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The Wall Street Greek blog is the sexy & syndicated financial securities markets publication of former Senior Equity Analyst Markos N. Kaminis. Our stock market blog reaches reputable publishers & private networks and is an unbiased, independent Wall Street research resource on the economy, stocks, gold & currency, energy & oil, real estate and more. Wall Street & Greece should be as honest, dependable and passionate as The Greek.

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Thursday, January 31, 2008

Smart Money


What is smart money? Smart money is the money guided by people we assume are smarter than us, institutions. But, it's more than just that, taken to another level, smart money is assumed to be that capital guided by successful institutional investors, the guys traders call "smart money." These traders receive orders from successful or perceived successful money managers, and the rumors of where the smart money is moving are born.

At times like these, with the market in turmoil, everybody wants to know where the smart money is. There are two ways to look at the current investment environment. While we here at The Greek are expecting recession, and calling for weakening consumer spending and consolidation within consumer sensitive industries including retail, restaurant and even spillover into commercial construction, at the same time, stimulants are arriving that should eventually turn the situation around.

When I go out on a limb and make a recommendation to buy stocks like I did yesterday, I must admit to some trepidation. My natural instincts tell me sell, run and hide. Human psychology probably explains this, and likely explains why the market is now reacting to pending recession, when people like me were warning of it since early last year. So, I have to ask myself, "am I too early?" Myself replies, "I don't know, but I'm terrified." I'm also cracking myself up at the moment...

It's a fact that the market is efficient, while pockets and moments of inefficiency exist that offer up opportunity. Human psychological factors like fear and hope (often called greed) create inefficiencies at times of great universal trepidation. So, as Main Street realizes the economy is headed for recession, much of Wall Street knew it at some point last year. But, Main Street guides much of money flow.

Here's an example: I had a dear friend call me a couple weeks ago. She told me she had liquidated her equity investments in her 401K and gone to cash. This was after equities had dropped near 20% from their October highs already, and just as fiscal stimulus was gaining support. I flat out told her she was bailing at completely the wrong time, and that I had just gone bullish after being bearish for much of last year.

This is a pure example of how Main Street, or "dumb money" can influence the stock market. Dumb money is not owned by dumb people, so please no hate mail... Dumb money just depicts the capital controlled by unsophisticated investors. When people like you out there on Main Street head to the exits en masse, capital flows draw from equity and many other funds. Often times, unprepared money managers must then sell stocks to feed redemptions. The people who invest in these funds hold a gun to the head of some "smart money" managers and force them into what they know are dumb decisions, but necessary to honor the charter of their fund and contract they have with investors.

There's other smart money though, that completely controlled by sophisticated investors. That money is itching to get into this market, and plenty of it is probably already working its way in. That money knows the actions of the government are significant. At the same time, that money weighs the impact of the herd. So, while the signal was sounded for a coming turn in stocks, the timing is still impacted by capital flows, and unfortunately, fear is still rampant. That fear is only fueled further by the political race and the perverted use of it by political candidates to differentiate themselves from Washington. Even the Republicans are decoupling themselves from President Bush now in order to win votes and ensure a chance to hold off the Democrats.

So, is The Greek early...

There's risk in being early. Paper losses can mount. So, what you do is you avoid getting caught up in the early morning market frenzy and later afternoon frenzy. Emotions, panic, fear and greed impact that trading. If you really have courage, it's also when the best opportunities are found for short-term traders and more smart money. In the middle of the day, smart money moves become more evident. So, this morning and yesterday afternoon, as the market panicked about risk tied to bond insurance and employment and consumption data, guys like me had to talk to ourselves outing jumping off the ledge and debate locking ourselves away from the trading screen.

What you want to do is what Cramer advises, take small bites into positions, thus reducing your cost risk. Consider using stop orders to limit losses in case you’ve missed something. Consider reducing your beta risk, by including short positions in your portfolio. Diversify your sector risk with a diversified portfolio. These steps help you limit risk, while also placing your bet on the smart money move.

As you see equities recovering now, you understand it's the long-term drivers moving them, and the smart money that looks forward. That's an important fact to note. The market looks ahead, or the market guided by smart money looks ahead. This is why the stock market begins to recover while the economy is still in recession. This is why the stock market started to correct before data indicated recession, and the data still doesn't show it. We only have signs of it now.

So, over the next few months the data will likely deteriorate, and this should cause fluctuation in stock prices. However, I believe the trend for stocks this year should be one of upward direction. In this dynamic market, we cannot ignore the changes that occur. While we are still concerned about consumer-spending softness, as indicated in today's personal consumption data, we also cannot overlook the significant actions of the federal government and the Federal Reserve to mitigate this deterioration. So, that’s why I follow my conviction and say start buying stocks now, while closing my eyes and saying a prayer as well. History tells me, as well as my knowledge that is uninfluenced by emotion, that the market should turn before the economy. However, since the market is dynamic, we must constantly monitor changes in factors and the entry of new factors that could change the outlook for stocks.

Did you know Wall Street Greek reaches major television news affiliate sites and many top ten newspaper sites, as well as major financial publishing sites? Advertising at The Greek means you gain much broader exposure than just our site, which by the way, isn't too shabby either. Contact us for more details by sending mail to: Ads@WallStreetGreek.com. Receive Wall Street Greek FREE via email by subscribing here. (disclosure)

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Wednesday, January 30, 2008

FOMC Policy Statement - Greek Says Buy Stocks!

(Stocks in this article: Nasdaq: FSLR, Nasdaq: JASO, NYSE: LDK, NYSE: STP, NYSE: TSL, Nasdaq: ESLR, NYSE: MER, NYSE: GS, NYSE: LEH, NYSE: BSC, NYSE: BCS, NYSE: JPM, NYSE: MS, NYSE: C, AMEX: XLF, Nasdaq: WOOF, Nasdaq: SEIC, NYSE: MON)

Go! Stop reading this article, and go and buy stocks. While the market may take a short while to digest the impact of Fed and federal government action, we view the recent moves as significant catalysts that will help ease the pain of recession in this very dynamic market. So, The Greek, often labeled a permabear because of past prescient calls on the short side, has turned bullish. What say ye now... Beware short investors, you could get gored. We say long-term investors can buy stocks now where value exists.

You're still here? You need more convincing eh? Read the FOMC Policy Statement below, and after that we have offered some specific advice. We're recommending you close your solar short play at this point and we have given the "all clear" to buy Goldman Sachs now (NYSE: GS).

FOMC Policy Statement

Release Date: January 30, 2008

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 3 percent.

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, Kansas City, and San Francisco.

The Greek's Take

So, according to Wall Street Greek's earlier article, the Fed has officially proven itself Wall Street's tool. Well, thank God for that, but I think I would rather have a chicken with a head in control over there in Washington. Considering the group didn't cut 125 BPS last week with a statement saying no more for now, it seems today's GDP number got their panties all bunched up. I mean, it's either that or this is a weak group of spineless jellyfish...

But, let's focus on what this means for us rather than why (Bush and the Dems in Congress had a gun to his head) Ben did this. And, we'll pretend not to notice that William Poole's name was not on the statement at all. I expect him to write a book sometime soon, and that should be real interesting reading. In the future, when we forecast Fed action, rather than going by silly things like official Fed statements and other logical factors, we'll just go by market expectations, since the Fed seems to do this also.

What's this mean for you....
Well, first off, reverse the curse. Remember that great recommendation we made on January 9th (actually in mid-December but the market was so drunk over solar plays, we could not even sell the article to any financial publisher). We said you should consider shorting solar stocks, and we're now recommending the closing of that trade. These stocks are reporting results and some of them actually make money and could do well and take away that paper gain we have. Secondly, the Fed and government have taken aggressive action to preserve the economy. So, oil prices gain a little support from this. Since we are sure alternative energy shares are positively correlated to the movement of oil prices, and to an exaggerated extent, especially the expensive themes like solar, their stocks now gain some support. Make no mistake, the economy and the damaged outlook for oil, along with the huge paper profits that were tied into these shares (and the turn of the tax year) is why solar sold off. We are proud that we were one of few to recognize this.

Also, I can now give the "all clear" buy call on Goldman Sachs (NYSE: GS). Remember, previously, in my article "Potter is Buying Investment Banks," I said I like them all now, but am weary about Goldman due to its outlier status and profits that might be taken in early '08 as a result. The Greek said this while Goldman was king of the Street, and full of admirers. GS has since given back those profits while most of the rest of the group has moved higher. In other words, they've followed The Greek's charted course. To the skeptics: You know, we Greeks invented navigation and are pretty damned good sailors. Also, Christopher Columbus spent his teens living in my island ancestors' home town, just a short walk from my home...

We've already cleared Citigroup (NYSE: C) for purchase post the dividend cut etc. (see the article). The rest were recommended in the article on January 10th, and we still like them up to the targets we outlined previously.

We told you yesterday this speed bump looks easily surmountable. It's time to roll and buy stocks, and buy heavy! Look to those pillars of strength to regain that strength now. I'm talking about Monsanto (NYSE: MON) and my old small cap favorites VCA Antech (Nasdaq: WOOF) and SEI Investments (Nasdaq: SEIC) (this one reports earnings Thursday, so maybe not for the faint of heart). I also like recent victims like Intel (Nasdaq: INTC), Apple (Nasdaq: AAPL) and even Yahoo! (Nasdaq: YHOO). In fact, YHOO is probably my favorite of this group. Generally, however, you want to stick with winners that still have positive news momentum, which were taken down recently by indiscriminate selling, and that would point away from the last three names I mentioned. Growth stocks should lead us up, especially when early signs of economic recovery show. But, many small cap value names have been beaten down into super value buy territory as well, and the bargain hunter in me can't ignore that, despite momentum.

Regarding sector weights:

We're going neutral energy from our underweight call to start the year, and we're turning overweight technology, but you might have to be a little patient early on. We're still overweight financials, and like the ETF (AMEX: XLF). Healthcare should give back some gains now and we are underweight that group, especially once Hillary or Obama wins the nomination and focus turns toward the general election. For this reason, we recommend a long-term underweight in the sector, and for capital flow reasons now, we look for the sector to move lower in the short term as well.

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The Fed, Wall Street's Tool


Mixed data has the market still wandering ahead of the 2:15 FOMC Policy Statement. ADP offered plenty of hope with its job additions data showing 130K. Fifteen minutes later, the advanced GDP report for the fourth quarter showed a disappointing growth rate of 0.6%. Both these figures are often revised significantly, so with the data mixed, the market is without direction while leaning in favor of economic softness and hoping for a strong follow up Fed rate cut. Hope, however, is not a solid investment catalyst my friends. You should buy stocks based on the signal already received from the Fed and federal government. They will do everything they can to support the economy, and we here at The Greek are pleased with the effort so far, however late it came.

Many are perplexed today as they ponder how employment can hold up while GDP sinks. First of all, if the data is accurate, there can of course be many reasons including varying time tables. One factor is very possibly foreign demand for U.S. goods and services that are produced on international soil. Since GDP only measures goods and services produced in the U.S., while capturing exports, it misses some of what multinationals do overseas for foreign customers. This would be supportive of employment in the corporate home office, limiting middle management cuts, while also missing softening domestic demand for goods and services. Exports, however, were weaker in Q4, versus Q3, indicating perhaps a dissipating positive international influence. We're already on record here regarding our view of the importance of the American market to American multinationals and global consumption.

Q4 GDP Report (Advanced)

Real GDP rose 0.6%, short of economists' consensus expectations for a rise of 1.2%. This strengthens a growing viewpoint that the economy may already be in recession in the first quarter of '08. It looks to us like a part of the weakness came on a Q3 build in inventory that was not satisfied in Q4, both domestically and in exports, which also softened. What that says to us is that you could level Q3 down for excess and level up Q4 for failure to meet that excess, but it still points to a weakening economy.

Of the expansion that did occur, it looks as if a greater portion of it was financed through debt, probably including credit card usage. However, we expect this is common for the holiday dominated fourth quarter. Personal outlays increased 5.5% in Q4, versus 5.3% in Q3, but the savings rate came down to 0.2% from 0.6%, implying the usage of debt financing. Real personal consumption expenditures increased 2.0% in Q4, versus 2.8% in Q3, which should not surprise anyone. The price index rose 3.8% in Q4 versus 1.8% in Q3, largely on rises in energy costs including gasoline and heating oil etc. Excluding food and energy, prices still rose 2.5%, compared to a rise of 1.9% in the third quarter.

For 2007, the tally for Real GDP growth came in at 2.2%, down from 2.9% growth in 2006. Most of this change resulted from the downturn within the residential real estate market, which was down again near 24% in the fourth quarter.

Implications for FOMC Policy

In English, here's what we think this means to you and how it might impact the Fed decision. There's concern raising information here regarding inflation, and economic growth also looks in jeopardy. Therefore, Wall Street Greek anticipates a token 25 basis point rate cut when the FOMC Policy Statement is released at 2:15 p.m. EST. We say token because of the words of William Poole, in his statement accompany his nea vote regarding the emergency cut. He stated the economy and market could wait a week for the regular meeting. That seems to imply the Fed anticipated making a big move at the meeting, likely 75 BPS. It's also possible the Fed had a 100 point move in its bag and anticipated this meeting, leaving 25 to spare for later use.

The Fed now has to weigh market expectations and the possibility of a return of volatility and risk of financial market correction if it stands pat, despite the big move. Therefore, possibly against its plan (unless it's outsmarted us all) and because its own words have proven an insignificant forecasting tool, we expect it to make a token 25 BPS move now. It should also offer strong wording and encouragement that it stands ready to further act if and when necessary. If the Fed cuts by 50 points, it has effectively shown itself a market driven tool that contradicts every white paper ever written by its members.

Did you know Wall Street Greek reaches major television news affiliate sites and many top ten newspaper sites, as well as major financial publishing sites? Advertising at The Greek means you gain much broader exposure than just our site, which by the way, isn't too shabby either. Contact us for more details by sending mail to: Ads @WallStreetGreek.com. Receive Wall Street Greek FREE via email by subscribing here. (disclosure)


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Tuesday, January 29, 2008

State of the Stock Market

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

Today's economic data offers hope. The Greek suspects the nascent rally's speed bump could be quickly surmounted and stocks could be ready to rise sooner rather than later. This article offers commentary on the State of the Union, economic data and discussion regarding Citigroup and Yahoo!


Ladies and gentlemen, the state of the union is zzzzzzzzzzz, boring! In perhaps the least moving State of the Union Address I've seen in my short lifespan, the market found little catalyst for drift or drive. We suspect many of you fell asleep. Or, you would have if not for all the 2008 political race drama to keep your attention. Read the speech in full here: State of the Union.

It seemed as though GW simply made a checklist of unfinished business, and really came across like a lame duck president at this point. However, if you were able to stay awake, and if you had your ears open, you would have caught a very interesting inside message shared with the members of Congress. The president, while on his "I told you so" speech regarding the effectiveness of the surge, also presented some interesting Homeland Security information.

While seeking to renew law allowing the monitoring of Americans and others in our country suspected of plotting against the state (interestingly not mentioning its well-known moniker as we haven't here either), he candidly reminded Congress that they had very personal reason to thank the members of our intelligence forces.

As he spoke about stopping plots in Los Angeles and one involving the planned downing of airplanes over the Atlantic, he also alluded to something important perhaps halted in Washington D.C. Why else would every member in attendance, as he put it, and not all Americans, owe thanks to the intelligence forces... He also mentioned al Qaeda in Iraq's stated goal to attack Washington. While listening as a New Yorker, I felt comfort from this, and also from the fact that I'm not living in the nation's capital. That's a quite ironic statement, coming from a New York City resident.

Whether you agree with GW or not, view him a victim of circumstance or a catalyst of it, you have to admit to something. It would be cool as hell to spend a day with him and a case of beer.

On the whole, this speech will drop out of the media spotlight quite quickly. It was perhaps typical of a speech at the end of an 8 year term, a victory lap. Clinton's was similarly disappointing as I recall. I know some of you would rather I analogize it as closer to running out of gas and cruising into the pit, rather than victory lap. However, we have to remember that this president was faced with very unique challenges, and it's very easy to play Monday morning quarterback now.

Regarding Iran, much speculation was born from what seems like a step-back stance from the Administration. Here's the thing though, even if that's true, Israel is not likely to allow it to play out. Imagine GW stepping back and bumping into a close standing Ehud Olmert. Israel cannot risk a Democrat in the White House while Iran develops nuclear technology. This is why I still believe there's a strong chance of war this year, whether we plan it or not.

Economic Data & Analysis:

Durable Goods Orders December

Talk about a good start to a frightening economic data and event heavy week. Durable goods orders for December blew out expectations. Rising 5.2%, expectations for a 1.6% rise were demolished! This has positive implications for tomorrow's GDP report, and the speed bump looks easily surmounted for now. In other words, the economic data that matters most to the market right now should prove positive catalyst this week. While we could say that international demand that may have boosted results looks to be waning, we also have to acknowledge other changes in the soup.

I warn bears, while reminding you that I was one for quite some time, don't fall in love with your recent success. Don't let your day in the limelight boost your ego so much that you exchange the intelligence behind your view, with your view. In other words, keep thinking and don't fall into the pitfall of backing a winning view just because it's risen to consensus. If you do, you are doomed to die with a good view gone bad.

The market is dynamic! This fiscal stimulus and monetary action should prove potent in my opinion, while the speed of deliver is the most important factor now. As the variables in the algorithm change, the equation's result must also change. I think there's a decent chance Q4 GDP could surprise on the high side of forecast. I hope the Fed acts with a quarter point cut or more. If both these events occur, I see no reason why this speed bump will not be passed and market rise resume.

Home Prices & Foreclosure Data

Old news! Focus on the forward. The Greek still believes it's early to buy property, but not early to buy foreclosure property. While that market will only get better as more homes filter through the time exhaustive system to the foreclosure sale, the foreclosure market is the only place I would look for property now. Prices should continue to decline on the regular housing market until inventory normalizes. This is not going to happen until at least the second half of 2008. Also, there's little chance of missing a change in housing prices, since the market is huge, illiquid and does not turn on a dime and make sharp adjustments quickly. That risk does exist in the mortgage market however, meaning rates could jump quickly as the economy recovers later this year.

Iran is the X Factor

It's important to note that my economic theory excludes the possibility of war with Iran. The advent of such war, and likely surprising guerrilla warfare that would ensue on Middle Eastern, American and European soil, would bring such a shift from conventional expectations that forecasting it in, would leave me a great outlier. I'm concerned with that risk tied to Iran, and ready to advise you if it becomes a clearer reality to me, but I am not psychic or an employee of the CIA, and can't see that far forward into that drastic a change. Be sure, however, that we're closely following the situation.

Consumer Confidence January

The Conference Board reported Confidence for January today, and it drifted lower to 87.9, from 90.6 in December. The number, however, beat expectations for a reading of 87.5, and thus offers more good news. It's perhaps a sign that recent action by the Fed and the government are appreciated and considered important by the American public.

ICSC-UBS Weekly Same-Store Sales

Bad news folks. Consumers are spending even less than they were last year. We're in a race now. The contestants are the economy and the effects of action by those who hope to pace it. Will we fall into recession before the actors (Fed, Gov't, ECB...) can head it off... That's the big question. The important answer is that they are at least acting. Expectations are shifting from concern for recession to expectation of it, and for recovery from it. This is a good thing, and don't overlook it.

Weekly same-store sales rose just 1.3%, after ticking higher last week to 1.6%. We're now in a consistent range of 1-2% growth, versus last year's 2-3% and the year before's 4% range. These represent significant cuts to growth rate, and it will lead to consolidation in the retail/restaurant/small business/consumer sensitive areas. But, remember, the market looks ahead and it's already sunk near 20% on most scales from the October highs. Fiscal stimulus acts to counter the direction I just put forward. The speed of deliver is critical, and I can't overemphasize that. Hank Paulson should be nagging the hell out of Senators now, and finding a way to get the money in the hands of Americans soon.

Company Specifics

We were happy to discover Vik Pandit is not a headless chicken, and we already suspected this. He may in fact be a fox. It's still early to say, and this news is based on one discussion while a review is still ongoing. However, a level head in tough times helps avoid reactionary behavior that occurs for the sake of change and for the sake of appeasing the rioting crowd (sometimes shareholders, but usually media). Vik seems to us like a sensible, level-headed leader, and he will make significant changes, but it seems those will be value added changes, not massive overhaul to create impression. We believe Citigroup (NYSE: C) will be better for it.

Yahoo! (Nasdaq: YHOO) reports at the close. Recent news of job cuts and that computer glitch that had many YHOO sites closed during important shopping season days, anecdotally portend a miss this quarter. That, however, should enhance an already attractive investment in our opinion. We would advise long-term investors to take a close look at YHOO on any bad news driven share decline. If good news is reported, which would surprise, there still might afford an opportunity.

On a Greek personal aside, the first presidential televised speech I recall was during the Nixon presidency, and I remember my father and uncle yelling at the television, so I assume it was his resignation speech or otherwise controversial. I must have been four or five years old at the time. What's the first speech you remember? Comment at the site, below the article.

Did you know Wall Street Greek reaches major television news affiliate sites and many top ten newspaper sites, as well as major financial publishing sites? Advertising at The Greek means you gain much broader exposure than just our site, which by the way, isn't too shabby either. Contact us for more details by sending mail to: Ads@WallStreetGreek.com. Receive Wall Street Greek FREE via email by subscribing here. (disclosure)

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Monday, January 28, 2008

The Greek's Week Ahead - Speed Bump Ahead for Nascent Rally

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

After a horrid start to 2008, not to mention the past week, a combination of Federal Reserve action and federal government progress toward a fiscal stimulus package rejuvenated stocks. The Federal Reserve gave the market its first dose of medicine with its emergency action on Tuesday, as it cut the Fed Funds rate by 75 basis points (0.75%). However, by Friday, the market was already concerned about the risks that lie in the week ahead.

Last week, Treasury Secretary, Hank Paulson, and the Speaker of the House of Representatives, Nancy Pelosi, worked together to forge a fiscal stimulus package. In an election year, this should not be a surprise, since neither the Democrats nor the Republicans want to be viewed as indifferent to American economic weakness. The package, which still has to gain Senate approval, will basically provide Americans with $300 to $600, depending on income level, and $300 for each dependent child. Also, the first $6,000 of taxable income would be tax-free. Businesses will be allowed to deduct 50% of the cost of purchases of new equipment this year, encouraging business investment.

While the Senate is rumored to want to add an extension to unemployment benefits and to increase food stamp distribution, the aid package is expected to pass quickly. While the market is still concerned that checks may not reach Americans until after the IRS finishes with its regular tax responsibilities, Hank Paulson seems to have a head of steam and we wouldn't be surprised if he did not find a way to get this done sooner.

These two major events offered the stock market confidence that the government would support the economy as needed. The Federal Reserve continues to live in its illusory expectation that economic growth will only moderate, but many economists have increasingly pointed toward recession. Your author here has been forecasting recession for this period since early last year.

On Friday, market enthusiasm reverted to concern, and for good reason. The week ahead offers very important economic data and event risk. Perhaps the most important risk is tied to the result of the Fed’s two-day Federal Open Market Committee meeting (Jan. 29 – 30). Treasury yields are forecasting a further rate cut next week, but anecdotal evidence points to the possibility of Fed inaction on the 30th. William Poole, President of the Federal Reserve Bank of St. Louis, reportedly voted against the emergency cut and indicated that the action could wait until the Fed’s regular meeting. This seems to imply the possibility of Fed inaction on Wednesday, but market pundits on financial news networks have mostly been forecasting further action.

Fed inaction would clearly disappoint the market. It’s hoped that the Fed understands the impact it could have, and might offer another 50-point rate reduction. Wall Street Greek believes even a 25 point move would be viewed as inadequate by the market, and lead stocks lower. The Fed is governed by two mandates, maintaining employment health and containing inflation, so there is no direct requirement for it to appease stock market concern, and thus the risk is born.

The president’s last State of the Union Address on Monday January 28th was expected to carry with it the introduction of his fiscal stimulus plan, but with the bipartisan plan released this week, we see less likelihood of a positive catalyst from the president’s speech. We wonder if part of the speed of the package’s progress had anything to do with Democratic Party strategy, as preempting the president’s address minimized Republican benefit. There still remains risk of the president bringing geopolitical issues back into the spotlight again with discussion of Iran. Increased rhetoric could foretell the administration’s plans regarding the near nuclear nation.

The very important advanced reporting of fourth quarter GDP is scheduled for 8:30 EST on Wednesday morning, and Reuters survey of economists’ consensus offers expectation for a very moderate 1.2% growth rate. This definer of recession carries with it the potential to raise hope, with a high reading, or heighten concern, with a lower than forecast measure.

The week is full of important data, from December New Home Sales on Monday, to Durable Goods Orders (Dec.) on Tuesday, to Personal Income & Consumption (Dec.) on Thursday. The week also holds two separate reports on consumer confidence and six reports on employment. Of these reports, arguably the most important is Friday’s Employment Situation Report for January. In December, unemployment rose three-tenths of a point to 5.0%, waking many up to the rising probability of recession.

As earnings season kicks into high gear, related risk intensifies there as well. The reason for this is because, as analysts have lowered fourth quarter of ’07 estimates, they maintained ’08 expectations for mid-double-digit earnings per share growth. These expectations are probably ambitious, and corporate guidance is likely to be very conservative considering the economic situation. Thus, shareholder hopes are vulnerable for letdown.

Market-Moving Event Planner:


The data heavy week kicks off on Monday gradually, with only the 10:00 a.m. New Home Sales Report due. Bloomberg’s consensus of economists expects December sales ran at an annual pace of 645K, which would only be 2K down from November. Remember, Ara Hovnanian is on record saying December was relatively strong for his company’s business (Hovnanian Enterprises (NYSE: HOV). You’ll have to forego your regular television addictions Monday and survey President Bush’s last State of the Union Address. We’re big fans of the speech here at The Greek, and this Bush finale is a can’t miss.

Of the scores of companies reporting this week, a few that should be in focus on Monday include American Express (NYSE: AXP), Calamos Asset Management (Nasdaq: CLMS), Halliburton (NYSE: HAL), McDonald’s (NYSE: MCD), Tyson Foods (NYSE: TSN), Verizon (NYSE: VZ), Alberto-Culver (NYSE: ACV), Black & Decker (NYSE: BDK), Cemex (NYSE: CX), Corning (NYSE: GLW), East West Bancorp (Nasdaq: EWBC), KKR Financial (NYSE: KFN), Rohm & Haas (NYSE: ROH), SanDisk (Nasdaq: SNDK), Smurfit-Stone Container (Nasdaq: SSCC), Sysco Corp. (NYSE: SYY), Stanley Works (NYSE: SWK), VMware (NYSE: VMW) and Zoran (Nasdaq: ZRAN).


The Federal Open Market Committee commences its regularly scheduled programming Tuesday with it’s two-day meeting. The market should be tense heading into the powwow, and it should stay that way through its closure. At 7:45 a.m., the ICSC-UBS makes its regular reporting of weekly same-store sales. Last week’s poor growth rate of 1.6% still marked an up-tick from the very soft rate of 1.1% in the week before. As the weekly data continues to arrive, we should get an idea if the consumer is looking ahead to his late spring gift check and if he is enjoying the savings from the refinancing of his home (for those who could secure a new loan).

At 8:30, Durable Goods Orders for the month of December are expected to show a 1.6% increase from a revised and weak previous month’s decline of 0.1%. The Conference Board’s latest reading of consumer confidence at 10:00 a.m. is seen deteriorating to a measure of 87.5 for January, versus 88.6 in December. The S&P Case-Shiller Index should not surprise anyone when it shows further decline in home prices in November.

Earnings season gets real busy starting Tuesday, with news from Centex (NYSE: CTX), Eli Lilly (NYSE: LLY), Occidental Petroleum (NYSE: OXY), Robert Half Int’l (NYSE: RHI), Dow Chemical (NYSE: DOW), Traveler’s (NYSE: TLV) and Yahoo! (Nasdaq: YHOO) on the marquee. The rest of the list includes 3M (NYSE: MMM), AirTran Holdings (NYSE: AAI), Alliance Financial (Nasdaq: ALNC), American Electric Power (NYSE: AEP), ArvinMeritor (NYSE: ARM), Avery Dennison (NYSE: AVY), Burlington Northern Santa Fe (NYSE: BNI), Cardinal Health (NYSE: CAH), Countrywide Financial (NYSE: CFC), EMC Corp. (NYSE: EMC), Flextronics (Nasdaq: FLEX), Headwaters (NYSE: HW), Imperial Sugar (Nasdaq: IPSU), JetBlue Airways (Nasdaq: JBLU), Kemet (NYSE: KEM), Lexmark Int’l (NYSE: LXK), Pilgrim’s Pride (NYSE: PPC), Quixote (Nasdaq: QUIX), Smith Int’l (NYSE: SII), T. Rowe Price (Nasdaq: TROW), Techne (Nasdaq: TECH), Allstate (NYSE: ALL), Tupperware (NYSE: TUP), US Steel (NYSE: X), USG (NYSE: USG), Valero Energy (NYSE: VLO), Websense (Nasdaq: WBSN) and quite a few more.


The advanced GDP Report for the fourth quarter will be released at 8:30 with consensus expectation for a 1.2% increase for Real GDP. Clearly, nobody will get any sleep on Tuesday evening. Fed funds futures are still pricing the likelihood of a 50 basis point cut on Wednesday, but the bet is losing favor. We continue to expect a 25 point cut or no action at all. Our view is based on William Poole’s descending vote last week. Apparently Bill noted that the cut could wait a week, and this seems to imply the full move was planned or expected.

Considering the degree of speculation regarding the Fed possibly having engaged in shadow boxing last week, due to the unwinding of SocGen trades established by its notorious rogue trader, a 25 point move looks most likely in our view. Assuming the SocGen activity was at least partly behind the Fed's degree of cut, we could look at this two ways: the Fed may benefit by showing it intended the action, by following it with another; or the Fed may care less about saving face than minimizing its impact this month. Also, we should not forget that a fiscal stimulus package was introduced last week, so there is some sense that the Fed could take a break here. A lot depends on the GDP report the same morning.

The first of six employment reports hits the wire on Wednesday, that being ADP’s monthly data. Finally, the Mortgage Banker’s Association will report its weekly mortgage application activity. Over the past few weeks lower rates have inspired refinancing activity. At 10:30, the EIA will announce Petroleum Status, but the economy will be in focus in the energy pits as well as on the NYSE floor. The economic driver is so prevalent now that weekly draws and builds are almost completed muted.

Reporting earnings on Wednesday, expect news from Amazon.com (Nasdaq: AMZN), Boeing (NYSE: BA), Evergreen Solar (Nasdaq: ESLR), Kellogg (NYSE: K), Kraft (NYSE: KFT), Merck (NYSE: MRK), Pulte Homes (NYSE: PHM), Starbucks (Nasdaq: SBUX), Allergan (NYSE: AGN), Altria Group (NYSE: MO), Baker Hughes (NYSE: BHI), Business Objects (Nasdaq: BOBJ), Blade Logic (Nasdaq: BLOG), Cirrus Logic (Nasdaq: CRUS), Constellation Energy (NYSE: CEG), Covance (NYSE: CVD), Dominion Resources (NYSE: D), Everest Re (NYSE: RE), FTD Group (NYSE: FTD), Honda Motor (NYSE: HMC), Legg Mason (NYSE: LM), Overstock (Nasdaq: OSTK), SAP AG (NYSE: SAP), Silicon Labs (Nasdaq: SLAB), Tetra Tech (Nasdaq: TTEK), Tractor Supply (Nasdaq: TSCO), W.R. Grace (NYSE: GRA), Xcel Energy (NYSE: XEL) and more.


After the week’s busy hump day, Thursday will not offer a cool breeze either. Bang! Bang! Bang! Just like that we’ll receive the Monster Employment Index, the Help Wanted Index, Weekly Initial Jobless Claims and the Employment Cost Index. Jobless claims have moderated in recent reports, easing concerns about unemployment. However, the consensus sees this week’s figure at 318K, up a bit from last week’s 301K.

The fourth quarter Employment Cost Index is expected to show an increase of 0.8%. We do not expect wages to add to inflation concerns in a recessing environment. Take what is happening at Ford (NYSE: F) as an example. The company is buying out the contracts of senior employees in order to replace them with less costly ones. This is indicative of an environment where other costs of production tied to commodity price rise and a competitive environment dictate wages.

Before the market open, the Commerce Department will report the critical Personal Income and Consumption Data for the month of December. Income is seen increasing by 0.4%, while consumption is expected to rise just 0.1% in the face of consumer pressures. Consumption is the market’s focus at the moment, and with those stimulant providing checks still bogged down by the Senate and IRS, there’s no real catalyst to inspire spending. We know already that the holiday shopping season was a letdown.

The National Association of Purchasing Managers - Chicago Report for January threatens to show the Midwest, excluding the already slumping Detroit metro area, is finally succumbing to the same pressures seen throughout the rest of the country. Economists are looking for a still expansionary reading of 52.0, versus the robust measure of 56.4 seen in December.

The EIA’s regular Natural Gas Report at 10:30 and the Farm Prices Report at 3:00 round out the day’s economic news. In light of recent budgetary questions related to how we are going to finance fiscal stimulus, the words of the Director of the Congressional Budget Office, who is scheduled to speak in Washington, could ring some bells of alarm Thursday.

Just a small portion of the day's earnings reports include Anheuser-Busch (NYSE: BUD), Bristol-Myers Squibb (NYSE: BMY), Celgene (Nasdaq: CELG), Digital River (Nasdaq: DRIV), Electronic Arts (Nasdaq: ERTS), Google (Nasdaq: GOOG), Intuitive Surgical (Nasdaq: ISRG), Mattel (NYSE: MAT), Micros Systems (Nasdaq: MCRS), Monster Worldwide (Nasdaq: MNST), Proctor & Gamble (NYSE: PG), SEI Investments (Nasdaq: SEIC).


Friday brings yet another busy day to conclude the exhaustive week. First and foremost, the market will be highly attuned to the Employment Situation Report for the month of January. December’s report really compounded concerns when the unemployment rate jumped three-tenths of a point to 5.0%. It was the kind of rise historians pointed to as a sure sign of recession ahead. After weeks of not so bad unemployment claims data, most see the rate backing up a tenth of a point this time around to 4.9%. However expected this may be, the market should still take a small sum of relief from the news.

Based on Bloomberg’s survey of economists, NonFarm Payrolls are seen rising 58,000. Here’s where we are not so sure; reason being, before you fire, you stop hiring. Small businesses and retail will probably be the next segments to consolidate (and go under in the case of many small businesses). When retailers begin reporting weak holiday quarter results and reflecting concerning forecasts for ’08, many are also likely to follow the actions of first-movers Macy’s (NYSE: M) and Talbots (NYSE: TLB), which have already closed some stores.

Those job additions that have been born by bar and restaurant employment should also start to tail off into nothingness. People may continue to drink when they get poor, but they do it at home instead of in the pub. This of course assumes they still have a home. Average hourly wages are expected to have increased by 0.3%.

The remainder of the heavy hitting economic data gets piled on at 10:00 a.m. All three of the reports should be depressing. The ISM Manufacturing Report for January will likely show a further contraction of the manufacturing sector. The metric is widely expected to measure 47.0 this time around, versus 47.7 last month. Construction Spending for the month of December should show no better, indicating a decrease of 0.5% according to economists.

The final reading of Consumer Sentiment for January, as surveyed by the University of Michigan, is seen having eased to 79.0 from 80.5 last time out, when the survey apparently concentrated on college bar exit polls. Finally, January’s domestic motor vehicle sales are seen falling by 200K, according to Barron’s. General Motors (NYSE: GM) recently broke the bad news that it will share the title of most important seller of automobiles with Toyota (NYSE: TM), based on 2007 data. That’s sort of a triumph since many auto experts were pointing to ’07 as the year the mighty would fall.

Friday’s earnings news includes the likes of Arch Coal (NYSE: ACI), British Airways (London: Bay.L), Automatic Data Processing (NYSE: ADP), Chevron (NYSE: CVX), Exxon Mobil (NYSE: XOM), Cummins (NYSE: CMI), Gannett (NYSE: GCI), Manpower (NYSE: MAN), MeadWestvaco (NYSE: MWV), MF Global (NYSE: MF), Nissan Motor (Nasdaq: NSANY), NYMEX Holdings (NYSE: NMX), Orleans Homebuilders (NYSE: OHB), Oshkosh Truck (NYSE: OSK), Public Service Enterprise Group (NYSE: PEG), Ryder System (NYSE: R), Simon Property (NYSE: SPG), Estee’ Lauder (NYSE: EL), Tidewater (NYSE: TDW) and a few more.

We hope our market-moving event planner proves a value add for your week ahead. Find our daily insights at http://www.wallstreetgreek.com/.

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Saturday, January 26, 2008


The following words, individuals and even fictional characters have served as inspiration to me, and I hope they may help you keep faith in your dreams and stay confident as you chase your own big idea.

peter lynch inspirational quote

Peter Lynch: "I cannot quantify the contribution that skeptics made to my performance, but I am sure it was substantial."

alexis zorbas inspirational quotesNikos Kazantakis' Alexis Zorba - "It's all because of doing things by halves and saying things by halves, that the world is in the mess is in today. Do things properly by God! One good knock for each nail and you'll win through! God hates a halfdevil ten times more than an archdevil!"

rocky balboa inspirationalRocky Balboa on Life - "Let me tell you something you already know. The world ain't all sunshine and rainbows. It's a very mean and nasty place, and I don't care how tough you are, it will beat you to your knees and keep you there permanently if you let it. You, me or nobody is gonna hit as hard as life. But it ain't about how hard you hit. It's about how hard you can get hit and keep moving forward; how much you can take and keep moving forward. That's how winning is done! Now, if you know what you're worth, then go out and get what you're worth. But you gotta be willing to take the hits, and not pointing fingers saying you ain't where you wanna be cause of him or her or anybody. Cowards do that, and that ain't you! You're better than that!"

chris gardner will smith inspirational speechChristopher Gardner (Played by Wil Smith): "Hey, don't ever let somebody tell you you can't do something, not even me. Alright? You got a dream, you gotta protect it. People can't do something themselves, they wanna tell you you can't do it. You want something, go get it, period!"

underdogMarkos Kaminis: "In pursuit of your dream, you will have no difficulty finding skeptical opinion and contradictory advice, but in order to succeed you need only listen to one voice."

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Wall Street Week in Video Review - Jan 26

The Greek is thrilled to bring you another edition of "Wall Street Week in Video Review" below, covering some of the week's hottest topics. As always, the views expressed in the videos do not necessarily agree with the views of Wall Street Greek. Remember, you can always fast forward, and we've included some comedy to lighten up your Saturday.

Did you know Wall Street Greek reaches major television news affiliate sites and many top ten newspaper sites, as well as major financial publishing sites? Advertising at The Greek means you gain much broader exposure than just our site, which by the way, isn't too shabby either. Contact us for more details by sending mail to: Ads@WallStreetGreek.com. Receive Wall Street Greek FREE via email by subscribing here. (disclosure)

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Friday, January 25, 2008

How Would You Like to be THIS Guy - le Rogue Trader Jerome Kerviel

jerome kerviel
(Stocks in this article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: SDS, NYSE: QID, NYSE: XLF, Nasdaq: MSFT, NYSE: CAT, NYSE: ABK, NYSE: HON, NYSE: HOG, Nasdaq: ETFC, Nasdaq: AMGN, Nasdaq: JAVA, Nasdaq: KLAC)

Missing, and rumored a possible scapegoat for Societe Generale to hide its mistakes, Jerome Kerviel's picture still doesn't show up on Google image searches. From nobody, to notorious "rogue" in a day's time. Unbelievable! Well, at least all the other newly unemployed traders and creative minds at the big Wall Street banks can say now, "at least I'm not THAT guy..."

But, all is not necessarily lost for Jerome Kerviel, if he is alive. Whether he lives the rest of his life in hiding, from the dungeons of the French Riviera, to the hell of Ibiza and Mykonos, or if he is caught, life might not be so bad.

Kerviel, if you find this article, put your faith in God and just look at Michael Milkin and your predecessor rogues. Some of them have resurrected their careers, like Nick Leeson who is now CEO of an Irish Premier Division Football Club, Galway United. Considering this guy did not profit from his trades, jail time should be somewhat limited. Sure, he might have to spend some time in the slammer, and I'll estimate 2 to 7 years, but think about that million dollar book he can author there, "Kerviel, Trumping the Rogue Trader," or "Kerviel, the Man Who Broke the Bank."

Seriously, we do not know the details of this situation, and we will not castrate this man here. In The Greek's personal experience I know that sometimes supervisors ask you to do things that are in clear violation of fiduciary responsibility, and if you do not do it like I didn't, you fall into the doghouse. There's a moral sacrifice that some people make to keep their job, while losing their soul. At 30 years of age, whether guilty or innocent, Kerviel has plenty of time to right any wrongs and to live a long life.

Societe, 2007's "Bank of the Year" according to Banker Magazine, fired a chain of Kerviel's supervisors. I believe six other people were let go, if I caught that correctly from CNBC this morning. Imagine the shareholder lawsuits Societe should face now for this negligence. The CEO offered his resignation, but the Board refused it. Uh, guys, ever heard of this thing called corporate governance that we adopted here in the states after Enron, Worldcom and others. The CEO HAS to go... You don't lose $7 billion because of poor controls and not lose your job. It still beats jail.

Don't miss our weekly market-moving preview this weekend. We see some speed bumps ahead for this nascent rally.

Did you know Wall Street Greek reaches major television news affiliate sites and many top ten newspaper sites, as well as major financial publishing sites? Advertising at The Greek means you gain much broader exposure than just our site, which by the way, isn't too shabby either. Contact us for details about advertising. Email: Ads@WallStreetGreek.com. Receive Wall Street Greek FREE via email by subscribing here. (disclosure)

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Thursday, January 24, 2008

Stocks Stabilize & for Good Reason

(Stocks in this article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: SDS, NYSE: F, NYSE: LMT, NYSE: T, NYSE: NOK, NYSE: LCC, NYSE: XRX, NYSE: BAX, NYSE: COF, Nasdaq: SPWR, Nasdaq: SYMC, Paris: GLEZ4.PA)

The market is stabilized, and for good reason. The significance of recent Fed action has been digested, and is now better understood, while fiscal stimulus is on the way. Today, data showed unemployment claims moderate and housing inventories on the downtrend. Oh, and also, after January's double-digit slide, valuations are in bargain territory for many coveted names.

Economic Data & Analysis

Initial weekly jobless claims came in at 301K for the week ended January 19, one thousand lower than last week's revised figure. The past two weeks' reports are really bringing into question just how bad things are in corporate America, and they don't look bad at all based on these figures alone. But, two weeks does not economic growth make. The level of ongoing claimants remains high, but insured unemployment decreased to 2.0% (seasonally adjusted) for the week ended January 12, down from 2.1% in the prior week. Michigan continues to lead all states at 5.1%, and guess what, Ford (NYSE: F) just announced plans for new layoffs today. PA finished third in insured unemployment, and New Jersey was not far behind. Newly discharged veterans rose 6.6% in the last week measured (Jan. 5), so John Edwards may have good reason in bringing the topic to the fore. Still, The Greek views Edwards as perhaps the most threatening candidate to the market.

The 300K range of weekly claims is not one that should concern economists, but does it perhaps reflect a period of lull before the storm... Retailers post their results later than the rest of the corporate world, due to the seasonal importance of December and January. Many of these firms are just coming to grips with the reality of a poor holiday shopping season, a weak January and likely ongoing weakness in '08. The market has been moving money back into retail shares, and I was probably too early to condemn that. The same driver behind retail rise is behind the financial sector move, partly, and the market is dynamic and is factoring in the likely tax rebate the government is rumored to be near consensus on.

Retail/Restaurant/Consumer Discretionary Sector Woes Ahead

So, retailers get the near-term lift. But, I believe that the group differs somewhat from the already destroyed financial sector. The retail space has more tough times ahead and more realities to face. When these companies start to report results, as dour as they will be, they will also report very conservative if not concerning forward outlooks. They will likely begin to announce layoffs, store closures and other financial restructurings. This will start a second leg lower for the retail and consumer discretionary space, in our view, despite fiscal stimulus.

Depends on the Form of Stimulus

One check for $300 should boost a quarter's worth of results; an $800 check does a heck of a lot more. The government, rather the Administration and Republican contingent wants help for corporate America too. This might lead it to concede a bit of the payback to individuals, reducing it to the $300 level. The Greek, showing again our independent unadulterated view, is presenting the thesis that both are important and that offering small pieces to each ends up ineffective. It's the poor of America who need aid most now, but keeping others from joining the poor class is just as important.

The Administration's thinking may be that they could help stave off future layoffs by offering businesses some form of aid. We need both these pills folks. I say find ways to cut costs in government spending. Give Americans their $800 check and offer American companies their aid as well. Idealism? No! Find a way.

Existing Home Sales December

This is a non-starter at this point. It's simply not a catalyst anymore, as everyone knows housing sucks and is getting worse. Most even understand that the bottom may be near, as rates drop and inventories top out. Prices still have a ways to go before stabilizing, but the drivers behind price stability are moving in the right direction; well, some of them anyway. Economic recession would clearly not help.

Existing home sales dropped 2.2% in December to an annual run rate of 4.89 million units, short of economists' consensus. We say it's not a catalyst at this point, but it perhaps served as a reminder to the market that while help is on the way, the current situation is still poor. For the year on the whole, sales fell to a level 13% below 2006, marking the steepest decline since 1982. A positive aside from the report offered the fact that unsold home inventory dropped by 7.4%. That's a step in the right direction.

Contention With Kudlow

Last night, Larry Kudlow compared business lending activity now with another troubling period. He was attempting to offer reason to disbelieve economic recession, but I have to rebut. The Greek likes Larry, and admires what he has accomplished in his life, but we also get annoyed occasionally with his always positive view of the world. We prefer realism over optimism when money matters. Still, we understand Larry's confidence in America and it is well-founded, as this country is without doubt the farthest progressed economically.

Here's why we disagree with Kudlow on this topic. Business loan growth is doing well because banks have to lend somewhere, and companies had strong balance sheets heading into this period, and thus good collateral. But, things are about to change. Private equity runs on businesses have increased leverage in the business world, and that last bastion of loan demand (business) is going to turn down expansion efforts now. The commercial real estate market is on the cusp of collapse! As consumers stop spending, the consumer discretionary sector full of retail and restaurant establishments should consolidate. Store closures, sales, abandonment should drive values and prices down, and of course demand for new business expansion comes first. Therefore, current business loan demand has no consequence on tomorrow.

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Wednesday, January 23, 2008

Morning Coffee: Premature Withdrawal


Dr. Bernanke's medicine wore off quickly. Still, Asia got a nice high off the good stuff, with the Hang Seng juicing up 10.7%, China's mainland CSI 300 Index rising 4.7%, India's BSE Sensex 30 climbing 5.2% and the NIKKEI 225 moving up 2.0%. But, somewhere along the silk road, Mr. Market was stricken by withdrawal. Across the pond, the DJ Euro STOXX 50 was already down 4.5% as DJ Industrials futures here in the states indicated a rough start would ensue.

Seems global market decoupling is as much a fantasy as global economic decoupling. Actually, we wouldn't call it a fantasy, just an inevitable likelihood that is still far from reality. Seems The Greek knew what he was talking about when he warned about the importance of U.S. consumption back in the days when more famous TV pundits were sending investors into multinational large caps. We did that too you remember, but we told you the good times wouldn't last forever as well. That said, the market will soon wake up to realize fiscal stimulus is coming and the Fed has its back. Buy financials, and the ETF's in the space should prove useful in avoiding company specific risk there.

That Silly Stubborn ECB

Oh Jean-Claude, why must you Pu Pu on Ben's parade? The ECB is so concerned with inflation, perhaps they also fear the Pu Pu Platter might replace fabulous French cuisine. At some point this week, China will announce full-year 2007 GDP, as well as Q4. If the fourth quarter doesn't do it, we're fairly certain '08 data will show Chinese goods are not filling middle class Chinese homes, at least not yet. Jean-Claude, if the U.S., Europe and Japan are not buying as much, pressure on inflation should ease in the near-term. Jeanie baby, you're looking into the sky for the airplane to strike you while missing the fact that you are standing on the track of a speeding train. Recalling yesterday's Barbarian World reference, the villagers will probably head over to Jean-Claude's house today after hanging William Poole in the moonlight on Tuesday.

Economic Data & Analysis

The International Council of Shopping Centers - UBS was capable of exacerbating the panic this morning with its release of weekly same-store sales data. This, after last week's report of a slim 1.1% year-over-year growth rate. That marked a drastically lower level of growth than last year's 2% - 3% norm, and the year before rate of about 4%. Thank the Lord & Taylor this week's growth rate instead inched up higher to 1.6%.

We have seen some popular pundits putting people into the retail sector, and we just can't agree. While the stocks have corrected significantly, the pain has not been felt as sharply in operations. Retailers are going to report miserable holiday period results this quarter, and guidance should not be bright either. Yesterday, Target (NYSE: TGT) announced January was running at the low end of its guidance range. If the holiday season could not get the consumer to open his wallet, stock market decline in the double digits is not going to spin Macy's (NYSE: M) turnstile either. No, things are going to get VERY ugly in the retail and restaurant sector.

Petroleum Status

I told you so!!! Oil is backtracking, all be it a full month or two after we told you it would. The economic driver is and always shall be the most important factor behind the movement of oil prices. When global recession looms, nobody gives a crap about IEA inventory reports or OPEC monthly bull. It should be a short trip to the $70s from here... That Solar Sunset research we published here still holds folks. Sell the whole energy sector, until Iran.

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Tuesday, January 22, 2008

Morning Coffee: Smells Like Capitulation


Folks, I know this is hard to believe right now, but this market action smells a lot like capitulation. First off, the timing of this Federal Reserve blows, put it bluntly. Let's face it, they've done everything off-key. They really have no clue as to how the market reacts to news, and these claims of independence from market and administration... Come on! Actions speak much louder than words. Bernanke should have made this move the day he said "substantive action" would be taken.

There are some itchy trigger fingers in charge of monetary policy, and thank God for that since we can pressure Ben into acting. Did you know that Bill Poole voted against this action, saying something about how the economy could wait a week until the scheduled FOMC meeting? Allow me to take some writer's freedom now...

In The Greek's fictional "Barbarian World" that our close friends enjoy so much, the villagers would be heading to Poole's house tonight with torches lit and hangman's noose tied.

Traders may be happy the action came before market open, but if it came after the first hour of trading, it would have lifted stocks to close higher today, in our view. Instead, the largest cut since 1984 gets almost brushed under the carpet. However, as time passes and maybe even today, investors will realize the magnitude of this action and the potential for another quarter point in a week when the FOMC meets. The President's State of the Union Address will offer a juicy plan for the market, and Hank Paulson was on the horn today calling for bipartisan effort for America's sake. We'll see about that, but I expect nobody wants to be blamed for failing to act in an election year. So, in the near-term, if the government can work out the specifics of this fiscal stimulus package quick enough, the market should be revving up for recovery rally. In China, all depends on this.


The mainland Chinese market is lagging the global drop because of the information filters in place and unsophistication of investors. However, panic is brewing. Depression is a real possibility for China if the U.S. economy falls into recession and a messy war begins in Iran. The unsophistication of local investors could trigger a 1929 style crash there, but investment is supposed to be limited in the country, so some argue market crash alone wouldn't impact the economy of China. After all, it is also greatly lifted by global demand for its goods. The difference between strong growth now and depression then certainly represents a mountain range to cross, but it's one we can envision crossing here. The catalyst is oil prices upward of $150 and energy flow disruption due to war. When there's not enough power to run China, there is economic catastrophe. Then we'll be saying, thank God for coal, while we look over shoulders for Chinese infantry. Learn to trade foreign currencies with Peter Bain Video ForEx Course

Company Specifics

In corporate news, Target (NYSE: TGT) sees January sales toward the low end of its forecast range, Yahoo! (Nasdaq: YHOO) is planning to fire a few folks and eBay's chief (Nasdaq: EBAY) leaves her post. We can't know for sure Whitman's reason for leaving, and it could be for very personal and good reason, but as a career move, it looks strategically wise. If the consumer is falling off a cliff, even the nicely valued EBAY could fail shareholders, despite its global store reach through the net. The action in Yahoo smells of whisper. It seems to make no sense as it sinks lower and lower. Remember that holiday season technology glitch they had? We speculate whether that had an important economic impact to the company's holiday quarter. If there is an earnings hit as a result, remember, it would be due to temporary issue, and this would mark a buying opportunity, in our view. TradeKing.com. $4.95 trades + 65 cent option contracts. Free real-time quotes. Find out why TradeKing is the King of online brokers.

Guess what though, some people are still making money, and public companies too. JNJ posted a nice profit alongside DuPont (NYSE: DD), which even beat numbers. UnitedHealth (NYSE: UNH) made its number too. Still, headlines garnering the tops of financial sites today focus on huge losses at Bank of America (NYSE: BAC), Wachovia (NYSE: WB), UAL (NYSE: UAL) and Ambac (NYSE: ABK); oh and the Fed action won some space too... The thing is, there's no surprise here. We expected this right; we warned you here about the Q4 kitchen sink write-off phenomenon that would be evident in all its glory this year. The stocks already priced much of this in and financials are getting a lift today. The Financial Select Sector SPDR (AMEX: XLF) is only off about 2% now after starting the day much lower.

OPEC Report and Oil in '08

OPEC has the chicken and the egg question in mind, saying higher oil prices now would hurt global economies. What about the high oil prices of the recent past guys? Those prices haven't impacted consumer savings and spending? OPEC only projects a 300K barrel demand drop-off in '08, but at least it finally gets the detrimental impact of high oil prices on the stability of demand, maybe... Rich pockets now could be traded for lint over the next few years if global recession ensues. The secular rise of commodity prices do threaten long-term burden for the world's economies, and inflation. That said, the real driver behind high oil prices is the fact that OPEC, or global production, might not be capable of meeting demand without major new finds.

I want to be clear. I expect a near-term rally driven by Fed action and government stimulus, but troubled markets in '08 should continue as economic realities present. There are more legs to this thing than most see as yet. We'll post some specific research pieces to point these out. Just as we would not sit on cash now, we also would not sit on shares later. But, the market is dynamic, and money is to be made in short-term trading as well as in long-term investing. Remember, I'm a fan of Lynch and Buffet, and a believer in long-term investing, but when you follow the market on a daily basis, and issue advice on that timeline, you have a responsibility to advise traders about near-term opportunities and risks as well.

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