markets Rally on Rate Cut Hopes


• CNN Money: Europe Advances


• Bloomberg: Oil Tops $93 As Mexico Shuts 1/5 of Production


• CNBC: Fed Seen Bracing for Slower Growth


• DailyFX: How Low Can the Dollar Go?


• Financial Times: U.N. Says Food Price Controls Could Become Norm


• Platts: Paulson's Nat Gas Request for India


• Economist: Geopolitical Week Ahead


• USA Today: World's Coal Addiction Grows


• TheStreet.com Earnings Calendar


• AP/Yahoo!: Verizon (NYSE: VZ) Profit Drops 34%


• TheStreet.com: Ford (NYSE: F) Takes the Wheel


• AP/Yahoo!: Humana (NYSE: HUM) Profit Nearly Doubles


• AP/Yahoo!: RadioShack (NYSE: RSH) Swings to Q3 Profit


• Bloomberg: UBS (NYSE: UBS) Catching Heat


• MarketWatch: Showing Stan the Door (NYSE: MER)


• USA Today: Gap (NYSE: GPS) Child Labor Issues


• BBC: The Prettiest President


• Iran Daily: Tales from the Dark Side

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Editor's Note

Because Monday is such a quiet day on the event calendar, we will publish "The Week Ahead" after Monday's daily Morning Report. We have a ton of material in inventory ready for publishing we hope to get to you this week, and many new editions to the site that should arrive by the first week of November. Thank you.

Markos

Morning Report: Microsoft & Technology's Resurgence (Nasdaq: MSFT)

(Stocks in this article: Nasdaq: MSFT, NYSE: BAC, NYSE: MER, Nasdaq: AAPL, NYSE: WEN, NYSE: AIG, Nasdaq: ORCL, Nasdaq: BEAS, Nasdaq: BIDU, NYSE: CFC, NYSE: WMI, Nasdaq: AMZN, Nasdaq: YHOO, Nasdaq: INTC, NYSE: WB, Nasdaq: CSCO)

Nasdaq and S&P 500 Index futures indicate a positive open today, as the giants of technology continue their resurgence. Microsoft and Apple take the baton today from the quarter's earlier lead of Yahoo! (Nasdaq: YHOO), Intel (Nasdaq: INTC) and Amazon.com (Nasdaq: AMZN). Last night, Microsoft loudly announced its plans to remain a staple of American innovation.

Microsoft (Nasdaq: MSFT) reported fiscal first quarter EPS of $0.45, representing 29% growth, and exceeding analysts' consensus by $0.06. MSFT shares are already up about 13% in pre-market trading, representing nearly $40 billion of value creation (market capitalization). The company attributed its performance to sales of its newest operating system, Windows Vista, and its Halo 3 video game. Meanwhile, Apple (Nasdaq: AAPL) launches its own operating system, Leopard, today.

The strength of the technology sector has been undeniable this year, especially that tied to the Internet and computer, handheld and mobile usage. With most of the largest participants already reported, we note that Cisco Systems (Nasdaq: CSCO), a name we expect will continue to benefit from global networking growth and increasing video content on the net, is set to report on November 7th.

Front-month Brent and WTI crude futures on ICE and NYMEX surpassed $89 and $92, respectively, in Asian trading earlier today. Yesterday's announcement by the Bush Administration that harsher sanctions were in store for Iran's Republican Guard, an organization believed to contribute approximately a third of the country's GDP, have been met by further Iranian contempt. At the same time, Turkey and Iraq are holding critical talks, as Turkey grows frustrated with Kurdish rebels on its border. All this comes on the heels of a bullish inventory report this past Wednesday. The play here may be within the refiners, as gasoline prices adjust higher and allow refinery profit margins to improve.

At 10:00 AM, the University of Michigan Consumer Sentiment Index for October is expected to measure 82.0, marking a new low point for the critical consumer indicator. September's reading was 83.4.

Pressure is mounting on Merrill Lynch's (NYSE: MER) Chairman and CEO, E. Stanley O'Neil. The NY Times reported he discussed a merger with Wachovia (NYSE: WB) without prior discussion with his own Board of Directors. This reportedly has caused a further rift between him and the Board.

Market-Moving News

• AP/Yahoo!: Microsoft (Nasdaq: MSFT) Trounces Estimates, Shares Soar Pre-Market


• Platts: Oil Continues Climb


• Platts Podcast: Oil Reaching New Highs


• CNN Money: Asian Shares Rally


• Financial Times: Europe Retreats


• NY Times: Merrill's (NYSE: MER) CEO Rumored Sought Merger with Wachovia (NYSE: WB), Creates Rift with Board


• ECONOMIC REPORT 10:00 AM: U. Michigan Consumer Sentiment - (Consensus Forecast 82.0)


• CNBC: Next for Apple (Nasdaq: AAPL), Leopard


• TheStreet.com: Buy Gold on Dips


• DailyFX: Continued Credit Crunch Threats to Dollar


• TheStreet.com Earnings Calendar


• AP/Yahoo!: Wendy's (NYSE: WEN) EPS Fall, Exceed Estimates


• MarketWatch: AIG (NYSE: AIG) May Be Set to Take Huge Subprime Hit


• CNN Money: Oracle (Nasdaq: ORCL) Rejects BEA Systems' (Nasdaq: BEAS) Counter Proposal


• CNBC: Baidu.com (Nasdaq: BIDU) Profit Rises Sharply on Ad Revenue


• Press Release: Countrywide Financial (NYSE: CFC) Posts $1.2 Bln. Loss


• AP/Yahoo!: More Changes at Bank of America (NYSE: BAC)


• AP/Yahoo!: Waste Management (NYSE: WMI) EPS Fall


• CNN: Iraq, Turkey Hold Critical Talks


• BBC: Iran Defiant to New Sanctions


• Yahoo! News: U.S. Levies Harsh Sanctions Upon Iran


• Iran Daily: Tales from the Dark Side

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Morning Report - Economic Data Takes Helm

(Stocks in article: NYSE: MOT, NYSE: BAC, NYSE: AET, NYSE: PHM, NYSE: BMY, NYSE: DAI, NYSE: SNE, Nasdaq: CMCSA, Nasdaq: MSFT)

Economic data should take the market helm today, with three key reports on the slate. Each bit of data is critical now as we approach the Fed's Halloween meeting. The market will read Fed bias implications into each point, and data will thus drive daily price movement.

Considering yesterday's afternoon rally was at least partially driven by the rumor of a Fed emergency meeting, which I view unlikely, and given this mornings negative economic data flow, I would look for stocks to trend lower today.

Last week, Weekly Initial Jobless Claims surprised on the high side when reported at 339,000 (revised), so today's report was under the microscope. New benefits filers amounted to 331,000, effectively lifting the four-week moving average to 324,750. While not yet alarming, the trend is moving in the wrong direction, raising concern for recession.

Durable Goods orders for September were reported this morning down 1.7%, in stark contrast to expectations for growth of 1.8%, according to Bloomberg's consensus of economists. Non-defense capital goods orders excluding aircraft (business investment) grew just 0.4%.

Later this morning, new home sales will be reported for the month of September, after yesterday's surprisingly weak existing sales data. The market is growing numb to weak housing news. Still, a bearish figure on this and other data points could be taken two separate ways, with an optimist's view looking to consequential Fed action to boost economic growth and the pessimist view of frantic concern for recession. In conclusion, despite only modest futures reaction, I would expect bearish data overtones to win the day today and take away yesterday's rumor driven rise.

Market-Moving News

• Department of Labor: Weekly Initial Jobless Claims at 331k, Ahead of Consensus 320k View


• CNBC: Durable Goods Orders September Stark Contrast to Expectations (Down 1.7% Vs. Consensus View for 1.8% Growth)


• ECONOMIC REPORT: Pending 10:00 AM - New Home Sales September (Consensus 770k)


• CNN Money: Asian Markets Mixed


• Bloomberg: China Grows GDP 11.5% in Q3


• Financial Times: European Shares Rise on Earnings


• DailyFX: Watch What the Fed Watches


• Platts: Shell Says Oil Prices Not Supported


• Platts: ICE Futures Set New Highs on Bullish U.S. Stocks


• CNN Money: Chinese Product Recalls Impacting U.S. Sales


• Bloomberg: German Business Confidence Drops to 20-Month Low


• Dow Jones: Rangle's Tax Plan


• TheStreet.com Earnings Calendar


• TheStreet.com: Motorola (NYSE: MOT) Sales Plunge


• CNBC: Bank of America (NYSE: BAC) Sheds 3,000 Jobs


• AP/Yahoo!: Aetna (NYSE: AET) Q3 Rises, Raises Outlook


• CNBC: Pulte Homes (NYSE: PHM) Posts Loss, $1 Bln. Writedown


• AP/Yahoo!: Briston-Myers Squibb (NYSE: BMY) Sales Surge on Plavix


• Forbes: Daimler (NYSE: DAI) Posts Q3 Loss


• MarketWatch: Sony (NYSE: SNE) Rebounds


• AP/Yahoo!: Comcast (Nasdaq: CMCSA) Profit Falls


• SeekingAlpha: What Microsoft (Nasdaq: MSFT) Implies About FaceBook Value


• TheStreet.com: The Worst Over for Merrill?


• BBC: Turks Losing Patience with PKK


• BBC: Israel to Cut Gaza Power


• Iran Daily: Tales from the Dark Side

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Tractor Supply Offers the Right Stuff (Nasdaq: TSCO)

Wall Street Greek and Market Moving News cover all economic reports daily. Please visit the sites' front pages to see current data and analysis.

(Stocks in this article: Nasdaq: TSCO, NYSE: TGT, NYSE: JCP, NYSE: LTD, NYSE: AEO, NYSE: MW, NYSE: GPS, Nasdaq: ZUMZ, NYSE: BKE, Nasdaq: WTSLA, Nasdaq: PSUN, NYSE: CAT, NYSE: DE)

In an industry impacted by softening consumer spending, we may have found the right niche to buck the trend and an opportune entry point as well.

As pressures mount on the American consumer, shares in the retail sector are coming under the microscope. However, the space may yet offer growth for those who look hard enough for it. Also, diversification loyalists will still need to set aside security asset allocation space for a retailer or two within their portfolios. If you fit this bill, and are looking for a retail name in such a troubled environment, we expect it’s going to take smart niche investment to succeed, and we think we have one such idea for you.

Troubled retail waters ahead…
Retailers reported chain-store sales for the month of September a few weeks ago, and the message was loud and clear. While there were isolated cases of growth, and sectors of strength, most retailers reported results short of expectations. The highest profile miss was Target (NYSE: TGT), which reported a weaker than expected September, while revising its Q3 forecast lower. Q4 is at risk for most as well; as currently stocked inventory will need to be marked down to make room for seasonal goods meant for holiday shoppers.

Target was not alone in the sea of Q3 earnings cutters, as it was accompanied by JC Penney (NYSE: JCP), Limited (NYSE: LTD), American Eagle Outfitters (NYSE: AEO), Men's Wearhouse (NYSE: MW) and The Gap (NYSE: GPS). While much of the blame was duly attributed to the relatively warmer period this year, it also seems clear that the pressure mounting on Mr. and Mrs. Consumer is finally taking its toll. As we forewarned in our article, “Three Good Reasons to be Weary,” teen retailers seemed to avoid trouble due to what we believe was "back to school" spillover, as Zumiez (Nasdaq: ZUMZ), Buckle (NYSE: BKE), Wet Seal (Nasdaq: WTSLA) and Pacific Sunwear (Nasdaq: PSUN) all exceeded expectations.

There are a slew of widely reported reasons why the consumer should cut back spending, but in case you’ve forgotten... Gasoline prices have been running ahead of the historical norm for some time now, with an intensifying supply/demand imbalance fueled partly by global economic development. Food prices have increased as well, driven by rising global demand, and also as corn has found a second use in the production of ethanol. With corn prices higher, farmers across the country have boosted crop acreage toward its production at the cost of its surrogates in soybean and wheat. As a result, the surrogate prices have risen as well, as have cattle, hog and chicken feed costs. The end result of all this is higher checkout receipts for supermarket shoppers and restaurant patrons alike.

As if that wasn’t enough, credit has become much harder to come by for consumers. Banks are treading cautiously after exuberant lending practices spawned more scrutiny from regulators. And for those troubled souls who entered into subprime mortgages with variable rates, the reset process has begun, and monthly mortgage expenses are on the rise. So there is plenty enough reason for the consumer money belt to tighten.

In an environment like this, specialty niche players in the retail sector may offer up the shares that outperform in the months ahead, if we select the right niche. What better sector to participate in than the agricultural group right? If farmers are finding improved pricing for their goods, then they must be investing in equipment, supplies and other offerings toward business growth, or at least we expect so. After all, Caterpillar (NYSE: CAT), which sells a significant amount of equipment into the agricultural space, has provided a total return of 25% this year (through Oct. 24), while Deere & Co. (NYSE: DE) has returned 57%.

The subject of our review, Tractor Supply (Nasdaq: TSCO) describes itself as a specialty retailer “focused on supplying the lifestyle needs of recreational farmers and ranchers, and serving the maintenance needs of those who enjoy the rural lifestyle, as well as tradesman and small businesses.” That doesn’t sound like the hardcore farmer to us, but even so, the store likely does decent business with farmers too. Management believes it is impacted some by consumer softness, but we suspect its niche is unique enough that the competitive landscape may allow more room for error than within other overcrowded sectors of retail.

With some 700 plus stores, the company is about half way to its target count of 1,400, and has yet to embark on significant expansion west of the Mississippi. Over the past five years, Tractor Supply has grown its store count at about a 16% pace, and the company plans to continue store growth at a roughly 13% average annual rate in years to come. The company expends important resources on training employees in order to insure quality growth at that rate.

The Greek followed the company as an analyst on Wall Street, and attributes TSCO’s success directly to Jim Wright, its President and CEO. The company really gained direction and purpose with his hiring as COO, and if he were to join another company, the shares of that firm would immediately reach my radar screen as a possible buy candidate.

We wrote a piece for another venue a few weeks ago, within which we warned of an “important caveat to be aware of” with regard to TSCO purchase. We said, “Seasonal factors have impacted results in the past and are certainly possible this quarter, due to the relatively warm period.” We further advised, “We would advise investors to wait for and then look past seasonal noise, and use any seasonal weakness this quarter as an opportunity to take position and participate in the company’s long-term run we anticipate.”

Well, the time has come. Tractor Supply posted disappointing results on Wednesday night, missing EPS consensus by $0.03 on none other than seasonal weakness. Irregular warmth, and drought conditions in some of the company’s markets, impacted various product categories. Since it has continued warm deep into October (read Q4 implications), the company also revised guidance lower for the full-year 2007. TSCO’s new forecast factors in less than favorable weather for Q4 as well, and calls for EPS to fall in a range of $2.37 to $2.43, compared with its previous forecast of $2.49 to $2.56. Going forward, management does not see any need for markdowns. However, the company noted some impact from housing related product categories, and this is one risk to continue to worry about.

TSCO fell 1.7% in after-hours trading, after dropping nearly 2% on Wednesday. Still, as the dust settles, we would recommend investors consider the shares. Over the past five years through 2006, revenues have grown near 23% annually, while EPS have risen 26%. Analysts estimate EPS should grow 17.4% over the next five years. At the growth offered, we find the shares very appealing, trading at just 18X the midpoint of the company’s ‘07 forecast range and 14.8X the ’08 consensus estimate of $2.93 (based on the $43.24 after-hours price we found).

The forward estimate is likely to come down $0.05 to $0.10, but even if it drops to $2.83, the shares would be valued at 15.3X that number. If weather really was a factor, than there should be no reason to believe the company could not earn the $2.93 that was expected for next year. Given its growth potential, TSCO’s P/E/G ratio of 0.9, based on the most conservative of our ’08 EPS estimates, is the kind of value that made my mouth water during my time on Wall Street. Enough said! Given a normal market environment, meaning WWIII does not break out, then this would be a stock I would look to own for 3 to 5 years, and it looks like a good entry point is presenting itself.

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Today's Market Moving News - Merrill & Oil Face Reality

(Stocks in this article: NYSE: MER, NYSE: BA, Nasdaq: PFCB, Nasdaq: AMZN, Nasdaq: BRCM, NYSE: MCO, NYSE: WLP, Nasdaq: NDAQ, Nasdaq: PFCB, NYSE: OXY, NYSE: GSK, NYSE: PTR, Nasdaq: GOOG)

This morning Merrill Lynch and the energy market face their respective realities. Merrill (NYSE: MER), which had telegraphed its mortgage-backed securities meltdown months prior, today raised investor concern to a new level as it announced write-downs would be $2.5 billion more than previously reported. In fact, Merrill's total loss from CDO, asset-backed securities, mortgage market participation and leveraged lending to corporate takeovers amounted to $7.9 billion.

Merrill's miscue tops Citigroup's (NYSE: C) Q3 writedown of $6.5 billion and sets a new record for such misevaluation of risk. MER shares are down about 2.5% in premarket trading and seem assured to blow back the clouded tone to financial sector trading, at least for the short-term. We now understand what Merrill's equity analyst may have known when Merrill first warned months ago. That same week, the analyst downgraded the shares of many of Merrill's peers. The thinking at Merrill HQ must have been that others would share in this turmoil. Also, since a great portion of the writedown came on CDO market ills, we can now better envision the panicked meeting that may have occurred before the Fed cut the discount rate and changed its overall tone in August.

Oil prices have receded from last week's hurried rise to $90. It seems oil traders have come to their senses after Turkish/Iraqi tension have been somewhat defused. The neighbors recently agreed to work together to solve the PKK terrorist problem, though massive Turkish troops still threaten the troubled border. As risk increased for a potentially destabilizing war, and one that would occur on the critical (read to the U.S.) western border, concerns appropriately rose. However, traders woke up this week, looked around, and found bearish overtones abound for oil. With the likelihood of economic growth moderation or even recession, a very warm fall eroding heating demand and an anticipated bearish inventory report this morning when the EIA notes its weekly data, oil seems destined to retest $80, let alone the $85 point it currently teases.

At 10:00 AM, oil may find yet another reason to dip, as September Existing Home Sales data reaches the market. Bloomberg's consensus of economists is looking for the critical used homes market to post an annual sales run rate of 5.3 million, compared to 5.5 million reported in August. Last week's drastic drop in housing starts has attached a bearish tone to expectations.

The Mortgage Bankers Association today reported its weekly Purchase Applications Report for last week. Seasonally adjusted results showed new applications for mortgages decreased 3.1% from the week just prior, while refinancing activity improved 4.0%. Yesterday, Countrywide Financial (NYSE: CFC) announced plans to help mortgage borrowers of $16 billion in ARMS debt to refinance into better terms, and the government is working to encourage lenders to help qualified borrowers avoid foreclosure.

While Google (Nasdaq: GOOG) was able to surmount lofty market expectations, Amazon.com (Nasdaq: AMZN) found the going a little more difficult. Despite beating analysts' consensus forecast, AMZN shares are down some 10% in the premarket. This says something for the level of expectations set for the technology sector, and may add pressure to trading today.

Warren Buffet warned investors to be wary of the Chinese market bubble. The famed value investor recently sold a stake in Petrochina (NYSE: PTR).

Catch the entire day's earnings schedule at TheStreet.com's page.

Market-Moving News

• Bloomberg: Merrill Lynch (NYSE: MER) Write-Downs Increased Another $2.5 Bil, to $7.9 Bil


• AP/Yahoo!: Merrill Down in Premarket As Details Reach Investors


• Platts: Oil Drifts Lower Ahead of Bearish Inventory Expectations, Housing Report, Iraq Tension Defused


• CNN Money: Asian Shares Give Back Gains


• Financial Times: Earnings Lift Europe


• ECONOMIC REPORT Pending 10:00 AM: September Existing Home Sales (Bloomberg Consensus 5.3 mil Vs. August 5.5 mil)


• Mortgage Bankers Association: Refinance Applications Increase in Latest Weekly Tally


• Bloomberg: Buffet Warns About China Bubble


• Financial Times: Russia to Control Food Prices


• CNBC: Euro Zone Manufacturing Slows


• DailyFx: Will Fed Do the Unexpected


• TheStreet.com Earnings Calendar


• AP/Yahoo!: Boeing (NYSE: BA) Profit Soars 61%


• TheStreet.com: Broadcom (Nasdaq: BRCM) Shares Slip After Reporting In Line


• MarketWatch: Moody's (NYSE: MCO) Profit Slips


• AP/Yahoo!: Wellpoint (NYSE: WLP) Profit Rises


• AP/Yahoo!: Nasdaq (Nasdaq: NDAQ) Profit Surges on LSE Stake Sale


• AP/Yahoo!: P.F. Chang's (Nasdaq: PFCB) Profit Falls, Cuts Guidance


• AP/Yahoo!: Occidental (NYSE: OXY) Beats Forecasts


• TheStreet.com: Amazon (Nasdaq: AMZN) Misses Whisper, Shares Give Back Gains


• CNBC: GlaxoSmithKline (NYSE: GSK) Earnings Fall, Looks to Cost Savings Plan


• BBC: Serious Business for NATO to Discuss


• Economist: Larijani Resigns, Raising Questions in Iran


• Economist: The Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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Today's Coffee - An Apple a Day

(Stocks in this article: Nasdaq: AAPL, Nasdaq: UAUA, NYSE: BP, NYSE: CFC, NYSE: COH, NYSE: DD, NYSE: WHR, NYSE: T, NYSE: LMT, NYSE: NKE, NYSE: UPS)

Tech to the rescue! AGAIN! In times of turmoil, when distress abounds and there seems there is no stopping the world's imminent doom, the city of Gotham puts out the call to its savior in silicon green, The Technology Sector!

Apple (Nasdaq: AAPL) posted a blowout quarter, earning $1.01 a share, which was well ahead of analysts' consensus for $0.86, according to Thomson Financial. Growth was boosted from a segment you might not have expected, as Mac sales jumped 34%. The company notes Mac sales benefited from new product introduction and higher education sales. I suspect Mac sales may be benefiting also from residual sales to iPhone shoppers at Apple retail stores. That's called synergy folks, and justifies the existence of Apple's stores as it seeks to take market share in the PC space.

Management indicated that 50% of Mac sales were to people new to Mac, and I believe this is evidence of the store and iPhone impact. Apple's fiscal first quarter guidance also exceeded expectations; the company expects to earn $1.42, versus the consensus $1.39 view. AAPL shares are up over 6% today as a result.

Economic Data & Analysis

The International Council of Shopping Centers - UBS produced its weekly same-store sales report this morning. We continue to be attentive to changes in consumer spending, and we found last week's 2.2% year-over-year same-store sales growth disconcerting. The weak performance compared with the prior week's year-over-year growth measure of 2.5%, and the trend is still far below last year's growth rate. With oil prices involved in a mad race to $90, we see no reason to expect increased consumer spending moving forward, especially if oil prices hold and allow gasoline prices to make up ground.

State Street reported its Investor Confidence Index for October this morning. Considering the market's reaction to the Fed's September rate cut, we expected October's confidence reading to exceed September's result of 88.7 (revised lower from 92.1). However, confidence actually fell dramatically. State Street reported October Investor Confidence at 82.6, near this year's low point. Nonetheless, the Fed's Halloween meeting should decide the direction of stocks and capital flow into or out of stocks moving forward.

Company Specific News

Wal-Mart (NYSE: WMT) began a two-day analysts' meeting on Tuesday, where this analyst is sure the key questions will be how international expansion might boost top line growth and how much cost can be squeezed out of the lemon in the meantime.

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The Greek's Week Ahead - It Gets Worse

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

Just when you thought it could not get any worse, someone goes and finds a way. That's life isn't it? I don't know who said it best, Frank Sinatra or Rocky Balboa, but it can always get worse can't it. Your best friend can let you down and your dog can bite you in the ass when you turn your back.

Last week, not to our surprise but clearly to the market's shock, Caterpillar (NYSE: CAT) offered up that bit of reality nobody wanted to chew on. Caterpillar announced not only that its U.S. business was in distress, but that global impact from U.S. woes and U.S. recession seemed all too possible. Nice timing too, on the anniversary of the infamous crash of 1987.

Traders are a superstitious lot, so it would not have taken much more than that to get the paper walls of the market's recent rise crumbling Friday. Still, the market was also digesting Honeywell's (NYSE: HON) penny earnings miss, September housing starts at levels not seen in 14 years, AND August foreign demand for long-term U.S. securities fleeting at a pace never seen. You could say we had a witches brew to churn.

If the market could not rely on the so called "global economy" or the consumer he had already begun to worry about, then what could he believe in? Well, maybe Ben Bernanke of all people. Treasury securities that had previously forecast just a small chance of a Fed follow up easing in a week, were now pricing in the strong likelihood of one. We are raising the odds here at the Greek as well. There may now be a 50/50 chance of a 25 basis point move on Halloween, but ironically, this decreased certainty could empower Fed inaction in driving the market sharply lower on the 31st. Increased expectation also increases impetus.

The Week Ahead...

Monday will most certainly start tentatively, considering Friday's frightening falloff. International market activity, and especially that of Mainland Chinese markets, will be closely monitored for U.S. market inspired decline. The annual meeting of the World Bank and International Monetary Fund could offer some news, as could addresses from Fed Governor Randall Kroszner and Fed President Charles Evans.

Earnings season will get right back into full swing, with notable reports from Apple (Nasdaq: AAPL), Halliburton (NYSE: HAL) and Merck (NYSE: MRK). Also, Kimberly-Clark (NYSE: KMB) will report for the third quarter fresh after announcing broad price increases. A full one-third of the S&P 500 Index is scheduled to report earnings this week. What's disgusting to us is that analysts are still predicting double-digit earnings growth in the fourth quarter, while the third quarter is currently looking like low-single digit growth. Come on guys, get on the ball! In my own experience, I was amazed at the incompetence of many analysts, especially those in supervisory positions. Too many were forecasting numbers without even an earnings model. While it must have been a nice life collecting a paycheck for nothing, I'm not sure how they could sleep at night.

The full schedule includes Albemarle Corporation (NYSE: ALB), Ambassadors Group, Inc. (Nasdaq: EPAX), American Express Company (NYSE: AXP), Apollo Group (Nasdaq: APOL), ArthroCare (Nasdaq: ARTC), Astec Industries (Nasdaq: ASTE), AU Optronics Corporation (NYSE: AUO), Banco Latinoamericano de Exportaciones (NYSE: BLX), Bank of Hawaii (NYSE: BOH), Brown & Brown (NYSE: BRO), Buckeye Technologies Inc. (NYSE: BKI), Canadian National Railway (NYSE: CNI), Ceragon Networks Ltd (Nasdaq: CRNT), Charles & Colvard (Nasdaq: CTHR), Check Point Software Technologies (Nasdaq: CHKP), Community Bancorp Nev (Nasdaq: CBON), Community Bank System (NYSE: CBU), Crane (NYSE: CR), drugstore.com (Nasdaq: DSCM), DST Systems (NYSE: DST), Eagle Materials Inc. (NYSE: EXP), Ecolab Inc. (NYSE: ECL), Edwards Lifesciences (NYSE: EW), eOn Communications (Nasdaq: EONC), Equifax Inc. (NYSE: EFX), Everest Re Group, Ltd. (NYSE: RE), EXACT Sciences Corporation (Nasdaq: EXAS), ExpressJet Holdings, Inc. (NYSE: XJT), First Citizens BancShares (Nasdaq: FCNCA), Forward Air (Nasdaq: FWRD), Frontier Financial (Nasdaq: FTBK), Gentex (Nasdaq: GNTX), Green Bankshares (Nasdaq: GRNB), Hasbro, Inc. (NYSE: HAS), Hexcel Corporation (NYSE: HXL), Hub Group (Nasdaq: HUBG), JAKKS Pacific Inc. (Nasdaq: JAKK), Kilroy Realty Corp. (NYSE: KRC), KNBT BANCORP INC (Nasdaq: KNBT), Liberty Property Trust (NYSE: LRY), Lincare Holdings (Nasdaq: LNCR), Netflix (Nasdaq: NFLX), Ocwen Financial (NYSE: OCN), Owens & Minor (NYSE: OMI), Pactiv (NYSE:
PTV), PartnerRe Ltd. (NYSE: PRE), PetMed Express, Inc. (Nasdaq: PETS), PFF Bancorp (NYSE: PFB), Plum Creek Timber (NYSE: PCL), PLX Technology (Nasdaq: PLXT), PrePaid Legal (NYSE: PPD), PrivateBancorp, Inc. (Nasdaq: PVTB), Regis Corporation (NYSE: RGS), Reinsurance Group of America, Inc. (NYSE: RGA), Royal Caribbean Cruises Ltd. (NYSE: RCL), Schering-Plough (NYSE: SGP), Sierra Bancorp (Nasdaq: BSRR), SL Green Realty (NYSE: SLG), Sterling Financial Corporation (Nasdaq: STSA), Synplicity (Nasdaq: SYNP), Taubman Centers (NYSE: TCO), Telefonos De Mexico (NYSE: TMX), Texas Instruments (NYSE: TXN), TGC (NYSE: TGE), Thomas & Betts (NYSE: TNB), TSYS (NYSE: TSS), Ultra Clean Holdings Inc. (Nasdaq: UCTT), United Fire (Nasdaq: UFCS), Veeco Instruments Inc. (Nasdaq: VECO), Vineyard National Bancorp (Nasdaq: VNBC), Volterra Semiconductor (Nasdaq: VLTR), W.R. Berkley (NYSE: BER), Waste Connections (NYSE: WCN), Weatherford International (NYSE: WFT), Wintrust Financial (Nasdaq: WTFC), Zebra Technologies (Nasdaq: ZBRA) and Zoran Corporation (Nasdaq: ZRAN).

The International Council of Shopping Centers - UBS produces its weekly same-store sales report on Tuesday, and we continue to be attentive to changes in consumer spending. Last week's year-over-year growth measure of 2.5% ticked up slightly from the week before it, but the trend was still far below last year's growth rate. With oil prices involved in a mad race to $90, we see no reason to expect increased consumer spending, especially if oil prices hold and allow gasoline prices to catch up.

At 10:00 AM, State Street will report its Investor Confidence Index for October. Considering the market's reaction to the Fed's September rate cut, we expect October's confidence reading to exceed September's result of 92.1. Remember, State Street measures the amount of risk carried in portfolios, and relates it to investor confidence. This month's figure is meaningless to us, as the Fed's Halloween meeting should decide the direction of stocks and capital flow into or out of stocks thereafter.

Wal-Mart (NYSE: WMT) begins a two-day analysts' meeting on Tuesday, where this analyst is sure the key questions will be how international expansion might boost top line growth and how much cost can be squeezed out of the lemon in the meantime.

Tuesday's extensive earnings schedule includes: 1-800-FLOWERS.COM (Nasdaq: FLWS), ACE Limited (NYSE: ACE), Actel (Nasdaq: ACTL), Aflac Inc. (NYSE: AFL), Aftermarket Technology
(Nasdaq: ATAC), AK Steel (NYSE: AKS), Akzo Nobel N.V. (Nasdaq: AKZOY.PK), Aladdin Knowledge Systems (Nasdaq: ALDN), Altera Corp. (Nasdaq: ALTR), Amazon.com, Inc. (Nasdaq: AMZN), American Ecology (Nasdaq: ECOL), Ameritrade Holding Corp. (Nasdaq: AMTD), AmSurg (Nasdaq: AMSG), ANADIGICS, Inc. (Nasdaq: ANAD), Anixter Int'l Inc.
(NYSE: AXE), Applied Industrial Technologies (NYSE: AIT), Arlington Tankers Ltd (NYSE: ATB), Arrow Electronics, Inc. (NYSE: ARW), Art Technology Group (Nasdaq: ARTG), Arthur J. Gallagher & Co. (NYSE: AJG), AT&T (NYSE: T), Avery Dennison (NYSE: AVY), BancorpSouth, Inc. (NYSE: BXS), BankUnited Financial (Nasdaq: BKUNA), Biogen Idec Inc. (Nasdaq: BIIB), BP plc (NYSE: BP), Brasil Telecom Participacoes (NYSE: BRP), Brinker International (NYSE: EAT), Broadcom (Nasdaq: BRCM), BTU Int'l (Nasdaq: BTUI), Burlington Northern Santa Fe (NYSE: BNI), C.H. Robinson Worldwide Inc (Nasdaq: CHRW), C.R. Bard, Inc. (NYSE: BCR), Calamos Asset Management (Nasdaq: CLMS), Candela Corp. (Nasdaq: CLZR), Capital Southwest (Nasdaq: CSWC), Carter's, Inc. (NYSE: CRI), Cascade Microtech, Inc. (Nasdaq: CSCD), Cavalier Homes (NYSE: CAV), CEC Entertainment (NYSE: CEC), Celanese Corp. (NYSE: CE), Centene Corp. (NYSE: CNC), Centex Corp. (NYSE: CTX), Chubb Corp. (NYSE: CB), CNH Global N.V. (NYSE: CNH), Coach, Inc. (NYSE: COH), Columbus McKinnon (Nasdaq: CMCO), Compugen (Nasdaq: CGEN), Computer Task Group (Nasdaq: CTGX), Con-Way (NYSE: CNW), Cooper Industries (NYSE: CBE), CSG Systems, Inc. (Nasdaq: CSGS)...

CTS Corp. (NYSE: CTS), Cymer, Inc. (Nasdaq: CYMI), Data Domain Inc. (Nasdaq: DDUP), Delphi Financial (NYSE: DFG), DuPont (NYSE: DD), Echelon Corp. (Nasdaq: ELON), Electronics for Imaging (Nasdaq: EFII), Encore Wire (Nasdaq: WIRE), Endwave (Nasdaq: ENWV), Entrust, Inc. (Nasdaq: ENTU), Epicor Software (Nasdaq: EPIC), EPIQ Systems (Nasdaq: EPIQ), First Busey Corp. (Nasdaq: BUSE), First Financial Holdings (Nasdaq: FFCH), FirstMerit (Nasdaq: FMER), Flextronics (Nasdaq: FLEX), GSI Group (Nasdaq: GSIG), Harmonic (Nasdaq: HLIT), HealthStream, Inc. (Nasdaq: HSTM), Heartland Express (Nasdaq: HTLD), Hoku Scientific, Inc. (Nasdaq: HOKU), ICON plc (Nasdaq: ICLR), IHOP (NYSE: IHP), II-VI (Nasdaq: IIVI), Illumina, Inc. (Nasdaq: ILMN), Ifinera (Nasdaq: INFN), IPC Holdings (Nasdaq: IPCR), Iteris, Inc. (NYSE: ITI), JetBlue Airways (Nasdaq: JBLU), Johnson Controls (NYSE: JCI), Journal Communications, Inc. (NYSE: JRN), Juniper Networks (Nasdaq: JNPR), Kelly Services (Nasdaq: KELYA), Kinetic Concepts (NYSE: KCI), LaBranche & Co Inc. (NYSE: LAB), Leadis Tech (Nasdaq: LDIS), Level 3 Communications (Nasdaq: LVLT), Lexmark International, Inc. (NYSE: LXK), Lockheed Martin (NYSE: LMT), LogicVision, Inc. (Nasdaq: LGVN), Manhattan Associates (Nasdaq: MANH), MDU Resources (NYSE: MDU), Meridian Gold Inc. (NYSE: MDG), Metalink (Nasdaq: MTLK), Microchip Tech (Nasdaq: MCHP), Midwest Banc Holdings (Nasdaq: MBHI)...

Millicom International Cellular S.A. (Nasdaq: MICC), Monro Muffler Brake (Nasdaq: MNRO), Nabors Industries (NYSE: NBR), Nara Bancorp (Nasdaq: NARA), Novellus Systems, Inc. (Nasdaq: NVLS), O'Reilly Automotive (Nasdaq: ORLY), Omnicom Group (NYSE: OMC), OptionsXpress (Nasdaq: OXPS), Panera Bread (Nasdaq: PNRA), Par Technology (NYSE: PTC), Pentair, Inc. (NYSE: PNR), Pervasive Software Inc. (Nasdaq: PVSW), Pharmaceutical Product Development (Nasdaq: PPDI), Phase Forward (Nasdaq: PFWD), Phoenix Tech (Nasdaq: PTEC), Plantronics, Inc. (NYSE: PLT), Platinum Underwriters (NYSE: PTP), Pogo Producing (NYSE: PPP), Pool Corporation (Nasdaq: POOL), Precision Castparts (NYSE: PCP), Prosperity Bancshares (Nasdaq: PRSP), Provident Financial (Nasdaq: PROV), Prudential PLC (NYSE: PUK), QLogic (Nasdaq: QLGC), Radware (Nasdaq: RDWR), Ramco-Gershenson Properties Trust (NYSE: RPT), Raymond James (NYSE: RJF), Rayonier Inc. (NYSE: RYN), RF Micro Devices, Inc. (Nasdaq: RFMD), Riverbed Tech (Nasdaq: RVBD), Rohm and Haas (NYSE: ROH), Sandy Spring Bancorp (Nasdaq: SASR), Satyam Computer Services (NYSE: SAY), SAVVIS, Inc. (Nasdaq: SVVS), Scientific Learning (Nasdaq: SCIL), SeaBright Insurance Holdings, Inc. (Nasdaq: SEAB), Seacoast Banking FL (Nasdaq: SBCF), Seattle Genetics (Nasdaq: SGEN), Sherwin-Williams (NYSE: SHW), Sigma-Aldrich Corporation (Nasdaq: SIAL), Silicon Storage Technology, Inc. (Nasdaq: SSTI), Smith International, Inc. (NYSE: SII), Sterling Bancshares (Nasdaq: SBIB), STMicroelectronics (NYSE: STM)...

StockerYale (Nasdaq: STKR), Sunoco Logistics Partners L.P. (NYSE: SXL), Supertex (Nasdaq: SUPX), Susquehanna Bancshares, Inc. (Nasdaq: SUSQ), T. Rowe Price (Nasdaq: TROW), TCF Financial Corp. (NYSE: TCB), Tellabs (Nasdaq: TLAB), Tennant Co. (NYSE: TNC), The Cheesecake Factory (Nasdaq: CAKE), The New York Times Co (NYSE: NYT), TradeStation Group, Inc. (Nasdaq: TRAD), Transalta Corp. (NYSE: TAC), Trimble Navigation (Nasdaq: TRMB), Trustmark Corp. (Nasdaq: TRMK), Tupperware Brands (NYSE: TUP), Twin Disc (Nasdaq: TWIN), UAL Corp. (Nasdaq: UAUA), UMB Financial (Nasdaq: UMBF), Unisys (NYSE: UIS), United Community Banks (Nasdaq: UCBI), UNITED PARCEL SERVICE INC (NYSE: UPS), Universal Stainless & Alloy Products (Nasdaq: USAP), USG (NYSE: USG), Utah Medical (Nasdaq: UTMD), Virginia Financial Corp. (Nasdaq: VFGI), Vitran Corp. (Nasdaq: VTNC), Vocus, Inc. (Nasdaq: VOCS), Waddell & Reed Financial, Inc. (NYSE: WDR), Waters Corp. (NYSE: WAT), Wausau Paper Corp. (NYSE: WPP), Webster Financial Corp. (NYSE: WBS), Western Union Co. (NYSE: WU), Whirlpool Corp. (NYSE: WHR), Whitney Holding Corporation (Nasdaq: WTNY), World Acceptance Corp. (Nasdaq: WRLD), XL Capital Ltd (NYSE: XL) and XTO Energy Inc. (NYSE: XTO).

On Wednesday morning, the regular Purchase Applications Report from the Mortgage Bankers Association will be followed up by September Existing Home Sales. Recall, the existing homes market dwarfs new homes and is all the more important a barometer to measure the degree of illness in housing. Bloomberg's consensus of economists is looking for sales running at an annual pace of 5.3 million. That's down from August's pace of 5.5 million. Remember earlier this year when economists were worried about the six month supply of homes? Well it's now up to 10 months, so prices are very likely to continue lower, which means a good degree of home equity is still to be lost.

At 10:30, the Energy Information Administration will report on oil inventories, but as long as 60,000 Turkish troops continue to trade fire with Kurdish rebels on the border and President Bush continues to speak of World War III, nothing else matters. However, the longer oil prices hold high, the more likelihood gasoline prices will rise, adding more pressure to the global consumer, and that includes you.

Wednesday's earnings schedule is not any lighter than Tuesday's. Some of the day's more popular reports are likely to emanate from Merrill Lynch (NYSE: MER), the Chicago Mercantile Exchange (NYSE: CME), Amgen (Nasdaq: AMGN), ConocoPhillips (NYSE: COP), Covance (NYSE: CVD), Genzyme (Nasdaq: GENZ), Legg Mason (NYSE: LM), Monster (Nasdaq: MNST), Moody's (NYSE: MCO), Occidental Petroleum (NYSE: OXY), Symantec (Nasdaq: SYMC), Boeing (NYSE: BA), Tractor Supply (Nasdaq: TSCO) and VCA Antech (Nasdaq: WOOF).

After posting a surprise uptick last week, investor concern will be keenly focused on the Weekly Initial Jobless Claims Report. Bloomberg's consensus of economists forecasts new benefits filers will amount to 320,000, versus 337,000 last week. Another data point expected to improve on Thursday is the Durable Goods Orders Report. Economists polled by Bloomberg see durable goods order growth of 1.8% in September, after a 4.9% decline in August.

New Home Sales are set for reporting at 10:00 AM, and the consensus sees the annual pace at 770,000 in September, compared to 795,000 in August and 937,000 in January. The EIA will report natural gas inventories as the fall heating season proceeds at a slow pace in the Northeast and through much of the country. Still, prices remain pressured by geopolitcal events and natural gas' increasing substitution, and potential for substitution should oil supplies become restricted in any way.

In the heart of earnings season, Thursday's schedule includes Baidu (Nasdaq: BIDU), CARBO Ceramics (NYSE: CRR), Celgene (Nasdaq: CELG), EMC Corp. (NYSE: EMC), Evergreen Solar (Nasdaq: ESLR), KLA-Tencor (Nasdaq: KLAC), Lithia Motors (NYSE: LAD), Microsoft (Nasdaq: MSFT), MICROS System (Nasdaq: MCRS), Motorola (NYSE: MOT), Penn National Gaming (Nasdaq: PENN), Raytheon (NYSE: RTN), SEI Investments (Nasdaq: SEIC) and others.

On Friday, the final Michigan Sentiment reading is expected unchanged, at 82, the lowest point of the year. Also, Apple (Nasdaq: AAPL) begins shipping its Mac OSX Leopard software. Friday's earnings schedule includes the likes of Baker Hughes (NYSE: BHI), Countrywide Financial (NYSE: CFC), Fortune Brands (NYSE: FO), Waste Management (NYSE: WMI) and others. We hope you found value in this week's copy and look forward to providing value-added information to your day all week.

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