Today's Coffee - Feb 8

Enjoy your fresh coffee with our summary and analysis of the market activity of the day and a medley of important information you should find useful. U.S. markets have mostly drifted lower at this hour, but without conviction. The slide was begun this morning by weak housing and sub-prime lending news out of Toll Brothers, HSBC and New Century Financial. This is certainly not a surprise to us, as we have been warning you about the risk in sub-prime lenders for some time now. We ran a search of our blog for "sub-prime" and here are some articles within which we mentioned the risk of owning sub-prime lenders. We hope you are also aware of our view that housing is due for a second leg lower this year, due to a still high degree of inventory and our view that rates will rise.

OVERSEAS MARKETS

There was significant activity overseas today. The Bank of Japan reported that bank lending increased 1.8% in January, versus the prior year, equaling the increase of December. The lack of growth combined with recent data that showed wages decreased may keep the Bank of Japan on the sidelines regarding rate change. The NIKKEI 225 was unchanged on the day.

The Bank of Korea today left interest rates unchanged, on the support of a recently weak consumer price rise. The bank raised rates three times in 2006 to cool the economy. The KRX 100 declined 0.38% today. Chinese shares seem to have found solid footing, as the Shanghai and Shenzhen 300 Index climbed 1.7% and the Hang Seng rose 0.27%.

The Bank of England and European Central Bank both left rates unchanged today, but ECB President Jean-Claude Trichet, signaled in a later press conference the likelihood of a March rate hike. The exact words that are being interpreted as a clear sign he will act were "strong vigilance remains of the essence so as to ensure that risks to price stability over the medium term do not materialize.'' Most European shares weakened as a result. The DJ STOXX 50 dipped 0.91%, while the FTSE 100 fell 0.36%.

ECONOMIC DATA & ANALYSIS

Wholesale inventories declined in December, indicating to us a combination of cautious purchasing and better than expected sell through. Wholesalers experienced a sales increase of 1.8% during the month, while their inventory-to-sales ratio declined to 1.17 in December, from 1.19 in November. We expect that recently solid GDP growth and other positive economic indicators will provide wholesalers with confidence to restore inventories.

Weekly initial jobless claims came in at 311,000, versus the economists' consensus view for 312,000, as compiled by Bloomberg. The result falls below the 314,000 average of the past year, and indicates a still healthy job market, in our view.

COMMODITY MARKETS

Natural gas leads all commodity futures on the upside today, firing 1.08% higher on the fuel of an inventory report that showed a draw of 224 Bcf, versus consensus expectations for a draw of 218 Bcf. The combination of the late, but frigid onset of winter and escalating geopolitical tension regarding Iran, have combined to drive oil and nat gas higher in recent weeks. Heating oil is up 0.46% at this hour, while gasoline and brent crude are relatively unchanged.

Iran warned again today that any attacker on its sovereign territory would pay a costly price. We cannot help but sense a degree of sincerity in the statements out of Iran, when compared to the braggadocio that was expressed from Iraq. Iran has been preparing for conflict for quite some time, and has established alliances with Syria, North Korea and Venezuela, while creating less well-understood friendships with Indonesia and Malaysia. We wonder if North Korea is not protecting itself now with the new round of talks begun in Beijing. It is not out of the question that North Korea has not sold nuclear weapons to Iran, and would position itself to avoid the whip of the United States should a weapon be used upon Americans or American interests.

Yesterday, we reiterated our forecast regarding commodity driven inflation, led by food and energy prices. Today, corn and wheat are each up over 1.0%, while soybean is 0.5% higher. The impact of increasing feed prices has yet to hit protein prices with conviction, so we believe you still have a good opportunity to take advantage of a rise we anticipate within cattle and hogs, and poultry as long as bird flu remains on the sideline. Clearly, the onset of bird flu would just exacerbate a price rise in competing proteins.

STOCK SPECIFIC NEWS
Retailers across the nation reported January sales data today, accrediting relatively strong results to a faster pace of gift card redemption. Retailers were also thankful for the onset of colder temperatures that allowed them to sell through inventory of winter items. Thomson Financial aggregates the expectations and results of 55 retailers, and the data showed that the companies grew same-store sales at a rate of 3.9% in January, versus expectations for an increase of 3.1%. Some of the more notable winners were: Saks +11.4%; Nordstrom +11.1%; and The Limited +11.0%. Some of the losers included: AnnTaylor -10.2%; Chicos FAS -3.5%; and Abercrombie & Fitch Co -6.0%.

HSBC said the sub-prime market in the U.S. has weakened more than was expected, and blames rising rates, increased delinquencies and its own managers for writing risky loans. Toll Brothers compounded the impact of the news, with its earnings report showing Q1 home-building revenue fell 19%. TOL also raised the red flag by indicating that its backlog was 30% off its prior year level.

Pepsico reported earnings about in-line with estimates today, while raising its guidance. Still, PEP shares are down about 2.1% at this hour, as its guidance is still a penny below consensus levels, as compiled by Thomson Financial. Also, CNBC's Bill O'Brien highlighted the issue of relatively weak performance from Pepsico's orange juice and Gatorade products.

You can receive "Today's Morning Coffee" in your email inbox at the moment we publish it to the site. Just click here, provide your email address, and we will add you to the distribution list. We respect your privacy, and never share your information with third parties. (disclosure)

Wake Up Call - Feb 8

Good Morning. At 9:20 a.m. EST, the Dow Jones Industrials, S&P 500 and NASDAQ indices are all indicating a lower open to the day. It's a bit difficult to pin down a single reason today, but we can look to weak housing and sub-prime lending news from Toll Brothers and HSBC as key sources of concern. Also, geopolitical tension remains a serious issue, as Iran threatens to severely harm any attacker by various means.

Asia:
Hang Seng Index +0.27%; Shanghai/Shenzhen 300 +1.72%; NIKKEI 225 0.0%; BSE SENSEX 30 +0.06%; KRX 100 -0.38%; Ho Chi Minh -3.91%

U.K. & Europe:
DJ STOXX 50 Index -0.84%; FTSE 100 -0.38%; CAC 40 -0.87%; DAX -0.53%; Russian RTS Index -2.01%

KEY HEADLINE NEWS

• HSBC says the sub-prime market in U.S. is weaker than was expected, and blames rising rates, increased delinquencies and its own managers for writing risky loans.
• Toll Brothers compounds the news from HSBC, with its earnings report showing Q1 home-building revenue fell 19%. Raising the red flag, TOL also indicated that its backlog was 30% off its prior year level.
• The Bank of England and European Central Banks both kept interest rates steady today, but in a press conference scheduled for later, ECB President Jean-Claude Trichet is expected to signal a March rate hike. Shares across Europe are broadly lower as a result.
• Weekly initial jobless claims came in just slightly below expectations and right around the average of the past 12 months, indicating that the U.S. job market remains firm.
• Iran sternly warned today that any attacker against it would face a serious cost across the world. This should impact energy prices today, as the voices of Iran carry a more sincere ring to them than the braggadocio of Saddam Hussein's Iraq. Iran has been preparing and planning for an attack upon it for quite some time now, and has likely carefully prepared a retaliation strategy that is at least partly independent of its sovereign-based resources. It has also cemented dangerous alliances with Syria, North Korea and Venezuela, and less well-understood friendships with Indonesia and Malaysia.
• Pepsico reported earnings about in-line with estimates today, while raising its guidance. PEP shares are down about 1% in pre-market activity, as its guidance is still a penny below consensus levels, as compiled by Thomson Financial.
• Many of the nations' retailers reported January sales numbers today with mixed results.

You can receive "Wake Up Call" in your email inbox at the moment we publish it to the site. Just click here and provide us with your email address. We respect your privacy, and never share your information with third parties.

Check back in later this morning, as "Today's Morning Coffee" will outline in greater detail the day's activity in overseas and commodity markets, and provide economic data & analysis and stock specific news. (disclosure)

The Greek's Week Ahead - Feb 11

The Greek's Week Ahead has been designed to provide investors with a stock market-moving event planner for the week. We have engineered it to prepare you for important news, information and happenings that are likely to impact your portfolio.

Last week was marked by the president's budget release, strong reports from the service and retail sectors, concerning news from sub-prime lenders HSBC and New Century Financial, a weak housing outlook from Toll Brothers and a warning from St. Louis Fed President William Poole. Ironically, this week, the market's year old love affair with Fed Chief Ben Bernanke could come to an abrupt end right on Valentine's Day. After a rough start, due to some loose lips in an interview with Maria Bartiromo, Ben has since won over the confidence of investors. The Fed's timing under his tenure, ending the long string of rate hikes in 2006, has piloted in a landingless economic transition, thus far.

However, Big Ben may face some challenges in 2007 that could truly test his stewardship of this behemoth of an economy. You see, the Fed had been counting on a cooling economy to loosen the job market and ease wage pressure on inflation. But, in the fourth quarter, GDP slammed the ball out of the expectations ballpark, posting growth of 3.5%, and the job market is as tight as ever with unemployment approximating 4.5%. If the economy does not cool, the employment environment might tighten even further, and with energy and food inflation looming and possible higher interest rates pressuring mortgage holders, a rise in the cost of living could impact American consumption. Demands should increase on employers to offer a more competitive salary in order to retain their best employees. In other words, we believe inflation looms as a serious threat.

Mr. Bernanke will have an opportunity to clarify the Fed's concerns and positions as he testifies before Congress on the 14th and 15th. This is the most important information available to investors in the week ahead, and we advise you to pay close attention because the market is itching for a reason to correct, in our view. According to Peter Lynch and history, the market declines 10% about every four years, so we are near due now. The S&P 500 Index has not declined 10% or more since the first quarter of 2003, though we are conveniently ignoring last year's early fall. Still, we think we have highlighted two significant risk factors that could drive either a dragged out decline or a one day drop in the year or so ahead.

In recent weeks, the possibility of a rate cut has been taken off the table, replaced by the chance of a rate hike. Wednesday, the Fed chief may shed some light on the likelihood of that move. Certainly, recent comments from regional Fed heads Poole and Plosser have not been encouraging. This is the kind of catalyst capable of turning this old bull around. We have really enjoyed a fine time for stocks, without even a 2% decline in 144 consecutive trading days and a rising market for eight consecutive months.

It's been a long while since we have experienced a one-day or multiple day market panic. September 11th is the most recent in my memory, and I certainly would rather not relive that kind of day. It was preceded by perhaps the Asian financial crisis, or the onset of the Gulf war and the famed Saddam sell-off of the early '90s. So what's next... Well, we think we've already discussed the catalyst most likely to drive that move as well. It's the uncertainty or chaos that will follow the destruction of Iran's nuclear facilities. What havoc might Iran deploy if any? The sinking of an oil freighter probably wouldn't do it, but how about the destruction of key Saudi-based oil facilities or the invasion of Iraq. I bet that would do it. The most likely events are already in our sights my friends, so all we have to do is keep our eyes open and hedge hedge hedge.

Seventy-five percent of the S&P 500 have reported their December-quarter earnings, and according to Thomson Financial, the streak of double-digit earnings growth is expected to extend through the fourth quarter. Standard & Poor's had estimated corporate earnings growth to dip below double digits this quarter. In our observation, this highlights a common conservative error trend among analysts, especially those short on due diligence, in rising markets and growing economies. When the market is in decline, we have noticed estimates typically overestimate actual results. What this says is that analysts typically lag the market. During my time on Wall Street, I was well aware of this common human tendency to avoid risk taking, and did my best to employ independent thinking. It's a shame that more analysts and those leading them are not willing to take chances and have more conviction in their own beliefs.

However, this case is a bit different. The majority of economists, along with the Fed, had been calling for economic growth to measure at a slower rate than what actually resulted in Q4. We can only assume that analysts arbitrarily applied this macroeconomic consensus view into their earnings models, but maybe didn't fully understand the macro driver impact to their specific firms' revenue and margin outlook. Thus, in this case, the safe general consensus view was likely applied to forecast the as expected economic slowing. I praise those who stood up and accurately called their covered firms' stronger than consensus view results, despite likely advice from detached managers telling them to factor in information in a manner they could measure. Now, let's take a closer look at the week ahead.

The Week Ahead

Vlad Putin shook things up over the weekend, stating that one nation was overstepping its bounds and pushing countries to seek nuclear technology in order to insure their own security. He said, the United States had overstepped its national borders in every way, and he voiced concern that NATO's expansion plans were threatening not progressive. So, we do not expect oil to open lower on Monday! Stocks might find it hard to head higher in early going also. Reporting earnings, expect Loews Corporation, Yum! Brands and Ecolab Inc. to post results.

Otherwise, Monday looks to provide a relatively quiet start to the week, as the New York Society of Security Analysts holds an insurance conference. Overseas, Japanese markets will be closed Monday, while the Reserve Bank of Australia will make its decision on interest rates. In Barcelona, the 3GSM Congress kicks off.

December international trade data will be reported at 8:30 a.m. Tuesday morning. The consensus of economists surveyed by Bloomberg expect the trade gap to have widened to $59.7 billion in December, from $58.2 billion in November. The driver behind the growing gap is expected to be the higher oil prices that persisted in December. Speaking of oil, the International Energy Agency prints its monthly oil-market report Tuesday.

Last week, HSBC and New Century Financial shook up the sub-prime market with bad news, and this week Capital One Financial has an opportunity to follow up, as it holds an investor conference call at 1 p.m. A conference I use to attend regularly kicks off on Tuesday, as the Wall Street Analysts Forum gets started. Reporting earnings on Tuesday, look for UBS, Metlife, Marsh & McLennan, KIMCO Realty, KB Homes, XTO Energy, Applied Materials, Altera Corp. and NVIDIA Corp.

All eyes will be on Capitol Hill on Wednesday, as the market's love affair with Fed Chief Ben Bernanke faces its toughest adversity. Mr. Bernanke will testify before the Senate Banking Committee, and we wonder if the specter of inflation fighting might be on his agenda.

January retail sales are widely seen rising 0.3%, compared to December's increase of 0.9%. In our view, recent retail sales data seem to indicate growth could surprise on the high side. December business inventories will be posted at 10:00 a.m., and expectations are for an increase of 0.1%, versus a rise of 0.4% in November. Wholesale inventories have weakened recently and capital investment was light late last year, but recent GDP growth may indicate a pick up in production and investment in the near future.

DaimlerChrysler will outline its plan to turn around Chrysler, while the earnings report calendar includes Progress Energy, Transocean and Genzyme.

Taking the baton from the Fed chief, U.S. Trade Representative Susan Schwab will discuss the Bush administration's trade agenda before the Senate Finance Committee on Thursday. Meanwhile, Mr. Bernanke turns his attention to the House Financial Services Committee in the second day of his testimony to Congress.

January import prices, which are scheduled to be reported at 8:30 a.m., are seen falling 1.0%, compared to a 1.1% rise in December. Also, the Treasury will report on net foreign purchases of U.S. securities. The month's industrial production, scheduled for 9:15 a.m., is expected to show a rise of 0.7%, versus an increase of 2.5% in December. Capacity utilization is expected to measure 81.7%, compared to 81.8% in December. The Philly Fed survey for February is scheduled for release at high noon. The Bloomberg consensus anticipates a reading of 4.1, versus 8.3 in January.

Overseas, Russian energy policy could come back into the spotlight, as Belarus is scheduled to increase transit fees 30% on Russian oil. Also, Ecuador could shake the Latin American market, as it is scheduled to make a $135 million payment on foreign bond debt, that some believe it could default upon.

The earnings schedule for the week concludes with reports from Biogen, Terex Corp. Laboratory Corp. of America, Ameren, Molson Coors Brewing Co., Agilent Technologies and Allied Waste Industries.

Friday looks poised to pack quite a punch with key housing, inflation and consumer sentiment data set for release. January housing starts are scheduled to be reported at 8:30 a.m., with the Bloomberg consensus expecting 1.6 million homes to have been started, versus 1.642 million in December. The January producer price index will provide some insight into the inflationary picture, with the consensus view for a decrease of 0.5% due to lower relative energy prices, versus a rise of 0.9% in December. At 10:00 a.m., the University of Michigan reports on February sentiment, with a consensus view for a reading of 96.5, versus 96.9 in January.

We hope you found value in this week's edition. To receive "The Greek's Week Ahead" and our daily reports via email, click here and provide us with your email address. We respect your privacy and will never share your information with any third party. (disclosure)

Wake Up Call - Feb 28

Good Morning, hopefully... This morning, robotic experts on Wall Street will tell you to buy buy buy on the weakness. They will tell you that history shows us that it pays off months from now. History actually shows us that it pays off days from now, if not today, but people are afraid to go out on a limb and risk their reputations, so they hedge against their enthusiasm.

Well, guess what, we think the robots are right this time, but not because of history, but because of the underpinnings of yesterday's drop. The market fell yesterday on concerns that the Chinese government was about to push their financial markets into collapse. China has been attempting to pull the reigns in on speculative investment, and rightly so, but it has no interest in causing the collapse it is attempting to prevent. So, today, some reassuring commentary from officials calmed the stomachs of investors, and led to a recovery in China. Other Asian markets just followed suit after the American market decline, and they are now awaiting further signs from America before deciding if the sky is truly falling or not. We saw some danger for continuation posed by the Indian budget release and by a critical GDP revision this morning, but we feel both information bits are not powerful enough to drive further collapse. Therefore, we expect the U.S. market to recover strongly today. However, Ben Bernanke has the ability to make me look stupid, depending on how he reacts to the likely dramatic congressional questions posed to him today about the stock market decline. Though futures will likely prove meaningless in a wildly volatile trading day today, they are indicating a rise for U.S. equities at this minute.

Asia:

Hang Seng Index -2.46%; Shanghai/Shenzhen 300 +3.54%; NIKKEI 225 -2.85%; BSE SENSEX 30 -4.01%; KRX 100 -2.76%

U.K. & Europe:

DJ STOXX 50 Index -1.08%; FTSE 100 -1.1%; CAC 40 -0.96%; DAX -1.16%; Russian RTS Index -3.66%

Americas & Middle East:

Tel Aviv 25 +0.11%; DFM General -0.86%; Tadawul All Share -1.65%

KEY HEADLINE NEWS

• History shows us that the market typically rebounds the day after a large point drop (200 or more) in the Dow. While the robotic experts on Wall Street will tell you to buy, based on history, I think they are right this time around. Keep in mind, they will not always be right. Eventually, we will face a situation more dire than this that will place into question the stability of the world. Robots will tell you to buy on the day that follows that event too, but it will be up to you to measure the durability of the concern in question on that day and invest accordingly.
• Mainland Chinese stocks rebounded on Wednesday, as the government indicated its interests lie in preserving the stability of the market. With that important note, the rug that was pulled from under Chinese stocks, was replaced. However, take note of this event, because when a significant global issue arises, Chinese stocks and the global economy will be poised to collapse in a devastating manner.
• Europe followed a recent trend we have noted, where it takes its lead from the U.S. market. We anticipate European shares will recover before the close of the day.
• A critical revision to Q4 GDP came in at a level we think will be supportive of a U.S. stock recovery today. GDP growth was revised lower to 2.2%, from the early report of 3.5%. Expectations were for a revision lower to 2.3%, according to Bloomberg's survey. However, concerns are rising about U.S. economic growth. GDP is slowing, as evidenced by the durable goods report. Today, Ben Bernanke has the power to severely hurt or help the stock market. We would prefer he bite his tongue and stay focused on the issues he has highlighted in the past, inflation control and economic growth. His view of economic growth and the inflation outlook is critical to the market, so pay close attention to what he says today.
• While we had other significant reasons for concern yesterday, including a weak durable goods report and scary sub-prime news from Freddie Mac, Merrill Lynch's move to cut investment banks was reactionary in our view and typical of the heard mentality that will always exist within financial markets and the self preservation that exists within many analysts. While we are concerned that economic growth is slowing, and could still flirt with recession, we just think these guys picked the wrong moment for their cut.
• Many of my trader friends who have been fired over the past five years were likely smiling yesterday when the computer glitch occurred. It seems we still need humans in case the machines short circuit. Chalk one up for the humans!
• In our view, commodity prices fell yesterday because of the concern about the Chinese economy. Clearly, a financial collapse would be detrimental to the economy in China, but it has not occurred, so we would expect commodities to recover here.
• Mortgage applications rose last week, on lower rates. Our housing prediction played out yesterday, as we told you January would show an uptick in purchases. It plays into our logic theory about the mindset of a salesman. The "it'll be better next year" sales pitch by desperate real estate agents and mortgage brokers likely pushed sales in January, in our view. However, market conditions will prevail this year, and we continue to anticipate more housing weakness.
• European business confidence was reported strong today, and this should aid European shares once the American market starts trading higher, in our view.

You can receive "Wake Up Call" in your email inbox at the moment we publish it to the site. Just click here and provide us with your email address. We respect your privacy, and never share your information with third parties.

Check back in later this morning, as "Today's Morning Coffee" will outline in greater detail the day's activity in overseas and commodity markets, and provide economic data & analysis and stock specific news. (disclosure)

Asian Contagion - We Called It!

We said this just two days ago, "Thus, high flying emerging markets seem destined for a tragic setback." "The point of all this drama is that we believe the sirens of globalization are drawing the unsuspecting sailors of global investment into a rocky shore." There are many reasons why you should be reading Wall Street Greek. We called the housing decline last year. We predicted the fallout within sub-prime lending. We correctly advised investors to buy back into oil at $50 and even correctly pegged the day of the bottom. And, this past weekend and yesterday, we predicted the collapse of the Chinese and other hot emerging markets, including India.

Quoting Wall Street Greek from Monday's copy of "Today's Morning Coffee":

"the Iranian issue threatens to crush emerging markets whose valuation-to-risk status we compare to walking on the ledge of a skyscraper."

"Mainland Chinese and Taiwanese shares opened up after a week of new year's celebration. The euphoria continued in China, despite a scary week off that included inflation fright in the U.S. on the CPI data and an intensifying Iranian situation. To be quite honest, we were surprised that the Shanghai and Shenzhen 300 Index rose 1.16% today."

Quoting Wall Street Greek from Sunday's copy of "The Greek's Week Ahead - Emerging Market Glam":

"Markets in mainland China and in Taiwan were closed all last week, so Chinese investors have a lot to swallow when shares begin trading again on Monday. During their week off, as investors in high flying Chinese shares celebrated their good fortunes from lunar 2006, the Core CPI index in the United States, China's favorite export market, exceeded growth estimates. This reminded global investors of the Fed's top concern, inflation, and the possibility of a Fed rate hike to control it. This is not a cure for a post new year's party hangover my friends. But that wasn't all that happened while the party rocked on."

"As we alluded to earlier, Iran defied the world, and its stubborn hardline rhetoric that seems to insure war's likelihood persisted as well. Iran is kind of critical to China. America does not buy any oil from Iran, but Iranian oil flows heavily to India and China. Last week, Russian, Indian and Chinese officials met to discuss a new alliance to balance against the power of America. So, what reason does India have to position itself opposite America? Well, there is the obvious American support of Musharraf's Pakistan? Yes, but India and Pakistan signed a nice treaty this past week, and we all know that America's support of Pakistan is just an Islamic radical fundamentalist's bullet in Musharraf's head away from nonexistence. (Whew! Take a breath here) So there must be another pretty important reason for India right? The energy resource provided from Iran is so important to both India and China, that conflict with Iran could send the valuation rich emerging markets into a steep downward spiral, in our view. Therefore, Wall Street Greek is presenting the award for markets most unlikely to repeat their stellar performances of 2006 to China and India."

And we continued...

"The point of all this drama is that we believe the sirens of globalization are drawing the unsuspecting sailors of global investment into a rocky shore. For all the progress of civilization since World War II, it seems mankind will have to take a step backward, before moving forward again. It may not happen with the impending Iranian conflict that threatens us now, but as global powers, Russia and China find themselves increasingly opposite the United States on so many issues, the flint is in place for the fire of world war. Thus, high flying emerging markets seem destined for a tragic setback. Iran's oil is just as important to China as impeding Iran's nuclear progress is to the United States."

So what is the Greek's most significant prediction this year? Read this, "Geopolitical Factor - Israel Will Do the Bombing."

You can receive "Today's Morning Coffee" in your email inbox at the moment we publish it to the site. Just click here, provide your email address, and we will add you to the distribution list.

Foreclosure Overhang

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

(Tickers: SRS, URE, IGR, XIN, RYHRX, TRREX, TOL, HOV, BZH, BAC, FRE, FNM, GS, MS, WFC, TD, LEN, PHM, NVR, GFA, MDC, CTX, KBH, RYL, MTH, XIN, BHS, SPF, MHO, OHB, WCI, NYX, DIA, SPY, SDS, DOG, QLD, VNQ, QQQQ, VGSIX, AVTR).

Foreclosure Overhang

Foreclosures will be affecting the housing industry through the end of 2010. The rate at which the mortgages in America become foreclosures is at a record; reported to be approximately 4.35% as of the 2nd quarter of 2009. This rate has increased from 3.85%, reported in the 1st Quarter of 2009. The historical foreclosure rate just 10 years ago hovered around 1% for all mortgages. With the advent of sub-prime loans, option-arms, and the worst recession since the Great Depression, the rate was destined to go higher.

The question most asked now is: how many foreclosures will need to be absorbed before recovery?

Many factors affect the reason a property goes into foreclosure. However, the two main ingredients have been the steady and relentless decline in home prices and high unemployment. In recent days, almost all regions of the US are reporting that home prices have turned to the upside. Due to the nature of these indexes, the data is always slightly behind "real-time" data, and are telling us what took place a few months ago.

The Real Estate Market is getting better; inventory is being cleared and prices continue to rise. Home prices should have bottomed and a slow and steady rise should be underway. Many economists and analysts, myself included, believe the recession has ended; and as the economy improves, employment will improve. A case can be made for a surprising recovery based on the current improving conditions, with trillions of dollars poised to give the economy a push. These are mitigating factors that in my opinion should bring down the foreclosure rate, which has probably peaked. If the rate would hold steady, how many foreclosures are left?

The US Bureau of Statistics claims 48,394,000 homes had mortgages in 2005. New construction added 1,051,000 homes in 2006, 776,000 new homes in 2007, and 485,000 in 2008; most would have been financed. Mortgage rates have been good, and would have been an incentive to add a mortgage to an unencumbered property; but most free and clear properties seem to stay free and clear. Another additional 2 million would seem reasonable, if not perhaps overly generous. No one has exact data as it is always changing, but approximately 52,700,000 homes in the US have mortgages. Simple math would state there is a potential of 2,292,000 foreclosures in the next year. This is 50% more than the 1.5 million foreclosures estimated prior to the triggering event of the Lehman Brothers Bankruptcy, which seems to have accelerated the decline. Many believe this total will not be reached.

Four states are driving the delinquency and foreclosures!

Four States are driving the delinquency and foreclosures. Florida, Nevada, Arizona, and California account for 46% of ALL foreclosures. The housing markets in these troubled MSAs are improving. Furthermore, the US Government is developing a policy to prevent foreclosures and reduce lender losses through loan mitigation. Another factor to consider is the increasing use of "Short Sales," whereby a seller can remain in their home while it is being sold, rather than bearing the painful and EXPENSIVE process of foreclosure. This procedure to sell and accept a lower mortgage payoff is being streamlined and becoming much more effective. Once again, the use of loan mitigation and "Short Sales" will save enormous amounts of capital and vastly reduce the collateral damage of vacant foreclosed homes scattered throughout neighborhoods, and thus allow for a return to historic prices.

In conclusion, as the economy rebounds, prices of assets, particularly homes, will start to rise. Employment is a lagging factor and will not mitigate until well into 2010. As trillions of dollars pour into an economy that has already begun a new business cycle, surprises to the upside are very possible. As the economic stress on individuals abates, the foreclosure rate and the delinquency rate should drop significantly. By the end of 2010, the Housing Crisis will be winding down and the foreclosure rate should return closer to its historic rate of approximately 1%. Just a 1% decrease in the foreclosure rate will reduce the total homes foreclosed by 500,000. As new construction has been severely constrained, the additional foreclosures will not increase the supply of properties; the continuing absorption of excess housing which has been underway for the past 12 months will not be impeded. As the US Demographics imply, through population growth, there still exists a scenario of a future housing shortage. Beyond 2010, there is a potential for rising inflation, and housing would hugely benefit.


Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Stocks Today Reminiscent of a Recurring Bad Dream

Historical Chart of S&P 500 at Yahoo

Authored at Start of July

Shortly after the 4th of July holiday in 2007, the 5-year bull market that began in 2002 started to show real signs of weakness. In the face of vehement denials from the likes of Alan Greenspan, Ben Bernanke and even Jim Cramer, a few market analysts started to raise concerns over sub-prime loans and housing in general. Bond prices began falling rapidly in overnight trading, putting much pressure on what were historically low yield spreads. On a personal note, I remember Ken Fisher, et al mocking me when I suggested that the rash of mergers and acquisitions were about to come to an end as bond yields started rising and stocks started to crash.

Of course, the market weakened for a few months only to rise to an eventual all-time high in October 2007 before again heading cataclysmically downward to 2009 lows. Hard to believe that we’ve rebounded to even higher prices these past 5 years despite a faux economy propped up by mountains of debt. And yet bond prices of all maturities and grades remain near historic lows as the Fed continues to print money to prop up everything from bonds to stocks to commodities to real estate.

For some time, market commentators have suggested that the DOW (NYSE: DIA) would hit 17,000 before the market would reach an eventual top. Likewise, the S&P 500 (NYSE: SPY) is remarkably poised just under 2000, which could also present a round milestone for the very near future. But with the Shiller Cyclically-Adjusted P/E ratio at 26, current valuations are higher than at almost any point in history, most notably except 1929, 2000 and 2007. So it would seem the end to the bull-market may be fast approaching.

The question is: how long can this apparent Ponzi scheme possibly last?

Seems there is no end in sight, as the perpetually-fresh new money must go somewhere. And since it generally chases the highest returns, stocks could continue to rise. Maybe this time will somehow be different. More likely, it will not.

What will be the final grain of sand that topples the unstable mountain built upon nothing? What will provide the catalyst? Is there a geo-political crisis looming; a natural or manmade disaster? Is there any catastrophe that cannot be covered up by piles of money from Central Bankers across the world?

The recent, downward revision in Q1 GDP portends trouble. Look for misses and poor forward guidance as earnings reports begin to unfold. Energy stocks, which constitute a large sector of the S&P, may well lead the way down. July of 2014 looks as if it could provide a replay of 2007 with the market turning bearish by year end. Let us just hope it doesn’t begin with significant trouble in the bond market!

Article should interest investors in Bank of America (NYSE: BAC), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), TD Bank (NYSE: TD), PNC Bank (NYSE: PNC), State Street (NYSE: STT), Janus (NYSE: JNS), T. Rowe Price (Nasdaq: TROW), General Electric (NYSE: GE), Wal-Mart (NYSE: WMT), McDonald's (NYSE: MCD), Alcoa (NYSE: AA), American Express (NYSE: AXP), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Cisco Systems (Nasdaq: CSCO), Chevron (NYSE: CVX), DuPont (NYSE: DD), Walt Disney (NYSE: DIS), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), IBM (NYSE: IBM), Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Kraft (NYSE: KFT), Coca-Cola (NYSE: KO), 3M (NYSE: MMM), Merck (NYSE: MRK), Microsoft (Nasdaq: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), AT&T (NYSE: T), Travelers (NYSE: TRV), United Technologies (NYSE: UTX), Verizon (NYSE: VZ), Exxon Mobil (NYSE: XOM), Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), SFN Group (NYSE: SFN), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), General Employment Enterprises (NYSE: JOB) and TeamStaff (Nasdaq: TSTF).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Wake Up Call - Mar 6

Good Morning. U.S. equities are indicating a sharply higher open. Even so, the market seemed to have a significant obstacle to overcome today in the unit labor cost report that could raise inflation concerns. After considering this, we believe the unit labor cost figure is benign, as it likely reflects decreased manufacturing activity, not increased hourly wages. Alan Greenspan dropped the "R" word again, but it was less powerful this time around. It looks like global markets are ready to consider looking for bargains, but every issue is now under the microscope, and a new one was just spawned by a verbal battle between Chinese and Taiwanese officials over the sovereignty of Taiwan.

Asia:

Hang Seng Index +2.11%; Shanghai/Shenzhen 300 +1.81%; NIKKEI 225 +1.22%; BSE SENSEX 30 +2.27%; KRX 100 +2.06%

U.K. & Europe:

DJ STOXX 50 Index +0.64%; FTSE 100 +0.71%; CAC 40 +0.84%; DAX +0.6%; Russian RTS Index +1.25%

KEY HEADLINE NEWS

• U.S. futures may be deriving some of their strength this morning from a return to overseas stability. Markets in Asia and Europe recovered ground today and the yen finally weakened a bit, potentially showing signs of tiring carry trade reversals.
• Still, the U.S. market has some obstacles to overcome, as Alan Greenspan once again dropped the "R" word. Either he's desperate to sell his book or really believes there is a one-third chance of recession this year. It's amazing that this legend who went out with such fanfare is now being ostracized by financial talking heads. I wonder if the Fed might excommunicate him as well.
• The Q4 productivity revision was in line with expectations, showing a rise of 1.6%, versus fluctuating expectations that settled at 1.6%. The revision, however, marked an adjustment lower from the 3.0% initially reported. Still, it accurately reflected the GDP revision of last week. The scary news of the day was a reported increase in unit labor costs of 6.6%, versus the consensus expectation for a 3.0% increase. The figure almost looks like a misprint, and we have initially heard reports that it could reflect accruals of bonus activity. However, if this is so, it should have been reflected in the consensus expectations of the experts. As we stated in our introduction, the figure likely reflects decreased manufacturing, not an increase in hourly wages. Thus, we view it as benign, and not as a signal of price inflation.
• Treasury Secretary Paulson tried to come to the market's rescue today, as he called the global market "sound" and said that sub-prime loan issues were "largely contained" and that the financial sector is "healthy."

(disclosure)

Friday's Brew - Feb 16

Enjoy your fresh coffee with our summary and analysis of the market activity of the day and a medley of important information you should find useful. While the S&P Small Cap 600 Index is higher at this hour, most major U.S. indices are modestly lower today, ahead of the three day weekend. In these times, we find it hard to expect traders to hold stock through any weekend, let alone a three-day one.

Wall Street Greek has correctly predicted the second leg lower in housing, the demise of sub-prime lenders and the bottom of oil prices at $50. So, you should be asking, what is the Greek predicting now. You should be noting our relatively near term concerns about food and energy inflation and our medium term view that a complicated war is in our future over the next year or two. We expect oil prices to find much higher ground during that time span, as Sunni and Shiite factions clash in Iraq, Saudi Arabia and Iran. We foresee Muqtada al Sadr returning to Iraq with an Iranian army that would be viewed as liberator. We anticipate Iran's invasion of Iraq would put Saudi Arabia on alert, and that Saudi facilities would be targeted by Iranian missiles. Imagine a war between two of the world's most important oil producers, and think about the interests of China, Russia and the United States. An attack on Iran carries a heavy burden on those who initiate it, and a heavy responsibility to contain it. But, you still have time to benefit from a generally rising market in the short term, as the Fed seems to have solid control of the current economic situation.

OVERSEAS MARKETS

China surprised markets today, as it ordered a new tightening of reserve requirements for lenders to take effect on February 25th. China raised the required capital reserve to 10% of deposits from 9.5%, just instituted earlier this year. Small banks will be required to keep 10.5% of deposits in reserve. Even so, Chinese indices inched higher on the day, as the Hang Seng rose 0.14% and the Shanghai and Shenzhen 300 Index appreciated 0.3%.

Ahead of an approaching rate decision day for the Bank of Japan, the NIKKEI 225 fell 0.12%. Merrill Lynch cut Indonesian stocks to underweight from overweight, but the Jakarta Composite Index edged up 0.22% anyway.

European markets slipped modestly lower today, with the DJ STOXX 50 down 0.11%. In London, the FTSE 100 dipped 0.21%.

Interestingly enough, the Nigerian Stock Indices In climbed 2.67% on the same day the U.S warned that attacks in Nigeria may expand and become more violent.

ECONOMIC DATA & ANALYSIS

January housing starts were reported down 14.3%, to an annual pace of 1.408 million, well below the Bloomberg consensus expectation for 1.6 million homes and the 1.642 million started in December. This news sort of shocked the market today, raising concerns that housing could still impact the economy in a big way. Every time the housing market has declined in the past, the economy has slipped into recession, and the market has a good memory of that. Not to say I told you so, but I told you so. If you have been paying attention, we have been warning you of our view that housing would have a short uptick to start the year and then experience a second leg lower due to the still high level of inventory and bubble we see in prices. We found a piece of data within today's report especially troublesome. As all other data indicated a slowing housing trend, the number of housing units authorized but not yet started actually increased 2.9%. We believe this may portend a distressed situation for smaller leveraged home builders, as orders are accepted that cannot be completed. We anticipate layoffs from home builders to increase over the months ahead, and to see some smaller, leverged home builders seek bankruptcy protection this year.

The January producer price index provided some relief for the inflationary outlook, as core PPI, excluding food and energy, rose just 0.2%, in line with expectations. Year over year producer price growth was 1.8%, below the 2% level that the Fed fears. Even so, CPI will add some more color to the picture soon enough. Remember, we warn that food and energy price increases could impact prices across the board, and force the Fed to act on inflation. Such a cost of living increase, combined with a tightening Fed, could be destructive to economic growth.

The Reuters/University of Michigan February consumer sentiment survey measured 93.3, below the Bloomberg consensus view for a reading of 96.5, and below the January reading of 96.9. Ironically, while the data seems right in line with the Fed's expectations, equity markets took no solice in that fact today.

COMMODITY MARKETS

Natural gas is rocketing higher again today, up 3.9% at this hour. Nickel leads all commodities for the second day in a row, rising 5.6% today, as the supply demand dynamic for the metal remains very tight. Most commodities are higher today, reflective of a secular trend that should persist, which is increasing global demand, as large emerging markets in India and China grow rapidly.

WTI crude oil futures are up over 2% today, as geopolitical tensions persist. Russia threatened to end a 20 year intermediate nuclear missile treaty, due to the plans of NATO and the U.S. to build a missile defense shield in Eastern Europe. The rift between super powers, Russia & China and the United States should be very concerning to the world community.

STOCK SPECIFIC NEWS
Regulators announced today that they were strongly considering bringing criminal charges to former executives of Apple, Broadcom and others. With the three day weekend ahead, traders should look to unload holdings. Thus, we anticipate stocks will close mildly lower today.

(disclosure)

Fed in Focus, Consumer Crashing

The purpose of "Wake Up Call" is to provide you with the market-moving news of the day, hand chosen, with value-added original commentary.

The Dow is inching higher at this hour, while the S&P 500 and NASDAQ proceed cautiously. The pending 2:15 p.m. release of the Fed policy statement has markets a little edgy today, and we believe rightly so. We anticipate the renewal of hawkish language regarding inflation will prove concerning to equity investors. Also, news from Cisco Systems (CSCO), Toll Brothers (TOL) and Toyota Motors (TM) provided a broad basis for concern last evening and this morning in their respective reports. Besides this, economists across the nation are jumping aboard the Wall Street Greek ship today, revising economic and retail expectations lower. Please find all the details below.

Asia:
Hang Seng Index +0.67%; Shanghai/Shenzhen CSI 300 +0.41%; NIKKEI 225 +0.52%; S&P/ASX 200 +0.58%; Taiwan TAIEX -0.53%; BSE SENSEX 30 +0.12%; KRX 100 +0.57%; Ho Chi Minh +0.45%

U.K., Europe & Middle East:
DJ STOXX 50 Index +0.33%; FTSE 100 -0.03%; CAC 40 +0.29%; DAX +0.48%; Russian RTS Index -0.73%; ASE General +0.05%; Tel Aviv 25 +0.86%; Tadawul All Share +0.07%; DFM General +2.37%

Our value-added take on today's key news:

• *** All eyes are on the Fed today ahead of the all important FOMC meeting and official policy statement that follows. Seems like every economists from here to Timbuktu expects the Fed to keep rates steady this time around, and we agree. However, we do expect the Fed's policy statement will be detrimental to equity direction this afternoon. Fluffy valuations after a wild run higher put equities at technical risk, but the catalyst to drive a landslide should be found in the statement, or in Friday's retail data. Recall that last time around the Fed left out hawkish language specific to inflation. The market perceived the silence as a change in Fed view, that it was possibly less concerned that inflation could become problematic. It raised the probability of a Fed cut over a hike in the market's eye. However, this was not the Fed's intent, and a few days later, Ben Bernanke clarified on the topic and equities gave back gains momentarily. We expect the inclusion of similar inflation language this time around will have the opposite effect, raising market hysteria and hurting share prices.
• *** Yesterday, the ICSC-UBS highlighted consumer concerns with its view that April retail sales could have suffered from poor weather and the unfavorable date of the Easter holiday this year, as it relates to April sales. Today, as we predicted yesterday, economists are jumping aboard our boat, revising April retail sales expectations lower and raising the red flag for economic trouble. I pounded the table yesterday and Monday, and I'm back at it today. Reduce your consumer discretionary weightings. Wall Street Greek is now recommending the under-weighting of consumer discretionary shares. Your restaurants and retail establishment stocks could report a decent first quarter, but there is risk of forward guidance reduction. Besides that, general market concerns should start to weigh on the P/E ratios of these shares, contracting them. The Bloomberg article does a good job of summing up our previously outlined thesis. See "The Greek's Week Ahead" and older articles on the topic from us as well.
• *** Weekly mortgage applications increased 3.6% in the week ended May 4, benefiting from rate decrease as refinancings rose 4.9%. It's likely that starving mortgage brokers are aggressively pushing refinancing to fixed rates now as a sales tactic. Meanwhile, foreclosures more than doubled in April, and today, premium home seller, Toll Brothers (TOL), pulled its guidance. This quote from Robert Toll is telling, and sounds a lot like what we have been telling you, "We believe that fewer than 2% of our buyers use subprime loans," Robert Toll said. However, the impact of stricter lending standards arising from problems in the sub-prime market is negatively affecting affordability at lower price points." It's officially getting ugly folks, and I have advised my own friends who want to sell their homes to do so before things get worse. The supertanker that is the housing sector takes long to turn, and it is going to get worse in my opinion.
• *** Earnings season rolls on, so catch Yahoo!'s calendar here.
• *** Cisco Systems (CSCO) reported results, and raised a red flag with sudden weakness in its domestic business segment. We quote directly from the AP Newswire, "While sales in most segments are growing in the double digits, a sudden slowdown in orders from U.S. businesses has spooked investors. Cisco's U.S. enterprise segment grew 20 percent in the first three months of the fiscal year but has since contracted to mid-single-digit growth." I thank a loyal reader at Team Maren, Mike, for making sure I saw this. It reinforces what I have been laying out, that American firms have benefited from ventures overseas, but eventually, domestic weakness would prove important. Toyota Motors (TM) reported results, and also warned that its fiscal 2008 (Mar) would be impacted by a slowdown in the U.S.

To receive our reports via email, click here and provide us with your email address. We respect your privacy and will never share your information with any third party.(disclosure)

Wake Up Call - Mar 2

Good Morning. U.S. equities are indicating a broadly lower open today, after a down day in Tokyo, a rise in China and a decline in Europe. The stomach of the market remains shaky, as the driver that led to this week's instability, Chinese markets, remain highly valued relative to other global shares. On Monday, a session of the National People's Congress will begin, and concern remains that efforts to control risk in equity markets could lead to their decline, in our opinion. Investors could react to any controls placed on investment, and restrictive measures typically hurt investment. In the long term, any measures taken may be positive factors, but in the short term they could lead to an exodus of capital. As we have seen this week, and in recent months with events in Thailand as well, high flying emerging markets could be susceptible to significant declines that could catch investors offguard and bear repercussions for the global economy.

Asia:

Hang Seng Index +0.49%; Shanghai/Shenzhen 300 +1.42%; NIKKEI 225 -1.35%; BSE SENSEX 30 -2.08%; KRX 100 -0.1%

U.K. & Europe:

DJ STOXX 50 Index -0.99%; FTSE 100 -0.31%; CAC 40 -0.85%; DAX -0.93%; Russian RTS Index -0.36%

KEY HEADLINE NEWS

• The NIKKEI 225 dipped further overnight in Japan, as the yen carry-trade unwind is impacting investment in Japanese stocks, not just foreign shares. In mainland China, shares reportedly traded cautiously, but the Shanghai and Shenzhen 300 Index still rose 1.4%. The index ended the week down 6.3% as it exhibited the risk inherent to the lofty valuation of its shares. We see another potential catalyst that could impact the still unsettled Chinese and global stocks next week, as China's National People's Congress begins its meeting on March 5th. China's government has recently sought to reign in borrowing that may be driving speculative investment in real estate and equities. China has been aggressively raising the reserve requirements on banks in order to control lending. Therefore, further measures are highly possible.
• In Europe, shares are trading broadly lower today ahead of the weekend and after a tulmutuous trading day in America yesterday and earlier weakness in Tokyo.
• U.N. Security Council members are reportedly making significant progress towards a second set of sanctions for Iran that may include a bar on travel for government officials. The group is set to discuss the topic again on Saturday, and is expected to begin drafting a new resolution as early as next week.
• A recent Fed insider trading crackdown on employees of several investment banks may lead to increased scrutiny of hedge funds and implicate some large funds, which in turn could lead to the exit of capital from those implicated. Any increased regulation, while possibly protecting some investors from future issues, could hurt the market in the short term by reducing the incentive for the operation of hedge funds. In any event, it's clear that hedge fund issues carry the ability to drive market volatility in the future.
• Though this article was published yesterday, we feel it's worthy of your review. Sub-prime loan defaults may pose significant risk to the economy and portend a greater problem for a broader group of borrowers.
• Later today, look for "Today's Morning Coffee" for your summary and analysis of the market drivers within overseas markets, economic data, commodities, geopolitical concerns and stock specific news.

(disclosure)

Slapstick Economics

By Steven Ferguson - Econometrics and Programmatic Trade

(Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK)

How many times will Ben, Hank and now Christopher Cox confound us with their slapstick solutions for ongoing market turmoil? Bear Stearns (NYSE: JPM) wasn't enough? Freddie? Fannie? AIG (NYSE: AIG)? And now the grand finale, the bailout to end all bailouts? And since it won't, what will they do for an encore?

Somehow we should trust Henry Paulson with this effort? The same Hank Paulson who told us that housing bottomed long ago and that sub-prime mortgages constituted a small problem that was largely contained? The same Paulson who proposes no oversight and unlimited pay for the greed-ridden geniuses who got us into this mess? Maybe he thinks he still works for Goldman Sachs (NYSE: GS)? Maybe he has already forgotten the need for regulation?

Or maybe we should trust Helicopter Ben? Ben Bernanke? The mad scientist run amok who is encouraging tax-payers to offer "hold-to-maturity" prices for distressed debt when we might actually benefit from the "fire-sale?" If these assets are truly worth the price of holding to maturity, shouldn't the banks simply "hold to maturity?" (mental note: hire Ben Bernanke to sell my home with that sales pitch!) Ben, the same manic maniac who one day warns of runaway inflation and the next day holds the gun of deflation to our collective head?

Or perhaps Chairman Cox can save the day? Banning short sales sure seems to have helped Ambac Financial (NYSE: ABK) and Farmer Mac (NYSE: AGM) fritter away half of their market capital in the last four days. Chris, have you noticed that short covering can no longer fuel the mega-rallies which have characterized this volatile market over the last many months? Any more brilliant ideas?

With the answers to all of these questions so seemingly obvious, it should come as no surprise that the American Public is overwhelmingly and vocally opposed to the "Bush Blockbuster Bailout" (that's not even Bbb- debt) proposal. And though some of us must ruefully admit that Democratic Congressmen have authored more common sense provisions than their Republican counterparts, none of the options seem the least bit palatable.

No, it is time to put an end to the "trickle-down economics" playbook. While this worked what seems a lifetime ago, when Presidents were presidential, when Fed Chairmen had a modicum of common sense, when America was still an Empire with a real live manufacturing economy, and when bankers were actually about the business of propagating wealth formation, it no longer works today. It does not work for many reasons, all of them summed up in a word: Greed. And it certainly won't work in the hands of the stooges who have failed thrice before.

See Part II to this piece: "An Ancient Bailout Proposal"...

Please see our disclosures at the Wall Street Greek website and author bio pages found there.

Wake Up Call - Jan 17

Good Morning. This is your wake up call for Wednesday January 17, 2007. The time is 9:35 AM EST, and markets are broadly lower today on stronger than expected PPI data, raising inflation concern.

Asia:
Hang Seng Index +0.18%; Shanghai/Shenzhen 300 -1.91%; NIKKEI 225 +0.34%; BSE SENSEX 30 +0.12%; Ho Chi Minh -1.9%; SET -0.68%

U.K. & Europe:
DJ STOXX 50 Index -0.46%; FTSE 100 -0.67%; CAC 40 -0.53%; DAX -0.46%; Russian RTS Index -1.86%


KEY HEADLINE NEWS

• The December Core Producer Price Index, excluding food and energy prices, showed a rise of 0.2%, versus a consensus expectation for a 0.1% rise. The overall PPI number was up 0.9%, compared to the consensus view for a 0.5% increase. We view the information as a mild negative for the market today, as it indicates inflationary pressure remains and decreases the likelihood of a near-term Fed rate reduction, when taken in isolation.
• Foreclosure rates increased 35% in December, when compared to a year ago. As many ARM loans reset in 2007, and many homeowners lose the option of selling their homes at levels above the amount owed on them. Foreclosure rates are expected to increase, and a if the Fed's forecast for a slowing rate of economic growth in 2007 is realized, it portends higher unemployment and increasing pressure on homeowners. Sub-prime lenders are seeing pressure, as evidenced by Indymac's (NDE) earnings warning Tuesday. NDE fell 7% on the news. Today, CIT Group (CIT), which participates in many commercial and consumer lending segments, raised its guidance for 2007. However, it did note higher home loan charge-offs. CIT seems likely to recover some ground and possibly drive the shares of other lenders. We think this might offer other short opportunities. For instance, today, Washington Mutual (WM) reports on its most recent quarter and has experienced negative EPS estimate momentum in its recent past. Remember, a few months ago we recommended shorting the lenders that are susceptible to the weakening housing market.
• Mortgage applications for the week ended January 12th decreased 0.6%, on higher interest rates in the period. The four-week average rose 0.8%, as it is less reflective of the short-term interest rate sensitivity of refinancers and purchasers. In the weekly period, refinances increased as a percentage of total mortgage applications, reaching 49.9%, from 48.4% in the previous week.
• Intel warned that its margins were impacted by pricing competition, and at the same time, the EU is alleging that Intel is employing anti-competitive tactics, similar to its argument against Microsoft.

We urge you to read our section within the sidebar, entitled "Headline News", for further important information for traders and investors.

(disclosure)

Friday's Brew - Dec 15

Enjoy your fresh morning coffee with our summary of the market outlook for the day and a medley of important information you should find useful. Stock futures indicate a higher open, after a week's worth of economic data that seems to point toward a resilient economy and not so bad inflationary outlook. Today's rather non-inflationary Core CPI data could act as icing on the cake and send the market into full Santa Claus rally mode.

OVERSEAS MARKETS

Asian markets closed higher, while European markets are also in the midst of rally. In Japan, the NIKKEI 225 closed 0.51% higher, while Hong Kong's Hang Seng Index ended 1% up today. The Chinese market is gearing up for 13 IPOs scheduled to reach market before the end of the year.

The Japanese market benefited from the release of the quarterly Tankan survey, Japan's most closely watched gauge of business sentiment. The Tankan indicated that confidence among large manufacturers climbed to 25 points from 24 in September, according to the Bank of Japan. The result was inline with the 25-point median estimate of 44 economists surveyed by Bloomberg News, but more importantly, it was the highest number since September 2004.

In Europe and the U.K., markets are building on the strength of the year's M&A activity and the apparent health of the American economy. The FTSE 100 Index and the broad European DJ STOXX 50 are both up approximately 0.45% through midday.

ECONOMIC DATA & NEWS

Friday keys up a powerhouse of economic data, with the November consumer price index release. Economist consensus saw November CPI rising 0.2%, as compared to a 0.5% decline in October, which was greatly impacted by a decrease in energy prices. The actual result showed a rise of 0.2%, in line with expectations, and Core CPI, excluding volatile food and energy costs, was unchanged. The data partially reflected a decrease in gasoline prices that is expected to reverse next period, but overall, we read the data as decidedly positive. American equity markets should strengthen on the week's data overall, and on this very important figure.

November industrial production is scheduled for release today as well, and the consensus sees a 0.1% increase versus a 0.2% rise in October. November capacity utilization is seen at 82.1%, compared to 82.2% in October. The Empire State Manufacturing Index is expected to decline to about 18.0 in December from a 26.66 level in November. Outside of all the economic data, but also noteworthy, Ben Bernanke is scheduled to speak in China. Markets will be tuned in to see if he has something to say about today's CPI data.

COMMODITY MARKETS

Metals are once again decidedly higher today, as economic data from Asia and the U.S. paints a picture of continued global economic growth, and widespread demand for aggregates. Nickel leads metals today, up 4.5%. Crude oil and distillates also continue higher on global economic health and continued secular supply/demand tightness and volatility. OPEC's announcement yesterday to cut production by another 500,000 barrels a day starting in February, following the 1.2 billion barrels already taken offline, shows OPEC's willingness to maintain prices near current levels.

The commodity we would look to exit or short in the near-term is gold. Though we believe gold should be held as a hedge and over the long-term, with an impending wide-scale conflict possible, in the short term, we expect capital to exit the asset class to find better returns in equity and fixed income investment. Gold is down fractionally today.

STOCKS IN THE NEWS

J2 Global Communications is the only firm scheduled to report earnings on Friday. In the near-term, we expect early cyclicals and technology stocks to benefit sharply from recent economic data. However, we would use near term strength in financial stocks including sub-prime lenders to exit them or take short positions in them. The housing weakness looks to continue building upon itself in the near term, and recent foreclosure and mortgage default data showed that many lenders have made poor loans at the peak of the housing boom. We hope you find value in "Today's Morning Coffee" and we wish you a good day trading. (disclosure)

Wednesday's Brew Ja 17

After starting the day broadly lower, major U.S. equity indices, excluding the NASDAQ, are mostly higher this afternoon. Greater than expected growth in PPI put a damper on the market early, but it has found hope in low oil prices and the industrial production and capacity utilization improvement also reported this morning. The market is now clearly focused on tomorrow's CPI report and corporate earnings releases now in full swing.

OVERSEAS MARKETS

Ahead of tomorrow's key decision on interest rates in Japan, the NIKKEI 225 appreciated 0.34% today. The Hang Seng edged higher 0.18%, while the SHSE-SZSE 300 Index declined 1.91% today. A change in tax policy that will likely increase the collection tally, and hurt property owners, was indicative of yet another restrictive Chinese policy. The Chinese are well aware of the dangers of inflation, and are actively seeking to cool the market and economic growth. We continue to advise investors to consider taking some capital off the table from mainland shares in the very short term, after a significant rise to start the year. The ship is big though, and thus hard to turn, so we expect any decline will be short-lived, and we are keen on investment in mainland shares. So if I had to term it, I would say my recommendation over the short term has decreased to outperform, from buy, for mainland China. We are proud to have recommended investment in the mainland shares and those in Vietnam since early this year, as the two have been the best performing markets in the global scheme in 2007. We remain positive on the Bulgarian and Romanian markets as well, due to their recent initiation into the EU.

Shares in the Euro region were mostly lower today, with the DJ STOXX 50 slipping 0.54%, the CAC 40 down 0.53% and the DAX drifting 0.23%. The FTSE 100 declined 0.18% on the day, likely impacted by the American PPI data. After the Bank of England raised rates, and with expectations of a rate hike from the ECB before the end of March, European markets are weighing concern for tightening liquidity with the possibility of continued global growth and Euro area M&A activity.

ECONOMIC DATA & ANALYSIS

Three key reports headline the economic newswire on Wednesday. The federal government reported the December producer price index, with consensus expectations for an increase of 0.5%, compared to a 2.0% increase in November. December PPI showed a rise of 0.9%, exceeding expectations, and excluding volatile food and energy, Core PPI increased 0.2%, compared to a consensus view for a 0.1% rise, based on Bloomberg News data. The news was a mild negative factor for the market today, as it indicates inflation remains a risk. Especially concerning to us, the price of foods rose 1.7%, reflecting higher corn and surrogate prices due to a weaker than anticipated harvest and strong ethanol demand. The freeze occurring in California, which is severely damaging citrus production, will only add to the pressure on food prices. It's worth considering how this might impact the margins of unhedged restaurant companies and grocery chains.

December industrial production and capacity utilization were reported at 9:15 a.m. The consensus expectation for industrial production, as polled by Bloomberg News, was for an increase of 0.1%, as compared to 0.2% in November. Production actually increased 0.4% last month, and the Fed will likely be enthused by the number, as production nearly kept up with the pace of average hourly earnings (reported up 0.5% in December). This growth in production offers the potential to partly offset pressure from wage inflation, though the manufacturing segment is not nearly as significant as the service sector in the U.S.

December capacity utilization was seen measuring 81.7%, compared to 81.8% in November, and the report showed capacity utilization increased more than expected, rising 81.8%. This is a good sign for inventory levels, which had been expanding.

Two important housing readings became available on Wednesday as well. Foreclosure rates increased 35% in December, when compared to a year ago. A growing number of homeowners are finding themselves in trouble, as many ARM loans are resetting in 2007, and so homeowners find themselves in a position where proceeds from a pressured sale would fall short of the amount owed on them. Foreclosure rates are expected to increase, and if the Fed's forecast for a slowing rate of economic growth in 2007 is realized, it portends higher unemployment and further increasing pressure on homeowners.

Sub-prime lenders are finding tough times, as evidenced by Indymac's (NDE) earnings warning Tuesday. NDE fell 7% on the news. Today, CIT Group (CIT), which participates in many commercial and consumer lending segments, raised its guidance for 2007. However, it did note higher home loan charge-offs. CIT seems likely to recover some ground and possibly drive the shares of other lenders today. We think this might offer other short opportunities. For instance, today, Washington Mutual (WM) reports on its most recent quarter and has experienced negative EPS estimate momentum in its recent past, due to housing related weakness. Recall, a few months ago we recommended shorting the lenders that are susceptible to the weakening housing market.

Mortgage applications for the week ended January 12th decreased 0.6%, on higher interest rates in the period. The four-week average rose 0.8%, as it is less reflective of the short-term interest rate sensitivity of refinancing and purchasing applicants. In the weekly period, refinances increased as a percentage of total mortgage applications, reaching 49.9%, from 48.4% in the previous week. This afternoon, the National Association of Home Builders will post its housing market index.

The Treasury Department released its data on net foreign purchases of U.S. securities in November. Previously we stated our view that capital was not just flowing out of dollars, but out of American securities all together, due to the U.S. standing in the global community and concerns about where the situation with Iran is heading. However, recent emerging market blow ups in Venezuela and Thailand have highlighted the higher degree of risk inherent in emerging markets. We feel it's more likely that if capital were flowing out of the U.S., it would find its way into the Euro region and Japan.

Investment in long-term U.S. assets like equities, notes and bonds, slowed in November to a net $68.4 billion, compared to a revised October level of $85.3 billion. We believe the slowdown was influenced by the weakening dollar and by speculation concerning U.S. plans for Iraq and Iran. Money effectively shifted into shorter term securities, as those flows increased to $74.9 from $60.4 in October. Also, after stellar performance in a good deal of European and emerging markets last year, capital flowing from the U.S. into foreign stocks increased in November to $21.2 billion, marking the third month in a row of such increases.

The market will pay close attention to the Fed beige book, due out at 2:00 p.m. EST, for signs of what the Fed may decide to do at its next open market committee meeting. On the Fed tour marquee today, San Francisco Fed President Janet Yellen is scheduled to address a group in Scottsdale, Arizona, while St. Louis President William Poole is set to speak in Missouri.

COMMODITY MARKETS

Foods futures are leading the commodity market on the upside today. A series of data are behind the move, including the recent government report showing a weaker harvest for corn than was expected. The price of corn and its surrogates, wheat and soybeans, have been on the rise since the report release. Also, today, the PPI report indicated that price inflation existed in foods in December.

Citrus prices are skyrocketing after news that up to 1/4 of California's citrus crop has been impacted by a strange cold wave. Again, we would look immediately to the shares of restaurants and grocery chains, where unhedged companies should see margins pressured in the future. Corn is up 3.91% today, while wheat is 3% higher.

Gold is moving upward today, on dollar weakness, rising 1.2%. Natural gas is declining today, after rising yesterday on weather considerations, but heating oil is relatively flat.

STOCK SPECIFIC NEWS
Reporting earnings on Wednesday are JPMorgan Chase, Apple, Washington Mutual, State Street, Mellon Financial, Kinder Morgan, Northern Trust, Southwest Airlines, Synovus Financial and Parker-Hannifin Corporation. Washington Mutual's earnings report should provide some insight into the state of consumer credit. The company has recently seen trends in its EPS estimates declining, due to what we believe was some exuberant lending during the building of the housing bubble. Indymac (NDE) warned the market yesterday that it's earnings would fall short of expectations due to housing related weakness. We expect Washington Mutual to post similar results today after the close.

Intel warned that its margins were impacted by pricing competition, and at the same time, the EU is alleging that Intel is employing anti-competitive tactics, similar to its argument against Microsoft. INTC shares are 5.5% lower today as a result.

(disclosure)

Tuesday's Brew - Feb 13

Enjoy your fresh coffee with our summary and analysis of the market activity of the day and a medley of important information you should find useful. U.S. markets are higher today, on the morning momentum of an upgrade of Dow component General Motors (GM) and the rumored acquisition of Alcoa (AA). Tomorrow's testimony of Fed Chief Ben Bernanke to the Senate Banking Committee looms overhead though, so the ground that stocks stand on today may be unstable.

OVERSEAS MARKETS

As expected, Ecuador will be unable to make a $135 million debt payment it was scheduled to make Thursday. The nation is reportedly offering to make the payment during its 30 day grace period, but much skepticism exists regarding its ability to do so. The reaction of South American markets today does not reflect concern for a regional problem, as Brazil's Bovespa Index rises 1.67%, Argentina's Merval Index is up 0.43% and Venezuela's Stock Market Index is 2.2% higher. It seems that higher oil and other commodity prices are driving the regions' shares more than anything today.

The Japanese market was closed yesterday, but over the weekend the G7, especially those members from Europe, warned investors betting against the yen that an improving Japanese economy would eventually uplift the currency. Treasury Secretary Paulson was less supportive of the argument, stating that the free market was deciding the value of the yen. Still, the NIKKEI 225 rose 0.67% suggesting an enthusiastic reaction.

The Hang Seng dropped 2.24% today, but there was divergence between Hong Kong and the mainland, as the Shanghai and Shenzhen 300 Index climbed 1.5%. Rumors are that Hong Kong investors are reflecting concern that U.S. Fed Chief Ben Bernanke might signal the potential for a Fed rate hike in the near future. The divergence of traded shares in Chinese markets might be reflective of the participants allowed to trade within them, and the degree of speculation that exists within the Chinese investor base.

European shares were modestly higher today, with the DJ STOXX 50 up 0.16%, while the CAC 40 climbed 0.69%. In London, the FTSE 100 rose 0.27%. European shares seemed to benefit in the afternoon from the positive morning move of American shares.

ECONOMIC DATA & ANALYSIS

December international trade data was reported at 8:30 a.m. this morning. The consensus of economists surveyed by Bloomberg expected the trade gap to widen to $59.7 billion in December, from $58.2 billion in November. The gap actually widened to $61.2 billion, largely due to an increase in oil import prices during the month. Record level foreign auto and consumer goods purchases also drove the expansion.

COMMODITY MARKETS

The International Energy Agency published its monthly oil-market report today, within which it raised its forecast for global oil demand in 2007. The agency indicated that daily demand would likely measure 1.55 million barrels per day, up 1.8% versus 2006, and increased from its previous estimate of 1.39 million barrels. At the same time, the IEA warned OPEC against future production cuts, indicating that it might dangerously tighten the supply/demand dynamics of the market. Near contract WTI crude futures are up 1.33% today as a result, recovering after yesterday decline on comments from OPEC regarding its comfort with current production. Now that the IEA has made it clear that future reductions might overly strain supply, the market has a different view of OPEC's bias.

Heating oil is up 1.5% and natural gas is 1.1% higher, as the winter storm approaching the Northeastern U.S. seems to be taking a more threatening route to the major New York market. There is a false tie between the storm and heating oil demand, however, but the market dictates what's important, not me or CNBC. We outlined a few weeks ago that it was possible that heating oil inventories and a late start to winter, could have enticed refiners to begin maintenance for the gasoline season sooner than normal, weakening the supply system for heating oil. If this were the case, and we would need to further verify it, than it's possible that the onset of seasonal winter conditions during the recent few weeks could have led to a greater net draw on supplies than what might have been considered normal. Again, we want you to know that this is a theory without verified facts to support it. Any information from readers that might be useful in this regard is welcomed.

STOCK SPECIFIC NEWS
Last week, HSBC and New Century Financial shook up the sub-prime market with bad news, and this week Capital One Financial has an opportunity to follow up, as it holds an investor conference call at 1 p.m. A conference I enjoy kicked off today, as the Wall Street Analysts Forum got started. The earnings report calendar for Tuesday includes UBS, Metlife, Marsh & McLennan, KIMCO Realty, KB Homes, XTO Energy, Applied Materials, Altera Corp. and NVIDIA Corp.

More news confirming continued housing weakness hit the market today, as KB Homes reported results. Its report shows a sharp 38% drop in net orders in the fourth quarter, but the market sent housing stocks higher today as the news was better than anticipated. In the trading week leading up to today, housing stocks had weakened significantly and today's move is not enough to recover the ground lost.

You can receive "Today's Morning Coffee" in your email inbox at the moment we publish it to the site. Just click here, provide your email address, and we will add you to the distribution list. We respect your privacy, and never share your information with third parties. (disclosure)