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Seeking Alpha

Thursday, December 27, 2007

Today's Coffee: Pakistan Shakes World


(Stocks in this article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: SDS, NYSE: GS, NYSE: BA, NYSE: PCG, NYSE: EP, NYSE: SLM, NYSE: C, Berlin: AHX.BE, Nasdaq: YHOO)

In a very important event that should not be overlooked or understated, Pakistan Peoples Party Leader Benazir Bhutto was killed in an attack this morning. As a result, U.S. equities have been shaken and oil and gold are moving higher.

Petroleum Status

Oil immediately moved higher on the news from Pakistan, but it did not move significantly higher. Perhaps the geopolitical factor had already been priced in after events in Turkey, and with the Petroleum Status report due from the EIA, traders were tentative to bid oil higher.

Then, the Energy Information Administration reported inventories fell by 3.3 million barrels. Bam! Oil popped over $97 on that news, and as unrest likely escalates, oil could finally test that century mark. How the Pakistani situation plays out from here is critical. It's likely that this event will raise up another opposition candidate. We believe Musharraf will now wisely postpone the election, as a near-term ballot would not likely work out in his favor.

Unemployment

Weekly Initial Jobless Claims were reported up slightly from a revised higher level. At 349K claims, the reading exceeded the 343K consensus expectation compiled by Bloomberg. Continuing unemployment is on the rise, and insured unemployment is now at 2.1%, up 0.1% week-to-week. This has been evident in the rising unemployment rate as well of course, but today's report has brought some media attention to the subject. We reiterate our message that new hiring should weaken more drastically than the rate of newly unemployed. However, we continue to expect the consumer sector, especially retail/restaurant, to significantly consolidate in the year ahead, further stressing the economy.

Durable Goods Orders

November orders rose just 0.1%, versus expectations for a much larger 3.0%. Excluding transportation, orders fell 0.7%. We should not be surprised that expenditures for big ticket items have waned, nor that housing-related sales have slipped. The business investment proxy that includes non-defense capital goods excluding aircraft fell 0.4%, following a sharper decline in October. These are recession like figures in our view, and you are finally seeing the signs of what we've been pointing to for quite some time now here.

We continue to favor tax loss sale beneficiaries like the investment banks, and other stocks like Yahoo! (Nasdaq: YHOO), recently beaten back and even downgraded by a reactionary stock analyst recently. Avoid advice from those guys; they're just weak.




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