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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Today's Coffee - Caterpillar's Metamorphosis (NYSE: CAT)

(Stocks in this article: NYSE: CAT, NYSE: HON, NYSE: DE, Nasdaq: GOOG, NYSE: SLB, NYSE: WB, NYSE: MCD, NYSE: MMM, NYSE: AMD)

On the 20-year anniversary of the great crash of 1987, the market is appropriately marking the day with significant declines in the three most widely followed indices. Today's decline is really being driven by bad news from Caterpillar, and a warning that its U.S. weakness is significant enough to impact results. CAT also warned that U.S. weakness might not be containable, and talking heads speculated finally about the impact to exporting Asian nations. Do you see the dominoes falling into place?

The scenario we laid out months ago, where U.S. weakness would lead to global market correction is getting setup for future play. We still expect the catalyst to be a geopolitical surprise, perhaps an event regarding Iran. We still put in play the idea that Iran could precede an American bombing with an act of war of its own. It would not be the first time the element of surprise played a key role in war. However, the catalyst could be anything that threatens the global economy or the great consumer, America.

International Markets

Asia:

Hang Seng Index +0.57%; Shanghai/Shenzhen CSI 300 -0.03%; NIKKEI 225 -1.71%; S&P/ASX 200 -0.91%; Taiwan TAIEX -0.26%; BSE SENSEX 30 -2.44%; KRX 100 -1.78%; Ho Chi Minh +0.77%

U.K., Europe & Middle East:

DJ STOXX 50 Index -0.21%; FTSE 100 -1.23%; CAC 40 -0.46%; DAX -0.47%; Russian RTS Index +0.28%; ASE General +0.46%; ISE National 100 (Turkey) -1.39%; Tel Aviv 25 -0.39%; Tadawul All Share +1.3%; DFM General +2.27%

In Asian trading today, the Hang Seng continued to appreciate while most other Asian markets gave up ground (see yesterday's discussion). The theme driving Asian stocks is the danger posed by American economic softness. No matter what you hear about the strength of the global economy, the most important consumption market in the world still matters, especially to export-centric Asia. This is why the international markets Wall Street Greek favors include developed Japan, Russia and the valuation favorable U.K.

The United Kingdom reported third quarter GDP today, noting a forecast beating 3.3% annual growth rate. Regional retail sales were reported strong yesterday, but American disease is expected to spread across the pond. Also, the Bank of England has been in tightening mode, and the effects of its rate hikes are anticipated to begin showing results soon.

Our mention of Russia must have caught your eye. Our reasoning is logical. Despite Russia's positioning on the opposite end of every table at which the U.S. sits, we view Putin's kingdom in advantageous position to benefit from the coming conflict of the U.S. with Iran. Over the past few years, Russia has been aggressively developing its energy resources and distribution capabilities, insuring its importance to energy hungry Europe and Asia. In a future article, I will discuss specific Russian investment ideas for the coming twelve months.

Economic Data & Analysis

Today, Fed Chairman Bernanke addressed a group on the topic of "Monetary Policy Under Uncertainty." As I combed through the reports of his speech, two conflicting bits of information caught my analytical eye. Bernanke once again pledged to act as needed, but he was also quoted as saying that it was important to "avoid overreacting to current economic information." Thus, from today's discussion, you could both make argument for a 25 bps cut on Halloween and inaction. We continue to view the likelihood of inaction at 75%.

Stock Specific News

The most interesting bit of news today, in my opinion, came from Caterpillar (NYSE: CAT) and Honeywell (NYSE: HON), two major beneficiaries of global economic growth over the past year. Honeywell reported earnings that were a penny short of analysts' consensus, while boosting its guidance for the full year to the high-end of its range. Analysts view was right in the middle of that high-end range already. While the shares were down about 3% today, they have still provided shareholders with a 32% total return this year. Still, they look pricey to us here.

The more important news came from Caterpillar, which provided broad reaching implications to the market. Remember when the Wall Street Greek said eventually large multinationals will feel the impact of the American recession, because I said, "it is the American consumer that butters the bread of American companies." Today, Caterpillar missed expectations by $0.03, and fell short on revenue expectations as well, attributing its result to "severe weakness in key U.S. markets." CAT also guided down forecasts for the full year, and this brought the shares of its peers Deere (NYSE: DE) and other multinationals to a crashing end as well. It looks like the trend of large cap multis' rise is over. This is where our value-add is. We don't just report the news and ride it like a roller coaster, but we foresee the future and prepare you for its shocks. We will address commodity markets more in future articles.

Market-Moving News

• CNBC: Oil Breaks $90


• MarketWatch: Google (Nasdaq: GOOG) Profit Up 46%


• AP/Yahoo!: Bernanke Explains Decision Making


• CNN Money: Mortgage Delinquency Risk Rising


• CNN Money: Asian Markets Mostly Tumble


• CNN Money: Hong Kong Market Defiantly Rises


• Financial Times: European Stocks Tick Down


• Bloomberg: U.K. Economic Growth Ahead of Forecast


• Financial Times: Investors Bet on More Fed Cuts, Bond Yields Dip


• Bloomberg: Swaps and SIV Risk


• DailyFX: G7 Yen Volatility Play


• Yahoo! Earnings Calendar


• AP/Yahoo!: Caterpillar (NYSE: CAT) Earnings Rise 21%, Warns on Economy


• AP/Yahoo!: Honeywell (NYSE: HON) Beats and Boosts


• CNN Money: Wachovia (NYSE: WB) Hurt By Credit Market


• AP/Yahoo!: Schlumberger (NYSE: SLB) Profits Soar 35%


• TheStreet.com: McDonald's (NYSE: MCD) Meets Raised Views


• TheStreet.com: Cramer's Option Plays


• AP/Yahoo!: 3M (NYSE: MMM) Raises Outlook


• AP/Yahoo!: AMD (NYSE: AMD) Suffers in its Loss


• Economist: Welcome Back Bhutto, Bang!


• BBC: Kurds Plan to Defend Their People


• Iran Daily: Tales from the Dark Side

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Editor's Note

Dear Readers,

While you may not always find a new article up on the site, our "Market-Moving News" section, found in the sidebar, is updated daily every morning to offer you the news that is most likely to impact your portfolio each day.

The Greek

Today's Market Moving News - The Buffet Foxtrot

(Stocks in this article: Nasdaq: EBAY, Nasdaq: GOOG, NYSE: BAC, NYSE: PFE, NYSE: NOK, NYSE: LLY, NYSE: WM, NYSE: BSX, NYSE: SAP, NYSE: CAL, NYSE: PTR, Nasdaq: INTC, Nasdaq: YHOO)

After tech defeated housing yesterday in the first of Q3's death match series, the IT sector takes on the tough banking sector on Thursday. Yesterday, strength born from strong earnings reports that originated out of Intel (Nasdaq: INTC) and Yahoo! (Nasdaq: YHOO) propelled the NASDAQ and growth oriented S&P 500 Index higher, while the Dow Jones Index slipped on the day. This morning, earnings news from Ebay (Nasdaq: EBAY) pits up against a 32% profit free fall reported by Bank of America (NYSE: BAC). Ebay beat numbers and raised guidance but the shares were greeted by a Deutsche Bank (NYSE: DB) downgrade this morning, and the shares opened lower as result. Bank of America was of course impacted by trading losses and loan write-downs.

One thing is for sure, Warren Buffet has to be nimble these days with BAC and his railroads finding tough going, and noting his exit from his quickly inflating PetroChina (NYSE: PTR) stake. The gray fellow never looked more like a young Fred Astaire then he does these days dancing around his positions.

The Geopolitical Factor

Like a professional wrestling match, a third player has emerged with the potential to overtake the focus of today's main event. Turkey's Parliament approved the use of military force across its border with Iraq. Turkey has amassed some 60,000 troops at the border, though President Bush has made public his and Iraq's hope that Turkey will agree to reason and another method of dealing with "terrorist" activities.

We asserted here on Tuesday that America is obliged to defend the nation it has taken guardianship of. As a Greek/American, I have much experience and understanding of the Turkish mindset. Thus, I would place a 90% likelihood of Turkish troops crossing the boarder and flexing some muscle, while doing significant damage to the Kurdish view of having an American ally. While Turkey is likely to temporarily solve its PKK problem, it is also damaging an important relationship with its American ally. However, as usual, America needs Turkey, since a majority of our military and commercial resource flow moves through the Turkish border into Iraq, while an important energy lifeline feeds through the region as well.

We feel for Armenian/Americans today, as it appears the U.S. government will have to make concessions at their cost. Congress is backing off its Armenian genocide resolution. It's a shame, because Armenians suffered a great tragedy, one of many at the hands of the Ottoman Empire and its remnants. However, the Greek agrees that this Congressional action has to wait. America will need Turkey once again, as it confronts Iran.

This week, Vladimir Putin closed a door America might have been planning to use against Iran. In its meeting with Caspian region nations, Russia declared that no American action would use Caspian nation land or airspace. This means that the potential of using new American ally Georgia as a staging ground is limited. Any attack on Iran that would use Georgia would likely also need Azerbaijani airspace. With that limited, flights out of Georgia would fly through a narrow channel over Armenia and into Iran.

Turkey turned us down when we needed to fly over in our effort against Saddam. With Turkey unlikely to allow American use of its airspace again, America's options become limited, though certainly not blocked considering the significant presence in Iraq and Afghanistan.

Regarding Iraq, there remains high risk that civil war could expand if Shiite neighbor Iran is attacked. Saudi Arabia risks severe repercussions of its own should it aid America, especially if America fails to insure its safety by rendering Iran impotent. As you can see, Russia is actively working to complicate America's options.

International Market Activity:

Asia:
Hang Seng Index +0.57%; Shanghai/Shenzhen CSI 300 -3.58%; NIKKEI 225 +0.89%; S&P/ASX 200 +1.31%; Taiwan TAIEX +0.78%; BSE SENSEX 30 -3.83%; KRX 100 +0.78%; Ho Chi Minh -1.15%

U.K., Europe & Middle East:
DJ STOXX 50 Index -0.54%; FTSE 100 -1.07%; CAC 40 -1.22%; DAX -0.82%; Russian RTS Index -1.15%; ASE General -1.12%; ISE National 100 (Turkey) -3.12%; Tel Aviv 25 -0.55%; Tadawul All Share +1.3%; DFM 20 +2.08%

There are important events playing out in China this week. Discussion of combining A and H-Class shares has Hong Kong's lower valued shares of mainland companies on the rise. However, if the markets are combined and capital is allowed to flow more freely, this also threatens the valuations of mainland A Class shares. This morning the mainland indices are lower as a result, and we believe a trigger may be in place to severely hurt emerging market shares over the short-term.

You would think Indian shares would benefit from volatility in China, but a flight to safety is possible, and in that event, we see short-term risk to all emerging world shares. After the initial shock of such a change, should it occur, we would then look to India. We note that China has a tendency to back off of actions that prove detrimental to its markets. However, we view the opening of capital rules as a long-term positive event.

Europe appears damaged this morning by America's Beige Book release yesterday afternoon. Also, its trade gap with China was reported wider than ever, though retail sales appear to be strong according to a recent report as well.

Economic Data & Analysis

This morning, Weekly Initial Jobless Claims were reported above the forecast 312,000, at 337,000. At that level, claims ran ahead of the four-week average of 316,500, which is adjusted higher for this week's figure. There's not discernible trend here yet, but you should be monitoring this weekly report for labor market weakness.

This morning, The Conference Board will produce its Leading Indicators Index still too late for the Fed to use in its new effort to predict economic change (God bless em). The month-to-month change in the figure is expected by Bloomberg's consensus to show increase of 0.3% in September, after a 0.6% decrease in August.

The EIA Natural Gas inventory report is due at 10:30, while hurricane season comes to an end. At noon, the Philly Fed Index should show Philadelphia area manufacturing sentiment decreased versus the prior month. Bloomberg published a consensus estimate for a reading of 7.0 this time around, compared to 10.9 in September. However, after the strong Empire State figure, it seems entirely possible Philly could surprise higher as well.

Market-Moving News

• CNN Money: Asian Stocks Rally on Growth Forecast


• Bloomberg: A Look at Europe


• CNBC: Oil Above $87, OPEC and Turkey in Focus


• BBC: Turkish Parliament Gives Go Ahead for Incursion


• Yahoo!: Bush Urges Turkey to Consider Other Options


• TheStreet.com: Ebay (Nasdaq: EBAY) Survives Skype Scrape


• AP/Yahoo!: Bank of America (NYSE: BAC) Profits Slide 32%


• Bloomberg: Weekly Initial Jobless Claims Run Hot


• Pending 10:00 AM - Leading Indicators September (Consensus +0.3%)


• Pending 12:00 - Philadelphia Fed Survey October (Consensus 7.0)


• Bloomberg: Greenspan Says Dollar Drop Might Not Be Drastic if Foreign Capital Withdraws


• TheStreet.com: Google (Nasdaq: GOOG) Gets Hot Again


• Yahoo! Earnings Calendar


• Bloomberg: Fed's Beige Book Indicates Growth Slowed


• DailyFX: Dollar Backtracks on Fed Beige Book


• MarketWatch: Nokia (NYSE: NOK) Profit Up 85%


• CNBC: Pfizer (NYSE: PFE) Profit Rises


• AP/Yahoo!: Lilly (NYSE: LLY) Profits


• AP/Yahoo!: Washington Mutual (NYSE: WM) Profit Shrinks


• AP/Yahoo!: Boston Scientific (NYSE: BSX) Cuts 2,300 Jobs


• Forbes: SAP AG (NYSE: SAP) Profit Rises 10%


• AP/Yahoo!: Continental (NYSE: CAL) Profit Inches Higher


• Financial Times: Armenian/Americans Day Delayed


• Economist: Bhutto Back in Pakistan


• Iran Daily: Tales from the Dark Side

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Today's Coffee - Death Match!: Tech Vs. Housing

(Stocks in article: Nasdaq: YHOO, Nasdaq: INTC, NYSE: MTG, NYSE: KO, NYSE: MAN, NYSE: JPM, NYSE: ABT, NYSE: HOV)

Let's get ready to rumble!!! In this corner, the champion of market-moving news... Weighing in at a 14-year low annual pace of 1.191 million housing starts; recording a National Association of Home Builders' 23-year record low builders' confidence measure of 18; and continuing to threaten economic recession, the housing industry! And in this corner, the challenger; a blast from the past and champion of years ago; reporting strong and Nasdaq leading quarterly earnings, the technology sector! Now let's keep it clean fellas; no rabbit punches and no errand extraction of data to inspire speculative investment!

The housing market offered two pieces of very negative news this morning, with housing starts and home builder confidence both reaching extreme lows. Ara Hovnanian, founder and chief of home builder Hovnanian (NYSE: HOV), looked like a desperate man on CNBC on Tuesday. In fact, in interview after interview, he keeps harping on how many cycle troughs his company has been through. He talks about it even when not asked how his specific company is doing. I suspect this is a sign that his Board of Directors and institutional shareholders might be asking a lot of questions. In my experience as an analyst, I've found that when managers look desperate they sometimes are. HOV's recent fire sale ahead of quarter end was another obvious sign of the company's walking the ledge, in my view. Does this mean some home builders could go bankrupt, sure, but there are plenty of measures companies can do to avoid or prolong that end. Selling assets is one way, and while land might not fetch the best price now, there are always vulture investors available to buy. The "Potters" of this world are plenty.

Meanwhile, on the sunny side of the road, or perhaps Sunnyvale, California, tech giants Yahoo! (Nasdaq: YHOO) and Intel (Nasdaq: INTC) both reported sweet results last night. Intel's chief was on CNBC speaking of market expectations, which are viewed as rosy, being less positive than what the company is actually seeing in the global marketplace. Intel beat analysts' consensus by a penny, as compiled by Thomson Financial, and the shares are up some 4% today. The market is now pondering if results were excessive and represent customer overstocking, but there's an easy way to figure that out. Just take a look at the book-to-bill ratio, which measures actual orders to sales. Odds are that this figure builds ahead of the holidays every year, so we would want to compare the current reported figure to last year and say the five-year median or average for this time of year. We put a call in to the company's new CFO, Stacey Smith, and are awaiting the return call. We will update the story and let you know about it once we have the data.

Yahoo! (Nasdaq: YHOO) surprised some with its results in Jerry Yang's first opportunity to show he means business. Recall, Jerry returned to the company he co-founded to take over the CEO position. He and investors' hoped he might help give strategic direction to Yahoo! and lead it to make up the valuation ground lost to Google (Nasdaq: GOOG). YHOO is up near 7% today, as the company beat expectations by $0.03 in earning $0.11 a share. Some of the gain had to do with share repurchases in the current period, but the company also beat analysts' revenue forecasts, adding credibility to the results.

In other important economic news, the Consumer Price Index for September was reported today and it was hot. Headline CPI, the part that includes food and energy, jumped 0.3%, ahead of the 0.2% view seen by Bloomberg's consensus of economists. Core CPI, excluding the two volatile yet important components, climbed 0.2%, in line with views. For the year through September, Core CPI rose 2.1%, slightly outside of the Fed's comfort range of 1-2%. While others disagree, we view this figure instrumental in keeping the Fed restrained from action on Halloween. While we think there is a 25% chance of a Fed cut of 25 basis points, we expect the Fed will not act this time around. Credit markets are functioning more fluidly now, and there is clearly growing concern at the Fed about the falling dollar and the related risk of decreasing foreign investment in U.S. assets.

Tuesday's Treasury International Capital Report showed an August net outflow of $69.3 billion of capital out of long-term U.S. securities. This provides further support for the case against Fed follow up to its rate cut of September. This figure was so significant that it dwarfed the previous record outflow of $21.2 billion in March of 1990. While the outflow of capital was not caused by the Fed action in September, more like the credit crisis that spurred it, a case can be made that foreign reserve investment and other investment in the U.S. could find other home if the dollar is anticipated to continue weakening. Fed rate cuts would probably only lend to dollar weakening, and if credit markets have been thawed and the job market is still alive, the Fed may wait awhile before taking further action, if it acts at all. Much depends on the American consumer, and how he handles the many pressures upon him. We continue to anticipate recession.

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Is America Iraq's Guardian OR Are We Hypocrites?

A sovereign nation that we have taken on the responsibility to dismantle and reconstruct is about to be invaded. We incurred regime change upon Iraq, and accepted the responsibility of rebuilding the nation for the sake of stability in the Middle East and in order to neutralize soil we felt was rich for breeding terrorists and WMD. I ask you now, are we Iraq's guardian or are we liars and exploiters?

As we and Iraq stand on the brink of imminent invasion from Turkey, a supposed NATO ally, the nation we rendered defenseless, and now occupy and police, relies upon us to defend it with word and with force. What are we but hypocrites if we allow our supposed ally to enter Iraqi territory without welcome, and argue against Iranian influence in Iraq. If Syria or Iran were currently contemplating the entry into Iraqi territory, be sure that Condoleezza Rice would stand strongly and voice stern warning against such a plan. WHERE ARE YOU NOW CONDOLEEZZA? I am an open-minded Republican, but/and I stand for honor and truth foremost! Where do you stand America?

Our honor and whatever credibility we still have as a competent head of world order is in question today. Turkey should be warned that any invasion of Iraq is an invasion of its ally and protector the United States of America.

Turkey's alliance to the USA is questionable. When America sought to use Turkish airspace in our effort to topple Saddam, Turkey turned us away. At the last minute, Turkey refused us in an effort to remove a dangerous dictator. What kind of ALLY is that? You are not America's ally of convenience, and America is not Iraq's guardian of convenience!

Is America a country of honor and one where our word means something anymore? Have we not proclaimed ourselves defender of Iraq, and charged ourselves with insuring its safety against unruly neighbors. If terrorism emanating from Iraq exists and injures Turkey, is it not our responsibility to handle it inside the walls of Iraq? Allow the aggressive nation of Turkey to manhandle the Kurds, and we risk losing our strongest ally in Iraq (the Kurds) to another influence, perhaps Russia. Can we afford that loss of credibility and support now?

Consider that outside influences could be manipulating Turkey now in order to create a rift between America and its ally, just when America needs to be sure its back is without risk. Iran and/or Russia could be behind the terrorist actions against Turkish soldiers, and if so, are effectively spurring the aggressive Turks into action that could be detrimental to our alliance.

As we contemplate action on Iran, Russia's Putin issues warnings to America not to use ex-Soviet airspace or territory in that effort. Wall Street Greek (Greek/AMERICAN) asserts that in fact, Russia and or Iran are likely behind the "terrorist actions" at the Turkish/Iraqi border. The question posed now is, will President Bush and Turkey's Gul and Erdogan recognize this, or allow their nations to be used as puppets by Putin and Ahmadinejad.

Americans need to stand up for what is right now. You need to call your Congressmen and you need to organize in protest against this Turkish action. Please use this blog to plan any organization. Post comments to this specific article and I will publish them. Let's talk about organizing a meeting at the UN in protest. Somebody send this to the State Department! Please comment, and tell the world America still has honor and a word worth trusting in!

The Greek's Week Ahead - The Growth Hoax

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

At times like these, when the Fed seeks to stimulate economic growth, the sector that should benefit most is growth oriented and "low quality" shares in our view. However, we view the current market environment illusory, and providing a sort of growth hoax that we expect will be exposed after the Fed's Halloween meeting.

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, if not most, as one characterized by the start of Fed expansionary efforts, and this may be behind the outperformance of "riskier" industries of late. For instance, the S&P Biotechnology group is up 10.3% in the 13 weeks through October 5. Over that same 13 week period, the Information Technology sector (+4.9%) is second in performance only to energy (+5.5%), 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 sometime between my publishing of this article and a week ahead of Halloween, is to go short the industries that got hot around the cut, and long the names that got cold around that same time.

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

Outside of earnings season revving up into full swing, a rather light event week kicks off Monday with the 8:30 a.m. EDT reporting of the Empire State Manufacturing Index. The October measure of the state of manufacturing in the New York area is seen reaching 12.5 in October, down from September's reading of 14.7, according to Bloomberg's consensus of economists. Last month's figure was a significant disappointment, with expectations for a reading of 20.

The day marks the debut of CNBC's new formidable rival, the Fox Business Network. Markets will be closed in Argentina, Chile and Columbia, marking Columbus Day. I guess it took him a few more days to discover South America? Did you know he landed first in the Bahamas? In the evening, Ben Bernanke will keep some economists attuned to the wire as he speaks to the Economic Club of New York, no doubt over a New York strip steak.

Monday's earnings slate is headlined by Citigroup (NYSE: C), as the big banks take center stage, or fall off it. Many expect banks to report big charge-offs this quarter, related to credit market woes. This is an important reason why expectations for earnings growth are so dull this quarter. The hugely important financial sector accounts for over 20% of the market cap of the S&P 500 Index. Another interesting earnings report will arrive from toy maker Mattel (NYSE: MAT). This is the company with all the lead paint recalls, and that same firm that apologized to China for publicizing it so conscientiously when it accepted responsibility... It seems the Chinese would have rather kept it all hush hush. We found it somewhat surprising that MAT's earnings estimates for this quarter and next have not changed over the last 90 days as a result. While analysts may be missing the obvious, seems investors have not, as Mattel's shares are well off their springtime highs.

Others reporting on Monday include Alfacel (Nasdaq: ACEL), Badger Meter (AMEX: BMI), Corgi Int'l (Nasdaq: CRGI), Eaton (NYSE: ETN), Enzo Biochem (NYSE: ENZ), First Defiance (Nasdaq: FDEF), Genentech (NYSE: DNA), Intraware (Nasdaq: ITRA), Lakeland Financial (Nasdaq: LKFN), Macatawa Bank (Nasdaq: MCBC), New Oriental Education (NYSE: EDU), Nuveen Investments (NYSE: JNC), Robbins and Myers (NYSE: RBN), Royal Phillips Electronics (NYSE: PHG), Sonic (Nasdaq: SONC), Suffolk Bancorp (Nasdaq: SUBK), Sun Bancorp (Nasdaq: SNBC), Traffix (Nasdaq: TRFX), W.W. Grainger (NYSE: GWW), Werner Enterprises (Nasdaq: WERN) and Zila (Nasdaq: ZILA).

In light of the approaching Federal Open Market Committee meeting on Halloween, be sure to catch Tuesday's weekly same-store sales report from the International Council of Shopping Centers-UBS. Last week's report showed very soft year-to-year sales growth of just 2.1%, and the retail sales report for September showed misleading strength inflated by transactions of expensive gasoline and unexplained auto sales improvement.

Industrial Production for the month of September is expected to increase 0.1%, according to Bloomberg's consensus. That's down from last month's 0.2% increase and July's 0.3% growth. Economists are still figuring out whether this trend is indicative of cautious production ahead of softening domestic end-demand, or change driven by real economic downturn today. Capacity utilization is seen slipping just modestly though, to 82.1% from 82.2%.

Treasury International Capital for the month of August is set for report Tuesday. Foreign demand for long-term U.S. securities dipped in the last report to $19.2 billion in July, from $120.9 billion in June. With the dollar sinking, one would expect September's report to show up weak, no matter what happened in August. This is likely something the Federal Reserve will pay attention to, and certainly the Treasury Secretary will. Speaking of the dollar, the Bank of Canada is set to decide what to do with its interest rates, and given signs of Canadian economic weakness cited in the FOMC meeting minutes released last week, we would not expect action detrimental to the U.S. dollar relationship.

The National Association of Homebuilders' Housing Market Index is expected to set a new all-time low in October, according to Barron's and Lehman Brothers, after its recent record breaking bottom of 20 in September of this year.

Tuesday's earnings report schedule will be headlined by a couple of tech giants, as Intel (Nasdaq: INTC) and Yahoo! (Nasdaq: YHOO) report. With the return of renaissance man and CEO Jerry Yang, it should be interesting to see what changes are in store at Yahoo! if any. Analysts are looking for per share results of $0.08, versus last year's $0.11 quarterly tally.

The rest of the day's earnings reporters include A.O. Smith (NYSE: AOS), ADTRAN (Nasdaq: ADTN), AMB Property (NYSE: AMB), AmeriServ Financial (Nasdaq: ASRV), BOK Financial (Nasdaq: BOKF), Champion Enterprises (NYSE: CHB), Community Trust (Nasdaq: CTBI), CORUS Bankshares (Nasdaq: CORS), Crown Holdings (NYSE: CCK), CSX Corp. (NYSE: CSX), Delta Air Lines (NYSE: DAL), Diamondrock Hospitality (NYSE: DRH), Domino's Inc. (NYSE: DPZ), Enterprise Financial (Nasdaq: EFSC), Equity Lifestyle Properties (NYSE: ELS), Exfo Electro-Optical (Nasdaq: EXFO), First Place Financial (Nasdaq: FPFC), Forest Labs (NYSE: FRX), FSI International (Nasdaq: FSII), Fulton Financial (Nasdaq: FULT), Great Atlantic and Pacific Tea (NYSE: GAP), Hancock Holding (Nasdaq: HBHC), Integra Bank (Nasdaq: IBNK), IBM (NYSE: IBM), Johnson and Johnson (NYSE: JNJ), Keycorp (NYSE: KEY), Lifecore Biomedical (Nasdaq: LCBM), Linear Tech (Nasdaq: LLTC), MEDTOX Scientific (Nasdaq: MTOX), National Penn Bancshares (Nasdaq: NPBC), Palm Harbor Homes (Nasdaq: PHHM), Polaris (NYSE: PII), POSCO (NYSE: PKX), Regions Financial (NYSE: RF), Renaissance Learning (Nasdaq: RLRN), Renasant (Nasdaq: RNST), RLI Corp. (NYSE: RLI), ST Bancorp (Nasdaq: STBA), Sandy Spring Bancorp (Nasdaq: SASR), Seagate Tech (NYSE: STX), SPANSION (Nasdaq: SPSN), Stanley Furniture (Nasdaq: STLY), State Street (NYSE: STT), Steel Dynamics (Nasdaq: STLD), Supervalu (NYSE: SVU), McClatchy (NYSE: MNI), Thornburg Mortgage (NYSE: TMA), USANA Health (Nasdaq: USNA), Wells Fargo (NYSE: WFC), West Coast Bancorp (Nasdaq: WCBO) and Westamerica (Nasdaq: WABC).

On Wednesday, we'll get a look at how higher producer prices may have impacted consumer prices. It's more likely that higher energy prices found their way into the Core CPI figure than they did in the Core PPI, reported last week up just 0.1%. The headline PPI measure was up 1.1% on changes in food and energy prices. Regarding the September CPI metric, Bloomberg's consensus expects a 0.2% increase across the board. While it's not the Fed favored metric, pay close attention to whether the year-over-year CPI growth fits into the Fed tolerable range of 1%-2%.

September Housing Starts are expected to fall to a 1.3 million annual pace, down from August's 1.33 million, thus continuing the well-documented slide of housing. On that note, the Mortgage Bankers Association makes its regular Purchase Applications report early Wednesday, but it will likely be muted by the more important Housing Starts data.

With oil rising against all odds, at least on the Greek's book, the EIA will report its regular inventory data at the usual 10:30 time. You would think that with the economy slowing, oil prices should trim some fat, but as the dollar weakens, the relative value of commodities rise.

At 2:00 p.m. the obscure sounding but actually important Beige Book will display a compilation of the Fed's regional reports. Much can be gleaned here about how the Fed is thinking heading into the Halloween meeting.

We may get some anecdotal evidence about the state of employment on Wednesday, with the simultaneous earnings reports from Labor Ready (NYSE: LRW) and Manpower (NYSE: MAN).

The remainder of Wednesday's earnings reports include Abbott Labs (NYSE: ABT), Alliance Data (NYSE: ADS), Altria Group (NYSE: MO), AMR Corp. (NYSE: AMR), Amylin Pharma (Nasdaq: AMLN), AptarGroup (NYSE: ATR), Arena Pharma (Nasdaq: ARNA), BlackRock (NYSE: BLK), Cavium Networks (Nasdaq: CAVM), CIT Group (NYSE: CIT), Citrix Systems (Nasdaq: CTXS), City National (NYSE: CYN), Colonial Bank (NYSE: CNB), Comerica (NYSE: CMA), Consumer Portfolio Services (Nasdaq: CPSS), Cubist Pharma (Nasdaq: CBST), Datalink (Nasdaq: DTLK), Downey Financial (NYSE: DSL), E*TRADE (Nasdaq: ETFC), East West Bancorp (Nasdaq: EWBC), eBay (Nasdaq: EBAY), Exponent (Nasdaq: EXPO), First Cash (Nasdaq: FCFS), Gannett (NYSE: GCI), Gramercy Cap (NYSE: GKK), Healthcare Services (Nasdaq: HCSG), Healthways (Nasdaq: HWAY), Illinois Tool Works (NYSE: ITW), IMS Health (NYSE: RX), Intersil Corp. (Nasdaq: ISIL), J.P. Morgan (NYSE: JPM), Knight Capital (Nasdaq: NITE), Knoll (NYSE: KNL), LaSalle Hotel (NYSE: LHO), LeCroy (Nasdaq: LCRY), Leggett & Platt (NYSE: LEG), Logitech (Nasdaq: LOGI), Lufkin (Nasdaq: LUFK), Marshall & Isley (NYSE: MI), MB Financial (Nasdaq: MBFI), MGI Pharma (Nasdaq: MOGN), MGIC Investment (NYSE: MTG), MoneyGram (NYSE: MGI), Navigant Consulting (NYSE: NCI), Noble Corp. (NYSE: NE), Northern Trust (Nasdaq: NTRS), NVE Corp. (Nasdaq: NVEC), Pacific Continental (Nasdaq: PCBK), Packaging Corp. of America (NYSE: PKG), Partners Trust Financial (Nasdaq: PRTR), People's United (Nasdaq: PBCT), Piper Jaffray (NYSE: PJC), Polycom (Nasdaq: PLCM), Rurban Financial (Nasdaq: RBNF), S.Y. Bancorp (Nasdaq: SYBT), Sovereign Bancorp (NYSE: SOV), Spartan Stores (Nasdaq: SPTN), Stryker (NYSE: SYK), Teradyne (NYSE: TER), Texas Capital (Nasdaq: TCBI), Allstate Corp. (NYSE: ALL), Coca-Cola (NYSE: KO), Thomas Group (Nasdaq: TGIS), Torchmark (NYSE: TMK), United Community Financial (Nasdaq: UCFC), United Tech (NYSE: UTX), Universal Forest (Nasdaq: UFPI), Valley National (NYSE: VLY), Valmont (NYSE: VMI), Virginia Commerce (Nasdaq: VCBI), Votorantim Celulose (NYSE: VCP), Washington Mutual (NYSE: WM), WD-40 (Nasdaq: WDFC) and Wesbanco (Nasdaq: WSBC).

On Thursday, Weekly Initial Jobless Claims are seen measuring 312,000 in the Labor Department's latest reporting. Last week, the list of new benefits filers amounted to 308,000. Remember, this list does NOT include old slaves to the corporate box, who have been recently converted to babble producing bloggers in an empty box, like muah? Hey, if you can't laugh at yourself, then you probably have not made a blog post at 3 a.m. yet!

The Conference Board will produce its Leading Indicators Index still too late for the Fed to use in its new effort to predict economic change (God bless em). The month-to-month change in the figure is expected by Bloomberg's consensus to show increase of 0.3% in September, after a 0.6% decrease in August.

The EIA Natural Gas inventory report is due at 10:30, while hurricane season comes to an end. At noon, the Philly Fed Index should show Philadelphia area manufacturing sentiment decreased versus the prior month. Bloomberg published a consensus estimate for a reading of 7.0 this time around, compared to 10.9 in September.

Thursday is the day Google (Nasdaq: GOOG) reports, and it should be declared Googlemania day with the amount of media coverage it will likely attract, especially now that Fox and CNBC will compete for viewer attention. The Greek would rather look at lower key story. McGraw-Hill (NYSE: MHP) is due to report on Thursday, after reacting to government scrutiny of its Standard & Poor's division by dropping the segment's CEO. It should be interesting to see if there was any economic impact to the firm, but we suspect the volatility that struck credit markets may have helped the credit rating business, if the drop of trading volume did not outweigh the need for risk measures (however outdated the Congressional Committee reviewing the situation may view those).

The remainder of Thursday's earnings schedule includes A. Schulman (Nasdaq: SHLM), ABC Bancorp (Nasdaq: ABCB), Advanced Micro Devices (NYSE: AMD), AMCORE Financial (Nasdaq: AMFI), American Standard (NYSE: ASD), AMETEK (NYSE: AME), Arbitron (NYSE: ARB), Associated Banc-Corp (Nasdaq: ASBC), Astoria Financial (NYSE: AF), Avici Systems (Nasdaq: AVCI), BancFirst (Nasdaq: BANF), Bank of America (NYSE: BAC), Bank of New York (NYSE: BK), Baxter Int'l (NYSE: BAX), BB&T (NYSE: BBT), Briggs & Stratton (NYSE: BGG), Brookline Bancorp (Nasdaq: BRKL), Build a Bear (NYSE: BBW), Cadence Financial (Nasdaq: CADE), California Micro Devices (Nasdaq: CAMD), Capital One Financial (NYSE: COF), Citizens Banking (Nasdaq: CRBC), CoBiz (Nasdaq: COBZ), Community Banks (Nasdaq: CMTY), Computer Programs & Systems (Nasdaq: CPSI), Continental Airlines (NYSE: CAL), Cree (Nasdaq: CREE), Cybersource (Nasdaq: CYBS), Cypress Semi (NYSE: CY), Cytec (NYSE: CYT), Danaher (NYSE: DHR), Dow Jones & Co. (NYSE: DJ), Eli Lilly (NYSE: LLY), F.N.B. Corp. (NYSE: FNB), Fairchild Semi (NYSE: FCS), Fidelity Southern (Nasdaq: LION), First Commonwealth Financial (NYSE: FCF), First Financial (Nasdaq: FFIN), First Horizon National (NYSE: FHN), First Merchants (Nasdaq: FRME), Genuine Parts (NYSE: GPC), Gilead Sciences (Nasdaq: GILD), Great Southern (Nasdaq: GSBC), HNI Corp. (NYSE: HNI), Home Bancshares (Nasdaq: HOMB), Horizon Fin'l (Nasdaq: HRZB), Huntington Bancshares (Nasdaq: HBAN), ICU Medical (Nasdaq: ICUI), IDEX (NYSE: IEX), Informatica (Nasdaq: INFA), Insteel Industries (Nasdaq: IIIN), InsWeb (INSW), Intuitive Surgical (Nasdaq: ISRG), IONA Tech (Nasdaq: IONA), Journal Register (NYSE: JRC), KVH Industries (Nasdaq: KVHI), Landstar System (Nasdaq: LSTR), Luby's (NYSE: LUB), Media General (NYSE: MEG), Mission West (NYSE: MSW), Modine Manufacturing (NYSE: MOD), Molex (Nasdaq: MOLX), Nokia (NYSE: NOK), Novartis (NYSE: NVS), Nucor (NYSE: NUE), Oakley (NYSE: OO), Omnicell (Nasdaq: OMCL), Orbital Sciences (NYSE: ORB), Packeteer (Nasdaq: PKTR), Parker Hannifin (NYSE: PH), Pfizer (NYSE: PFE), PMC-Sierra (Nasdaq: PMCS), PNC Financial (NYSE: PNC), PPG Industries (NYSE: PPG), Preferred Bank (Nasdaq: PFBC), Provident Bankshares (Nasdaq: PBKS), Reliance Steel (NYSE: RS), RF Monolithics (Nasdaq: RFMI), Rimage (Nasdaq: RIMG), Robert Half (NYSE: RHI), Rush Enterprises (RUSHB), SanDisk (Nasdaq: SNDK), SAP AG (NYSE: SAP), Simmons First National (Nasdaq: SFNC), South Financial (Nasdaq: TSFG), Southwest Airlines (NYSE: LUV), Southwest Bancorp (Nasdaq: OKSB), St. Jude Medical (NYSE: STJ), Strattec Security (Nasdaq: STRT), SunPower (Nasdaq: SPWR), SunTrust (NYSE: STI), Tempur Pedic (NYSE: TPX), Textron (NYSE: TXT), Hershey (NYSE: HSY), McGraw Hill (NYSE: MHP), Ultratech (Nasdaq: UTEK), Umpqua (Nasdaq: UMPQ), Union Pacific (NYSE: UNP), UnionBanCal (NYSE: UB), UnitedHealth (NYSE: UNH), USA Truck (Nasdaq: USAK), Vascular Solutions (Nasdaq: VASC), VF Corp. (NYSE: VFC), Washington Federal (Nasdaq: WFSL), Watsco Inc. (NYSE: WSO), WESCO Int'l (NYSE: WCC), Western Alliance (NYSE: WAL), Winmark (Nasdaq: WINA), Wyeth (NYSE: WYE), Xilinx (Nasdaq: XLNX), Zhone Tech (Nasdaq: ZHNE) and Zions Bancorp (Nasdaq: ZION).

China's H-Shares get a day off, as the Hong Kong market is closed on Friday. The Group of Seven finance minsters is set to meet in Washington at the end of the week, and many experts are anticipating pressure on Treasury Secretary Paulson to do something about the troubled dollar. William Poole and Ben Bernanke will address a group together on Friday, as they discuss "Monetary Policy Under Uncertainty." We wonder if Mr. Poole will define his usage of the word "calamity" and if he understands now when and when not to use such language.

Reporting earnings at the week's close, look for news from Dow global growth stories, Caterpillar (NYSE: CAT) and Honeywell (NYSE: HON). The remainder of the schedule includes 3M (NYSE: MMM), AMCOL (NYSE: ACO), Arch Coal (NYSE: ACI), Boston Scientific (NYSE: BSX), Caterpillar (NYSE: CAT), Dime Community Bancshares (Nasdaq: DCOM), Donegal Group (Nasdaq: DGICA), Fifth Third Bancorp (Nasdaq: FITB), Harley-Davidson (NYSE: HOG), ICICI Bank (NYSE: IBN), Kensey Nash (Nasdaq: KNSY), Mohawk Industries (NYSE: MHK), New York Community Bancorp (NYSE: NYB), Old Second Bancorp (Nasdaq: OSBC), Overstock (Nasdaq: OSTK), Schlumberger (NYSE: SLB), Sensient Tech (NYSE: SXT), Sonoco Products (NYSE: SON), Student Loan (NYSE: STU), Wachovia (NYSE: WB), Wilmington Trust (NYSE: WL), Wipro Ltd. (NYSE: WIT) and Xerox (NYSE: XRX). We hope you again found value in our weekly market-moving event planner, and look forward to keeping you updated all week long.

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Riding the Martek Roller Coaster

If you have owned Martek Biosciences (Nasdaq: MATK) over the past few years, you could probably use some motion sickness medication.

Your favorite Greek here stumbled across Martek (Nasdaq: MATK) at a conference one winter morning in Philadelphia in 2003. What a ride it has been ever since! Seeing Martek present was a time fill for me. I was there to see Headwaters (NYSE: HW), a company I never ended up adding to my analytical coverage. As I skimmed over the presentation schedule in my hotel room the evening before the conference, Martek looked like an interesting story to fill my 11:00 AM slot.

The company’s DHA/ARA combination had just received FDA “Generally Recognized as Safe” (GRAS) approval status, and the company was actively signing up licensees who wanted to add the omega 3 fatty acid to infant formula. You see, studies show it’ll make your kid smarter. Even though its revenues to date were insignificant, I viewed Martek as a company on the cusp of generating a significant and steady stream of income.

I was right and Martek was my best performing “strong buy” selection that year, and a quick look at the chart will show you why. MATK soared 160% in 2003. However, I was not married to the name. I made note to clients that the company was manufacturing on an industrial scale for the first time in its history, and was likely to run into some growing pains. I was right again, and the company experienced a fire at an important plant; and remember that black out in Italy a few years back, around the same time as the Northeast black out. Well that wiped out the inventory of Martek’s only supplier of ARA, and severely impeded MATK’s ability to service customers.

Then, down the road a bit, Martek came to understand the importance of maintaining active communications with clients. As it turned out, a major client had stocked up its own store of inventory to protect itself from the risk of supply disruption, and did not bother to notify the company that it would reduce purchases later, when Martek had properly stocked up for itself. The analyst and investment community did not appreciate all the mishaps, and when deals with foods companies did not materialize as quickly as had been expected, the shorts smelled blood.

Martek had aggressively built capacity to meet the expected demand from all sorts of food producers who would place Martek’s healthy for your heart DHA in everything from baby food, to yogurt, to health bars, to cereal. The stock collapsed as the company bore the cost of carrying such excess capacity.

But the roller coaster looks to be ready to climb again. Martek is signing deals and its earnings are back growing impressively on even a sequential quarter basis. In its last reporting period, Martek’s fiscal third quarter, EPS grew 27% over the fiscal second quarter result. Still its shares sank in after hours trading that day.

Here's why...

In growing its revenue 11%, to $77.8 million, Martek missed consensus revenue forecasts for $78.5 million, and was toward the low end of the range that stretched from $77.3 to $79.5 million. Besides this, much of the company’s gross margin expansion in the quarter was due to the resolution of prior issues with its supplier of arachidonic acid (ARA), DSM Food Specialties B.V. Also, based on information gleaned from the conference call, SG&A expenses came in about $1 million above company forecast.

Still, management indicated that fourth quarter gross margin should meet or exceed the third quarter result, due to ongoing benefits from the company’s revised agreement with DSM, and on increased sales. And let’s not overlook the fact that Martek managed to exceed the analysts’ EPS consensus view, as measured by Thomson Financial, by a penny in earning $0.19 a share. The company also provided EPS guidance for Q4 of $0.20 to $0.21 a share, ahead of analysts’ view for $0.19.

In a case like this, The Greek thinks it’s important for investors to differentiate the truly significant information from the noise. It’s clear that operations are improving. It’s just the gauging of the rate of improvement that is in question, and that’s likely why MATK was penalized in the after hours. Times like this can create a buying opportunity, in our view. What’s most important in this case is that Martek added eight new product partners offering its DHA within their ingredients. During the call, CEO, Steve Dubin, indicated that the company was ahead of his food product forecast for the year, and had a growing list of potential product opportunities that numbered more than 180. At the same time, Martek was also increasing its partnerships in the Pregnancy and Nursing Products Category.

Now amounting to a double-digit portion of total sales, non-infant formula products are increasingly becoming the company’s growth driver. Meanwhile, Martek continues to expand its international opportunities, recently achieving novel food ingredient status in China. Management still sees plenty of opportunity in second tier providers of infant formula overseas. And Martek’s vegetarian sourced DHA, versus fish based, remains the gold standard.

But that’s not all…

The company seems focused now on maintaining stability and improvement of operational results and measures. We just have one concern, its expectation for inventory to rise in Q4. Considering inventory problems held the company back in the past, this could also be the source of the after-hour headache. We do not expect any noteworthy problem to develop; surely by now management must have a handle on this issue (read its investors hope and pray).

Company ----------- Ticker ------------- Ttm P/E -- Est. 5-Yr Gr -- PEG
Martek Biosciences - NASDAQ: MATK -- 70 ------- 18.5% ------- 1.9
Techne --------------- NASDAQ: TECH --- 31 -------- 27 ------------ 2.1
LifeCell --------------- NASDAQ: LIFC ---- 56 -------- 39 ----------- 1.3
Medicis Pharma ---- NYSE: MRX -------- 69 -------- 23 ----------- 0.75
American Oriental - NYSE: AOB -------- 23 --------- 50 ----------- 0.3

It’s tough to value Martek on a relative basis, because it’s hard to find close peers. That said, some of the valuations above have attracted my attention, and I'll be taking a closer look at a few of the firms in the future. Biotechs are a different animal, requiring indepth knowledge of medicine, specific drugs in the pipeline, the FDA approval process and the rest of the technicals specific to the industry. This is the reason most investment banks hire PHD’s with medical industry experience to cover biotechs and not run of the mill business school brats.

During my time following Martek as a small and mid-cap generalist, I trusted in intrinsic measures to value the company. Ignore MATK's trailing twelve month P/E ratio. Based on the stock's close on October 12, 2007, and the consensus forecast for EPS of $0.84 in FY 08 (Oct.), we generate a forward P/E ratio of 36X. If analysts are correct, and the company is only going to grow earnings at an 18.5% clip over the next five years, that supplies a P/E-to-Growth ratio of 1.9, which is pricey.

In the near-term, earnings per share are expected to grow 33% over FY 07’s troubled result. That's significantly more than the 18.5% long-term estimate. Based on recent sequential growth and expanding opportunities in foods, we expect Martek's real long-term growth will be more like 25%. Calculating a P/E/G ratio based on that figure gives us a measure of 1.4X. This is much more appealing a valuation for the growth offered, and we expect analysts are under-appreciating the MATK opportunity because of historic painful memories. We expect growth expectations to be revised higher along with EPS views. However, because of the divergence in real expectations and our view, the margin of safety is not very wide. At the same time, if we are correct, return should be special. Therefore, we view MATK attractive now for picking at, and would certainly look to add shares on any broad market weakness.

Please note that we have changed our sidebar section, placing "Market-Moving News" in a position easier for readers to find. Over the next few weeks, you should notice some important additions to the sidebar. (disclosure)

Today's Coffee - Subpar Retail Scorecard

To see the current retail scorecard, visit our HOME PAGE at Wall Street Greek.

(Stocks in this article: NYSE: TGT, NYSE: WMT, NYSE: JWN, NYSE: JCP, NYSE: LTD, NYSE: AEO, NYSE: MW, NYSE: GPS, Nasdaq: ZUMZ, Nasdaq: WTSLA, NYSE: BKE, Nasdaq: PSUN, NYSE: PEP, Nasdaq: FAST, Nasdaq: INFY, NYSE: MTB)

Equities want to move higher, still buoyed by the 50 basis point cut of the Federal Reserve. The rally started in anticipation of the September move, and has continued buoyed upon it. However, we are fairly certain in our analysis that as we approach the Halloween meeting of the Federal Open Market Committee, with anticipation the Fed will leave the market hanging, equities should begin to discount that lack of further support. On the day of the Fed action, we noted our view that the Fed was heavily pressured by the Administration and Congressional leadership alike, whether directly or through implication, and acted on that basis. With credit markets breaking free from lock now, the Fed is likely to flex its own muscles a bit by not acting further in October.

We expect the tone of Fed governor conversation will continue focused on dollar weakness and the implications it carries, including the potential for inflation's return and decreased foreign investment in U.S. assets. Unless undeniable evidence surfaces of severe consumer weakness, and we might get some of that in tomorrow's retail sales report, we expect the Fed to hold steady. The market will view this let down comparable to the girl across the bar who stares and smiles at you, but when approached, rejects you like yesterday's news. In other words, we expect it to be a significant surprise and setback for stocks.

At that point, the market should refocus on the issues of consumer softness and dollar and economic weakness. There's a lot of power in that first rate cut that follows a period of restrictive action. It represents an inflection point, and return loves inflection points. However, a good portion of that return is born from expectation for further Fed follow through, and the Fed is about to pull that rug out from under the market's feet, in our view. We should rise up until the week before the Halloween meeting, and then investors will begin to increasingly anticipate a Fed letdown. This is why you read the Greek, for opinion daring enough to defy consensus and trend.

Retail Chain-Store Sales

Today offered the individual reports of chain-store sales from retailers across the gambit. For the most part, retailers disappointed, and this should become even more apparent in tomorrow's Retail Sales Report for September. The International Council of Shopping Centers has already reported September sales rose 1.7%, and the organization's Chief Economist, Michael Niemira, estimates the weather had a negative 0.5% impact to sales.

As we warned in our article, "3 Good Reasons to be Weary" the relatively warm weather this September and October, in comparison to last year, left sweaters on shelves and shoppers out enjoying the last little bit of Indian summer. However, the temperature was not the only driver behind the weak performance, and by now you are well aware of the burden the Atlas of the American economy, the consumer, is bearing. We further outlined this cost on spending in our article "As Consumer Confidence Tanks, Who Loses in Retail?" Perhaps that last piece should have been entitled, 'Everyone Loses in Retail," as even high-end participant Nordstrom (NYSE: JWN) reported disappointing results today, and subsequently lowered forward guidance. However, the high-end retailers still posted same-store sales increases for the most part, just lower than were projected by the non-weather attentive Wall Street. We continue to expect the high-end players to find less impact from strained consumer spending, and to find more capital from institutional investors who are in need a place to park retail segmented funds.

Notable disappointments included Target (NYSE: TGT), which reported a weaker than expected September, while revising its Q3 forecast lower. Q4 is at risk as well, as currently stocked inventory will need to be marked down to make room for holiday season goods. 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). As we foretold, teen retailers seemed to benefit from "back to school" spillover, as Zumiez (Nasdaq: ZUMZ), Buckle (NYSE: BKE), Wet Seal (Nasdaq: WTSLA) and Pacific Sunwear (Nasdaq: PSUN) all exceeded expectations.

Please note that we have changed our sidebar section, placing "Market-Moving News" in a position easier for readers to find. Over the next few weeks, you should notice some important additions to the sidebar. (disclosure)

As Consumer Confidence Tanks, Who Loses in Retail?

(Stocks in this article: NYSE: SKS, NYSE: JWN, NYSE: TIF, NYSE: COH, NYSE: WMT, NYSE: TGT, NYSE: NDN, NYSE: FDO, Nasdaq: DLTR, NYSE: M)

Last week's reporting of the RBC Cash Index showed improved consumer confidence, but recent readings from the Conference Board and University of Michigan portend trouble for retailers. We wondered which players could be most impacted by decreased consumer spending.

As consumer confidence seems to be falling off a cliff just before the critical holiday shopping season, we are taking this opportunity to measure which retailers could be impacted most in the months ahead. Friday morning, the RBC Cash Index indicated improvement in October, as the confidence measure improved to 80.6, from September’s 71.1. The result was no doubt driven by the market enthusing Fed rate cut last month. However, we expect the drivers of longer-term confidence are not yet supportive. In the week before last week, the Conference Board posted its September Consumer Confidence Index at 99.8, down from August’s measure of 105. The metric also came in short of Bloomberg’s consensus of economists, who anticipated a reading of 104.

Finding a trend in the Conference Board’s Consumer Sentiment Index has not been quite as easy as the search within the University of Michigan’s record. A quick study of the recent history of the Michigan Sentiment reading shows a clear trend downward as the year progressed, with a bump up in July as it became clear that second quarter GDP growth would be relatively strong. Since July, however, it’s become increasingly evident that future economic growth could soften.

Month --------- Conference Board -------- U. of Michigan Sentiment
September ----------- 99.8 ------------------ 83.4
August --------------- 105 -------------------- 83.4
July ------------------ 112.6 ------------------ 90.4
June ----------------- 103.9 ------------------ 85.3
May ------------------ 108 -------------------- 85.3
April ----------------- 104 -------------------- 87.1
March --------------- 107.2 ------------------ 88.4
February ------------ 112.5 ------------------ 88.4
January ------------- 110.3 ------------------ 91.3

Weighing on consumers’ minds, and pocket books, are relatively expensive energy and gasoline prices, rising food and dining expenditures, adjusting higher mortgage payments and a loss of home equity value, which is often referred to as the wealth effect. The perception of having value in one’s home lends to consumers’ mental well-being and propensity to spend. Thus, many experts believe, as do we, this reverse of the wealth effect should provide yet another limiting factor to consumer spending. In any event, the many pressures noted above are quite a lot to swallow, and with the consumer carrying the heavy load within the American economy, recession seems a strong possibility.

This past Tuesday’s Weekly Same-Store Sales Report from the International Council of Shopping Centers – UBS, did not offer any better news than recent consumer sentiment figures, excluding RBC. The ICSC-UBS report showed no change in spending compared to the week just prior. When compared to the year ago week, same-store sales rose 2.1%. That kind of growth seems okay, except for the fact that sales trends had been running much hotter last year and even earlier this year.

So, now that we have established our view that consumer spending should soften further, and retailers could face tough times, let’s examine which players might be impacted most. Since poor people are squeezed easiest, high-end retailers like Saks (NYSE: SKS), Nordstrom (NYSE: JWN) and Tiffany & Co. (NYSE: TIF), and producers (with stores) of high-end offerings like Coach (NYSE: COH), should be able to avoid significant impact.

However, on the low-end, at the discount chains, we have already seen warnings of bad times to come. Wal-Mart (NYSE: WMT) warned in August that the second half of the year would likely make for tough going, and reduced its earnings guidance. Then a couple weeks ago, Target (NYSE: TGT) chimed in, lowering its same-store sales growth projection for September to a range of 1.5-2.5%, from its previous forecast for 4-6% growth.

Even the “dollar store” concepts, like 99 Cents Only (NYSE: NDN), Family Dollar (NYSE: FDO) and Dollar Tree (Nasdaq: DLTR) may be hit as overall spending declines. We know what you’re thinking… If people cannot shop at Macy’s (NYSE: M), maybe they’ll head over to Family Dollar. However, we expect they will also shop less, and as general spending decreases, this could expose a saturated retail environment. In such an environment, your favorite Greek expects industry consolidation will occur, which could in turn impact commercial construction. We expect the retail industry to soon join the ranks of work force reducers. You see, when times get tough, first you fire folks, and then you close stores.

Now, the Labor Department data released this morning does not indicate a shedding of labor weight among retailers as yet, but with the holiday shopping season just around the corner, that would not make sense now in our view. We are approaching the time of year when seasonal hiring occurs, and so we would simply expect less of that now.

Company ------ Ticker ----- 90-Day Ch. EPS Est.--- Ttm P/E ---- PEG 5 Yr. Gr.
Wal-Mart ----- NYSE: WMT ------ (7.4%) ------------ 15.3X ------- 1.2
Target --------- NYSE: TGT -------- (3.0%) ------------ 19.7 -------- 1.3
Family Dollar- NYSE: FDO ------ No Change -------- 17.3 -------- 1.4
Dollar Tree --- Nasdaq: DLTR -- No Change -------- 20.8 -------- 1.5
Tiffany -------- NYSE: TIF ------- +13.6% ------------- 30.4 -------- 2.5
Nordstrom --- NYSE: JWN ------ +1.6% -------------- 18.5 -------- 1.6

We studied the 90-day changes of current quarter EPS estimates, since we find analysts are typically late in making longer-term adjustments as times and operating environments change. We found the higher end names in Tiffany and Nordstrom actually showed increases in quarterly estimates, while big discounters Wal-Mart and Target showed decreases. Among the deep discount “dollar concept” names, the results were mixed. It seems clear our theory should hold true, and lower end retailers end up feeling the greatest impact of a burdened consumer.

Interestingly, valuations coincided with the studied firms’ outlooks, so that the companies with upward EPS adjustments are trading at a premium on a P/E-to-growth basis. We justify this by pointing out the need of institutional portfolio managers to put capital to work in the sector, while maintaining diversification of their portfolio and participation in a sector their benchmarks are sensitive to. Delta moves stocks, or in English, change and also rate of change play a role in the movement of stock prices. If you are a portfolio manager now, you are likely avoiding investing in a deteriorating operating model. So, while valuations are richer among the high end players, we would only expect capital support to maintain that or enrich the high-end stocks more. As a side note, we add that niche specialty retailers, in the right niche mind you, could also attract capital. One of our upcoming articles will bring one such idea into focus.

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Today's Coffee - 3 Good Reasons to Be Weary

(Stocks in this article: NYSE: KMB, NYSE: YUM, NYSE: TAP, LSE: SAB.L, NYSE: SLM, NYSE: T, NYSE: HRL, NYSE: NEM, AMEX: MNG, Nasdaq: PLCE, NYSE: JPM, NYSE: ANN, NYSE: JCG, NYSE: AEO, NYSE: LTD, NYSE: CHS)

The Dow, S&P 500 and Nasdaq Indices are all edging higher today. After the Fed move and better than expected jobs report, the market would seem free to move forward except for three key obstacles. First, there's the overhang that exists because of rising concern about the pending Halloween FOMC Policy decision. We fully expect the Fed to hold steady at that meeting, and we believe the market has built in expectations for a follow-through rate cut. See our discussion of this topic in "The Greek's Week Ahead - Fed Follow Through Matters."

The second important factor weighing down equities is the likely earnings drag from the financial sector this quarter. Financial sector stocks account for 20.1% of the S&P 500's market cap, making it the single most important sector in the index. Because of the sector's importance, analyst estimates for the broader market in third quarter are severely burdened, and currently stand at a level representing less than 2% growth, according to Thomson Financial. Now, we've seen analysts underestimate performance consistently over the past year or two, and we would expect performance to beat their expectations again this time around, but not by much.

The third and equally important factor tripping up the market is a likely weak retail outlook that should increasingly come to the fore. We expect gloomy consumer confidence to find a new factor helping it to influence consumer trends. We expect reduced consumer spending in Q3 and Q4 to be partly driven by relatively warmer weather this fall versus last. On Tuesday, an early signal of things to come emanated from The Children's Place (Nasdaq: PLCE), which warned that its Q3 earnings could be 60% or more short of its previously issued EPS guidance range of $0.94 to $1.02.

While investors and some analysts will likely initially assume the company made poor purchase decisions, we feel confident the results had much to do with the weather. PLCE even stated that the earnings miss was partly driven by "unseasonably warm weather over the last ten days of the quarter." As we have mentioned several times recently, the variance in temperature this year versus last should impact a broad span of retailers, as fall and winter lines remain shelved. As a result of PLCE's just reported 3% September same-store sales decline over the five-weeks ended October 6, the company is marking down a good portion of inventory. PLCE's forecast also includes a $0.07 severance charge for the recent departure of its CEO.

Building an even stronger case for a poor retail outlook, Tuesday's Store Sales Report from the International Council of Shopping Centers - UBS, showed same-store sales were unchanged in the week ended October 6, compared to the week just prior. When compared to the year ago period, same-store sales rose a meager 2.1%. Most retailers will report chain-store sales for the month of September on Thursday, while overall monthly retail sales are due for release on Friday. Bloomberg's consensus of economists expects the metric to show 0.3% month-to-month growth for September, excluding autos. This compares with August's 0.3% increase. Nonetheless, the Wall Street Greek expects disappointing results to rule the week on the retail front.

Thus, there may be some near-term short opportunities in the retail space. PLCE dropped approximately 5% through midday trading, and Limited Brands (NYSE: LTD), which reports its September results on October 11, was down 3% in sympathy. While the children's apparel retailer showed poor results, we think the short search is probably better served in non-school age categories, since there may be some "back to school" spillover into September that could add noise to the trend we are looking to exploit. Chico's FAS (NYSE: CHS) was down over 1% through midday Tuesday, as was AnnTaylor (NYSE: ANN). J. Crew Group (NYSE: JCG) and American Eagle Outfitters (NYSE: AEO) were also down in sympathy. Taking short positions in several names would help to limit the risk of shorting an individual name that may have a positive driver we are unaware of, and some further research would help. One thing is certain, apparel firms should consider creating a new executive position, Chief Meteorologist!

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Today's Coffee - Earnings Gloom with Touch of YUM

(Stocks in article: NYSE: BAC, NYSE: JPM, NYSE: GSK, NYSE: YUM, NYSE: GS, NYSE: AMR, NYSE: TXT, NYSE: UIC, NYSE: ABM, NYSE: BX, LSE: NRK.L, NYSE: BRK, NYSE: PTR, Nasdaq: UCBH, Nasdaq: BOBJ, NYSE: SAP, NYSE: PPC, NYSE: TSN)

Stocks, as defined by the Dow, Nasdaq and S&P 500 Indices, are drifting modestly lower into the afternoon close, as investors start to contemplate what is forecast to be the worst corporate earnings quarter in five years. The Street.com currently has an informative piece running on this topic. According to Thomson Financial, Q3 earnings growth is projected to measure just 1.4% for the financial sector heavy S&P 500 Index. We are sure that it is the combination of this gloomy forecast and concern about a Halloween shocker from the Fed, that has the market concerned.

As we outlined in "The Greek's Week Ahead - Fed Follow Through Matters," we believe the equity market drunkenly ran up before and after the 50 basis point Fed cut in September, and completely disregarded the possibility that it could have been a one and done type action. With Friday's revision to the August nonfarm payroll reading, this reality is likely to set in now. However, if the market does not adjust prior to Halloween, then we would go out on a limb and predict a frightful night in more than one respect.

INTERNATIONAL MARKETS

Chinese equities came back happy on Monday, after their week off. With mostly good news reaching wires during China's hiatus, there was no reason for a repeat of the February collapse that followed Chinese New Year holiday week. The CSI 300 Index rose 1.3% on the day while the Hang Seng slipped 0.22%. Japan and Canada are closed for various holidays. In Indonesia, the central bank kept its target rate unchanged at 8.25%, and the Jakarta Composite rose 0.92%.

Europe is modestly lower today, after the head of the IMF openly discussed his view that the dollar is undervalued. He also made a good argument for China to untie its renminbi from the dollar, as it manages the evolution of its own economy and domestic marketplace. At the same time, European Union finance ministers met in Belgium to discuss the risk to Europe tied to dollar softness against the euro. We believe this is a topic now of highest concern to European investors. European goods are losing cost competitiveness, not just in America, but in Asia as well. The group lowered its forecast for Eurozone economic growth to 2.5% this year, revised from 2.6% previously. The DJ Euro Stoxx 50 declined 0.44% today as a result, while the FTSE 100 has 0.83% at last check.

STOCK SPECIFIC NEWS

While every publisher on the face of the earth is proclaiming Alcoa's (NYSE: AA) earnings report tomorrow as the first of the season, Yum! Brands (NYSE: YUM) really kicks off the week's schedule today when it reports after the close. In recent times, YUM has shown strong growth driven by its expansion into China. In Q2, YUM's China division grew sales 25%, on Mainland restaurant unit growth of 19%. The owner of KFC is not benefiting from chicken prices like it did last year, when bird flu fears had producers like Pilgrim's Pride (NYSE: PPC) and Tyson Foods (NYSE: TSN) scrambling to unload poultry. Instead, rising feed costs and bird flu recession have driven poultry prices higher.

Still, in its June quarter, the company earned $0.03 more than estimates. In fact, YUM has beaten estimates over at least the last four quarters. This quarter's consensus estimate, compiled by Thomson Financial at $0.45, has not changed at all over the last 90 days. Now, we're not saying that means YUM will beat its number, but a case is building for it.

We took a closer look at the company, to get an idea of how management felt about the September quarter back in July, when it last reported. What we found was, dare I say yummy? YUM's management raised its own full-year forecast by three cents after reporting a three-cent beat in Q2. We suspect YUM is a serial UPOD (Under Promise Over Deliver) company, which Jim Cramer refers to regularly. It's truly a beautiful thing. YUM is not without risk though.

The company is growing its store base at a pace that would give Peter Lynch fits. YUM is planning to add a total of 375 stores in Mainland China alone this year, and 750 in its Yum! International Division, which excludes China. The risk of losing product and service consistency increases as you add octane to your growth. Even so, in such an unexploited market, that being China, Yum! is willing to take that risk.

Still, the machine is not without kinks, as you may recall YUM's multiple PR mishaps of recent times. For now, we expect YUM to pull another UPOD type quarter. However, at some point, we believe the company is going to have to get to work on efficiency improvement overseas, where its fast growth has likely created pockets of fat. Also, Colonel Sanders would certainly approve of some effort toward image restoration in the U.S.

Expectations this quarter are probably not tied to U.S. performance, since domestic operations have been less than stellar in ’07. U.S. division operating profit declined 7% through the first half of the year. So, YUM appears in a special position when compared to restaurant rivals, whose performance will be measured with an eye toward broader economic weakness. Since the market expects domestic performance to be weak at YUM, the stock should benefit from international growth, if execution is on target.

The stock has recovered ground lost in between quarters, and trades at 22X the ’07 consensus estimate of $1.64 and 19.5X ‘08’s $1.83. That puts YUM’s PEG ratio based on a 12% consensus 5-year growth forecast and the ’08 EPS estimate at 1.6. Now, EPS growth has been running a little hotter than this, at 15% in Q2. If we project a 15% long-term growth rate on the ’08 estimate (and we realize we are stretching a bit), we get a PEG ratio of 1.3. That kind of justifies YUM’s price. In other words, there seems to be an implication in YUM that growth will exceed the consensus figure. Still, with the stock running up into the report and the risk for some margin surprise from poultry prices, we would avoid a short-term long trade at this point.

Market-Moving News

• TheStreet.com: Q3 Shaping Up Worst in 5 Years


• CNN Money: Asian Markets Touch Fresh Highs


• CNN Money: Europe Drifts to Start Day


• AP/Yahoo!: European Finance Ministers Discuss U.S. Woes


• CNBC: Billions of Mortgage Loans to be Written Down by Bank of America (NYSE: BAC) and JP Morgan (NYSE: JPM)


• DailyFX: Dollar Recession Postponed


• Financial Times: IMF Head Warns of Dollar Dangers to Euro


• WSJ: GlaxoSmithKline (NYSE: GSK) Picks CEO


• Yahoo! Earnings Calendar


• YUM! Brands (NYSE: YUM) Earnings Pending Market Close


• Bloomberg: Goldman's (NYSE: GS) Secret to Success


• CNN Money: American Airlines (NYSE: AMR) Faces Labor Fight


• Bloomberg: OAO Gazprom, Russian Energy Giant Reports


• AP/Yahoo!: Shenhua Energy IPO Raises $8.9 Billion


• AP/Yahoo!: Textron (NYSE: TXT) Buying United Industrial (NYSE: UIC)


• AP/Yahoo!: ABM Industries (NYSE: ABM) Buys OneSource


• CNBC: Blackstone (NYSE: BX), Apollo Interested in Northern Rock (LSE: NRK.L)


• CNBC: Buffet (NYSE: BRK) Sells More PetroChina (NYSE: PTR) Shares


• Forbes: China Minsheng to Buy UCBH Holdings (Nasdaq: UCBH)


• WSJ: SAP AG (NYSE: SAG) to Buy Business Objects (Nasdaq: BOBJ)


• Economist: The Geopolitical Week Ahead


• BBC: Turkish Soldiers Killed


• Economist: Musharraf's Messy Victory


• Iran Daily: Tales from the Dark Side

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The Greek's Week Ahead - Fed Follow Through Matters

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

Whether you are Tiger Woods, Jimmy Rollins or Benjamin Bernanke, follow through matters. Woods' discipline gets him on the green consistently, while Rollin's pure will and sweet stroke got him to first base in the clutch moments this year. The heat is on Ben now to follow through with what he does best.

When the Fed cut its target rate by 50 basis points in September, it did more than just satisfy the credit market's immediate crisis of confidence and demand for liquidity, it set expectations as well. While the Wall Street Greek has warned as early as the day of the Fed action, that the Fed move would be one and done, we believe the market is counting on something more. After having grown accustomed to the style of the since published Alan Greenspan, the market cannot help but expect ongoing rate reductions as follow through to the initial medicine inducing sharp cut.

Expectations for further rate reduction have surely declined since Friday's revision of the August nonfarm payroll data, where job additions proved to measure 89,000, versus the initial estimate for a decline of 4,000 of the nation's employed. However, your favorite Greek still believes equity prices have a good deal of expectation built into them for rate cut follow through. So, while the current rally may last another week, or three, it will have to meet its maker ominously on Halloween, when the Federal Open Market Committee issues its next policy decision and statement. Now, let's take a look at this week's market-moving event schedule.

The Week Ahead...

Columbus Day brings no break for the stock market, while fixed income markets are closed on Monday. Markets in Japan and Canada are also shut down to begin the week. However, mainland Chinese markets reopen trading for the first time in a week. In this regard, we almost named this edition "Deja Moo Shu," as this past February's Asian market turmoil also occurred after a week's hiatus. Recall, February's China market crash followed the weeklong celebration of Chinese New Year. A slew of bearish data and news reached the U.S. market during China's time off in February, and when markets reopened, though two days into that trading week, Chinese markets retreated. Back then, the Wall Street Greek presciently warned of Chinese share risk in our issue, "The Greek's Week Ahead - Emerging Market Glam," just two days prior to the event, and then again the day before it occurred. Had the nonfarm payroll additions not presented such a favorable result, and August revision on Friday, we would have anticipated a similar impact to Chinese markets this week. As it stands now, Asian equities seem poised to make yet another great bubble building move higher.

While earnings season officially kicks off on Tuesday, Monday brings an important report from Yum! Brands (NYSE: YUM). The rest of the day's light reporting schedule includes Aracruz Celulose S.A. (NYSE: ARA), Merix Corp. (Nasdaq: MERX) and Peoples Educational Holdings (Nasdaq: PEDH).

Tuesday's news slate begins with the 7:45 a.m. EDT Weekly Same-Store Sales Report from the International Council of Shopping Centers. Last week's data indicated no change in sales on a week-to-week basis, while transaction proceeds rose 2.7% over the prior year period. On the surface of it 2.7% seems like decent growth, but comparable results were running hotter a year ago and even earlier this year.

At 2:00 p.m., the Federal Reserve releases the minutes from its September FOMC Policy meeting. The market will likely be keen to discover the details of the meeting's discussion, as it could reveal future action or bias. We expect the Fed had already decided to wait on data before acting again, and after Friday's Employment Situation Report, we believe the Fed is highly unlikely to reduce rates further in October. The Fed will also release the minutes from its August 16 conference call, through which it initially decided to act upon the discount rate. The August notes will be missing a great deal of color, as St. Louis Fed Chief, William Poole, was not in attendance. However, all ears will be attuned to the "calamitous" Mr. Poole on Tuesday, as he is scheduled to make an economic address of his own. San Francisco Fed President Janet Yellen is also scheduled to speak publicly on Tuesday.

With lithium batteries catching fire under various circumstances and in several products and pockets, we wonder if it's a good idea to engineer them into automobiles! Barron's reported that Ener1's EnergDel unit will display its own battery for hybrid vehicles on Tuesday.

Earnings season begins with the traditional report from Alcoa (NYSE: AA). The remainder of the day's schedule includes California Pizza Kitchen (Nasdaq: CPKI), Cantel Medical (NYSE: CMN), CardioDynamics International (Nasdaq: CDIC), Century Bancorp A (Nasdaq: CNBKA), Innovo Group (Nasdaq: INNO), Oxford Industries (NYSE: OXM), Mosaic (NYSE: MOS), Vasogen (Nasdaq: VSGN) and a handful of others.

Wednesday's economic calendar is highlighted by the Mortgage Bankers' Association morning reporting of Purchase Applications. In coming weeks, this regular report might provide insight into just how well homebuilder price slashing is working to incentivize purchases and impact the saturated inventory situation. Refinancing results, on the other hand, have and should continue to benefit from the government and banks' goal to help some subprime borrowers out of bad situations.

August Wholesale Trade data will be reported at 10:00 AM, and Barron's reports an economist consensus forecasts for a 0.3% increase. Investors should note changes to wholesale sales versus inventory. Based on recent consumer sentiment and spending trends, factory orders, domestic auto sales, and an abundance of incentive providing advertising programs we noticed toward the end of the third quarter, we expect wholesale inventories to show a build on unmet sales expectations. July's data showed a modest 0.2% month-to-month increase in inventories, and June posted a 0.5% rise. Again, we direct your focus to changes in the future ratio of wholesale inventories to sales as the best metric in this data bit to measure material economic softening.

Two giants of modern financial history, Alan Greenspan and Jack Welch will be in the same room at the same time on Wednesday, as they address the audience at the World Business Forum in New York.

Wednesday's earnings slate is headlined by Costco (Nasdaq: COST), LAM Research (Nasdaq: LCRX) and Monsanto (NYSE: MON). It should be interesting to see how Costco views its upcoming fiscal first quarter, which ends in November, considering recent guidance cuts by rivals Wal-Mart (NYSE: WMT) and Target (NYSE: TGT). A weakening consumer confidence trend and developing consumer spending softness has hit the discounters hardest of all retailers thus far. The rest of Wednesday's earnings news will emanate from Acergy S.A. (Nasdaq: ACGY), Audiovox (Nasdaq: VOXX), E-Z-EM Inc. (Nasdaq: EZEM), Helen of Troy (Nasdaq: HELE), Host Hotels & Resorts (NYSE: HST), Infosys Technologies (Nasdaq: INFY), Lindsay Corp. (NYSE: LNN), Material Sciences (NYSE: MSC), Mercantile Bank (Nasdaq: MBWM), Northfield Labs (Nasdaq: NFLD), Premier Exhibitions (Nasdaq: PRXI), Richardson Electronics (Nasdaq: RELL), Ruby Tuesday (NYSE: RT) and Banco Santander, S.A. (NYSE: STD).

The last two days of the week bring its most intensive of economic data. On Thursday, Weekly Initial Jobless Claims are scheduled for their regular report at 8:30. Last week's count of new benefits claimants measured 317,000, which was hotter than the four-week average of 312,750. Bloomberg's consensus of economists is looking for a measure of 315,000 this time around.

The International Trade Balance is due for release, with Bloomberg's consensus expecting the trade deficit to show it widened in August by $600 million, to $59.8 billion. With time, we believe the deficit should narrow, as increasing pork exportation, reduced general import demand and the impact of product safety recalls outweigh the impact of lost beef exports due to U.S. contamination.

September import prices are seen increasing 0.8% by Bloomberg's consensus, and surely this has been impacted by dollar weakness and oil and commodity price increase. We believe rising import prices provide yet another reason for the Fed to show restraint in October.

U.S. retailers report chain-store sales for September, and we anticipate it could get ugly. Without the "back to school" support, withstanding minor benefit from the tail end of it, we expect retailers to post poor results. There's enough evidence to believe so anyway after Wal-Mart (NYSE: WMT), the nation's most important retailer, lowered its guidance. Also, we've read that the relatively warm period from September through October should play havoc on the sales of sweaters. In comparison to last year's temperatures, the end of summer and beginning of fall have provided relatively significant warmth. Shelves stocked full of sweaters are going to pile up dust in that scenario, and same-store sales suffer as a result. Add to that the added pressure to consumers' pocket books this year, and we are fairly confident Thursday's data will be clearly negative.

The Energy Information Administration will make its regular Petroleum Status Report on Thursday, but potential storm development in the Gulf of Mexico remains the most important driver of energy prices this week, in our view. In international news, the Bank of Japan is expected to keep rates steady when it convenes on Thursday.

PepsiCo's (NYSE: PEP) earnings come into focus on Thursday, as the foods giant seeks to back up its 19.8% year-to-date total return with its operational results. The rest of the earnings parade includes the likes of Bank of the Ozarks (Nasdaq: OZRK), CalAmp Corp. (Nasdaq: CAMP), Fastenal (Nasdaq: FAST), Herley Industries (Nasdaq: HRLY), IDT Corp. (NYSE: IDT), Independent Bank Corp. (Nasdaq: INDB), Lakeland Bancorp (Nasdaq: LBAI), M&T Bank (NYSE: MTB), Safeway (NYSE: SWY), SLM Corp. (NYSE: SLM), Votorantim Celulose e Papel S.A. (NYSE: VCP) and Winnebago (NYSE: WGO).

The Retail Sales Report for the month of September could provide a rude awakening to the jobs data happy market on Friday. Bloomberg's consensus sees a 0.3% sales rise, both including and excluding autos. August showed a 0.3% increase, excluding autos. September's Producer Price Index is expected to show 0.4% headline growth, and a 0.2% increase excluding food and energy. Producers may be caught in a quandary, with commodity prices rising and end consumer demand waning. That ugliest of economic slogans, though surely second to depression, stagflation could soon make its way to your doorstep.

At 10:00 AM, Business Inventories could add to the impact of the week's earlier report of wholesale inventories, raising further economic concern. Bloomberg's consensus sees inventories rising 0.2% in August. It's September we have to worry about. Back in July, businesses were still high on the Q2 GDP report, and ordering away. The University of Michigan's Consumer Sentiment reading for October is seen benefiting from Fed action. Bloomberg's consensus forecasts a sentiment improvement to 84.0, from 83.8 in September. That's not really much improvement is it...

The first week of the Q3 earning season should wrap up quietly with the report from HDFC Bank (NYSE: HDB), but labeling any bank's report as a nonevent is an oxymoron nowadays. We hope you found value in this week's market-moving event planner and look forward to updating you all week long.

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Breaking News: Employment Situation Not So Bad

The 8:30 a.m. release from the Bureau of Labor Statistics provided a pleasant surprise, for some.

Nonfarm Payrolls + 110,000
Unemployment Rate 4.7%
Average Hourly Payrolls +4.1%

In a critical side note, August's Nonfarm Payrolls were raised significantly higher, to an increase of 89,000, versus a previously estimated 4,000 job loss. We'll have more to say in our morning edition.

Today's Coffee - Employment Data On Deck

(Stocks in article: Nasdaq: NTRI, NYSE: BSC, NYSE: STZ, NYSE: MAR, NYSE: CVS, Nasdaq: MTRX, Nasdaq: ISCA, Nasdaq: BEAS, Nasdaq: GOOG, NYSE: NWS, NYSE: GM, NYSE: F, NYSE: MER, NYSE: MS, NYSE: CS, NYSE: WMT, NYSE: TGT)

"Today's Coffee" has been engineered to provide value-added analysis and opinion concerning the market-moving topics of the day.

As the market gears up for Friday's Employment Situation Report from the Labor Department, a slew of other employment data is serving to confuse traders. Yesterday, the Challenger, Gray & Christmas report showed announced job cuts reached 71,739 in September, compared to 79,459 in August and 42,897 in July. While September posted a hot figure on the surface, it is noteworthy that 37% of September's job cuts occurred in housing related operations, including within construction, mortgage lending and real estate businesses. This implies that it is not general economic weakness that is affecting employment, at least not yet. However, unemployed people tend to spend less...

Also reported Thursday, the ADP National Employment Report indicated growth in employment of 58,000 jobs from August to September, while the July to August figure was revised lower by 11,000, to 27,000. The measure was clearly weighed down by weak trends in housing and financial services. Construction posted its twelfth decline in thirteen months, according to the report, dropping 20,000 jobs in the period. A total of 157,000 jobs have been shed by the industry over the last twelve months. The manufacturing sector was also weak, while services actually added 97,000 jobs and small businesses also did better than large operations.

The question everybody wants answered is, so what does this mean for Friday's Labor Department Report, which is given great weight by the market and Federal Reserve alike. Given the change in the month-to-month rate of growth offered by the ADP report, the trend seems to imply we can expect a better result Friday than the 4,000 jobs lost in August, as reported by the government. That's not saying much though is it... We suspect last month's figure could be revised higher, just because of the dramatic surprise it offered economists and degree of change it represented. What's most important is that even if the figure is higher than 100,000, it is not the end all save all piece of information to indicate recession is not imminent. Even a layman can see an ominous trend in the charts provided within ADP's press release. In contrast, we also do not expect a poor result guarantees a Fed rate cut in October, which would back up its 50 basis point reduction of September. We would even go as far to say that a Fed cut this month is unlikely, given the dollar weakness that ensued from the last reduction.

Today, weekly initial unemployment claims was reported hotter than forecast by Bloomberg's consensus of economists. The list of newly unemployed measured 317,000, exceeding the four-week average of 312,750. The figure is still not too threatening, but we anticipate trends in consumer spending will drive cutbacks in retail employment. If not for the impending holiday shopping season, this may have already begun. There are enough signs to worry, with Wal-Mart (NYSE: WMT) having reduced its guidance in August and Target (NYSE: TGT) having chimed in last month. If spending gets thrifty into the holidays, a shakeout should occur and a saturated retail industry could be exposed. That would bring the layoffs we're looking for, and the recession as well.

In other important news today, the European Central Bank and Bank of England both cut the U.S. dollar a break and kept rates steady. The ECB chief, Jean-Claude Trichet followed the news with a statement that more data would be necessary to decide if any action should be taken. He did not back off past hawkish statements, indicating he's still vigilant regarding inflation, but he did drop a portion of previous statements that indicated a view that current rate levels were accommodating. This helped calm the dollar dive, because the last thing the greenback needs is a restrictive ECB and expansionary Fed.

Supporting the employment data, which indicated financial services firms are losing weight faster than the contestants on "The Biggest Loser," a series of news hit the wires regarding Wall Street cut backs. Yesterday, Credit Suisse (NYSE: CS) announced another 170 investment bankers' necks would meet the knife, following last week's news that 150 employees in its residential mortgage-backed securities operations would be let go. Not to be left out, Morgan Stanley (NYSE: MS) followed suit, with its announcement that 600 folks would hit the road from its residential mortgage business. Then today, Merrill Lynch (NYSE: MER) had to answer to rumors that it too was considering cutbacks. Merrill's answer was that they would not rule it out.
Finally the August Factory Order Report showed a 3.3% decline, short of expectations. While the manufacturing sector may already be in recession, despite increasing overseas demand for U.S. product, the UAW's agreement with General Motors (NYSE: GM) and pending deals with Ford (NYSE: F) and Chrysler seem to go a long way in helping the healing process.

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The Greek's Week Ahead - Employment House of Horror Part II?

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

What frightens us about October? Is it the fog that covers the nooks of the pumpkin patch where something may lurk, or the approaching stride of a headless horseman? It could be that place we are all familiar with, the haunted house. Heck, these days, that could be any old homestead whose purchase was financed by a variable rate subprime mortgage! Or, could it be as described by Michael Santoli in his Barron's piece this week. He speaks of the inevitable comparison with 1987, that horror filled month of exactly two decades ago.

All comparisons aside, this October presents enough fear factors of its own to keep the Greek indoors until November. If there exists a wall of worry, then this fall and year to follow present a Dracula's castle of fright. As the door creaks open, Gap (NYSE: GPS) executives fear it could be the bank examiner, come to check up on things. As the torches flicker, threatening to vanquish us into darkness, the Fed worries the dollar could fall into a bottomless pit and awaken inflation asleep deep within. Even worse, it could awaken the dragon of Asian investors, who might move their capital to faraway shores and assets.

And what about the specter of war... That bad man was here last week, and he was not welcome. Columbia made such a fool of him that he probably gets it now, that it's not just Bush that dislikes him; that in fact, the American people cannot digest him either. See, he thought we were all bamboozled into electing Bush and into going to war with Iraq (well actually...). The WMD man! Where's the WMD!? Ahmadinejad did not get it, that Americans actually fought a war to overcome that Nazi bastard, and that we learned about those atrocities that occurred over there first hand. We set those survivors free, and many of them came over here, to safety.

Maybe Germany outta invite this ignorant SOB to see Auschwitz, so he can bear witness with his own eyes. But, you know what, he'll just claim it a movie set, like when Americans landed on the moon. Nobody could actually do that right? Who could even dream it? We are dealing with a culture where monsters are born who fantasize about shooting down airplanes from the sky. This is because, to the monsters, airplanes represent the most advanced of western technologies. Airplanes!

Now, I'm not generalizing and I'm not a racist, so please do not send me hate mail and don't issue one of those Fatahs on me, or I'll counter with what we Greeks call a fapa! (Greeks from Athens to Astoria are on the floor laughing). I'm just saying, terrorists are fixated on airplanes. Think about it. Why? Then you will agree, and if you don't, just take a trip to an al-Qaeda camp in Afghanistan and you'll get it. Flight applies the most advanced technology they come into personal contact with. Nuclear plants are coming up the rear though and could supplant the magic flying machines soon. That's if they last another month, in which case, they'll be passed by bunker buster bombs. Now let's take a look at the data shall we...

The week ahead...

Monday started off the week's parade of economic data with the Institute for Supply Management's Manufacturing Index. We here at the Greek continue as a voice in the wilderness proclaiming that eventually, American manufacturing's support from overseas demand could be outweighed by the impact of a weakening America consumer, who we note still butters the bread of American industry. If a Greek shouts in the forest, does he make a sound?

ISM's September Index continued a trend of decline, as the metric was reported at 52.0, short of Bloomberg's consensus of economists' view for a reading of 52.9. This follows August's reading of 52.9, and July's 53.8. Making room for all viewpoints, we note that any reading above 50 still represents an expansionary environment. One positive result of the decline in the index is that it could lead to prudent inventory management among manufacturers ahead of economic weakness.

In international news, the Bank of Japan released its quarterly tankan survey of business confidence Monday. The survey held at a level of 23 for the third quarter of 2007, matching the level measured in Q2. This reading, near a two-year high, exceeded the consensus expectation for a measure of 21 this time around.

While the week will likely be more notable for earnings warnings, Monday's scheduled earnings reporters included AngioDynamics (Nasdaq: ANGO), Cal-Maine Foods (Nasdaq: CALM), Palm, Inc. (Nasaq: PALM), Syms Corp. (NYSE: SYM), Thor Industries (NYSE: THO), Village Supermarket (Nasdaq: VLGEA) and Walgreen (NYSE: WAG).

On Tuesday, the weekly same-store sales report from the ICSC-UBS should attract attention, but usually doesn't. This week's reading showed no change in week-to-week sales and a 2.7% year-over-year increase. The result was an improvement over the prior week's 2.4% year-to-year change. Still, we believe the market is not going to find reason to celebrate from these kinds of changes until wider evidence exists that the consumer can survive the slew of pressures threatening him.

The National Association of Realtors released Pending Existing Home Sales data for the month of August on Tuesday. Not long ago, July's indicator dropped off a cliff, as it showed a 12.2% decrease. Barron's reported Lehman Brothers' expectation for a 4.5% August decline. The figure actually dropped 6.5%, marking the lowest point in its short history. There's not much to say here, however, I keep recalling a prescient talking head's prediction from late last year; the gentleman, who seemed as insane as the Greek did at the time, predicted a 40% drop in housing prices from the peak. As consensus gets closer to his opinion, we begin to seek bottom. However, we think the U.S. housing market will not find that footing until 2008, or later, depending on what surprises the pending war with Iran/Syria, and maybe others, holds.

At 4:00 p.m., U.S. auto sales for the month of September are expected to reach $12.4 million, down a bit from the 12.6 million recorded in August. Jim Cramer likes the changing economics of the American automakers, as indicated by his discussion following the GM/UAW (NYSE: GM) settlement. What's not to like! Improved profitability, increased competitiveness, and the ability to play on a more even field with the likes of Toyota (NYSE: TM) should help a bunch. Jim singled out Ford (NYSE: F) as his play.

In important geopolitical news, the leaders of North and South Korea are meeting Tuesday for only the second time since the end of the Korean War. Imagine how Korean industry could benefit from manufacturing in the North, should that day ever come.

The fall conference season is in full swing, with CIBC's industrial-company confab kicking off. Tuesday's light earnings schedule includes Micron Technology (NYSE: MU), Pepsi Bottling Group (NYSE: PBG), SMF Energy (Nasdaq: FUEL) and Twin Disc (Nasdaq: TWIN).

Wednesday's economic slate kicks off with the Mortgage Bankers Association Purchase Applications Report. Considering the pending home sales report of earlier in the week, we do not expect much good news from the mortgage finance market in the near term, at least not where it concerns a new home purchase.

The second half of this week is clearly where the focus of importance is. Wednesday starts things off with the Challenger Job-Cut Report, which measures the number of announced corporate layoffs per month. Last month's data provided a signal of things to come, as announced layoffs soared 85% over the month before. At 8:15 a.m., the ADP Report will provide a great deal of insight into Friday's Employment Situation Report. August's report of 38,000 job additions to the private sector proved ominous, but not foretelling as to just how bad the Employment Situation Report would be.

The ISM Nonmanufacturing Survey is important because of the great significance of the service sector in the United States. Bloomberg's consensus of economists expects a measure of 54.5, compared to August's 55.8. This will be followed by the regular 10:30 Petroleum Status report. With a tropical system forming off the coast of Florida, as of Tuesday morning, the report could be left mute.

Mylan Laboratories (NYSE: MYL) is holding an investor's day, while Wednesday's earnings reports include Arrow International (Nasdaq: ARRO), Immucor (Nasdaq: BLUD), Mechel OAO (NYSE: MTL), RPM International (NYSE: RPM), Smart Modular Technologies (Nasdaq: SMOD), Team Inc. (Nasdaq: TISI), Wolverine World Wide (NYSE: WWW) and Workstream (Nasdaq: WSTM).

With jobs in focus again, Thursday kicks off with the Monster Employment Index, which we remind you, has become more important than the Help-Wanted data, due to the increasing penetration of the Internet medium. Weekly initial jobless claims are expected to reach 310,000, according to Bloomberg's consensus of economists, which is not especially troubling.

At 7:00 AM EDT, the Bank of England is scheduled to issue its decision on rates, while the ECB follows with its action. While CIA-man Nicholas Sarkozy pushes for a European rate cut to match that of American expansionary direction, the ECB's Jean-Claude Trichet seems set to an independent path. As a result, the ECB is widely expected to keep rates steady.

At 10:00 a.m. and following logical route considering economic expectations, factory orders are expected to have declined 2.8% in August. At 10:30, the EIA will post inventory data for natural gas.

In company specific news, Bear Stearns (NYSE: BSC) is scheduled to meet with investors on Thursday. Considering the amount of chatter surrounding the company regarding the offering of ownership interests to investors ranging from Warren Buffet to Chinese interests, this makes for an especially interesting meeting. Thursday's earnings news includes reports from Acuity Brands (NYSE: AYI), Centennial Communications (Nasdaq: CYCL), Constellation Brands (NYSE: STZ), Family Dollar (NYSE: FDO), International Speedway (Nasdaq: ISCA), Lawson Software (Nasdaq: LWSN), Marriott International (NYSE: MAR), Matrix Service (Nasdaq: MTRX), Pall Corp. (NYSE: PLL), Research in Motion (Nasdaq: RIMM), Saba Software (Nasdaq: SABA), Sealy Corp. (NYSE: ZZ) and UAP Holding (Nasdaq: UAPH).

Friday is the day the market will anticipate all week, and with expectations for an Employment Situation rebound, the market is likely to rise into the report. Of course, much of the probability of this occurrence is tied to the employment data that precedes the Labor Department figure. Nonfarm payrolls are expected to rise by 115,000, after last month's surprise 4,000 jobs lost. Still, this doesn't represent healthy growth, and unemployment is expected to edge higher to 4.7%. Troubling the inflation hawks among us, average hourly earnings are expected to increase 0.3%.

Somewhat less important, yet still very interesting, the RBC Cash Index, which measures consumer attitudes, is due for release. The measure reached just 71.1 last month, down from 89.3 the month before. Topping off the week's data that could help us judge the fate of the American consumer, Consumer Credit is expected to have increased $9.5 billion in August, after an increase of $7.4 billion in July.

Friday concludes the quiet reporting week with data from ATS Medical (Nasdaq: ATSI), Emmis Communications (Nasdaq: EMMS) and that well known giant of industry, EVRAZ Group (Nasdaq: EVGPF.PK). The bond market closes at 2 p.m. ahead of the Columbus Day holiday on Monday.

Here's a relatively unknown bit of Greek trivia for you. Did you know, Christopher Columbus spent his early teens growing up on an island called Chios, in Greece. Chios was occupied by many empires over time, including the Genoese and Venicians. If you travel to Chios today, there are still people bearing the name Columbou. Your favorite Greek here has seen with his own eyes, an estate, said to be where Columbus lived. Not sure about that part folks, as the story teller is a known thief, though an otherwise nice guy who brings me a bottle of mastic flavored ouzo every year... Anyway, legend holds that Columbus returned to Chios (also Xios, Khios and Hios) to recruit navigators, sailors and maps before his journey to India. Here is where I add my little bit to the story... and that's why they got lost and ended up founding America; must have had something to do with Hiotiko ouzo!

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