Week Ahead - Armageddon Renaissance Likely

The Greek's Week Ahead, our market-moving event planner, has been engineered to provide you with a tool you can reference all week long.

We're sorry to say, we see no likely positive catalyst this week to avoid market retest, other than perhaps the technical barrier of 1,350 itself. In recent recessions, the market has managed to hold the halfway point from market bottom to rally peak. That mark is 1,350 on the S&P 500, and everyone is looking to it as a critical floor. We may just fall through that shaky base, depending on what the lunatic depicted here has to say this week. So, welcome back to Armageddon my friends. We have an interesting "Iran Event" piece coming up this week, so stay tuned.

Last Week

The stock market had a panic attack at the end of last week, and for good reason. Please forgive us for unearthing the nasty memory, but unemployment was reported at 5.5% in May, up five-tenths of a percentage point from April. The jobless rate was also significantly greater than economist expectations for 5.1%. As a result, the S&P 500 Index collapsed 3.1% on Friday alone, negating a fractional gain that had been achieved for the week through Thursday.

The largest one-month increase in unemployment since 1986 sent the dollar spiraling against foreign currencies. The greenback moved to $1.578 per euro. As if that was not enough bad news for one day, the oil market turned frenzied as well. Dollar weakness combined with tough talk from Israeli Transportation Minister Shaul Mofaz to send oil skyrocketing.

Mofaz said that Israel would have to attack Iran if it did not shut down its nuclear program. It was an irresponsible and selfish comment from the candidate for Prime Minister. Still, there was more than one factor pushing oil higher Friday. A Morgan Stanley analyst suggested petroleum prices could reach $150 a barrel by July. Crude oil for July delivery promptly jumped 8.4% to settle at $138.54 on the New York Mercantile Exchange. Therefore, now more than ever, investors are concerned about what might happen next week.

The Week Ahead

Follow through or momentum news flow will likely drive the stock market more than any economic data this week. In other words, market strategists and economists will publish plenty of commentary and make many public appearances, responding to the employment situation data and other topics of interest. Wall Street Greek covered the jobless rate issue extensively in our article, "Unemployment Rate Rockets."

The media will very likely follow a pattern we've seen in the past, and seek out geopolitical news related to Iran and Israel wherever it can find it now. Even so, given the sharpness of Friday's oil price rise (the greatest ever one-day increase), and the fact that it came on a Friday, when traders are least tolerant of carrying their book overnight, we expect oil to backtrack a bit to start this week. What happens afterward will very likely depend on news flow from Iran and Israel. Already in the past week, Iran's President Ahmadinejad reaffirmed his view that "Israel will disappear," while Israel looks to be moving closer toward a bombardment of its enemy. We expect Iran will have more to say on the subject this week, and give the market more reason to fear.

Monday

This week's economic schedule is light, but includes several important reports. On Monday, look for April's Pending Home Sales Index. April's figure could benefit from the depth of March's result. Thus, seasonal factors could be exacerbated while growing (maybe) over a light base.

Fed Chief Bernanke will address an evening gathering in Boston, where the topic of the night will be "inflation." He's doing a lot of that these days, and we must admit it makes us uncomfortable. Please stop it Bennie baby... The Fed chief will have some familiar company on the newswire, as New York Fed President Timothy Geithner addresses the Economic Club of New York.

Conference season is getting busy this week. The American Bankers Association is holding its regulatory compliance conference in Chicago. Goldman Sachs (NYSE: GS) kicks off its four-day health-care confab, and Deutsche Bank (NYSE: DB) begins its media and telecom conference.

The earnings schedule may be light, but there are plenty of other scheduled reports to keep us busy on Monday. Apple Computer (Nasdaq: AAPL) is expected to give a first look at the next generation iPhone at its Worldwide Developer's Conference in San Francisco. Also, Texas Instruments (NYSE: TXN) is scheduled to offer its mid-quarter update in the late afternoon EDT.

Markets will be closed in Australia, China, Hong Kong and The Philippines, but our earnings schedule includes Krispy Kreme (NYSE: KKD), Pall Corp. (NYSE: PLL), Shuffle Master (Nasdaq: SHFL), Alfacell (Nasdaq: ACEL), Ashworth (Nasdaq: ASHW), Bakers Footwear (Nasdaq: BKRS), CMGI Inc. (Nasdaq: CMGI), Enzo Biochem (NYSE: ENZ), Exide (Nasdaq: XIDE), Lakeland Industries (Nasdaq: LAKE), Nova Biosource Fuels (AMEX: NBF) and Zila (Nasdaq: ZILA).

Tuesday

Global issues take the fore on Tuesday, starting with the President's trip to Slovenia, where he'll meet with EU leadership. Member state, Greece, might feel some heat from President Bush, as he would like to see the land of my ancestors and my soul back off regarding important issues involving Skopje (we will not address it here by it's illegal name) and also that other place east of Greece that we prefer not mention. Both nations seek EU membership, and both have major issues to resolve with Greece and broader Europe first. There's a saying the Turks and the Skopjians should get to learn, "what comes around goes around."

Georgia, Gaumarjos!

We think George would also like to see the Republic of Georgia catch a break, and a friend in Europe, as it struggles to find economic stability and due to its troubled relations with its Northern bully, Russia. NATO recently rejected Georgia, as it sort of backed down from Russian pressure. The EU wants to see more economic development before serious consideration is granted. Still, we expect Bush would like to solidify his allies before he engages Iran, or becomes engaged with Iran after Israel bombards it.

Russia seems to be clearly positioning to threaten greater Georgia, loading troops now into Abkhazia, a historic source of pride for Georgians, now turned Russian prostitute by force. Abkhazia is part of Georgia, stolen away by Russia, or perhaps it was a Shevardnadze concession when Georgia initially broke away from the Soviet Union. Nonetheless, Abkhazians, mostly Christian residents (the majority), became displaced through Russian guided hostility and lost everything they owned (gained through generations) thanks to the Russian raping.

Unfortunately, the world still turns a blind eye to the little nation's plight. We here at "The Greek" stick up for the little guy though, and we have a dear place in our heart for Georgia. It seems that once America offers Russia opportunity by entering into another Middle Eastern fray, everything goes for Putin's Kremlin. Did we mention that Putin owns a summer home in Sukhumi, the place he often entertains President Bush.

What Russia Wants

We believe that Russia would like to control the majority of Eastern-sourced non-Persian Gulf energy flow into Europe, so that it can extort Europe once disruption occurs from key sources in Iran, and maybe Saudi Arabia, Kuwait and Iraq. So we expect Russia will either take Georgia or destroy its pipelines. "The Greek" spent a good portion of this past weekend with Georgians living in New York, and maintains a great fondness for the country and its people. We think it would be a shame for our great country to let our friends in Georgia down in a coming time of need. So we hope the President manages to gain some European support in this regard. It's also probably wise for Georgia to mend fences and make other concessions to gain back greater Abkhazia, if possible (seems doubtful). The U.S. is unlikely to enter into conflict with Russia for the sake of Georgia, unfortunately for Georgians. "The Greek," however, would take up arms in a minute for his friends there.

China, while we're at it...

In other important geopolitical news, Treasury Secretary Henry Paulson is scheduled to address the topic of U.S.-China relations. We'll tell you how that stands right here and now. Last week, President Bush thanked China for accepting American aid for its earthquake disaster. That's right, he thanked them for taking money... I'm sorry, but what custom requires thanks for a gift? It's not one I would obey, and that's for certain. At the same time, our nation accused China of tapping into Commerce Secretary Gutierrez's laptop while he was on a tour there. China was reportedly appalled by such a blunt accusation... Hey China, here's how you avoid that kind of uncomfortable circumstance; stop the sneaky crap! We are clearly at odds with our earthly opposite, and thank God for the great distance that separates us, and for the fact that China went semi-capitalistic some years back. Now that we need each other, there's less chance we'll destroy the world.

Back to Business (Still Tuesday)

International Trade is set for report at 8:30 a.m., and the deficit is seen widening by $1.3 billion, to $59.5 bln. This time around, higher priced energy imports likely outweighed the combined effects of soft U.S. demand for goods and services and increased foreign demand for cheaper U.S. offerings. The Bank of Canada is scheduled to make a decision on its key overnight interest rate, with a cut of a quarter point expected, taking it to 2.75%.

While we don't always agree with Alan Abelson, and his sometimes grumpy but always interesting viewpoints, he was correct this weekend in his discussion of our government, and its likelihood to make matters worse now by over legislating. He noted, and we agree wholeheartedly, that our government (read Congress) far too often gets manic over the problem of the day and still misses heading off tomorrow's issues until it's too late. On Tuesday, the Senate Banking Committee is hearing testimony on securities underwriting practices at investment banks. You know, before there was reality TV, there was CSPAN, which is just as good.

Wrapping up Tuesday, the Fed June Tour continues as Dallas Bank President Richard Fisher discusses Globalization and Monetary Policy at the Council on Foreign Relations in New York. Also, the International Energy Agency will issue its monthly oil market report, not to be confused with the regular weekly edition. Finally, our favorite little retail industry indicator the ICSC-UBS Weekly Same-Store Sales Report looks to continue to benefit from the economic stimulus shot in the arm. Last week's report noted recent growth of 1.2% year-to-year.

The light earnings schedule includes Luby's (NYSE: LUB), Pep Boys (NYSE: PBY), Quality Systems (Nasdaq: QSII), AEP Industries (Nasdaq: AEPI), CorVel (Nasdaq: CRVL), Oxford Industries (NYSE: OXM), Rentrak Corp. (Nasdaq: RENT), Sonic Solutions (Nasdaq: SNIC) and Stewart Enterprises (Nasdaq: STEI).

Wednesday

The Fed's Beige Book release on Wednesday will offer much insight into the state of regional economies. As the President seeks funding for Iraq and permanent tax cuts, the Treasury Budget is due for its monthly check up, and the consensus sees a deficit of $155 billion for May. This compares to $159.3 billion in April.

The Mortgage Bankers Association makes its regular reporting of mortgage activity on Wednesday, and last week we saw the impact of inflation and higher long rates, as mortgage originations collapsed. However, after this past week's employment report, rates adjusted lower. We expect rates will gradually move back up, and limit mortgage activity and the impact of Bernanke's rate cuts. Fed Vice Chairman Kohn is scheduled to speak about "lessons for central bankers" at the inflation focused assembly of the Boston Fed. In a few months he may have a more personal experience to share...

The Census Bureau is scheduled to report its Quarterly Services Survey, focusing Q1 on IT services sectors: information; professional scientific and technical services; administrative and support services; and waste management and remediation.

No EIA Petroleum Status Report can be ignored these days, as oil climbs and falls $10 a day. The volatility of the commodity is especially troubling and indicative of a substantial speculative interest. Thus, the Commodity Futures Trading Commission is holding a timely conference focused on the topic of international energy market manipulation.

Needham & Co. gets its biotechnology conference under way in New York, and the earnings schedule includes Casey's General Stores (Nasdaq: CASY), Commerce Energy (AMEX: EGR), Cyberonix (Nasdaq: CYBX), Duckwall-ALCO (Nasdaq: DUCK), Hooker Furniture (Nasdaq: HOFT), Korn Ferry Int'l (NYSE: KFY), Navarre (Nasdaq: NAVR), Piedmont Natural Gas (NYSE: PNY) and Spartech (NYSE: SEH).

Thursday

On Thursday morning, Import and Export Prices data will offer more insight into inflation. Bloomberg's consensus of economists expects a 2.0% increase in May import prices, no doubt impacted by energy price rise in May. Prices rose 1.8% in April, while export prices inched up 0.3%.

May Retail Sales will be reported as well, but we believe this data will benefit from the timely distribution of economic stimulus rebate checks. Economists agree, as consensus sees a 0.5% rise in May, versus a 0.2% decrease in April. Excluding automobiles, economists are looking for a 0.7% rise, and we think you could get an even better result. However, the headline figure might see a severe hit from durables, including auto sales; look for that in June for sure. The stimulus rebates have offered a boost in the arm at just the right time for it, but the question remains to be answered, what happens when that money is gone...

Business Inventories for April are seen having increased 0.3%, versus a 0.1% rise in March. We continue to note the benefits of just-in-time inventory processes, and we remind you again that it's inventories-to-sales that offers a useful gauge of the business environment. Inventories have risen all year, but in relation to sales are not especially troubling as yet. This will allow for a fluid recovery, once economic conditions improve, however long that may take...

Weekly Initial Jobless Claims were reported lower than expected last week, but nobody noticed considering the more important monthly Labor Department Report. This week, economists are looking for an increase of new benefits filers, to 365K. There is some risk now that self-fulfilled prophecy occurs. Business owners are increasingly buying into the recession scenario, and consumers are certainly suffering, so we may now see a faster pick up in layoffs, especially within retail/restaurant.

The EIA Natural Gas Report will reach the wire at its usual time on Thursday. Several companies are holding analyst and investor days, including PPG Industries (NYSE: PPG), Symantec (Nasdaq: SYMC) and Cardinal Health (NYSE: CAH). Reporting earnings, Access Integrated Technologies (Nasdaq: AIXD), Capstone Turbine (Nasdaq: CPST), Catalyst Semiconductor (Nasdaq: CATS), China Medical Technologies (Nasdaq: CMED), EnerSys (NYSE: ENS), Finisar (Nasdaq: FNSR), Herley Industries (Nasdaq: HRLY), Measurement Specialties (Nasdaq: MEAS), Repligen (Nasdaq: RGEN), School Specialty (Nasdaq: SCHS) and U.S. China Industrial (Nasdaq: CHDX).

Friday

Friday the 13th offers the key Consumer Price Index, potentially sending the superstitious stock market into another end of week collapse if inflation is not well behaved. Bloomberg's tally shows expectations for a headline price rise of 0.5% in May and 0.2%, ex food and energy. We expect surprises to begin soon, if not this month, with the headline drivers beginning to push through serious price rise at the core. Stagflation is no longer a term for economists to use to differentiate themselves, but a near-term reality.

The University of Michigan/Reuters provides its first look at June Consumer Sentiment as well. The consensus view is for a reading of 59.8, compared to 59.5 in May. The stock market had improved, and stimulus checks are in hand or on the way, so a marginal increase here is not at all impossible. Don't lose sight of the fact that the absolute figure is still horrible, or in the fact that this is a lagging indicator.

The Bank of Japan is expected to hold its key interest rate at 0.5%, while finance ministers of the Group of Eight nations meet in Japan to discuss the world's community problem, inflation. We hope the developed nations of the world can form a united front to solve the global problem of resource supply/demand imbalance.

In conclusion, we do not see catalyst for market rebound this week, and so we may now retest market lows.

Please see our disclosure at the Wall Street Greek website. Article also interests AMEX: DIA, AMEX: SPY, AMEX: SDS, AMEX: DOG, AMEX: QLD, Nasdaq: QQQQ, NYSE: NYX.