Gas is Expensive, So Let's Shop Online

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(Stocks in this article: Nasdaq: EBAY, Nasdaq: GSIC, Nasdaq: AMZN, Nasdaq: NILE, NYSE: MA, NYSE: DKS, NYSE: ARO)

For a consumer who is counting his pennies, the rising cost of filling the tank might be enough to spur online sales to race ahead of their already torrid pace. With this theme in mind, I prospected for some appropriate investment ideas for you and turned up one you knew in Ebay (Nasdaq: EBAY) and one you might not have known in GSI Commerce (Nasdaq: GSIC).

There’s generally no argument any longer that the consumer is carrying a heavy burden including the rising cost of food and energy, increasing unemployment, decreasing home equity, and in some cases, mortgages that are adjusting higher. We have observed gradually easing weekly same-store sales growth rates throughout the year, with this past week’s data from the International Council of Shopping Centers showing a 2.5% annual increase for the period including Black Friday. The overall tally from Black Friday itself showed sales increased over the prior year period, but on a lower ticket per shopper.

So, if the consumer is more price sensitive this year, then rising gasoline prices could be a noteworthy driver of sales trends. Over the past decade, the penetration of the SUV into American society has established the gas guzzler within a great deal of American households. Just two weeks ago, this article at bankrate.com showed the hypothetical cost of filling some of the most expensive tanks on the road at $100+ if gas were to reach $3.50 a gallon. In fact, in real terms after adjusting for inflation, crude prices have already flirted with the historic high of 1980. Gasoline prices are catching up. According to the Energy Information Administration, the national average price of gasoline had reached about $3.10 a gallon in the week ended Nov 26th, though the price had slipped about a penny from earlier this month.

So if consumers grow weary of putting miles on the old wagon, then perhaps online sales will spike even higher than their already hot pace. ComScore, an expert on the subject, projects online sales will increase 20% this holiday season (November and December), to $29.5 billion. This would represent some 24% of total forecast online sales this year. Quoting Paris Hilton, “that’s hot,” but I posit that online sales could exceed that forecast if gasoline prices continue higher.

Based on this thesis, I set out to identify some likely beneficiaries, some of which I hoped might be on sale due to the market’s recent slide. A quick glance at the stock charts of the companies I will discuss here seems to indicate so. A few of these names you already know unless you live on Mars, but one I think might be new to you.

When thinking about online shopping, three names immediately come to mind, including Amazon.com (Nasdaq: AMZN), Ebay (Nasdaq: EBAY) and newcomer and highflier Blue Nile (Nasdaq: NILE). Unfortunately, even though all these names have given back ground along with the market of late, some are still plenty expensive in my view.

Blue Nile

I’m proud to call myself an early adopter when it comes to Blue Nile, after buying the diamond for my wife’s engagement ring from the company some three years ago. However, the company and its stock are no secret anymore. Even after giving back mucho ground recently, NILE’s valuation at 58X the ’08 consensus estimate of $1.32 compares to a five-year growth rate estimate of 24%. That exceeds Cramer’s 2.0 P/E/G ratio danger zone, and I have to agree represents risky territory. Even so, an optimist would note the company exceeded estimates by $0.14 last year. If we add that amount to the $1.32 estimate for ’08, and adjust that number up to $1.46, the stock trades at a P/E of 52. Looking at this year’s earnings growth rate of 38%, we could say the five-year forecast might be understated. However, even if we apply a 30% five-year rate to the adjusted 52 P/E, that’s still offering a P/E/G of 1.7, and not much margin of safety in case we’re wrong or something goes awry. So, I would not buy NILE now.

Ebay & Amazon

Amazon.com (Nasdaq: AMZN) also looks expensive to me at 53X the ’08 consensus of $1.62, given its long-term growth outlook of 23%. But Ebay (Nasdaq: EBAY) seems to offer value, the kind of value that makes you ask why, what’s wrong here. With a P/E of 19.5X and a long-term growth forecast of 18.6%, EBAY looks attractive based on the numbers.

I believe the company’s overpayment for Skype, and related charge in ’07, as well as its diversification across various Internet businesses, like Stubhub.com, Rent.com and others have fogged the picture for some and kept valuation restrained. In my view, this has created a buying opportunity in a proven business model that has plenty of room for international growth and interesting assets like Skype that could prove breadwinners later on. I specifically see opportunity for Skype to develop into a leading social network with a twist, should management take it in that direction. In any event, the company’s marketplaces segment and PayPal look to be solid drivers of growth in the near-term. PayPal just reported a 33% increase in online payment volume this Black Friday, compared to last year’s big day. PayPal is becoming a serious competitor to other payment processors like Mastercard (NYSE: MA). Thus, I would buy EBAY here.

GSI Commerce

GSI Commerce (Nasdaq: GSIC) is a rising mid-cap in the net space. The company helps traditional retailers with the online end of their operations. GSIC boasts a client list 50 strong and growing, including mostly well-known retail names like Dick’s Sporting Goods (NYSE: DKS) and Aeropostale (NYSE: ARO).

GSIC has managed to grow its revenues at a 43% average annual clip from 2001 through 2006. However, if you look at the consensus ’08 EPS number, you get a GAAP estimate that includes a special tax item. Needham & Co.’s Mark May, who rates the stock “Hold,” has an adjusted fully taxed EPS estimate for FY 08 of $0.60. That represents 150% growth over May’s ’07 expectation of $0.24. If we use his ’08 EPS estimate, we get a P/E of 44X. Applying the long-term analysts’ consensus growth forecast of 31%, that puts GSIC’s P/E/G ratio at 1.5. That’s not bad considering the relative valuation of the company’s peers discussed in this article, and given GSIC’s strong growth. I have a hunch growth estimates could prove conservative, given the company’s solid client footing, and likely greater ability to attract new customers as a result. Thus, I would call GSIC an “accumulate” or soft buy here. After all this insight, all you have to do now is boot up and shop for your stocks.

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Morning Report: Who's the Chicken?

(Stocks in this article: Nasdaq: DELL, NYSE: TIF, NYSE: MOT, NYSE: COP, NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, Nasdaq: GSIC, NYSE: MS)

Who does the chicken represent in the illustration here? Is it the Fed, the media or the market? This is a question that must be asked this morning as the Fed appears to be making an about face. Is the Fed making a complete turn in light of market need, or is the media depicting the Fed in this light? There's a little of both ingredients in this soup I believe. While the Fed discusses both sides of the argument, the media highlights what it views news-making. It's not news gathering per se, it's news making.

But what about the market. Is she efficient or not!? If she is efficient, then it should not matter for long what the media announces. The market should figure it all out and interpret it as it should be best understood. This is why, if the Fed surprises the market on December 11th, most of the blame should be directed to the Fed. There is no argument for misinterpretation over extended periods, just miscommunication. The media is powerful though, and influences the great American majority, so the picture can be skewed. But, the picture is only skewed, not altered.

1. Bernanke's Speech - I listened to Bernanke's address, and reviewed Kohn's speech as well today. In my view, Bernanke was much less dovish than Kohn, and it seems to me far from certain what the Fed will do on December 11th. What seems certain is that the Fed has no intention of an earlier emergency meeting, as some fanatic rumor mongers are whispering about on the Street. The credit market issues are of grave concern, and depending on developments, could require Fed help (whatever it can do along with Paulson and the banks). However, we (including the Fed) have to be careful about confusing fourth quarter bank charge-offs with new problems. Also, we should be careful about completely believing the heads of the banks, who will do what they can to influence Fed action as favorable as possible for their own interests. I believe there's now a 60/40 chance of inaction versus a 25 basis point cut, and I am completely alone in this view. I do believe the Fed could react like a chicken with its head cut off when the stock market panics after the hypothetical inaction I described. Will the Fed act then in order to avoid a knee jerk reaction later? This may occur as well. I believe Bernanke's discussion is being taken for more than its value or intention today. Also, take close note of Kohn's qualification before his speech this week, where he says that his views may not agree with the views of other members of the FOMC Policy Committee. Anecdotal evidence I've seen does not frighten me about the pay performance of SIVs. In fact, pricing, while lower, is not panic button lower. However, I recognize the ledge we walk as well. Remember me in December, but if the dynamic market requires a change in advice, I'll provide it rather than stick to an opinion based on stubborn pride or image concern, like you'll find in corporate boxes. Remember that I am discussing my view on market perception of Fed future action, not on what I believe the economy needs. Stocks will move on perception now, while driven by the economy and Fed support or blunder over the longer term. Offering daily advice requires me to do this, but I do my best to present the long-term view as well. As Cramer says, and I agree, the best investor is omni-aware of the current situation, and not necessarily a buy and hold investor. This conventional strategy suits those best who will not follow broad matters that affect less than long-term price movement. However, there is also value to be added by selling stocks you like for the long-term (on valuation), in order to buy them back cheaper later, or replace them with undervalued ideas.
2. Personal Income & Consumption - Personal income and consumption both increased at a less than expected pace of 0.2%. No surprise here, as we expect the economy to slow this quarter. The PCE Deflater information within the report offers the data that is market-moving, or could be today. The Fed's favored inflation gauge, excluding food and energy, was up 1.9% over October of 2006, matching the revised higher September figure. This is enough to keep the Fed's attention, but it seems unemployment is rising faster as well. Next week's jobs data will prove critical, in my view.
3. Credit Market Ailments & Cures - Hank Paulson is reportedly working with banks in an effort to keep ARM introductory rates from resetting en masse for long enough to let the economy stabilize. It sure does seem like a band-aid though, but anything that gives the economy more time to digest things might also allow it and credit derivative markets time to stabilize through other solutions.
4. Mass Crude Exodus - Fundamental short-term demand factors are being realized finally. We noted here that the price of oil was unsupported, and we recommended exit from the commodity. We were early by a few weeks, as is often the case, but better early than late or never. I see oil dropping precipitously now, perhaps to sub-$80.

Market-Moving News

• Fed: Bernanke's Rally Enthusing Speech


• Bloomberg: Bernanke Interpreted As Dovish


• Bloomberg: Bernanke Video


• Fed: Mishkin Grabbed a Mic Too


• Fed: In Case You Missed Kohn Details


• Bloomberg: October Personal Income +0.2% Vs. Consensus +0.4%, Consumption +0.2% Vs. Consensus +0.3%


• Fortune: Paulson's Mortgage Bailout Band-Aid


• CNN Money: Rate Freeze on ARMS Discussed


• CNBC/Bankrate.com: How Safe is Your Money Market Fund?


• Economist: Bank Liquidity Concerns


• MarketWatch: Dollar Gains on Yen


• ECONOMIC REPORT 9:45: November Chicago - PMI (Consensus 49.7)


• ECONOMIC REPORT 10:00: October Construction Spending (Consensus -0.3%)


• AP/Yahoo!: Oil Prices Dip


• Platts: Biofuel Overcapacity


• ECONOMIC REPORT 3:00: Farm Prices


• Financial Times: ECB Plans Extra Liquidity


• Yahoo! Earnings Calendar


• AP/Yahoo!: Tiffany (NYSE: TIF) Performs, Raises Outlook


• AP/Yahoo!: Dell (Nasdaq: DELL) Gets Mixed Reviews


• CNBC: Zander Gone at Motorola (NYSE: MOT)


• AP/Yahoo!: ConocoPhillips (NYSE: COP) Proposes Alaska Pipeline


• AP/Yahoo!: GSI Commerce (Nasdaq: GSIC) Buys Zander.com


• MarketWatch: Morgan Stanley's (NYSE: MS) Cruz Leaves


• BBC: EU in Nuke Talks with Iran


• Fed: Week's Earlier Beige Book


• The Greek's Week Ahead


• Economist: The Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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Morning Report: Much to Digest

(Stocks in this article: Nasdaq: SHLD, Nasdaq: ETFC, NYSE: HNZ, Nasdaq: DELL, NYSE: SFD, NYSE: VSE, Nasdaq: USBE, NYSE: WMG, NYSE: TM, NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ)

Stocks are retracing today on much news to digest, including a pipeline explosion, economic concerns and bad news from Sears.

1. GDP - Third quarter real GDP growth was revised higher to a 4.9% rate, up from the advance reporting of 3.9% and second quarter growth of 3.8%. While many will focus on the strength in this number, smart money will look to the forecast slowing rate of growth for Q4 (brilliant money looks to the Fed and '08). The result was just a tenth of a percentage point ahead of expectations, so the number should not have a discernable impact. The price index for gross domestic purchases was unchanged at 1.6% growth, while prices measured up 1.7% excluding food and energy, up from a 1.5% increase in Q2. CNBC's Rick Santelli, my favorite TV analyst, called this number comforting (paraphrasing), but I'm concerned with the quarter-to-quarter trend. The strong GDP rise was powered by 2.7% growth in personal consumption expenditures, nonresidential fixed investment and structure growth, 18.9% increased exports, partly offset by a 19.7% decline in residential fixed investment. Defense spending rose 10.1%. Change in inventories nearly added a full percentage point. Remember now, it's the future that matters to the market, not the pundits who will come out today proclaiming that Goldilocks is alive and kicking. The market worries about her tomorrow.


2. Critical Pipeline Explosion - An oil pipeline connecting Canada and the U.S., through which some 20% of our country's oil is sourced (the 4 line system), exploded. The operator immediately closed down four pipelines, before reopening two. 2 million barrels a day flow through that channel, and oil has appropriately reacted today, as NYMEX crude futures opened $2 higher. The explosion reportedly occurred while the affected line was shut for maintenance, so I venture to guess that this maintenance might have played a role. Otherwise, this explosion, following by a day the arrest of several terrorists in Saudi Arabia who were reportedly planning this kind of attack, is very suspect. Maybe the FBI should be attuned to America's energy resources now. Terrorism on energy infrastructure hurts the U.S. while driving prices higher, benefiting the pockets of our Iranian enemy. There's a logic behind this type of attack, should it be found to be terrorism. Regarding crude pricing and despite any future implications, I suspect this hit will give those longs left behind another opportunity to reduce their positions and keep crude from rocketing much higher.


3. Sears - It's one thing to take blame and accept fault, but this is ridiculous! Eddie Lampert's Sears (Nasdaq: SHLD) is down 14% this morning on a depressing press release and commentary (and poor results by the way). While it may help to limit shareholder lawsuits (actually no, it doesn't), it also offers very little hope. The headline is that SHLD experienced a 99% decline in quarterly profit on troubled sales at Kmart and Sears and other investment losses. On the bright side, sales only slipped 3%. I think this result is greatly due to housing and consumer confidence, and the saturated retail environment I've discussed so often.


4. Jobless Claims - Weekly Initial Jobless Claims spiked higher last week to 352K, well ahead of the consensus 330K view. More disturbing is that the four-week moving average rose 5,750 to 335,250. It's time for unemployment to pick up at a faster pace and the anecdotal evidence is littering the street these days. The wires are carrying more and more news of layoffs. Remember, my call for the kicker in this punch is that post the holiday season, retailers will cut employment sharply, and as the year progresses, a saturated retail/restaurant environment will be exposed, leading to consolidation and commercial construction recession as well. You heard this here first months ago, and when it plays out, please tell your friends about the Greek's calls in '07. Otherwise, they are lost in the mix with the news reporters of current events. In the beginning of this year, when I was warning of a second leg lower for housing and dangerous repercussions for the financial sector, I was actually labeled an "Armageddon Analyst." Well, for those who labeled me, I now say, welcome to Armageddon.


5. Corporate Profits - Corporate profits declined, as weakness in domestic profits for both financial and non-financial firms outweighed profit growth from international sources. Nothing new here, exports and international sales continue to do well while the domestic economy softens. Remember my call, that it is the American consumer who butters the bread of American companies, multinational or not, and in the end they will influence global economic stability as well.


6. Foreclosures - Foreclosures ran at a 94% rate of increase in October, year to year. What's important to note about this data is that the level of foreclosures has leveled off since peaking in August. As we lap this past year's ugly results, growth rates as stunning as these recent monthly reports should moderate some. Foreclosures should still increase though in my view, as more mortgages reset and unemployment increases.


7. October New Home Sales - New home sales came in well short of consensus, though the news was initially misreported by financial media due to a revision lower of prior month results. At a 728,000 annual pace of sales, the news is far from good.

Market-Moving News

• Platts: Crude Futures Soar After U.S.-to-Canada Pipeline Explosion


• AP/Yahoo!: Sears (Nasdaq: SHLD) Posts Really Bad News


• CNN Money: Euroshares Open Higher


• CNBC: Asian Markets Close Higher


• Greek: Here Comes Santa Claus (Rally)


• BEA: Q3 GDP & Corporate Profits


• Bloomberg: Q3 GDP +4.9%


• DOL: Weekly Jobless Claims Surge to 352K


• Census Bureau: October New Home Sales at 728K Pace Vs. Consensus 753K


• AP/Yahoo!: Foreclosures Up 94% in October


• Financial Times: Gazprom Warns of Record Gas Prices Ahead


• CNBC: Bank of England Extends Emergency Funds Terms


• DailyFX: Boris Views


• Yahoo! Earnings Calendar


• MarketWatch: Citidel Increases Stake in E*Trade (Nasdaq: ETFC)


• AP/Yahoo!: Heinz (NYSE: HNZ) Profit Rises


• CNBC: Smithfield (NYSE: SFD) Profit Falls on Weaker Hog Prices


• TheStreet: Michael Dell (Nasdaq: DELL) Steps Up to Mic


• Forbes: VeraSun (NYSE: VSE) Acquires US BioEnergy (Nasdaq: USBE)


• AP/Yahoo!: Warner Music (NYSE: WMG) Profit Declines


• AP/Yahoo!: Toyota (NYSE: TM) Recalls Luxury Vehicles


• TheStreet Video: Cramer on Rising Oil Stocks


• YouTube: Your Election Choices


• CNBC: Republicans Trade Jabs In Debate


• BBC: Chad Rebels Warn EU Peace Force


• The Greek's Week Ahead


• Economist: The Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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Here Comes Santa Claus

Visit the front pages of Wall Street Greek and Market Moving News to see our current coverage of economic reports and financial markets.

(Stocks in this article: NYSE: MS, NYSE: MER, NYSE: TOL, NYSE: BZH, NYSE: C, NYSE: DHI, NYSE: LEN, NYSE: BCS, NYSE: BSC, NYSE: LEH, NYSE: GS, NYSE: WFC, NYSE: WB, NYSE: GM, NYSE: F)

Besides filling their tummies, last week’s tasty turkey should have warmed market participant memories of festive holiday seasons past. Here’s why I think we’ll enjoy a Santa Claus rally late next month.

It’s the fourth quarter stupid!

While I believe a good deal of the blame for the recent market mayhem goes to the Fed for shifting to neutral, let’s not forget that it’s the fourth quarter. It’s not so much that time of year for roasting chestnuts, as it is for writing off the kitchen sink at ailing homebuilders, lenders, investment banks, automakers and other impaled companies whose shares drive the major indices. This quarter’s parade of write-offs seems to have blindsided the market, but it should not have. Every Benjamin Graham and his mother knows America’s sick and wounded will take the opportunity to wipe the slate clean now, and hope to start ’08 anew.

At some point, hopefully soon, charge-off warnings should peter out. However, we will still have to contend with another phenomenon indigenous to Q4, tax loss selling. I’m sure it’s already played a role, but it could continue as investors trade losses in companies like Beazer Homes (NYSE: BZH) for new interests in shares like Toll Brothers (NYSE: TOL). Despite my example, a good deal of tax loss selling is not replaced with new holdings in the same specific industry; this is probably much more common within institutional portfolios. Nevertheless, when we run the final lap of a losing year, you can expect stocks to generally sell off further. However, the trend also provides greater likelihood for a strong “January Effect.” The important point is that at some point before the end of the year, tax loss selling and fourth quarter warnings should run out of fuel, leaving scavenger value investors ample pickings for the winter.

So then Greek, how do we play this hand?

To best advantage I would seek the top ideas in weak industries where I believe valuation may be unjustly penalized most due to the circumstances outlined above. These names will have been sold off alongside their more troubled peers, but they will also likely be added into many portfolios whose charters or strategies call for diversification and industry exposure. In home building for instance, I view Toll Brothers (NYSE: TOL) as the crème de la crème. TOL, which caters to a higher-end home buyer, has seen its shares tank 44% this year through November 26. Still, that compares to a decline of near 85% for BZH. While the entire group could find shareholder support starting in December or January, I would not venture any new capital into any participant but the industry leader since housing is expected to remain troubled well into ’08 and the Fed is set to sit on the sidelines until the fire rages.

Another clear area to look for beneficiaries of seasonal portfolio adjustment is within the financial sector. If you lost money in Citigroup (NYSE: C), you’ll want to take the tax loss, and then you might also buy into one of its beaten silly peers. These days, most of the capital flow has been out of these shares for the previously discussed tax reasoning, but soon flow should shift as value seekers close in. In the search for buy ideas, I prefer a name like Merrill Lynch (NYSE: MER), down 45% year-to-date, because of its diverse product offerings. Morgan Stanley (NYSE: MS), which has lost 28% year-to-date after netting dividends, also offers opportunity for the same reason in my view.

I think you get the idea, and you should already be aware of plenty of opportunities of your own that you can apply the strategy too. My risk caveat here is that I would look to about a week after the December 11th FOMC announcement for an upward move to start in earnest, since I expect market surprising Fed inaction to drive further downside. Before today's Kohn comment, and given recent equity direction, there’s a decent chance that this possibility could become fully priced in ahead of the meeting. In that case, you have load up sooner. Good luck applying the strategy, and oh, don’t forget to leave the milk and cookies out for Santa!

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Morning Report: Kohn Demands Attention

To see today's morning report and analysis of financial market news, visit our FRONT PAGE.

(Stocks in this article: NYSE: WFC, NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: FRE, NYSE: PBY, NYSE: C, Nasdaq: MRVL, NYSE: BBL, NYSE: RTP, Nasdaq: CALD), NYSE: MON, NYSE: MOS, NYSE: POT)

Don Kohn has the market abuzz this morning. Perhaps he has felt like a side show, as relative youngsters, Mishkin and Bernanke, have risen in popularity. His comments have caused some eyebrows to raise regarding the Fed's current view of the economy and need for rate action. Futures are looking higher as a result.

1. Wells Fargo (NYSE: WFC) Joins the Fray - WFC said Tuesday evening that it will recognize $1.4 billion in home equity loan losses when it reports its fourth quarter. The company is also packaging $11.9 billion of its riskiest assets for sale. Good luck with that dump! The shares were down in after hours trading and are lower again this morning by about 1%. However, putting a number to the risk might open WFC up to our buy list soon. Estimates will likely be revised lower for this year and next, and the stock's recent price movement is reflective of that. Before recommending the shares, we'll have to study how much analysts discount the risk related to troubled assets. I might be on the same boat as banking analyst Richard Bove, but for the media's ill-conceived expectations for a December rate cut. It's clear the market does not wholeheartedly agree given recent trend, so it befuddles me that the media keeps naively pounding the table and exposing its misunderstanding.


2. Petroleum Status - At 10:30, all eyes will find the EIA Petroleum Status Report. Last week's report showed a crude oil draw of 1.1 million barrels from inventory. This morning, futures found a floor considering the direction of inventory flow last week. An OPEC production boost gets slowly slid off the table by the slight of hand of the savvy ministers if oil stays in the low $90s this week. At this point, we look too far off the century mark for this data alone to move us there in one swoop, especially with the market so focused now on the most important fundamental driver, economic activity.


3. Durable Goods Orders (October) - Expectations for a 0.3% month-to-month increase were let down this morning by the report of a 0.4% decline in durable goods orders in October. This is no surprise considering the nature of the goods, the state of housing and the economy, and other current events. Ordering activity would naturally slow in this environment. Excluding transportation and defense, orders were even worse, and the proxy for business investment showed a 2.3% decline. The overall 0.4% drop compares to September's revised decrease of 1.4%.


4. Fed's Kohn Catching Media Attention - CNBC is abuzz this morning with the comments of Donald Kohn at a prescheduled address. Call me crazy, but saying the market needs to be "nimble" does not signify to me that the Fed will cut in December. In fact, to me it says that the Fed is staying put in December, but would act if it viewed the economy in need. His comment that caused the most stir was that the situation has changed since the last Fed meeting (paraphrasing). So, this would imply that maybe the Fed's position had changed as well. I doubt it, but I expect the next vote to be less than a consensus decision. I still expect the Fed to hold pat in December and let the market down; stocks could discount this fully into price ahead of the event, so that comments about the outlook and Fed willingness to act could actually offer upside to stocks on that day. We'll keep an eye on it for you.


5. Existing Home Sales (October) - At 10:00 AM, look for the pace of Existing Home Sales to have slipped again in October. Bloomberg's consensus forecast expects an annual pace of 4.95 million sales, compared to 5.04 million in the month just prior.


6. Beige Book - At 2:00 pm, the Federal Reserve releases its Beige Book survey of regional economic conditions.
   
   Market-Moving News

• Greek: Secular Change of Food Prices Justifies PE Expansion at (NYSE: MON, MOS, POT, DE)


• Bloomberg: European Stocks Gain


• MarketWatch: Asian Markets Mixed


• CNN Money: Wells Fargo (NYSE: WFC) Sees $1.4 Bln. Loan Loss


• Census Bureau: October Durable Goods Orders Fall 0.4% Vs. Expected 0.3% Rise


• CNBC: Fed Vice Chair Kohn Catching Wires Ear


• ECONOMIC REPORT: October Existing Home Sales (Consensus 4.95 Mln.)


• CNBC: Mortgage Applications Fall on Rate Rise


• Platts: Crude Futures Steadied Today


• CNBC: OPEC Media Blitz


• ECONOMIC REPORT: EIA Petroleum Status Report


• DailyFX: Dollar Rally


• CNN Money: Bush's Economic Advisor Resigns


• TheStreet: Analyst Turns Positive on Banks


• Bloomberg: Online Shopping to the Rescue


• Bloomberg: Euro Inflation Could Get Hot


• Fortune: Bonus Shakeup on Wall Street


• CNBC: Goldman's Gloomy Outlook


• Yahoo! Earnings Calendar


• AP/Yahoo!: All Eyes on Freddie Mac's (NYSE: FRE) Stock Sale


• MarketWatch: Pep Boys (NYSE: PBY) to Close Stores, Shave Staff


• TheStreet: Cramer on Citi's Regroup (NYSE: C)


• MarketWatch: Marvell Tech (Nasdaq: MRVL) Letting 400 Go


• AP/Yahoo!: Compass Group Profit Soars


• AP/Yahoo!: BHP Billiton (NYSE: BBL) Still Seeks Merger with Rio (NYSE: RTP)


• MarketWatch: Callidus Software (Nasdaq: CALD) Cutting 8% of Staff


• Economist: Not-So-Great Expectations at Mideast Meeting


• BBC: Musharraf's Blunder Opens Door to Change, Loses Army Control


• The Greek's Week Ahead


• Economist: The Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

Your support of our advertisers sustains our effort, so please take a minute to help fuel our bold independent venture. Receive Wall Street Greek FREE via email by subscribing here. (disclosure)

Morning Report: Infusion of Confidence

(Stocks in this article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: C, Nasdaq: SPLS, NYSE: BCS, Nasdaq: FSLR, Nasdaq: RVBD, Nasdaq: CMRG)

Stocks have opened higher this morning supported by an investor show of confidence in Citigroup.

1. Confidence Restored as Citigroup Gets Infusion - Citi (NYSE: C) received a $7.5 billion cash infusion from the Abu Dhabi Investment Authority. The preferred stock dealt will yield 11%, and is convertible to shares starting in March 2010 at prices up to $37.24. The investment represents a 4.9% stake in Citi, and it would seem a good investment for as long as geopolitical stability holds. This should provide some confidence to the troubled financial sector, and help stabilize the group. While I believe the shares could show short-term strength, I remain concerned about the December FOMC meeting and the result I'm looking for in inaction. However, I would be solidly long by New Year's in any event.


2. Economic Data & Analysis - This mornings weekly same-store sales report from the ICSC-UBS showed a 2.5% year-over-year increase for the Black Friday inclusive period. Not bad... Population growth continues, prices have risen and unemployment is still relatively strong, so this should not be such a surprise. Still, we note that the result was not especially strong, just still displaying signs of life. At 10:00 a.m., the Conference Board will report Consumer Confidence, with Bloomberg's consensus looking for a reading of 90.5. The University of Michigan measure was adjusted higher last week, but not much higher to a still poor 76.1. Despite ongoing holiday shopping, the consumer is showing signs of strain and concern that I view foreboding for economic recession in '08.


3. Saudis Confirm Production Boost - Not really. The Saudi Minister only indicated that production was up about 200K barrels a day from a point before the November 1 OPEC increase. He would not confirm that OPEC might raise production next week when it meets. This is really no news folks, but it's being interpreted as bearish and interpretation is important for short-term price movement, not reality. I do expect OPEC to raise production though, and this week's inventory data and price activity may play a final role in that decision. However, a loyal Greek, reader forwarded me an article yesterday indicating that the U.S. has secured more tankers than usual to transport more fuel than usual to the Middle East and Indian Ocean fleets and bases over the near term. I've suspected all along that the strategic oil reserve may be filling at a rate faster than the published rate, and this news, confirmed by the government, seems to point toward a coming need. Analysts are speculating that it could be for a war game demonstration, but logic tells us that '08 will be the year war begins with Iran. I'm willing to go out on a limb here again because of my conviction on this topic, and because this is what you deserve from independent research. The only data bit conflicting with the war scenario is the U.S. effort to build a missile defense shield in Eastern Europe. However, it's also possible that we are covering all basis. I remain bearish oil for the short short-term, and bullish over the medium and long-term.
   

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The Greek's Week Ahead - Insane Hour

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

It started as early as 4:00 AM in some places. It was not a fishing trip or some other event that normally begins at a ridiculously difficult hour. No, it was the start to the shopping season this past BLACK FRIDAY! I participated in the mayhem one wild year, and though it was the most efficient shopping experience of my life, it was also insane. It's all a trick you know... It's commercial America's sly way to get you into the stores for the longest day of shopping history. You get started so early and fueled by the adrenaline rush associated with catching your favorite store's blockbuster deal that you just keep going all day long. And if you miss the morning rush, you know there are still good deals to be had, so you go out anyway. Bah humbug! Keep an eye on the site this week, as I'll be publishing plenty of value-added reports alongside the regular daily market preview.

The Week Ahead...

Monday is data empty following the long holiday weekend. The earnings schedule is also light, including the likes of Citi Trends (Nasdaq: CTRN), Donaldson (NYSE: DCI), EDAP TMS SA (Nasdaq: EDAP), On Track Innovations (Nasdaq: OTIV), Shoe Pavilion (Nasdaq: SHOE), SkillSoft (Nasdaq: SKIL) and Streamline Health Solutions (Nasdaq: STRM).

Tuesday offers the weekly same-store sales data from the International Council of Shopping Centers. Last week's report showed sales only rose 2.2% over the year ago period. This week's data will offer an interesting comparison to last year's week that included Black Friday.

At 10:00 AM, the Conference Board will report the Consumer Confidence Index. Bloomberg's consensus is looking for further deterioration in a reading of 90.5, down from 95.6 in October. Both confidence figures published by the Conference Board and the University of Michigan are at low points for the year, and down significantly from last year's shopping season.

Fed President Charles Plosser is scheduled to address a group at Rochester University on Tuesday. The S&P Case Shiller Home Price Index is expected to show further deterioration, and according to Barron's quoted expert from MFR, an acceleration of rate of decline. It's debatable how the market will interpret such information. On the one hand, it clearly means each sale is less profitable for homebuilders. Also, equity values are decreasing for home owners still, and some of these owners may be sitting on homes whose mortgage is larger than the home value, offering incentive to default out of tough loans. On the other hand, lower prices might allow inventory to move at a better rate and bring supply into closer alignment with demand. Eventually, this has to happen for the market to stabilize.

The earnings calendar includes American Eagle Outfitters (NYSE: AEO), Analog Devices (NYSE: ADI), Bank of Montreal (NYSE: BMO), Casual Male (Nasdaq: CMRG), Central Garden and Pet (Nasdaq: CENT), Dress Barn (Nasdaq: DBRN), Finlay Enterprises (Nasdaq: FNLY), Gravity (Nasdaq: GRVY), Jackson Hewitt Tax Service (NYSE: JTX), Kopin (Nasdaq: KOPN), Linktone (Nasdaq: LTON), Marvell Technology (Nasdaq: MRVL), Pep Boys (NYSE: PBY), Semtech (Nasdaq: SMTC), Sigma Designs (Nasdaq: SIGM), Sonic Solutions (Nasdaq: SNIC), Staples (Nasdaq: SPLS), Talbots (NYSE: TLB), Verigy (Nasdaq: VRGY) and a few others.

The data load gets busy on Wednesday, starting with the Mortgage Bankers Association reporting of Purchase Applications. Changes to this data are just not important yet, but they have revealed a stealth refinancing effort as the government and interested parties, including banks set to deal with defaults, do their best to get people into manageable loans. Not everybody agrees on the catalysts though. Countrywide Financial's (NYSE: CFC) CEO Angelo Mozilo would probably argue against the point about government action.

Durable goods orders will be reported for the month of October at 8:30 on Wednesday. Bloomberg's consensus is anticipating a 0.3% month-to-month increase, and this compares to September's decrease of 1.7%. Expectations vary here, and another decrease is not out of the question. For instance, Barron's quoted Lehman Brother's expectation for a 0.7% decline.

At 10:00 AM, look for the pace of Existing Home Sales to have slipped again in October. Bloomberg's consensus forecast expects an annual pace of 4.95 million sales, compared to 5.04 million in the month just prior. A half hour later, all eyes will find the EIA Petroleum Status Report. Last week's report showed a crude oil draw 1.1 million barrels from inventory. At 2:00 pm, the Federal Reserve releases its Beige Book survey of regional economic conditions.

The day's earnings schedule includes Aeropostale (NYSE: ARO), Beacon Roofing Supply (Nasdaq: BECN), Brown Shoe (NYSE: BWS), CBRL Group (Nasdaq: CBRL), Coldwater Creek (Nasdaq: CWTR), Culp (NYSE: CFI), Dollar Tree (Nasdaq: DLTR), Inergy Holdings (Nasdaq: NRGP), Jo-Ann Stores (NYSE: JAS), Men's Wearhouse (NYSE: MW), Oil-Dri Corp. (NYSE: ODC), Sycamore Networks (Nasdaq: SCMR), TiVo (Nasdaq: TIVO), White Electronic Designs (Nasdaq: WEDC), XETA Technologies (Nasdaq: XETA) and a few others.

Thursday is power packed full of economic data points. Corporate Profits for the third quarter will be published at 8:30 a.m. The initial reporting of Q3 GDP at 3.9% is expected to be revised up to 4.8% by Bloomberg's group of economists. Though highly publicized and well-anticipated, it will be interesting to see how the Fed-cut-expecting market receives this news. I continue to expect the market to receive a royal slap in the face on December 11th, when the FOMC announcement is made and rates are kept steady.

Weekly Initial Jobless Claims are seen matching last week's reporting of 330K. New home sales for October are expected to measure at an annual pace of 753K, down from 770K in September. We do not disagree with the direction, though the level could surprise even lower. The EIA Natural Gas Report comes at 10:30, and nat gas is finding support now from a colder than average temperature forecast for the coming week. Bernanke finds a mic at 7 p.m., so stay tuned to the wire in the evening, or read the Greek's Morning Report on Friday, as this could be news worthy.

The earnings reporting schedule includes Dell (Nasdaq: DELL), Sears (Nasdaq: SHLD), ACI Worldwide (Nasdaq: ACIW), American Woodmark (Nasdaq: AMWD), Argon ST (Nasdaq: STST), Atwood Oceanics (NYSE: ATW), Bon-Ton Stores (Nasdaq: BONT), Brocade Communications (Nasdaq: BRCD), Cost Plus (Nasdaq: CPWM), Del Monte Foods (NYSE: DLM), Fred's (Nasdaq: FRED), Genesco (NYSE: GCO), Gerber Scientific (NYSE: GRB), Gottschalks (NYSE: GOT), H.J. Heinz (NYSE: HNZ), Hellenic Telecommunications (NYSE: OTE), J. Crew (NYSE: JCG), National Bank of Greece (NYSE: NBG), Rex Stores (NYSE: RSC), Smithfield Foods (NYSE: SFD), The Wet Seal (Nasdaq: WTSLA), Warner Music (NYSE: WMG), Zumiez (Nasdaq: ZUMZ) and a few more.

On Friday, the last day of November, Personal Income and Consumption for October are due to be reported. The consensus is looking for a 0.4% increase in income. After Friday's rumor of massive pending layoffs at Citigroup (NYSE: C), and Wall Street generally bracing for a round of job cuts and slim bonuses (by Wall Street terms, but still stellar for most humans the world over), this data might start to look bad along with unemployment in '08. Personal Consumption is expected to increase 0.3%; this is the more important figure to the market on Friday, and any softness could start an unsettling stock drop.

The National Association of Purchasing Managers - Chicago will post its manufacturing report for the Midwest on Friday as well. The consensus is looking for a reading of 49.7. Recall, anything below 50.0 signifies contraction in the business sector. Construction spending for October is expected to have fallen 0.3%, no surprise. However, recall The Greek's forecast from almost a year ago, that construction spending for commercial property will soon follow the path of residential; this based on tighter overall lending standards and lower consumer spending, which should lead to contraction within retail.

At 3:00 pm, look for the farm report, and please see our article published over the holiday weekend, "Secular Change of Food Prices Justify P/E Expansion for Industry Participants." On the Fed tour, St. Louis President Poole and Fed Governor Kroszner are both scheduled to speak on Friday.

The day's earnings schedule includes Big Lots (NYSE: BIG), Kirkland's (Nasdaq: KIRK), Royal Bank of Canada (NYSE: RY), Tiffany (NYSE: TIF), TRC Companies (NYSE: TRR) and a few more.

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Morning Report: Pass the Expresso

(Stocks in this article: NYSE: NWL, NYSE: RTP, NYSE: HBC, NYSE: M, NYSE: PHG, Nasdaq: ETFC, NYSE: C)

Welcome back! I feel you... Trust me, market participants are having as hard a time getting rolling today as you are, but the market, she will not wait. After an extra cup of coffee this morning, let's take a stab at the day's market-moving news.

1. Holiday Shopping Recap - More shoppers X increased discounting = increased sales. That's the story plain and simple. Retailers discounted heavily and benefited from an increase in cost conscious shoppers this year, which I view as a negative sign for the economy. If you have more traffic on Black Friday, that probably means price matters to more people this year.


2. Will Today be the Day We Break $100 - Nada, not looking so, as Iran's new OPEC Minister says production hikes are possible. Looking at it from Iran's perspective, causing economic havoc upon the U.S. is favored, while stockpiling oil revenue before shipments are impacted by war seems preferred. In other words, while Iran likes seeing high oil prices, it's more in its interest now to book as much revenue as possible by raising barrel delivery.


3. Company News - Rumors surfaced that Citigroup (NYSE: C) is about to announce significant job cuts. Reuters ventured at a number between 17k and 45k. HSBC (NYSE: HBC) is sinking $45 billion to bail out two SIVs. This seems born out of the SIV Superfund idea, but allows HBC to protect its own interests more directly. If this starts a trend, it may allow specific firms to protect themselves while leaving others more at risk without large bank Superfund participants there to help them.
   

Market-Moving News

• CNN Money: Asia Rallies


• Financial Times: London Moves Higher


• Bloomberg: Holiday Sales


• CNN Money: Black Friday Review


• Platts: Crude Futures Look Bullish


• AP/Yahoo!: Temperatures Pressure Oil Higher


• Bloomberg: HSBC Holdings (NYSE: HBC) Bails Out Two SIVs


• Reuters: Citigroup (NYSE: C) Planning Major Layoffs


• CNBC: Summers Says Recession Likely


• DailyFX: What Can Turn the Dollar


• Yahoo! Earnings Calendar


• TheStreet: Macy's (NYSE: M) Miracle on 34th Street


• AP/Yahoo!: Philips (NYSE: PHG) to Buy Genlyte


• CNBC: E*Trade (Nasdaq: ETFC) Talks to Buyers


• MarketWatch: Rio (NYSE: RTP) Raises Dividend


• AP/Yahoo!: Newell Rubbermaid (NYSE: NWL) Cuts Guidance


• BBC: Chavez Cuts Ties With Columbia


• BBC: Hamas Dismisses Mid-East Talks


• Economist: The Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

Don't miss this weekend's report regarding the secular nature of food price change, and its repercussions for the valuations of agriculture stocks. Please support our effort by visiting the site and supporting our advertisers. Receive Wall Street Greek FREE via email by subscribing here. (disclosure)

Secular Change of Food Prices Justify P/E Expansion for Industry Participants

(Stocks in this article: NYSE: MON, NYSE: MOS, NYSE: POT, NYSE: DE, NYSE: DF)

There is a significant difference between the variations of food prices today, versus changes of the past. Because of this difference, which I posit is the secular nature of today’s price change versus prior seasonal variation, I believe the expansion of P/E ratios and current valuations of some agricultural industry beneficiates like Monsanto (NYSE: MON) are justified.

The very reason "core" figures exist for the producer and consumer price indices is because of the volatility and perceived insignificance of short-term fluctuations of food and energy prices. Recall, the "core" figure excludes changes in food and energy, and the Federal Reserve has relied upon it as a trustworthy resource in its gauging of inflation. But, the times, they are a changing.

The Fed, following Alan Greenspan’s recent expression of concern (and the Greek’s warnings if you have been reading my blog from the beginning of the year), will be providing forecasts for inflation, including the headline figure. The new venture began this past week, and clearly highlights the significance of changing marketplaces for food and energy and the drivers of price change.

Here’s what’s going on…

Significant global supply/demand dynamics have, and are, altering the economic implications of changes in food and energy prices. The changes we have seen in recent times are not representative of random movement, but instead characteristic of clear and perhaps long-term trend. Food and energy prices are steadily rising, not fluctuating. The drivers behind today's change are not seasonal or short-term factors, like drought and OPEC production restrictions. Rather, the drivers of today's rising trend are secular in nature. Let me expound, and this next point is critical to your understanding...

Regarding food, bursting global population growth; the shifting of resource utilization in emerging nations; and new uses for agricultural commodities are raising demand for foods while at the same time limiting agricultural production. Regarding our crowded planet, the drivers of population growth are clear. While developed nations progress in a paced manner, birth rates in the emerging world run high. At the same time, advances in medicine and efforts to share advanced medicine and treatment across the globe, aided by Internet and media, have expanded the longevity of mankind. Now, don't get me wrong, this is a great accomplishment. However, it places increased burden on food supply.

The second point regarding foods is that as third-world nations emerge and develop, resource utilization is shifting. When countries like China industrialize, there is a great draw of farmers and laborers into industrial centers and away from agricultural production. As this occurs, there is increasing likelihood and risk that nations like China will gradually shift into consistent net importers of grain and other commodities. So, as China's industrial revolution progresses, its fuel and energy usage are directly impacted, but its food production is indirectly impacted as well.

The third point is that as science helps to solve existing problems through the development of new uses for corn and other agricultural goods, especially in the production of biofuels, it's at the cost of food and feed uses. Thus, crop production becomes inadequate and introduces pressure on grain prices. Supplies of surrogate grains like soybean and wheat, suffer as more acreage is dedicated to corn production. Thus, surrogate prices increase as well. As feed prices also rise, the costs of protein production, including beef, pork and poultry, rise and drive up those prices too. This leads to the pass-through of price pressure to processed foods producers like Dean Foods (NYSE: DF), distributors and finally restaurant goers as well as supermarket shoppers.

Now, what you haven't heard often, but may be a positive result of this predicament, is that while science is pressuring prices higher today, science may also provide the means of price reduction in the future. Companies like Monsanto (NYSE: MON) are working to develop genetically altered crops. Thus, the day may dawn when significantly less acreage produces adequate agricultural produce to help prices retract. This kind of scientific effort can protect plants from disease, while also otherwise improving production. As a result, Monsanto’s seeds are in high demand.Thus, we can see the logic behind the value creation at Monsanto. If logic is not enough, analysts' consensus five-year EPS growth estimate of 44% should be. As a result, Monsanto’s P/E ratio of 36X the consensus earnings per share estimate of $2.55 for 2008 (Aug.) does not look excessive to me. No, and despite the shares’ recent spike higher, I view them attractive for long-term purchase.

Company ----	Tic ----	P/E f1 ----	5-Yr. Gr. Est. ----	P/E/G
Monsanto	MON	36	44	0.8
Mosaic	MOS	16	9	1.8
Potash	POT	23	10	2.3

Mosaic and Potash Corp. have seen price rise as well, and analysts’ near-term EPS growth estimates, as compiled by Thomson Financial, are pretty hot for the two, but their five-year growth outlooks are not. If we take the analysts’ forecasts as infallible, then I would not buy MOS or POT now. However, with near-term growth forecasts both significantly higher than the long-term view, it’s possible that the analyst community is misinterpreting secular change for short-term variation. I would go so far as to say this is significantly possible, and the stocks’ short-term growth outlooks are screaming buy me if that’s the case. However, given the analysts’ expert view, I must be wary regarding MOS and POT, or take a much closer look at each individually. Regarding MON, despite its P/E ratio, I like the stock given its strong growth outlook and the credence I give to secular change in the agricultural sector.

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Thank You

On this Thanksgiving, I want to personally thank you for your interest in and support of our site, and for the value-added insight you have contributed through email exchange and commentary to articles and reports. We appreciate and welcome your thoughts, and maintain our goal to remain an open-minded institution no matter how large God wills us to become. God bless you all and best wishes on this heartwarming occasion.

Greek

Morning Report: Oil Flirting With $100

(Stocks in this article: NYSE: DE, Nasdaq: ERIC, NYSE: ANF, NYSE: TM, NYSE: LTD, Nasdaq: SGEN, NYSE: FRE, NYSE: SPY, Nasdaq: QQQQ, NYSE: DIA, NYSE: FNM, NYSE: GM)

On a day most consider a strange mix between holiday and workday, traders in the oil pits will make no mistake of it. While most of you clean your desks and pack your bags, hard working oil barterers are attentively anticipating today's weekly inventory report as crude has $100 in its sights.

1. Oil Inventory Catalyst to $100 - For reasons to be discussed in topic 2, oil found hope in yesterday's Fed releases. Traders anticipating future economic juicing rate cuts drove oil up rapidly. Follow-through alone could take oil over $100 today ahead of the inventory report, which will decide where the commodity closes. Analysts surveyed by Dow Jones Newswire anticipate an 800K barrel build to inventory will be reported for last week. Analysts surveyed by Platts expect a 150K barrel draw in crude, so there's enough confusion to allow for oil to push ahead of $100 before the data release even. Clearly, depending on the data, I believe there is a good chance fanatic and frenzied trading could take oil to plus $100. If the data is bearish, I would hold on because it seems clear this pit wants to go to $100 one way or another. If the news is bullish, I would sell before the close of trading after oil breaks the illusory peak. This price level is unsustainable in my view in light of factors I've outlined in countless past articles. The caveat, war I see with Iran sometime next spring should help oil to break all records. My play is still the refiners now, including Valero (NYSE: VLO) on its specific issues holding down the stock.


2. Tuesday's FOMC Meeting Minutes & New Projections - Bernanke's Fed produced forecasts that indicate slowing economic growth and softening inflationary pressure, nothing much different than what they've already been telling us. However, despite discussion in the October meeting minutes indicating that a cut was not a sure thing (again old news) the market found hope in the release. It mistakenly viewed Fed concern for the slowing economy as bias for future rate cut. I am disappointed in the ignorance and blind hope of market participants in this regard. Clear logic and the words of the Fed are telling us that a December cut is not in the offing, yet the market continues to hold out hope, even expectation for it. I expect economic and geopolitical conditions will lead to rate cuts in '08, but nothing tells me to expect a December action. It just may be that the media misinterpreted the driver for the market yesterday. It may very well have been Freddie Mac's (NYSE: FRE) news that raised expectations for a near-term rate cut. That would certainly be more likely and justified in my view.


3. Economic Reports Non-Events - A few economic reports reached the wire today, but I see no impact to equities as a result. The Mortgage Bankers Association weekly data showed applications fell last week. Until mortgages reach inflection point and the market truly turns, this report is somewhat meaningless in my eyes. Weekly Initial Jobless Claims came in at 330,000, teasing the high end of this year's run rate, but off 11,000 from last week's report. This is clearly not alarming data as all eyes search for rising unemployment. The second reporting of November University of Michigan Consumer Sentiment came in above expectations at 76.1, but still weaker than the measure taken during our last recession. Leading Indicators reported a 0.5% decline, worse than the consensus view for a 0.3% decrease.


4. Company Specifics - In news I plan to follow up on with a specific article, Toyota Motors (NYSE: TM) looks to challenge GM (NYSE: GM) in China. Surprisingly, this might be one battle American manufacturers can win over the Japanese, due to history... I think you see where I'm going with this. Deere (NYSE: DE) put up good numbers, as all agriculture plays continue to do well. Look for an article later today or on Thanksgiving covering this subject.

Market-Moving News

• AP/Yahoo!: Asia, Europe Move Lower, US Futures Don't Look Better


• Federal Reserve: FOMC October Meeting Minutes


• Bloomberg: Market Views Fed's Forecasts Positively


• CNN Money: Oil Marching Toward $100


• Bloomberg: Weekly Jobless Claims Down 11K to 330,000


• Platts: Oil Ahead of the Inventory Report


• Financial Times: Government Bonds Rally on Equity Weakness


• ECONOMIC REPORT: October Leading Indicators Reported -0.5% Vs. Consensus -0.3%


• ECONOMIC REPORT: U. Michigan Consumer Sentiment 76.1 Vs. Consensus 75.0


• CNBC: Mortgage Applications Fell Last Week


• CNBC: OECD Says Mortgage Losses Could Reach $300 Billion


• CNBC: Paulson Finally Quits Cheerleading, Sees Home Loan Defaults Heavy in '08


• DailyFX: Will Equities Follow Carry Trades Down?


• MarketWatch: Treasuries Fall Below 4%


• CNBC: Nonresidential Construction Picks Up In October


• Yahoo! Earnings Calendar


• AP/Yahoo!: Deere (NYSE: DE) Profit Climbs


• Forbes: Ericsson (Nasdaq: ERIC) Shares Fall on Outlook


• TheStreet: Abercrombie (NYSE: ANF) Sees Flat Trend


• AP/Yahoo!: Toyota (NYSE: TM) Raises China Sales Goal


• TheStreet: Limited (NYSE: LTD) Cuts Forecast


• SeekingAlpha: Seattle Genetics (Nasdaq: SGEN) Bright Future


• USA Today: 39 Million Traveling on Thanksgiving


• BBC: Mid-East Meeting Planned for Next Week


• Economist: The Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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Morning Report: Ominous Volatility & the Fed Catalyst

(Stocks in this article: NYSE: FRE, NYSE: HPQ, LSE: NRK.L, NYSE: SSI, NYSE: JWN, NYSE: DHI, NYSE: BJ, NYSE: DDS, NYSE: HRL, CBOE: VIX, NYSE: SPY, Nasdaq: QQQQ, NYSE: DIA)

Down 300 points; up 200 points! Where's it all leading to, you must be asking. We drag into mid-August, rise into mid-October, drop again now... You must be confused. However, there is clear and powerful driver behind each move, the Fed. Market expectations of Fed bias have driven each of these moves, and are behind the currently confused, though clearly negatively biased market direction.

When we were rising, expectations were for a Fed expansionary trend, and as we declined the market was looking for possible restrictive monetary policy to combat inflation. The current environment is one in which the Fed has told us it has shifted to neutral. However, the market still contains many skeptics who argue the Fed is just misinterpreting data and will come to its senses. Today will offer some serious directional data, as the Fed publishes its October FOMC Policy Meeting minutes and begins its new offering of long-term forecasts.

Volatility is clearly increasing, and periods of high volatility have coincided with significant market corrections of the past. We find this ominous and threatening if the right catalyst comes to the fore in the near-term. We are very confident Iran will not be that catalyst now. Our government is not going to start a messy war during the critical fourth quarter. No, you can expect Iran to show up on CNN sometime after January, but likely before June.

Catalysts we cannot foresee include terrorism. Despite the annual shopping mall threat, and intensified chatter heading into the fall, we simply cannot invest or disinvest based on fear of terrorism. The only imminent threat is the Fed and the economy. If data or the Fed issue a wake up call to investors, we will be faced with that crescendo sell-off. So Greek, is it going to happen?

I expect the market has already awoken somewhat, but a further wake up call is likely. I expect that after the holiday shopping season concludes, unemployment will increase significantly as margin squeezed retailers face the reality that the consumer is just not spending like she use to. Higher unemployment, slowing GDP could overcome the Fed and welcome recession surprisingly faster than expected possible by the group. In any event, I believe the Fed will have to cut when it receives the call from the Administration next spring that war has begun. Before then, data will dictate the day and confusion and volatility will rule stocks. Volatility is here to stay for awhile. The CBOE Volatility Index (Chicago Options: ^VIX) has increased 61% from its October 9 recent low through November 19.

In the meantime, kitchen sink write-offs typical of the fourth quarter will continue to offer bad news, and tax loss selling will continue to drive stocks lower, until that fuel is dry. At that point, I believe you can expect a Santa Claus rally sometime in December.

Market-Moving News

• Financial Times: European Equity Volatility Intensifies


• CNN Money: Asian Markets Rebound


• Bloomberg: Freddie Mac (NYSE: FRE) Posts $2 Bln. Loss, $8.1 Bln. Write-Down


• ECONOMIC REPORT: ICSC-UBS Weekly Same-Store Sales


• Bloomberg: October Housing Starts Surprise Higher than Consensus


• ECONOMIC REPORT: 10:00 State Street Investor Confidence Index


• ECONOMIC REPORT: 2:00 FOMC October Meeting Minutes


• DailyFX: U.S. Fed Futures Disagree With Equities


• Platts: U.S. Not Concerned Over OPEC Consideration of Dollar Alternative


• Platts: Strike Impacts French Energy Port


• CNBC: Goldman Says Writedowns To Increase


• Financial Times: French Strike Widens


• Bloomberg: BOE Deputy Governor Says Credit Markets Still at Risk


• Yahoo! Earnings Calendar


• MarketWatch: Hewlett-Packard (NYSE: HPQ) Chugs Ahead


• Bloomberg: Northern Rock (LSE: NRK.L) Shares Troubled Anew


• AP/Yahoo!: Stage Stores (NYSE: SSI) Profit Falls


• TheStreet: Nordstrom (NYSE: JWN) Beats Weakened View


• CNN Money: D.R. Horton (NYSE: DHI) Posts Narrower Loss Than Expected


• BJ's (NYSE: BJ) Does Okay


• Hormel (NYSE: HRL) Profit Rises


• AP/Yahoo!: Dillard's (NYSE: DDS) Swings to Q3 Loss


• Economist: Romney Rising


• Economist: The Geopolitical Week Ahead


• Iran Daily: Tales from the Dark Side

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Morning Report: Decent Data Deceives

(Stocks in this article: NYSE: BSC, NYSE: HBC, Nasdaq: VRSN, Nasdaq: QCOM, NYSE: WEN, NYSE: MT, NYSE: DD)

Today's important economic data proved decent; but was the news deceptively decent? In any event, equities look to follow through on yesterday's rally again today. Beware, however, that tomorrow's CPI data might send a different message, though it's not likely to show up from energy since gasoline prices have only just started to move higher and weather likely delayed heating oil purchases.

Economic Data

October Retail Sales

Sales surprised many today just by meeting consensus. October results rose 0.2% over September's, meeting expectations. However, 0.2% is not robust growth heading into the holiday season. Pressures on consumers do not seem likely to ease either. In fact, they will likely only intensify. Gasoline prices are seen rising as refiners feel pressure from higher input costs. Gas could be 20 cents higher before Christmas, eating into the little spending cash, credit-stretched and limited consumers can handle. While a great majority of our country remains employed, the fact remains that that same majority lives check to check, and is seeing rising cost of living expenditures cut into discretionary cash flow.

October Producer Price Index

October PPI showed a modest 0.1% increase, and no change when excluding food and energy costs. Prices were ironically controlled by a decrease in oil during October, versus September. Clearly, that will show up on the other end of the table in November after oil nearly touched $100. Here's my concern. If commodity price increase is not passed forward, margins should be squeezed. Maybe that is the necessary catalyst for inflation to begin to catch fire. Keep your eye out for that.

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Morning Report: Oil Sliding & Wal-Mart's (NYSE: WMT) Share Grab

(Stocks in this article: NYSE: WMT, NYSE: HD, Nasdaq: NEWS, NYSE: VOD, Nasdaq: FOSL, NYSE: VLO)

A few weeks ago when we warned to sell oil and gold and buy the dollar, we were a bit early, and we looked a bit bad over the short term as both gold and oil bubbled up to their peaks in the days that followed. In this game, being right is important, while being correct in direction and perfect on timing is ingenious; still at a week and a half off, we think did okay. We told you there were catalysts in play that could give oil a short short-term pop, including Turkey, Pakistan, inventory data and storms, but we also forewarned that the medium-term fundamental catalysts would eventually gain traction, those being, the Fed shift to neutral, economic slowing, a likely stabilising dollar, a likely warm winter and OPEC production increase I expected.

I believe OPEC may be handcuffed, and could have its own supply concerns driving production strategy. Or, it could simply be greed driving decision making. The reason I say this is because the Saudi OPEC minister immediately retracted his comment that a hike might result from the pending meeting, after oil prices dropped. Since then though, the EIA reduced its demand forecast, and this has taken over the baton now, leading oil lower.

The biggest news of this week is yet to come, with tomorrow's October retail sales data and the pending PPI and CPI reports, with the inflation message they carry. Clearly, the inflation reading is critical to this market, as it will sway investor expectation for future Fed action.

Today, Wal-Mart (NYSE: WMT) reported quarterly results, and its earnings exceeded its previously downgraded forecast. More important to value creation, this retail leader is engaging in a very interesting and apparently effective strategy.

The skinny...
It's seeking to take market share from rivals by moving forward its holiday sales discounts. If you view holiday sales as a limited quantity, then drawing them in before rivals mark down inventory on Black Friday should be an effective way of stealing market share. However, no arbitrage opportunity, which this is, clearly lasts forever. This should drive a fundamental change in the retail industry eventually, bringing rivals to match Wal-Mart's efforts. Also helping the stock today, the company's full-year forecast is above analysts' view, and that's always a good thing.

Retail industry peer Home Depot (NYSE: HD) did not have much positive to say today in its quarterly report. The worst of it was its reduction in full-year forecast to an expectation of an 11% decline in earnings from continuing operations. Same-store sales fell 6.2% in the quarter, and things don't look to improve any time soon with the housing sector still in the tank and consumers facing rising costs of living.

The International Council of Shopping Centers - UBS posted decent year-over-year same-store sales growth of 2.7%, but we would focus on monthly change to avoid the distraction of weather differences.

Besides the EIA revision for oil demand, a representative of the group noted the possibility for a 20 cent price increase in gasoline by the end of the year. Margin dynamics are thus improving for the refiners as oil price moves lower, while gasoline moves upward. So, I continue to like Valero (NYSE: VLO) and other refiners here. VLO took a hit last week due a fire that should prove a short-term influence only.

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Morning Report: Veterans' Day Brings No Peace

(Stocks in this article: AMEX: FXP, NYSE: CFC, NYSE: IBM, Nasdaq: COGN, NYSE: HBC, NYSE: TSN, NYSE: MA, Nasdaq: INTC, NYSE: BX, NYSE: DIS, NYSE: GS, NYSE: MS, NYSE: MER, NYSE: C, NYSE: PTR)

Veteran's day brings no rest for weary equity investors. Late last week, a topic of discussion surfaced regarding FAS 157 and its November 15 implementation. Some are warning that new rules for "Level 3" assets could bring another round of asset markdowns. This news combined with fresh warnings from HSBC (NYSE: HBC) and Countrywide Financial (NYSE: CFC) look to allow no break for financial sector woes. However, if the stocks show strength today as pre-market activity seems to indicate, it would be a great vote of confidence for value.

1. Financial Sector Distress - A recent report by Royal Bank of Scotland Chief Credit Strategist Bob Janjuah detailed more risk for the sector. As detailed in Barron's and Bloomberg, Bob sees $250 to $500 billion in total credit losses before all is said and done. These estimates match up well with many others I've seen. However, Bob brought to light a risk perhaps less understood by the market, the risk posed by the new FAS 157 rule that goes into effect on November 15. He sees about $100 billion of risk set directly to this implementation, as firms are forced to follow the new rule to value "Level 3" assets, those of lowest liquidity and most difficult to value. This has raised concerns, and one must wonder if bank accounting departments have fully accounted for this change in recent charges. I would certainly hope so, since Morgan Stanley (NYSE: MS) was listed as the firm with the most Level 3 assets, as related to its shareholder equity at the end of Q3. Recall, MS is the long in my pair trade detailed on Friday. It's important to note that this category covers securities spread among many different types of underlying assets, not just mortgage related. However, if the credit crisis spreads further among these instruments, one could foresee more trouble. MS shares are higher pre-market. I found it interesting that Merrill Lynch (NYSE: MER) was listed as the firm with the least Level 3 assets-to shareholder equity, and I wonder if the SEC investigation regarding Merrill's dispersion of securities to hedge funds might have something to do with that. Does this mean new charges are in store? There's a chance, but I do not expect a new round for MS on Wednesday, and would be highly disappointed if that happened. This should not be a surprise to anyone, and heads should role if recent chargers now charge again. Remember, Morgan listed its remaining risk at $6 billion, but that may be limited to specific instruments. I want to note that this gives Goldman Sachs (NYSE: GS) a way out of its recent denials regarding pending charge possibility. It seems highly unlikely to me that Goldman will go through the entire "kitchen sink" Q4 without a charge. However, after the guillotine showed up at Citi (NYSE: C) and Merrill, corporate heads have reason to delay the inevitable, self preservation.


2. Oil and Gold Turn Lower - Despite the counter statements from Iranian and Venezuelan officials, the Saudi OPEC minister's comment that the group would discuss a possible production hike at its next meeting has set oil lower today. I believe your PetroChina (NYSE: PTR) short will continue to work now.


3. A New Way to Bet Against China (kind of...) - If you are looking for a way to bet against the Chinese market bubble, ProFunds Group has created the investment vehicle for you, kind of. The ProShares UltraShort FTSE/Xinhua China 25 ETF (AMEX: FXP) may be a better hedge vehicle against Hong Kong holdings than a bet on Mainland Chinese equity bearishness, since it is not tied to bubblistic mainland shares, but the cheaper Hong Kong traded group. Mainland shares are restricted to foreigners.
   

Market-Moving News

• CNN Money: Asian Markets Fall Sharply


• MarketWatch: Europe Rising


• Bloomberg: Level 3 and FAS 157


• CNN Money: No Coincidence in the Rush to Create the SIV Superfund


• CNBC: HSBC (NYSE: HBC) Faces Another Mortgage Hit


• Wall Street Journal: Countrywide (NYSE: CFC) Warns of Ratings Risk


• Bloomberg: Yen Rises to 1.5 Year High Vs. Dollar


• DailyFX: Euro Double Top


• MarketWatch: Oil, Gold Lower on Saudi Comments That OPEC Will Discuss Production Hike


• Platts: Crude Futures Weaken


• AP/Yahoo!: China Trade Surplus Hits Record


• AP/Yahoo!: EU to Open Up Phone and Web Sector


• Yahoo! Earnings Calendar


• Forbes: Airbus Expects Record Orders


• CNN Money: IBM (NYSE: IBM) to Buy Cognos (Nasdaq: COGN)


• AP/Yahoo!: Tyson Foods (NYSE: TSN) Provides Weak Forecast


• TheStreet: Visa Files for IPO - Mastercard (NYSE: MA)


• TheStreet: Intel's (Nasdaq: INTC) New Chip


• CNBC: Blackstone (NYSE: BX) Posts Loss


• CNBC: Even Disney (NYSE: DIS) Wants a Cell Phone Now


• Economist: Bush Discusses Iran with Euro Allies


• Economist: The Geopolitical Week Ahead


• BBC: Interesting Exchange Between Chavez and Spanish King


• Economist: Misha's Trouble


• Financial Time: Georgian Opposition Turns Down Tycoon


• Iran Daily: Tales from the Dark Side

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I-Bank Pair Trade: Buy Morgan Stanley (NYSE: MS), Sell Goldman Sachs (NYSE: GS)

(Stocks in this article: NYSE: GS, NYSE: MS, NYSE: C, NYSE: MER, NYSE: LEH, NYSE: BSC, NYSE: BCS, NYSE: JPM)

Happenings in the hectic financial sector have created a special opportunity, in my opinion. A recent event and nonevent have created opportunity to weed out systemic risk, and still enjoy profits from contrasting positions in a couple investment bank stocks. The pair trade I'm recommending is to buy Morgan Stanley (NYSE: MS) and sell short Goldman Sachs (NYSE: GS).

First let’s look at the short side of the trade and the “nonevent”

Is Goldman Sachs (NYSE: GS) really that much better than its peers to justify its outstanding stock performance and premium valuation? If you have been reading me, you should already know the answer to that rhetorical question. I do not believe Goldman’s shares deserve to be on an island, as the company operates in the same markets as Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER), and likely partook of the same sins, in my opinion and by the logic of the common man. In a glance of the chart above, any eyebrow should arise. Something’s wrong here. Is Goldman that much better at managing risk?

As you can see, while GS shares were up nearly 20% through the twelve months ended on November 7, each of its peers are at least 20% under water during that same span. Even after their recent backtracking, Goldman Sachs shares still offered a total return 8.2% year-to-date through the 7th of the month. There’s a very good reason for this, as long as it’s true. It’s the nonevent mentioned previously. Unlike peers Bear Stearns, Citigroup, Merrill Lynch and Morgan Stanley, Goldman has yet to announce a significant financial asset write-down and has reportedly denied rumors that it would. If GS really managed risk that well, then its stock probably deserves the reward its shareholders have enjoyed. However, I think this premise is false, and GS investors stand a decent chance of seeing a charge at their firm as well.

When comparing the valuations of this group, we have to take one important thing into consideration. Some of the firms have seen more significant adjustment to their earnings and growth estimates than have others. Also, Morgan’s data is not updated for the charge yet, as analysts are still likely updating their models at this very hour.

Company	Ticker-	Ytd. Return Nov 7-	P/E ‘07-	P/E ‘08-	P/E/G ‘08
Goldman Sachs	GS	8.2%	8.8X	9.4X	0.71
Morgan Stanley	MS	(23%)	6.7	6.3	0.47
Lehman Brothers	LEH	(28)	7.5	7.2	0.67
Bear Stearns	BSC	(40)	8.7	7.8	0.71
Merrill Lynch	MER	(41)	19	6.9	0.66
Citigroup	C	(37)	13	7.6	0.94
Barclays	BCS	(24)	7.7	7.3	0.6

With the fourth quarter nearing its end for these firms, including the marred and the unmarred, things may even out as most of them potentially seek to get their at risk assets charged off in the current fiscal year. The fourth quarter is notorious for kitchen sink write-offs, and the investment banks have good reason to write-off as much as possible now, since they would want to reduce risk of write-offs in 2008. So, in the table that follows, I took earnings estimate change into account, so as to show you where change may yet occur.

Company	Ticker -	90-Day Change in ’07 Est. -	90-Day Change in ’08 Est.
Goldman Sachs	GS	+10.8%	+3.2%
Morgan Stanley	MS	-3.4	-5.6
Lehman Brothers	LEH	-5.5	-6.3
Bear Stearns	BSC	-18	-15
Merrill Lynch	MER	-67	-16
Citigroup	C	-44	-14
Barclays	BCS	-10	-13

The tables above show the main difference between Goldman and its peers, but can Goldman really being doing that well of a risk management job, or is the news of Goldman’s write-off pending? One thing seems certain, if the company has assets to burn, its stock is going to approach that of its peers. Thus, the upside potential for the shares seems not worth the near-term event risk. I would go so far as to bet on it, and suggest shorting GS alone or as part of the pair trade this article outlines.

The long end of the trade

Wednesday night, Morgan Stanley (NYSE: MS) announced that it would also post a charge of $3.7 billion in its fourth quarter, but the shares were up on November 8th, the day following the press release. What’s more impressive about this is that all of the firms discussed in this article were lower that same day. Why, you ask?

Morgan wisely declared its total remaining risk measured only $6.0 billion. This offering of information, or event we alluded to, brought clarity to a frighteningly uncertain outlook, and gave investors an idea of the size of future risk. The value of this declaration was especially powerful because of the activities of Morgan’s peers. Citigroup (NYSE: C) recently revised its initial charge significantly higher not long after first announcing what was a record breaking write-off. Merrill Lynch (NYSE: MER), after surpassing Citigroup’s initial charge, is now under investigation by the SEC, but more importantly to MS investors, declared its at risk assets at $27 billion, significantly greater than Morgan’s announced risk. Summarizing, Morgan’s provision of clarity to a previously uncertain outlook has solidified expectations.

In our valuation table above, the impact of the pending charge is not yet reflected in Morgan’s FY 07 EPS estimate. But, with the fiscal year nearing end, and ongoing operations the main concern of investors, it’s ’08 that really matters. Based on the ’08 estimate, which could be revised a little lower as analysts update their models, MS shares trade at significant discount to peers on a P/E/G basis. Now, its long-term growth outlook could be revised lower as well, bringing its valuation toward peers. Even so, I think risk here is limited and the stock looks cheap. Analysts like to look at price-to-book and price to assets under administration for firms like these, but we expect the asset uncertainty is at play in devaluing these ratios. However, this also illustrates the reason why MS shares are rising today; we know the risk, and it’s relatively low.

In buying MS and shorting GS, you effectively reduce systemic risk, while potentially benefiting from alpha return on both ideas. To the laymen, if the market goes down or up, you should still generate a profit from this position while limiting risk. This holds as long as you close out both sides of the trade after the anticipated write-off is announced. If no asset impairment is declared, your risk should still be limited by the offsetting positions.

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Morning Report: Run on Bank Stocks

(Stocks in this article: NYSE: WB, NYSE: BCS, NYSE: VLO, NYSE: DIS, Nasdaq: QCOM, Nasdaq: NVDA, NYSE: MRK, NYSE: BHP, NYSE: RTP)

Equity futures indicate a lower open this morning, as more banking charges and rumors continue to drive concern. The long-term downtrend will likely continue to be driven the Fed's neutral stance in combination with market expectations for economic slowing. However, a short term intraday rally today does not seem out the question to me today on value seeking, and I believe oil could weaken today as well.

1. Wachovia Signals Commercial Banks Next - Wachovia announced that it has another $1.1 billion in losses to book from October credit market asset value decline, plus another $500-$600 million of loan loss provisions to report in Q4. This should shift some focus from the large investment banks to smaller banks that are very likely to write off assets in "kitchen sink" fourth quarter fashion as well. I suggest surveying the group for charge off candidates. Barclays (NYSE: BCS) denied a rumor of a $10 billion write down of its own, but I expect BCS to report a large charge eventually, so I would use any bounce today to further short BCS.


2. Economic Data Trio - October Import Prices rose 1.8%, exceeding estimates for a 1.0% increase, on higher imported oil prices. I continue to pound the table on the serious inflation repercussions I see coming from higher food and energy. In absolute terms, this data would be bearish for Bernanke's market, as it would reduce the chances of an ease in my view. However, September International Trade showed the deficit unexpectedly narrowed to 56.45$ billion, which has the effect of adding to GDP (in Q3 mind you). Still, be careful, because net of price changes, the impact was not nearly as strong. What happens to GDP forecasts going forward will depend on the global economy and where economists see the dollar going versus oil, and both seem extended to me. In any event, global economic growth should not drop off a cliff, so this data would seem net bullish. In contrast to this statement, we must note that the EU revised its '08 GDP growth forecast lower today... At 10:00 AM, the University of Michigan's consumer sentiment measure for November is expected to mark a new low for the year. This comes one day after retailers posted weak October same-store sales results. These factors and next week's retail sales report should provide a short term long trade opportunity for some retail stocks that could benefit from sales seekers on Black Friday.


3. Oil, Dueling Factors - A North Sea storm (which seems to have fizzled out) duels a Brazilian oil find for the right to drive oil price direction today. Seems oil prices will drift lower in the short-term. However, the longs may be fielding a ringer to sway trade, with ex-Pakistani PM Bhutto being held under house arrest so that she could not attend her own scheduled rally. I suspect Pervez Musharraf is about to learn you can only go so far. A large protest is likely in planning now, with the intent of overrunning Musharraf. Pakistanis will likely take from the experiences of Georgia and Ukraine in this effort, and there are also rumors that the army is losing confidence in Musharraf. Oil likely continues trading in large swings but without direction until geopolitical concerns fizzle out. I still refiners like Valero (NYSE: VLO), especially on the short-term weakness from its refinery fire on Thursday. Initial estimates place repair time at 2-4 weeks. As gasoline prices rise, margins will improve for refiners.
   

Market-Moving News

• CNN Money: Japan Joins the Fray


• CNN Money: Europe Snaps Losing Streak


• Reuters: Wachovia (NYSE: WB) Fesses Up to Its Losses


• CNBC: Barclays (NYSE: BCS) Denies $10 Bln. Charge Rumor


• CNBC: October Import Prices at 1.8%, Exceed Expected on Higher Oil


• Bloomberg: September International Trade - Deficit Unexpectedly Narrows on Record Exports


• CNBC: November Michigan Sentiment at 75.0, Well Short of Consensus 80.0 View


• AP/Yahoo: RBC Cash Index Hits Two-Year Low


• DailyFX: What Did Trichet Say?


• Bloomberg: EU Cuts '08 GDP Forecast, But Also Sees Inflation


• DailyFX: Bernanke Kills Dollar Chances?


• CNN Money: Rate Hike Talk Shakes Chinese Stocks


• Platts: Crude Stabilizes


• BBC: Brazil Makes Huge Oil Find


• Financial Times: Slowdown Hits Tech Stocks


• Federal Reserve: Bernanke Testimony Before Joint Economic Committee of Congress


• Bloomberg: Despite Rate Inaction, Trichet Is Onguard Against Inflation


• Yahoo! Earnings Calendar


• AP/Yahoo!: Disney (NYSE: DIS) Gets Boost from Parks, ESPN, Warns of Writer Strike Danger


• CNBC: Qualcomm (Nasdaq: QCOM) Cuts Outlook, Shares Plunge


• TheStreet: Nvidia (Nasdaq: NVDA) Doubles Profit


• Forbes: Merck (NYSE: MRK) Settles on Vioxx


• TheStreet: Top Ten Hot Stocks


• Economist: BHP Billiton (NYSE: BHP) Pursuit of Rio Tinto (NYSE: RTP)


• BBC: As The Greek Advised, Bhutto Under House Arrest


• CNN: U.S. Frees Nine Iranians


• ABC News: al-Qaeda's Mall Trip


• Iran Daily: Tales from the Dark Side


• Economist: The Geopolitical Week Ahead


• The Greek's Week Ahead - The Prince is Dead! Long Live the King!

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Morning Report: Bouncing Dollar

(Stocks in this article: NYSE: MS, NYSE: WMT, Nasdaq: CSCO, NYSE: F, NYSE: AIG, NYSE: RTP, NYSE: BHP, NYSE: WM, NYSE: TOL, NYSE: GS, NYSE: MER, Nasdaq: COST, NYSE: C)

Futures are indicating a lower open for the Dow and Nasdaq, but show some signs of life in the S&P 500 Index.

1. Dollar Bounce - This morning, both the European Central Bank and Bank of England kept their target rates unchanged. While the intent was to preserve local and regional economic health, the effect today for U.S. investors should be evident. I expect the dollar to bounce thanks to the indirect support of these foreign banks; and as concern about the Chinese official's comment yesterday fades a bit. A rebounding dollar, and lighter concern for inflation are positive factors for U.S. stocks today, potentially helping to support a near-term floor. My medium-term equities forecast remains negative, however, as the Fed's neutral bias dictates that direction.


2. Morgan's Charge - Morgan Stanley (NYSE: MS) contributed its bit to the investment bank write-off pool, noting last night that it would likely charge-off $3.7 billion in the fourth quarter. While some banks may be overshooting logical bottom, I still view Goldman Sachs (NYSE: GS) as an island target for shorts. I would sell GS, despite yesterday's falloff, as I still find it hard to believe it will not write off anything in the classic fourth quarter kitchen sink scenario. I think a good pair trade to match a GS short with would be a long position in Morgan Stanley, which added helpful clarity to investors' understanding of its own situation by noting its remaining total exposure at $6 billion. Merrill Lynch (NYSE: MER) could sink some more today on news of an SEC probe. Meanwhile, MER also provided clarity to its previously and relatively uncertain outlook, by noting its total exposure at $27 billion, quite a bit more than MS. I view Citigroup's (NYSE: C) model for business not flawed, and any effort to break up the operation an overreaction. These companies all partook in the sins of the day, and all of them were guilty to different degrees as they sought to put up competitive results. Thus, the heroes of yesterday are now goats of today.


3. October Retail Sales - As a result of one of the warmest October's in a century, individual retailers are reporting generally weak chain store sales today. Clearly, consumer softening, on inarguable stresses, played a role as well, since this is evident in the International Council of Shopping Centers (ICSC-UBS) weekly trends. Wal-Mart (NYSE: WMT) noted monthly same-store sales up 0.4%, versus estimates for a 1.0% rise. Costco (Nasdaq: COST) continued to justify its premium valuation by growing monthly results by 9%, beating estimates. There's a company specific driver here, but the valuation is not showing me a bargain. Considering economic and consumer concerns are likely to persist, I would not be a buyer (of retail) now of anything but a deeply undervalued company specific story, and I do not view COST as one of those. Still, this kind of continued performance can draw institutional capital to the stock, since other winning options may be limited, and not owning a price performer like this could pressure some portfolio managers into paying up.


4. Bernanke - I expect Ben to stick to the game plan today as he testifies before Congress. I believe Fred Mishkin's somewhat hawkish comments earlier this week gave insight into the Fed's future likely stone faced reaction to economic woes, which I also view likely. I see Ben resembling Clint Eastwood at a noon showdown, as he recalls recent economic strength and the importance of dollar stability to inflation. Thus, I do not see Ben's comments acting to support stocks, but I see him measured enough not to injure stocks either.
   

Market-Moving News

• AP/Yahoo!: Asia Markets Fall


• CNN Money: London Off Its Lows


• USA Today: Morgan Stanley (NYSE: MS) Sees $3.7 Bln. Charge


• Bloomberg: ECB Leaves Rates Alone


• DailyFX: When Will the Dollar Bottom?


• Bloomberg: Bank of England Leaves Rates Alone


• CNN Money: October Retail Sales Spooked


• CNBC: Can Bernanke Save the Market?


• Forbes: Morgan Stanley (NYSE: MS) Probing the Bottom?


• Economist: Dollar Decline Accelerates


• AP/Yahoo!: Oil Prices Rise Again


• Platts: China's Oil Addiction, Saudis Deal


• CNBC: Weekly Initial Jobless Claims Better Than Consensus


• ECONOMIC REPORT: 10:30 EIA Natural Gas Report


• Financial Times: CIA Man, Sarkozy, Calls for Strong Dollar Policy


• Yahoo! Earnings Calendar


• AP/Yahoo!: Cisco (Nasdaq: CSCO) Profit Sizzles, Stock Fizzles on Conservative Guidance


• AP/Yahoo!: Ford (NYSE: F) Loss Narrows, Shares Rise Pre-Market


• AP/Yahoo!: AIG (NYSE: AIG) Profit Falls, But Financial Charge Lighter Than Expected


• AP/Yahoo!: Wal-Mart (NYSE: WMT) Sales Miss Forecast


• CNBC: Rio Tinto (NYSE: RTP)Rejects BHP Billiton (NYSE: BHP) Bid


• TheStreet: Cuomo Probe Whacks WaMu (NYSE: WM)


• CNN Money: Toll Brothers (NYSE: TOL) Sales Tank


• BBC: Musharraf Sets Election Day Deadline


• BBC: Saakashvili Imposes Martial Law to Thwart Coup Attempt


• Iran Daily: Tales from the Dark Side


• Economist: The Geopolitical Week Ahead


• The Greek's Week Ahead - The Prince is Dead! Long Live the King!

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Morning Report: Burning Dollar

(Stocks in this article: NYSE: GM, NYSE: SDS, NYSE: MAN, NYSE: TWX, NYSE: TM, Nasdaq: CSCO, Nasdaq: MSFT, NYSE: MTG, NYSE: RDN, NYSE: PMI, NYSE: TOT, NYSE: DVN, Amsterdam: TOM2.AS, NYSE: FLR, Nasdaq: GRMN)

Stock index futures are at unsettling levels this morning, indicating significant decline on concern for the U.S. dollar. Today in China, a high ranking and respected official declared that China would diversify its reserves out of weak currencies and into stronger ones, clearly a threat against its dollar holdings.

1. The Dollar Drop - Cheng Siwei, Vice Chairman of the National People's Congress stated that China would look to diversify its $1.5 trillion in reserves out of "weak currencies" and into stronger ones. This was appropriately inferred to mean the Chinese could be about to follow through on long rumored U.S. treasury security sales. Hank Paulson is going to have to get on the horn quickly on this one, and work to preserve the dollar. Sales of greenback could spur U.S. interest rates higher on inflation. The reason for this is because if China wants to unload a ton of U.S. debt and stop buying, yields on these securities will have to rise in order to compensate for the loss of demand. U.S. equities are thus reacting appropriately to this news. Now, Boris Schlossberg of DailyFX wisely notes that Mr. Siwei is not responsible for policy, however, we doubt he would speak off the cuff on such an important topic; he is very likely in the know.


2. Paulson is going to have to flex some muscle, or else, the Democrats in Congress will likely gain enough support to take action against China on its dangerous threat. A serious trade war is brewing, and considering the needs of the two countries, we think the topic is dangerous enough to inspire real war eventually. We understand the responsibility we bear in making a statement like that, but we speak our mind here. This news means our favorite long remains favored, the UltraShort S&P500 ProShares (NYSE: SDS), which seeks to counter the performance of the S&P 500 Index. It's a clear bear buy. I previously suggested investors look to Manpower (NYSE: MAN) for short short-term gain. I was wrong here, and suggest taking the loss if you own the stock. The outlook for equities is weak, and this economically sensitive stock is at risk despite the recently strong jobs report, and temporary employment data.


3. The dollar could get a bounce tomorrow, when the Bank of England and the European Central Bank both decide on rates and make statements. The economic outlook is weakening in Europe, as indicated by a cut to Germany's '08 growth forecast today. Both banks are widely expected to hold rates steady, supporting the dollar.


4. Petroleum's March to $100 - Today's inventory data could provide a frenzied crescendo buying spree in oil futures, taking the commodity to $100. If not for geopolitical stresses, I would say the petroleum market would top today, and advise selling your oil long positions today. However, this dip I anticipate in days to come may be short-lived also, as I expect Turkey to make a face saving military incursion into Iraq (see recent articles). That threatens to support oil in the near-term, but it should also be short-lived. Pakistan bears watching. Bhutto is aggressively stepping up the heat on Musharraf, and we expect she will be arrested soon. This could spur complete chaos in Pakistan, and President Musharraf has likely never had a less stable hold of his country. For this reason, I have to back off my general oil short recommendation for now. Best to be nimble in this volatile environment. My longer term feel is bearish based on fundamental reasons (see yesterday's article), but there's no reason to bear losses in the meantime.


5. General Motors Large Charge - GM took a non-cash charge and posted a $39 billion loss today. Its shares are down 5.5% in the pre-market. GM otherwise narrowed its losses, and should still benefit from its recent agreement with the UAW. While this charge was not previously discounted by the stock, it likely offers opportunity to enter GM sometime in the near term. GM executives claim these tax writeoff opportunities remain available in an economic sense, so today's discounting by the market looks to prove in error. Now, the important question remains, can GM's tough operating environment offset its operational improvement, thus impeding performance. I would nonetheless recommend buying GM today for long-term portfolios.
   

Market-Moving News

• Bloomberg: Dollar Tanks As Chinese Discuss Plans to Diversify Reserves


• DailyFX: Dollar in Free Fall


• Platts: Oil Surging Toward $100 Wednesday


• AP/Yahoo!: General Motors (NYSE: GM) Posts $39 Bln. Charge


• CNN Money: Asia Mixed On Chinese Comments


• Bloomberg: European Shares Slide
• CNN Money: Mortgage Applications Ease


• ECONOMIC REPORT: 8:30 Nonfarm Productivity & Labor Costs (Consensus Productivity +3.2%, Labor Costs +1%)


• ECONOMIC REPORT: 10:00 Sept. Wholesale Inventory


• ECONOMIC REPORT: 10:30 EIA Petroleum Status


• ECONOMIC REPORT: 3:00 Sept. Consumer Credit (Consensus +$9 Bln.)


• Financial Times: EIA Issues Its World Energy Outlook


• AP/Yahoo!: German Growth Forecast Slow in '08


• Financial Times: Food Crisis


• Yahoo! Earnings Calendar


• AP/Yahoo!: Time Warner (NYSE: TWX) Earnings Fall


• CNBC: Microsoft (Nasdaq: MSFT) Fires CIO


• TheStreet: Cisco (Nasdaq: CSCO) Fans Getting Stoked


• AP/Yahoo!: Toyota (NYSE: TM) Reports 11% Profit Rise


• Forbes: Total (NYSE: TOT) Sees Profit Dip


• AP/Yahoo!: Devon Energy (NYSE: DVN) Sees Growth


• Financial Times: Facebook Ads to Change the Game


• TheStreet: Cramer on Mortgage Insurers (NYSE: MTG, PMI, RDN)


• MarketWatch: TomTom (Amsterdam: TOM2.AS) Raises Bid Over Garmin (Nasdaq: GRMN) for Mapping Co.


• Businesswire: Fluor (NYSE: FLR) Reports, Down Pre-Market


• BBC: Bhutto Tries to Rise


• Economist: EU Exclusive Club


• Iran Daily: Tales from the Dark Side


• Economist: The Geopolitical Week Ahead


• The Greek's Week Ahead - The Prince is Dead! Long Live the King!

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Morning Report: Gurus Galore

(Stocks in this article: NYSE: IMB, NYSE: HOV, Nasdaq: JAVA, NYSE: NT, Nasdaq: DIVX, NYSE: THC, Nasdaq: ATVI, NYSE: MBI, XETRA: BMW.DE, NYSE: C, NYSE BCS, NYSE: ADM, NYSE: VLO, NYSE: SDS, NYSE: PTR, NYSE: GS)

The market seems to me like a child who has just been reprimanded and given a new set of rules to live by. That child initially tests his parents to see if they really have the conviction to follow through. The market seems to disbelieve the Fed now concerning its neutral bias. For this reason, I think a large group of disbelieving bulls are still in for a wake up call.

They should have received that call yesterday, when Fed Governor, and Bernanke confidante, Fred Mishkin, stated that the Fed's recent quarter point cut might not have occurred if not for market expectations and a "feedback effect"; this is in part my interpretation. He stated that the Fed could even reverse its actions, thus raise rates, if data showed the cut was unnecessary. This to me does not sound like a Fed with imminent emergency cut on its mind. Far from it! Yes, the Fed goal is to preserve economic growth and stability, but the group is a stubborn proud bunch of data minded, intelligent folks who are not going to be pressured by institutions or media, especially while bearing the scar of the summer's political pressure. Do not misinterpret this statement; I called for a strong Fed action this summer. Still, I'm sure the Fed did not take kindly to the political heat from the Administration and Democrats in the relevant Congressional Committees (Read Dodd and Frank).

I expect the Fed felt significant political pressure to cut rates in September, and as the credit crisis unfolded, was finally provided concrete and inarguable reason for action. I feel that going forward it's going to take true "calamity" to drive further action, borrowing from the words of William Poole. Unfortunately, there seems a good chance of that calamity.

Besides Mishkin's comments, Ben Bernanke is scheduled to voice his views on current events at a microfinance conference today. This should and will be closely watched, and could provide the market with impetus to dive. His November 8 testimony to Congress might do more toward that end.

Gurus seem to be abundant this week. Yesterday, PIMCO's Bill Gross offered his monthly Investment Outlook, where he discussed a significant contraction of lending and overall banking risk taking to come. He went so far as to state his view that the only savior for the economy in near years would be a 3.5% Fed Funds Rate. In later media interviews, Gross measured financial sector aggregate asset writedown potential at $250 billion over the next two years. This will not bring bargain hunters to financial sector stocks. Yesterday, after our call to sell Goldman Sachs (NYSE: GS), a stock we viewed as an island target in the sea red ink, an analyst's downgrade and rising speculation took GS shares 4.9% lower. GS is up in today's pre-market as Goldman reportedly denied rumors. I would use strength today to take profits in GS, and for those of you able and willing to short, to do that. Barclays (NYSE: BCS) is also showing serious signs of trouble in its stock price, and as rumors surfaced that it may have approached the Bank of England recently for funding. GS, however, offers a better entry point for shorting. My favorite near-term idea remains the UltraShort S&P 500 ProShares (NYSE: SDS), which targets negative correlation to the index and thus offers bears an easy way to hedge or play downside.

Guru George Soros also threatened before a New York University audience that economic weakness could surprise Fed Chief Bernanke in intensity. His exact statement to this effect was that the U.S. economy is on the verge of "very serious economic correction," as reported by CNBC. Alan Greenspan, perhaps feeling lost in the sea voices, today announced that the main ailment the economy faces, is excess home inventory. He suggests that the resolution of this problem would resolve many of the other symptoms seen across the market. He also expressed concern that the global economy may be moving from the 20-year period of disinflation, in the other direction.

Oil is moving on up this morning, as last week's shutdown of Mexican facilities on storm concern is expected to show up in inventory data this week. Also, the trouble in Iraq/Turkey and this very serious uprising in Pakistan offer thorough geopolitical stresses to oil in the short short-term. I continue to expect oil to spike to over $100, stressing "spike," before smart money takes the commodity down on fundamental drivers. Reiterating, those drivers remain: economic slowing in the U.S. (Japan is also showing signs, as is Europe); another likely warm winter; my expectation for improving inventory as the strategic oil reserve fills up; and finally a stabilizing dollar. PetroChina (NYSE: PTR) still looks like a nice short opportunity to me.

This Pakistani issue, driven by constitutional and righteous argument, does not look to subside easily. Musharraf now faces both Islamic fundamentalist opponents and Democratic fundamentalist contras. The west runs a serious risk of the two intermixing, and a resulting surprising uprising that could mask a fundamentalist takeover of Pakistan. Let me remind you that Pakistan is seriously nuclear.

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Morning Report: More Financial Sector Mayhem

(Stocks in this article: NYSE: C, NYSE: MER, NYSE: PTR, NYSE: F, NYSE: GS, NYSE: KFT, NYSE: CM, NYSE: OPY, NYSE: ETR, NYSE: ECA, NYSE: LLY, NYSE: BSC, NYSE: WB, NYSE: MS, NYSE: BAC, Nasdaq: GOOG, Nasdaq: CSCO, NYSE: SDS)

Futures indicate a lower open, after Asia and Europe moved broadly lower this morning. Financial sector mayhem looks to have no die in it, as Citigroup's (NYSE: C) Board held an emergency meeting that resulted in the resignation of its CEO, Chuck Prince, and speculation of a fourth quarter charge that could surpass Citi's third quarter mess. Don't miss "The Greek's Week Ahead - The Prince is Dead! Long Live the King!"

1. Robert Rubin steps in as Chairman, in an effort to stabilize C shares, while Citi's European Chief Sir Win Bischoff takes the helm as interim CEO. Rumors abound that interested owners like Saudi Arabia's Prince Alaweed Bin Talel al-Saud are aggressively pushing for the return of Sandy Weil. What matters to you today is that there looks to be no rest for weary financial sector investments. Deutsche Bank analyst Mike Mayo recently pointed to potential further write-downs at Merrill Lynch (NYSE: MER), Bear Stearns (NYSE: BSC), Morgan Stanley (NYSE: MS), Bank of America (NYSE: BAC) and Wachovia (NYSE: WB). While all these stocks are showing declines over the last three months, one peer is up over 20%, but that name is sticking out like an island in the ocean now. Rumors have started to churn about Goldman Sachs (NYSE: GS) and its recent strong quarterly earnings report. People are looking for holes, and I would advise moving out of GS shares now. GS has recovered since its shares took a summer swoon, and they stand alone in the green this year versus the previously mentioned peers. It looks like a wise time to take profits in Goldman now, or even short the outlier stock, if you subscribe to the "better safe than sorry" creed.


2. President Pervez Musharraf of Pakistan, a nuclear power, imposed martial law and effectively dissolved the Supreme Court of his country just before it was to rule on the legality of his recent reelection. President Bush meets Turkey's Prime Minister Erdogan today, as 100,000 Turkish troops stand poised over Kurdish rebels. Yet, oil is retreating today from last week's highs. I believe smart money has recognized the Fed's new positioning, a weakening U.S. economy, dollar strength, and warm weather pose threat to oil prices at these levels. Meanwhile, dumb money may still have enough speculative fervor to push oil into triple-digits for a few minutes. I think the clear medium-term play is to short oil now, and despite it's Shanghai listing boost, I see PetroChina (NYSE: PTR) as the clear stock to knock. Turkey's populous is calling for military action against the PKK, so Erdogan may have to make some sort of show of force to save face with his people, despite any deal with the U.S. and Iraq. That potential event could be the short-term catalyst to take oil to $100 briefly, before the smart money gains traction.


3. At 10:00 AM, ISM publishes its Non-manufacturing Survey, seen by Bloomberg's consensus touching 54.0. This figure should do better than last week's reported manufacturing number, as Friday's jobs report showed the service sector added 190,000 jobs last month.


4. My favorite long idea remains the UltraShort S&P ProShares (NYSE: SDS), which seek to provide a negatively correlated return to the S&P 500 Index. Also, Cisco Systems (NYSE: CSCO) reports earnings later this week, and I believe it will provide another solid tech sector news bit.
   

Market-Moving News

• The Greek's Week Ahead - The Prince is Dead! Long Live the King!


• CNBC: Prince Out At Citi, Massive Charge Expected


• CNN Money: Asia Lower, As We Forewarned


• Financial Times: FTSE Falls


• Economist: The Geopolitical Week Ahead


• ECONOMIC REPORT 10:00 AM: ISM Non-Manufacturing Survey October (Consensus 54.0)


• Economist: Trouble Brewing in Pakistan


• BBC: Pakistanis Clash With Musharraf's Strong Armed Rule


• AP/Yahoo!: Which Way Did They Go!?! The Oil Trade


• DailyFX: Talking Dollar Sense


• Bloomberg: ECB and BOE On Deck This Week


• Forbes: Hollywood Writers Take to Picket Line


• AP/Yahoo!: Ford (NYSE: F), UAW Reach Tentative Deal


• Platts: Congress to the Rescue? (of your energy bill)


• Economist: Growing Concern About Rising Food Prices


• Yahoo! Earnings Calendar


• Platts: PetroChina (NYSE: PTR) First to a Trillion After Lists in Shanghai


• TheStreet: Goldman (NYSE: GS) Rumors Rev Up


• CNBC: Kraft (NYSE: KFT) Close to Deal to Sell Cereals


• AP/Yahoo!: CIBC (NYSE: CM) to Sell Capital Markets Businesses to Oppenheimer (NYSE: OPY)


• AP/Yahoo!: Entergy (NYSE: ETR) Posts 19% Profit Rise


• AP/Yahoo!: Encana (NYSE: ECA) Buying Texas Assets


• CNN Money: Eli Lilly (NYSE: LLY) Drug Effective, With Risks


• USA Today: Google (Nasdaq: GOOG) Enlists Help With Its Phone


• U.S. News & World Report: Bush Meets Erdogan


• CNN: Appeasing Turkey, Iraq & U.S. Vow to Take Action on PKK


• Economist: Geopolitical Week Ahead (Audio Report)


• Iran Daily: Tales from the Dark Side

Please support our effort by visiting the site and supporting our advertisers. Receive Wall Street Greek FREE via email by subscribing here. (disclosure)

The Greek's Week Ahead - The Prince is Dead! Long Live the King!

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

There's no rest for the weary. Start your engines folks, here we go again. This week portends to be just as volatile as the week just passed. Citigroup (NYSE: C) kept busy over the weekend, conveying a special meeting of its board within which CEO Chuck Prince offered his resignation. Citigroup directors could be heard chanting, "The Prince is dead! Long live the King!" What's worse is that more bad news is anticipated out of Citi on Monday or later in the week, as it is expected to announce a larger charge than its recently surpassed record setting figure (surpassed only by Merrill Lynch (NYSE: MER)). Citi moved Rubin into the Chairman's seat, while Sir Win Bischoff (Head of Citi Europe) takes over as interim CEO. Citi's accountants were reportedly working overtime this weekend figuring out exactly how much asset to chop. What all this means to you is that you can expect equities to get off to a rather rocky start to the week.

The Greek expects Monday to actually offer follow through on a medium-term trading trend begun on the Fed Policy Statement. An important message was conveyed within last week's mayhem. Did you catch it? The week marked an important inflection point, in The Greek's view. The Federal Reserve Board effectively shifted gears into neutral, and out of the high gear that drove equities upward since the Fed's August 16 emergency conference call. Stocks, as measured by the performance of the S&P 500 Index, rose 7% from August 16 through last week. Stocks were up 10.9% at their October peak, before I suggest they began to anticipate the Fed meeting, and as earnings season pulled a fast one over most analysts, as well as investors in the financial sector.

Just as the Fed shifted direction to purely expansionary and stocks moved higher in August, the Fed's recently clear message was not missed by the smart money, and should set the trend lower now. Sure, speculative interests (read dumb money) could send oil to over $100 for a second or two, especially with martial law in effect in Pakistan. President Musharraf helped oil trade fervor by declaring the reason behind his actions as dire and imminent threat. Musharraf basically dissolved the Supreme Court ahead of an important decision about the legality of his reelection.

I expect the dollar drop bet is squeezed for all its juice now as well. As the dollar stabilizes and OPEC increases production, while crying all the way to the spigot, oil seems sure to fall. The economy is cooling, despite the conspicuous nonfarm payroll figure reported on Friday. Finally, I don't know about you folks, but I'm betting on another Al Gore Christmas, where bikinis may be more appropriate (and fun) than wool sweaters. Yeah, oil is going lower. Let the frenzied traders take it to the triple-digit mark on this Pakistan panic, but the clear direction in my eyes is lower from here over the medium term. But hey, what do I know... I'm only the guy who called the oil bottom in February to the hour (Department of Energy's historical price page). I'm calling the top now, while we still may exceed the ballyhooed $100 mark in the very short term.

To repeat the message I broadcast last week after the Fed announcement, I expect gold is overdone now as well, while the dollar should stabilize and strengthen. I expect economic data flow to continue soft, though without the prevailing expectation that Fed support is there to uplift us. And if the market begins to price Fed support into stocks again, I would swiftly exit all long positions before the December meeting, since I expect the Fed will hold pat on that day. And let me be absolutely clear that I am bearish equities generally now, and gold and oil stocks especially. Capital has got to flow somewhere though, and Health Care held up well last week. I like the defensive plays in the sector, while I would avoid speculation within lower quality biotechs. Barron's noted institutional support of utilities is low, while these stocks may offer the dividends old financial sector money preferred. I, however, like pharmarceuticals for this purpose.

Now, this week will present a real test to the Fed and its resolve against inflation. After its neutral notation on Wednesday, the financial sector blew up, and the Fed had to pump a reported $41 billion into the financial system. Within a day of the Fed announcement, talking heads were calling Bernanke's bluff. Let me say it in plain Philly English - he ain't bluffin folks. Still, a parade of Fed governors will find microphones this week, so there will be plenty of odds-making and reading into statements as a result.

The week ahead...

Monday could get ugly, depending on what news comes out of Citigroup, and as if out of a Godzilla film, Citi is listing shares in Tokyo on Monday. Keeping with that theme, the Bank of Japan is scheduled to release the minutes of its September meeting this same day.

Other than the usual fuss related to near certain international market decline Monday, 10:00 AM brings the reporting of the ISM Non-Manufacturing Survey. ISM's manufacturing report, showing 50.9 for October, drifted ever so close to that threshold point of 50 that signifies the line between expansion and contraction.

In contrast, Friday's jobs report indicated the service sector added 190,000 jobs in October. Logic would seem to indicate that this means the state of the service sector, as seen by ISM, should be rosy. The thinking of Bloomberg's consensus is right along those lines, as expectations stand for a reading of 54.0.

The Senior Loan-Officer Survey comes out this week, and as reported by Barron's, Lehman Brothers is looking for indication of further tightening of credit standards. Apparently these exist now. In what may be the most important news of the day, influential Fed Governor, and Bernanke pal, Fred Mishkin is scheduled to speak to a risk-management conference, while Governor Kroszner addresses a group on mortgage lending.

Google (Nasdaq: GOOG) is expected to break its news on its foray into mobile phones, and the earnings schedule gets revving again. Some of the more notable reports will emanate from American Science & Engineering (Nasdaq: ASEI), Anadarko Petroleum (NYSE: APC), Burger King (NYSE: BKC), Cardinal Health (NYSE: CAH), Marvel Entertainment (NYSE: MVL), TETRA Technologies (NYSE: TTI), Tsakos Energy Navigation (NYSE: TNP) and others.

As retailers hit the on deck circle for their round of reports, and as Black Friday swiftly approaches, Tuesday's ICSC-UBS Weekly Same-Store Sales Report gains prominence. Sales increased 2.5% last week on a year-over-year basis. In other news, the Fed Chief will take to the podium on Tuesday, as he addresses a microfinance conference.

Privately held, outside of Microsoft's (Nasdaq: MSFT) recent stake, Facebook is set to unveil a new marketing system. Barron's touched on the subject in its article "Google Rides to the Rescue of Facebook's Rivals." The day's earnings slate is headlined by Aegean Marine Petroleum (NYSE: ANW), Archer Daniels Midland (NYSE: ADM), Blue Nile (Nasdaq: NILE), Chesapeake Energy (NYSE: CHK), Headwaters (NYSE: HW), Holly Corp. (NYSE: HOC), IndyMac Bancorp (NYSE: IMB), Jacobs Engineering (NYSE: JEC), MasTec (NYSE: MTZ), Molson Coors (NYSE: TAP), Peabody Energy (NYSE: BTU), Pioneer Natural Resources (NYSE: PXD), TheStreet.com (Nasdaq: TSCM), Valero Energy (NYSE: VLO) and a bunch more.

Wednesday gets going with the Mortgage Bankers Association Purchase Applications Report. Aided by low rates and bank incentive, refinancings have been on the rise. Countrywide (NYSE: CFC) last week announced plans to move $16 billion of ARMS loans holders into more secure financing. At the same time, CFC chastised the U.S. government for not following up its public relations moves with substantive action.

At 8:30, the third quarter reporting of nonfarm productivity and labor costs threatens to raise economic concerns again. Productivity is seen 3.2% better by Bloomberg's consensus, after improving 2.6% in Q2. Progress here was rumored dead or dying earlier this year, but it seems American innovation persists. Unit labor costs are expected to rise 1.0%, and with employment reportedly holding up, here's to hoping pay isn't, for the sake of the Fed. It's really a win win situation though right, as consumers could use every penny nowadays. So, however this figure is reported, it's likely to drive stocks in a positive fashion.

September Wholesale Inventory is set for report at 10:00, while August inventories rose just 0.1%. The 10:30 reporting of Petroleum Status by the EIA is likely to get a drum roll this week after recent weeks' soft inventory data in a period that should be allowing for build. I think out of the box at times like these, when things just don't make sense. The domestic economy is supposedly slowing (and I think it is), OPEC is raising production, and yet inventory build is suspect. I suspect the filling of the strategic oil reserve is running a bit ahead of reported schedule, as the U.S. seeks to avoid tipping off Iran as to just when it will be ready to bomb. The reported schedule has fireworks set for late March. I suspect we'll be ready quite a bit ahead of that date in reality.

The change in consumer credit, to be reported at 3:00 PM, is expected to measure $9.0 billion. With other sources of capital drying up for much of America, the good old reliable and expensive plastic is still available just in time for holiday shopping. You can expect this tally to continue expanding.

Wednesday's earnings report schedule includes Alcan (NYSE: AL), American International Group (NYSE: AIG), Amkor Technology (Nasdaq: AMKR), Aqua America (NYSE: WTR), Churchill Downs (Nasdaq: CHDN), Cisco Systems (Nasdaq: CSCO), Coherent (Nasdaq: COHR), Devon Energy (NYSE: DVN), Expedia (Nasdaq: EXPE), Fluor (NYSE: FLR), Foster Wheeler (Nasdaq: FWLT), General Motors (NYSE: GM), Heely's (Nasdaq: HLYS), Kinross Gold (NYSE: KGC), News Corp. (NYSE: NWS), Polo Ralph Lauren (NYSE: RL), Sara Lee (NYSE: SLE), Service Corp. (NYSE: SCI), Time Warner (NYSE: TWX), Toyota Motor (NYSE: TM), Yamana Gold (NYSE: AUY) and others.

On Thursday, the Bank of England, which hasn't taken action on interest rates since July's quarter point hike, is mostly expected to hold rates steady this time around. A few minutes later the European Central Bank is scheduled to announce its decision on rates. The ECB has not acted since its June 6 hike of a quarter point. Jean-Claude Trichet has talked a tough game, but the group is seen keeping rates steady again. A hike now could hurt the dollar a bit more, and lead it to retest lows against the euro, but I'm not expecting that.

Weekly Initial Jobless Claims are expected to measure 330,000, compared to 327,000 seen the week before. The EIA is scheduled to report natural gas inventories, as oil starts to reach levels that make switching from heating oil over to natural gas a real possibility (if oil were to hold, and you know my view on this).

Retailers are due to report individual same-store sales for the month of October on Thursday, and this could help provide fuel for the equity turn around I have called for here. That's unless investors begin to price in something different than the Fed has announced.

Thursday's earnings schedule includes American States Water (NYSE: AWR), Ballard Power (Nasdaq: BLDP), Barr Pharmaceuticals (NYSE: BRL), Biovail (NYSE: BVF), CAE (NYSE: CGT), California Pizza Kitchen (Nasdaq: CPKI), Cephalon (Nasdaq: CEPH), Clear Channel Communications (NYSE: CCU), Corrections Corp. of America (NYSE: CXW), Cosi (Nasdaq: COSI), Dean Foods (NYSE: DF), Delta Petroleum (Nasdaq: DPTR), DTE Energy (NYSE: DTE), Ford Motor (NYSE: F), Hansen Natural (Nasdaq: HANS), Hospira (NYSE: HSP), Hecla Mining (NYSE: HL), King Pharmaceuticals (NYSE: KG), Live Nation (NYSE: LYV), Marsh & McLennan (NYSE: MMC), National Fuel Gas (NYSE: NFG), NVIDIA Corp. (Nasdaq: NVDA), Priceline.com (Nasdaq: PCLN), Station Casinos (NYSE: STN), The Knot (Nasdaq: KNOT), Toll Brothers (NYSE: TOL), U.S. Physical Therapy (Nasdaq: USPH), Walt Disney (NYSE: DIS) and more.

On Friday, a trio of important economic data will meet close review. Bloomberg's consensus of economists is looking for an import price rise of 1% in October, following a 1% increase in September. After narrowing and surprising on the short side in August, the trade deficit is seen expanding to $58.5 billion in September. Import prices and the trade deficit should be impacted by rising oil prices. The declining dollar provides an offset as it supports export sales, but not enough of one this time around.

The third of the three reports will be the University of Michigan's preliminary Consumer Sentiment Report for November. Sentiment has trended lower all year long, as has same-store sales growth. Thus far, the consumer has bent a decent amount, and his breakpoint may be nearing. Sentiment is expected to measure 80.0 in November, compared to 82.0 in October. A second important sentiment figure is due for release on Friday, the RBC Cash Index. This metric swings somewhat wildly, and is coming up to October's figure of 80.6. I suspect this month's reading will be near October's, or lower.

Friday's earnings schedule closes out the week with reports from 4Kids Entertainment (NYSE: KDE), Allianz SE (NYSE: AZ), Ameren (NYSE: AEE), Brooks Automation (Nasdaq: BRKS), Consolidated Water (Nasdaq: CWCO), Dominion Homes (Nasdaq: DHOM), DRS Technologies (NYSE: DRS), Goldcorp (NYSE: GG), Huntsman Corp. (NYSE: HUN), Mirant (NYSE: MIR), Pacific Ethanol (Nasdaq: PEIX), Petroleum Helicopters (Nasdaq: PHIIK), Six Flags (NYSE: SIX), Sotheby's (NYSE: BID), Uranium Resources (Nasdaq: URRE) and others.

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War-Play War Plays

(Stocks in this article: NYSE: PCP, NYSE: ATK, NYSE: LMT, NYSE: COL, Nasdaq: AVAV, Nasdaq: ATRO, NYSE: HON, Nasdaq: CRDN, NYSE: BA, NYSE: CGT)

If, as it appears, we are going to war with Iran, then it is certainly wise to consider a few war-play war plays. The most logical place to look, and the stone we are going to turn in the paragraphs that follow, is the Aerospace and Defense Industry.

The rhetoric is as intense as ever between the United States, Iran and ancillary parties like Russia and Israel. The Administration’s latest round of sanctions announced last Thursday and Vice President Cheney’s recent statements pounded home what we view as the obvious. America, Israel and most European nations view it as incomprehensible for Iran to possess nuclear weaponry or the skill to build such weaponry. Meanwhile, Iran whistles and works its way to Armageddon.

Logically, the most direct beneficiary of war would seem to be the aerospace and defense sector. Oh sure, if we go to war with Iran and light a powder keg in the center of the Persian Gulf, energy plays without direct risk to assets would also seem like clear beneficiaries. But the energy sector leads all S&P 500 component groups year-to-date through October 26, up 29.6%. Thus, I wonder how much near-term value is available to add to the group versus the risk of holding such shares in the presence of the economic slowdown counterweight. Also, as I outlined in a recent article, the Fed's neutral bias should impact the price of oil. Thus, energy stocks could begin to give back gains.

The Aerospace and Defense component of the S&P 500 Index is also up a bunch (22.9% through October 26). However, the risk of economic slowdown is less relevant to this group, especially those firms most levered to defense. Also, war or no war, the industry has proven a strong long-term performer, at least while under Republican reign, providing an average annual return of roughly 20% over five years. So, I thought it might be interesting to consider ideas in the group.

I ran a basic screen to generate a list to look over. I wanted to find the best couple names that were in a position of solid footing. I screened for:

1 Aerospace & Defense Industry
2 $5 or more
3 $200 million market cap or more
4 15% growth in EPS from the trailing twelve months over the year ago
5 Projected 5 Year Growth of 10% or more
6 ROE of 20% or more

My criteria were very simple, looking for a solid company, possessing solid return on capital and generating earnings, while interestingly showing growth projections below its most recent period. My reasoning here is that as an analyst I’ve found that conservative forward projections can sometimes hide a poorly understood growth story that is evident in recent results. Even so, the higher growth ideas should have also showed up.

Company	Ticker	P/E	5 Yr. Gr.	P/E/G	ROE
Lockheed Martin	LMT	16.1	11.56	1.4	34.2
Honeywell	HON	18.8	11.8	1.6	20.2
Precision Castparts	PCP	22.2	18.86	1.2	24.7
Rockwell Collins	COL	22.1	16.52	1.3	44.4
Alliant Techsystems	ATK	18	10.74	1.7	31
Ceradyne	CRDN	13.3	12.33	1.1	39
Aerovironment	AVAV	19.7	22.5	0.9	24.2
Astronics	ATRO	29.8	25	1.2	20.2

(Values from Oct. 30)

I immediately pulled Boeing (NYSE: BA) out of the pool, because of its economic sensitivity to its commercial aircraft operations. Also, CAE, Inc., (NYSE: CGT) is a Canadian company, and I found it impossible to verify the data at a second source. Anyway, I expect that its flight simulation offerings are not going to get the same kind of benefit from war as some of the other product categories. I eliminated Precision Castparts (NYSE: PCP) and Honeywell (NYSE: HON), because of their diversified end markets, but I left them in the table for your benefit as PCP’s numbers look interesting anyway.

Taking a closer look at valuation, a couple names that are exhibiting high growth, while valued cheaply, stood out. AeroVironment, Inc. (Nasdaq: AVAV) is screaming “look at me,” while it trades at a forward P/E below its five-year forecast EPS growth rate. Beware the trap though, as sometimes there is good reason for this. It’s a clear case where a closer look is absolutely necessary. The reason for its valuation could be as basic as light analyst coverage, or as dangerous as serious fundamental cause. Taking the brief look that the scope of this article allows, I found a company participating in more than one innovative industry. This is a company I will prepare an in-depth follow up on in the days to come.

Astronics (Nasdaq: ATRO), which reports earnings today, also looks appealing on the basis of valuation. However, it is too sensitive to the commercial aircraft market for the purposes of this search, where we are specifically targeting defense. Finally, Rockwell Collins (NYSE: COL) and Lockheed Martin (NYSE: LMT) may provide more of a sure thing, in regards to defense benefit, while still presenting a reasonable valuation. I would have avoided one of my personal favorites of the past Alliant Techsystems (NYSE: ATK) because of valuation, if not for one simple fact. War could bring upward adjustment to its five-year growth projection, and would justify its valuation. However, the margin of safety is clearly narrower with ATK.

If we argue that growth rates across the group could expand, then Ceradyne (Nasdaq: CRDN) becomes interesting as well. So, for the various reasons outlined above, I prefer COL and AVAV, and would consider LMT, ATK and CRDN for defense exposure in the war-play scenario.

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Morning Report: Job Rocket

(Stocks in this article: NYSE: BCS, NYSE: GM, NYSE: F, NYSE: NYX, NYSE: BA, NYSE: VIA, NYSE: CI, NYSE: DUK, NYSE: MAN, NYSE: PTR, NYSE: ABX)

The bullish October Employment Situation Report will drive shares higher today, at least to start.

1. The reported increase of 166,000 jobs, doubled Bloomberg's economists' consensus forecast for 80,000. This figure has proven unreliable of late, however, it will drive trading today nonetheless. Unemployment measured 4.7%, as expected, and average hourly earnings posted a 0.2% increase, below expected 0.3% and easing inflation worry. We proposed earlier this week that Manpower (NYSE: MAN) could offer some short-term pop, and it gapped open higher on Tuesday after a Citigroup (NYSE: C) analyst upgrade. In today's jobs report, temporary employment was noted up 20,000 in October, a good sign for MAN. This is a stock I like over the short-term on valuation and momentum, but I would not hold for long as unemployment likely rises into next year.


2. The jobs figure is likely to be contradictory for oil, gold and the dollar. It should support the dollar, with less likelihood of rate cuts. In contrast to expectations for dollar/oil negative correlation, oil may have found catalyst for a short-term burst toward $100. Goldilocks enthusiasts will point to economic strength and the potential for near-term supply/demand imbalance as impetus for oil rise. So, I would suggest reversing your PetroChina (NYSE: PTR) and related shorts for now. However, I expect that over the longer term we will still see increasing catalyst for oil price recession. Despite this positive employment figure, most indicators raise red flags for oil. So, while I'll probably look bad today, remember me in a month. I still see dollar strength, OPEC production increase and economic softness (here's where today's data conflicts) driving oil lower over the medium term. I still see oil spiking higher later, when war begins with Iran - I'm looking to sometime next spring for this, unless a trigger is pulled beforehand. Gold should weaken on dollar strength now, and your Barrick Gold (NYSE: ABX) and other gold shorts remain recommended.


3. Despite the likely pop to the market today on the strong jobs report, I want to give readers some ideas for buys to go along with my short recommendations of days past. I would look to today's likely decline in Ultra Short S&P 500 ProShares (NYSE: SDS) as opportunity for purchase. This security seeks to provide the inverse of return seen in the S&P 500 Index, so it's a good hedging tool for your portfolio when you think the market could turn bearish.

Market-Moving News

• Bureau of Labor Statistics: October Nonfarm Payrolls at 166K, Double Consensus Forecast


• CNN Money: Sluggish Job Growth Ahead


• Bloomberg: Global Market Downturn


• DailyFX: What Payrolls May Do for the Dollar


• CNN Money: Oil Inches Higher


• Platts: Chavez Crony Says No Need for OPEC Move


• Economist: Oil Voice of Reason


• USA Today: GM (NYSE: GM), Asian Automakers Post October Gains, Ford (NYSE: F), Chrysler See Sales Dip


• ECONOMIC REPORT: 10:00 September Factory Orders


• Platts: EIA Raises Long-Term Price Forecast


• Yahoo! Earnings Calendar


• AP/Yahoo!: NYSE Euronext (NYSE: NYX) Profit More Than Triples


• Forbes: British Airways (NYSE: BA) Profit Rises 21%


• CNBC: Viacom (NYSE: VIA) Profit Rises


• Bloomberg: Barclays (NYSE: BCS) Dips on Rumors it Approached BOE for Funds


• CNBC: Cigna (NYSE: CI) Profit Rises


• AP/Yahoo!: Duke Energy (NYSE: DUK) Earnings Fall


• Forbes: Ten Steady Stocks


• BBC: Rice in Turkey for Kurdish Talks


• BBC: Georgia Braces for Opposition Protest, Putin's Revenge


• Iran Daily: Tales from the Dark Side

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Morning Report: Reevaluation Takes Hold, Stocks Tank, Greek Correct

(Stocks in this article: Nasdaq: CSCO, NYSE: S, Nasdaq: CROX, NYSE: CVS, NYSE: UL, NYSE: CS, NYSE: EK, NYSE: MHS, NYSE: PTR, NYSE: ABX, NYSE: MER, NYSE: C, NYSE: HON, NYSE: CAT)

Equities have opened lower to start Thursday, as the market reevaluates the true impact of the Fed's neutral bias. First and foremost, the dollar already rebounded in European trade. Oil is higher to start the day, after rising yesterday ahead of the FOMC announcement on weak import levels. However, I view the gold and oil drives running on fumes now, and I continue to believe factors are coming together to bring about an oil top. The most important drivers of today's trading follow below:

1. After the dollar weakened again yesterday, it's begun to show signs of life today in Europe. As we suggested yesterday, the Fed Policy Statement clearly communicated a neutral bias going forward. The Fed's intent was unmistakeable. While giving the stock market what it wanted for the day, and keeping credit markets fluid, it left market forecasters to fend for themselves with economic and corporate data in the months ahead. My view ahead of the September 50 basis point move was that significant political pressures and credible corporate incentive existed to push the Fed's change in view. I also pointed out the move would prove a "half-devil," to be followed by inaction. I was wrong once (on the 25 point action), but the Fed proved me right in its statement. Therefore, moving forward, I predict the dollar has now hit a near-term bottom. This means a reversal for U.S. multinationals is possible. Caterpillar (NYSE: CAT) has already given back its summer gains, but I see no catalyst for rise here either. Honeywell (NYSE: HON), which has defensive offsets, still has room to give back a few points on dollar strength. My point is, I would look to American multinationals to give back some value now. I will look to uncover some richly valued short ideas for you now.


2. I believe oil will post a near-term top sometime between now and when OPEC likely announces a production boost. OPEC ministers have started to show signs of cracking. Qatar's minister stated earlier this week that OPEC would act on "physical needs." What he means by this is, $100 oil is not going bring OPEC table (probably to the casino table though), but the kind of supply information reported by the EIA yesterday should. I expect rumors of an OPEC meeting to start surfacing and to support downside to oil. Yesterday's Fed announcement removes dollar support, and I am now pounding the table on my sell recommendation regarding PetroChina (NYSE: PTR), Barrick Gold (NYSE: ABX) and other richly valued commodity plays. I'm going to spend the afternoon looking for other extended stocks in the group for you.


3. Personal Consumption was reported up 0.3% in September, versus expectations for a 0.4% increase. Personal Income was reported up 0.4%, missing Bloomberg's consensus of 0.5%. The PCE Deflator, the Fed's preferred inflation gauge, showed a year-to-year rise of 1.8%, easing inflation concerns. However, consumer spending adjusted for inflation, rose just 0.1%. Even so, I do not believe this report should make impact today, as retailers' shares are already well-discounted.


4. Two separate jobs reports reached market. The Challenger Job-Cut Report showed announced layoffs for October at 63,114, compared to September's 71,739. The weekly jobless claims report showed new filers at 327,000, modestly below consensus expectations. In my view, this data will not offer investors any relief, but should not add to economic concerns either.


5. Citigroup (NYSE: C) rumors of a potential dividend cut on the heels of an analyst downgrade has traders antsy this morning. Remember, Citi's recent writeoff was only trumped by the financial sector weakness reported by Merrill Lynch (NYSE: MER). Fed direction pulls the rug from financial sector recovery for the near term, in my view, so I would not go looking for bargains now.

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