This Week - Bear Country

We entered bear country this past week, and the vicious predators are quite hungry as they come out of their five-year hibernation.

The market, as characterized by the Dow Jones Industrials Index, officially sank into bear market territory last week, and every financial newsletter in the country featured some version of the critter on the front page. But how important is the arbitrary 20% decline threshold that marks bear country anyway? Is it just a number or a harbinger of more difficult times to come? After all, the trip to get to 20% was no carnival. We will discuss this in a future article.

The Week Ahead

Thanks to an empty economic slate Monday, our usual Sunday-to-Monday morning publication was issued on delay this week while "The Greek" got some well-needed R&R. The week looks to be a relatively quiet one on the economic front, but that only offers Fed representatives more opportunity to open their big mouths. Personally, yours truly wonders if these guys should have their tongues submitted as security deposit through their stay in office. The benefit of this would be that the market could interpret Fed view based on official, usually better prepared and clear, Fed statements.

Monday

This very hard start to the week following the holiday was headlined by President Bush's final G-8 meeting, this time in scenic Japan. He met Russia's new President Medvedev there, and while he had done no soul searching with this particular Russian, the president still offered the offbeat comment, "he's a bright guy." We guess that's yet to be seen, since none of us will ever forget what George said about ex-KGB man Putin, and the soul Bush saw and liked. If not an ingenious psychological ploy devised by the State Department, then Bush revealed himself as a horrible judge of character. We think the President himself would agree he was wrong about Vladimir. In other words, the book is still out on Medvedev until Condi gets a good look at him. More importantly, the G-8 is considering some tough issues, including global warming, global inflation and global gobbledygook. So far though, they've managed to agree on condemning Zimbabwe's Robert Mugabe, and that's about it.

San Fran Fed-Lady Janet Yellen is scheduled to address a group regarding the economy on Monday. Hopefully she knows a few things about that... A little further East, in Idaho, investment banker Herb Allen Jr. throws his annual media conference. The Institute of Internal Auditors is also scheduled to meet on Monday.

Radar Logic posted its RPX Monthly Housing Report, showing year-over-year declines in all but one market. However, the index showed 9 market improvements of price per square foot in April, due to the seasonality factor we've discussed here often. We discuss it again further down this article.

The day's earnings schedule included Aracruz Celulose (NYSE: ARA), Artes Medical (Nasdaq: ARTE), ATS Medical (Nasdaq: ATSI), CCA Industries (AMEX: CAW), Interactive Intelligence (Nasdaq: ININ), Kayne Anderson Energy (NYSE: KED) and Virtusa (Nasdaq: VRTU).

Tuesday

Tuesday offers the well-publicized beginning to the second quarter earnings season, as marked by the report of Alcoa (NYSE: AA). The rest of the schedule is listed below, but also look for Del Monte (NYSE: DLM) and Hansen Natural (Nasdaq: HANS) to offer insight into their operational performance and forecasts via planned events. Also, Activision (Nasdaq: ATVI) has a vote scheduled regarding its proposed merger with Vivendi.

This week's ICSC-UBS Same Store Sales data should continue to benefit from economic stimulus distribution. The checks are still reaching Americans through mid-month. Last week's sales rose 2.2% over the year ago result. We expect that by the end of July, we will begin to see natural (or using the new slang, "organic") figures, unadulterated by the government gift, and that's when things should get interesting.

May's Pending Home Sales Index is set for 10:00 AM release, and will compare against April's measure of 88.2, which represented a 6.3% seasonal increase during that period. We've been talking about the seasonal lift that should and has occurred above historic and dramatic trough; we expected and have seen it in some recent housing metrics, so the news should not be a surprise to "Greek" readers. We expect May's change to prove less vibrant, as it compares to April's bounce.

The Wholesale Trade Report for May is also due on Tuesday. Inventories increased 1.3% in April, but we pay closer attention to the inventory-to-sales ratio for important changes relative to sales. We remind readers that the long-term trend line has been a beneficiary of technological effort, related gained efficiencies, and also from the "just-in-time" inventory management concept and efforts toward that end.

May Consumer Credit will also be reported, and Bloomberg's consensus is looking for a $7.0 billion increase through the month. This would represent a decrease in the change from the prior month, but is not inconsistent with levels seen this year. We expect that as the economy deteriorates, this rate of change will decrease. However, it's important to note that overall credit should continue to rise, since interest continues to build upon principal. At the same time, a rising degree of that principal is charged off as borrowers default.

On the Fed scene, Chairman Bernanke and the Treasury Secretary address a group in the early morning at the FDIC mortgage lending forum. Also, Richmond Fed President Lacker is scheduled to speak to the National Economists Club on the topic of.... the economic outlook of course.

Oppenheimer's Consumer Growth Conference kicks off in Boston. The earnings schedule includes Alcoa (NYSE: AA), Helen of Troy (Nasdaq: HELE), Pepsi Bottling Group (NYSE: PBG), Premier Exhibitions (Nasdaq: PRXI), Rocky Mountain Chocolate Factory (Nasdaq: RMCF), Sealy Corp. (NYSE: ZZ) and The Greenbrier Cos. (NYSE: GBX).

Wednesday

The day's economic reports include only the two regulars for Wednesday. The Mortgage Bankers Association's Purchase Applications Report is released at 7:00 AM and the Energy Information Administration publishes its Petroleum Status Report at 10:30 ET. With regard to the mortgage data, it has proven a nonfactor of late. Good news here will by no means spur buying of financials nor will it inspire purchase of home builders' shares. Just the same, bad news is already expected and well-discounted, so neither has the ability to really move the market.

In contrast to the mortgage report, with oil prices in uncharted territory, oil has acted like a high growth, high P/E stock, giving and gaining ground in big chunks. It's therefore extremely sensitive to all news, both directly related to oil supply and demand, and even only peripherally related. Thus, this report is always important these days.

Traders are having a ball with oil day in and day out, trading it up and down in wild swings. It seems to us a good bet in the oil futures market might be to take the opposite position of the day's initial significant move, and then close it out before the close of trading. However, this would only apply to day trades, and only for as long as oil trades this actively and with such volatility. We all recognize what the long-term trend in oil prices has been. It is looking bubblistic though isn't it.

Overseas, the Bank of Korea is expected to hold rates steady, and Brazilian markets will be closed. Back home, a House of Representatives panel is set to hear various ideas on how to revise the Commodity Exchange Act.

Men's Wearhouse (NYSE: MW) is scheduled to offer an updated forecast on Wednesday, and the earnings schedule includes AAR Corp. (NYSE: AIR), Acergy S.A. (Nasdaq: ACGY), Flow Int'l (Nasdaq: FLOW), International Speedway (Nasdaq: ISCA), Intervoice (Nasdaq: INTV), Material Sciences (NYSE: MSC), Nu Horizons Electronic (Nasdaq: NUHC), Pure Cycle (Nasdaq: PCYO), Ruby Tuesday (NYSE: RT), Shaw Group (NYSE: SGR) and Wolverine World Wide (NYSE: WWW).

Thursday

On Thursday, individual retailers will begin posting chain store sales results for June. The month benefited from the distribution of economic stimulus, and so any positive result will likely be taken lightly. However, excessively negative news has the ability to damage stocks, because it is somewhat unexpected.

Overseas, the Bank of England is not expected to move in concert with the ECB, since economic trouble in the U.K. has been worse than in Europe and demands tending to. Also, the key lending rate already sits at 5%, versus the 4.25% rate for Europe.

Weekly Initial Jobless Claims are due for release at 8:30 ET, and will compare against last week's reported crest at 404K. Bloomberg's consensus of economists are not straying much from there either, as they forecast 399K new benefits filers this time around.

The regular EIA Natural Gas Report tops off the day's economic schedule at 10:30 ET. Two other bits of important energy sector data are due on Thursday though. OPEC should produce its World Oil Outlook for 2008 and Statistical Bulletin. Also, Chevron (NYSE: CVX) is set to offer its interim update.

On the Fed beat, the dynamic duo consisting of Chairman Bernanke and Treasury Secretary Paulson, are scheduled to testify before the House Financial Services Committee. In other federal government happenings, the FDA is set to hear a third party review of epilepsy drugs and suicide risk.

In corporate news, Salesforce.com (NYSE: CRM), Syms (Nasdaq: SYMS) and Fieldstone Mortgage all have company specific news scheduled for the day. Thursday's earnings reports include Adams Express (NYSE: ADX), Audiovox (Nasdaq: VOXX), Bank of the Ozarks (Nasdaq: OZRK), CalAmp (Nasdaq: CAMP), Chattem (Nasdaq: CHTT), Emmis Communications (Nasdaq: EMMS), FCStone Group (Nasdaq: FCSX), Intraware (Nasdaq: ITRA), Lakeland Bancorp (Nasdaq: LBAI), Lawson Software (Nasdaq: LWSN), Marriott Int'l (NYSE: MAR), Nevada Gold & Casinos (AMEX: UWN), Penford (Nasdaq: PENX), Texas Industries (NYSE: TXI) and Wegener (Nasdaq: WGNR).

Friday

The week closes with a flurry of economic reports. In the premarket, at 8:30 ET, the
International Trade and Import and Export Prices Data will reach the wire. The trade deficit is seen widening in May, to $62.1 billion, from $60.9 billion in April. Import prices are expected to rise 1.8% in June, after rising 2.3% in May on energy prices.

At 10:00 ET, the Reuters/University of Michigan Consumer Sentiment reading for July is seen at 56.0, versus a measure of 56.4 in the last period. Sentiment readings are all in deep historic territory or setting new record lows, but remember, sentiment is a lagging indicator. When the consensus agrees things are at their worst, it's usually time to buy, based on history. So, the important question to ask is how does this bear compare to the rest.

The Treasury Budget report is expected to find surplus in June, of $23.7 billion, after posting a huge deficit in May as a result of the economic stimulus package.

In corporate news, Apple (Nasdaq: AAPL) introduces the new iPhone 3G. The first week of earnings season concludes with news from Fastenal (Nasdaq: FAST), General Electric (NYSE: GE) and Rockwell Collins (NYSE: COL). This quarter will offer GE leadership a chance at redemption, after the company posted a rare surprise on the downside last quarter. Still, it's hard to turn a huge ship like GE quickly.

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