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Thursday, April 28, 2005

The Logic of the Markets... Nominal GDP (ie the GDP figure + GDP Price Deflator) grew at a stronger-than-expected 6.3% pace (estimates were 5.6%). In a nutshell-spending remained robust, however, it was spent on items such as gasoline that was 20% higher. Meanwhile, the PCE deflator ex-food and fuel rose only 2.2%, less than both the core CPI and PPI, the reason why the bond market hasn’t been decimated by the sticker shock Deflator #. This falls in the context of an economy with 6% income growth and 6% sales growth (we don’t save a penny here). If you were to surmise that the Q1 rise in commodities was to stabilize (or possibly reverse course), then next Quarter’s GDP should contain more GDP and less Price Deflator.


Morning Comments... Seven sessions, seven reversals, and we’re +0.31%. The looming nightmare of slowing economic growth and rising inflation may witness reality with the 8:30 release of Q1 GDP. Economists estimate that we grew at a 3.5%, down from earlier predictions of 4.0% growth after weaker than expected March data. More important for the inflation-targeting-Fed- the Price Deflator, which measures price changes while excluding increases in GDP due to increases in quantity, is expected +2.1%. Initial claims expecting 320k vs the seasonally distorted 296k last week. German unemployment better than expected and its unemployment rate fell from its post WWII high but Italian business confidence fell to lowest level in almost 2 years. Japanese IP weaker than expected.


Wednesday, April 27, 2005

Morning Comments... Each time the Easter Holiday has occurred early in March, the March release of the Durable Goods # has missed expectations. After the wascally wabbit was blamed for obscuring the jobless claims data and same-store sales, it appears as if the bunny gets the finger again today. Expectations for the 8:30am release of Mar Durable Goods are +0.3% and 0.5% ex-transports. The shipments component is directly plugged into GDP, and should impact tomorrow’s Q1 release. ABC confidence fell 1pt to -17, well below the 1 yr average of -9. Mortgage aps rose 5.9%, with refi’s up 9.8%, and purchases up 3.3%, reflecting the recent decline in interest rates. The $ strengthens vs the euro as the perpetual weak economy story continues, with a drop in both French and German consumer confidence. $ slightly higher vs the Yen as Japanese M of F said the pace of econ recovery is slowing. II: Bulls 44 vs 48.4 Bears 29.7 vs 26.9, both at levels last seen in Aug '04. Click here to help the bunny… http://www.savetoby.com/


Morning Comments:

Horst: (Sinister) Okay, Mr. Burns, you win. But beware. We Germans aren't all smiles und sunshine.
Burns: (Sarcastic) Oooh, the Germans are mad at me. I'm so scared! Oooh, the Germans! (Hiding behind Smithers) Uh oh, the Germans are going to get me!

Every piece of economic data we’ve recently heard from Germany brings to mind the infamous Simpson’s episode when the German investors fail to buy the Springfield Nuclear Plant from Montgomery Burns, and he taunts them incessantly. This morning is more of the same, as Germany’s six leading economic institutes cut their ’05 GDP in half (from 1.5% to 0.7%), blaming $50 oil and the highest unemployment rate since WWII. The growth forecast is weighing on the global equity markets, and modestly boosting Eurobonds and US Tsys. $ is up vs the euro and the yen, as the news from Japan is more of the same (March Household spending slightly weaker than expected). Estimates for the 10am April Consumer Confidence are 98, down from 102.4 last month, following declining ABC, IBD, and U of Mich polls. March New Home Sales estimates are 1.19mm, slightly below the 1 year average. The 1160-1163 level in the SPX remains a level of resistance as it was the upper end of the '04 trading range for most of the year.


Monday, April 25, 2005

Morning Comments... The S&P futures chart is starting to look like a healthy EKG monitor, with 15 point dips and recoveries becoming the norm last week. The heart palpitations should continue this week with over 30% of the index’s companies reporting and a slough of economic data, topped off by 1Q GDP on Thursday. Jump starting the data this morning is the 8:30am report of March Existing Home Sales, estimated at +6.79mm, inline with the 1-year average. Overnight, the $ is up sharply vs the Euro as German IFO Business Conf recorded a 19-month low, but lower vs the yen after a Chinese official said they are not ready to change the yuan peg. CFTC data on Fri reported net long positing in the $/yen is near a 6-year high, net longs in the euro remains, crude net longs fell 45%, and 10yr US tsy net shorts rose 4% (slightly off record highs).

Friday, April 22, 2005

Morning Comments. "Buff... weis... ERRRRR!" If a “soft patch” entails a one-month 10% decline in the DJIA, what happens when the economy hits a “rough patch”? Philly Roth points out the rally resulting in a “double-V” pattern, which, technically speaking, is a “W”. He sees yesterday’s upside volatility as impressive, and thinks the probabilities for a “generally exploitable recovery have become favorable” (ie- we go higher). Names he recommends which have had sizable corrections, but favorable long-term patterns include: CSX, ETN, NSC, YELL, DD, RTP, and X. The Yen rallies to a 4-week high vs the $ on the back of Greenspan comments that China will de-peg the yuan sooner than expected. In other words, Japan will not have to buy as many $ to weaken their own currency to keep their exporters competitive with the Chinese. AMG reports $30mm in outflows from domestic funds.

Wednesday, April 20, 2005

Morning Comments...
Take up your china doll, take up your china doll,
It’s only fractured and just a little nervous from the fall. -GD

<>The bond market rallied yesterday as investors clung to the idea that inflation is not an issue and recent signs of a “soft patch” will cause the Fed to pause on its regularly telegraphed 25bp hikes. The December Fed Fund future, which once traded 4.0% (year end prediction for the funds rate) traded in the low 3.60s yesterday. Earnings reports, as of late, have been positive- suggesting the “soft patch” is isolated to only a number of companies.

Oil, which many expected to break 50 and trade to the mid 40’s, has crept back up to 52.5. The CRB quietly rose 2% yesterday, and commodity prices should see further strength after China reported Q1 GDP grew like gang-busters to 9.5%. Such is the backdrop for the CPI, which is expected to grow .5% and .2% for the core reading. Mar semi equip bk-bill about in line at .81 vs .77 in Feb. The strength in tech this morning leading to modest gains in overseas markets. II#: Bulls 48.4 vs 46.2; Bears 26.9 vs 29.0.


Tuesday, April 19, 2005

Morning Comments... Dean Martin once sang “Absence Makes the Heart Grow Fonder”. In this case, the recent absence of any inflation data has given the Treasury market a reason to rally on the back of “soft patch” talk, weaker commodity prices, and a stabilizing $. With the 8:30am release of the PPI, the inflation relationship comes home to expectations of +0.6% and +0.2% (core). This would put the Y/o/Y readings at +4.8% and +2.8% (core). After rallying almost 30bps off its 4.65% low, the US 10year is poised to begin the day at 4.28%. The risk/reward in this case is leaning towards the short-side in treasuries. $ stronger vs the Euro after German confidence (ZEW) fell much more than expected.


Monday, April 18, 2005

<>Morning Comments...
If it keeps on rainin’, levee’s goin’ to break,
If it keeps on rainin’, levee’s goin’ to break,
When the levee breaks I’ll have no place to stay.
<>
The S&P 500 declined 3.27% last week, with the largest declines in Tech (-6.37%), Energy (-7.07%), and Basic Materials (-8.60%). Overnight, the overseas markets caught the
US sniffle with the Nikkei posting its largest downside move in a year (-3.8%), and closing below 11k for the first time since December. The 60% rise in the VIX over the past 3 sessions has brought fear back upon this market, and the ten-day put/call ratio for options at 1.001 only confirms this sentiment. The lessons of the past few years have shown us that when the townspeople start blowing up life rafts and moving to higher grounds, the market is a short-term buy. Oil lower by .50 after the OPEC Pres said they will pump an extra 500k barrels/day in May. At 1pm the Nat'l Assoc of Home Builders index expecting 68 would be lowest since Sept '04.

Morning Comments.... There is a saying in psychotherapy, “The neurotic builds the castle in the sky, and the psychotic lives in it.” Even more noteworthy about LLY’s victory in keeping its Zyprexa patent, is that the anti-psychotic drug is a $4.4bln franchise! Perhaps the folks over at IBM have finally abandoned their castles in the sky and faced reality. The bell-weather warning, the recent drubbing of the stock market, and a bullish 10-day reading on the put/call ratio (0.96), should open us up in oversold territory. However, if a selloff should ensue, Philly Roth’s downside targets on a breakdown are 6800 NYSE Composite, 10,150 DJIA, 1140 S&P 500, and 1910 NASDAQ Composite. At 8:30am Apr NY Fed survey (1st Apr #) expecting 18 vs 19.6, would be lowest since Aug, Mar import prices expecting up 1.4%. At 9:00am, Net Foreign Security Purchases (Feb) expecting $65.0B vs last month’s $91.5B blowout. At 9:15am Mar IP expecting up .3% and Capacity Utilization expecting 79.6% from 79.4%, would be highest since Jan '01 (less slack, more inflation pressure). At 10am Apr U of Mich expecting 91.5 vs 92.6, would be lowest since May '04 and risk is to the downside. AMG reports equity outflows from domestic funds of $327mm, int'l continues to get inflows.


Thursday, April 14, 2005

Morning Comments... She's Really "not that innocent"... The buzz at the Billionaire Boy’s Club Bridge table this week will surely be about Britney’s baby and the ongoing horse vs ponies race in the global currency market. The pop singer’s devil-child was widely expected, so the crux of the conversation will surround how to get out of your short $ position after the IMF said yesterday the US economy will grow more than four times as much as Japan and Germany this year. If that weren’t enough, the Euro Central Bank said today there are “no clear signs” that euro-region growth will accelerate. The $ is at its highest level since early Feb vs the euro and slightly off a 6 month high vs the yen. At 8:30am, Initial Jobless Claims estimates are for 330k vs 334k last week. Feb Business Inventories expecting up .5% vs .9% gain in Jan. When the US sneezes the rest of the world catches a cold, and overseas markets are lower on the same slower growth fears that inflicted the US market yesterday.


Wednesday, April 13, 2005

Mid-Morning Comment... As part of their SEC settlement, the Big Board announces that it will start videotaping “some traders”. If Vegas rules only applied years ago, a few back-roomings would have “sever-ely” halted the front-running problem. Also, if the majority of orders are electronic anyway, does videotaping really help? It’s not like the specialists are trying to steal the bronze Bull!

Just as uncomprehensive were yesterday’s Fed minutes. They threw the following pitches:

“accelerated pace of tightening did NOT appear necessary at this time” and “any rise in core consumer inflation to be LIMITED” (easy pitches)

but then throw a knuckleball with… “the required amount of cumulative tightening may have INCREASED”.

The cover of the WSJ completely whiffed on these pitches suggesting rate hikes would occur “possibly at a faster pace”.

Which begs the following questions- if Greenie & Co are confident that the rise in inflation is going to be “LIMITED” (huge assumption), then why is the required amount of tightening “NOT LIMITED”? And should we be videotaping the Fed as well?

Next week’s PPI and CPI data will give us more color on the “LIMITED” rise in inflation, so keep the cameras rolling.


Tuesday, April 12, 2005

"Calling out around the world"... Bob Weir and Ratdog hit the Beacon this weekend, but investors are already “Dancing in the Streets” after the FOMC minutes signaled the Fed is not ready for 50bp jacks. The horrible morning breadth went from 3-to-1 down and is now almost 3-to-1 up and continues to improve. Phil Roth says “All we need is a decent day tomorrow (good enough would be up plus 1/2%, positive A/D's and volume at least equal to today) to confirm a test and probably move quickly past the April highs.” Lower rates and lower oil, dare we say perfect storm? Next look at inflation is Tuesdays PPI, expected +0.6%,

Morning Comments... Chumbawumba. Contrary to the IEA’s slowing demand forecast, Oil continues to “Tubthump” overnight and is +.20 following a snapback rally yesterday. The IEA now sees world oil use averaging 84.27mm b/d (50k less than last month), attributed to rising US oil inventories, the slowdown in China, and increased production in the Middle East. Needless to say, oil has pulled back 10% since the beginning of the month, and a 50k b/d cut seems rather futile (past 3 months= increases of 570k b/d) . At 8:30am Feb Trade Deficit estimates are for $59B vs $58.3B in Jan. The record high was $59.4B back in Nov. Two factors leading to a higher deficit are a rise in the price of oil and increased shipments of foreign made goods (following the alleviations of quotas). The $ has been propped up like Bernie by interest rate differentials between the US and the rest of the world, but this # could shift the focus back to the structural problems of the $. Minutes of the Mar. 22 FOMC meeting will be released at 2pm.


Monday, April 11, 2005

Morning Comments... After a 4-day rally, traders who let it ride going into Friday were disappointed when their hard 12 was defenseless against the house’s visible Ace, as the Transports were expected to decline even before the trading session began. After giving back half of the week’s gains, the “comped” breakfast buffet wasn’t so appealing anymore. Oil looks to open down for the 6th consecutive day as CFTC data on Friday for the week ended last Tuesday reported the biggest net long position in crude ever. The $ is lower as the market turns its focus to tomorrow’s Feb Trade Deficit data which is the negative for the $ and away from interest rate differentials which is the support. CFTC reported net short positions in the yen the highest since ’01 and euro longs smallest since mid Feb. Also the French Industry Minister said oil prices should be priced in euro's in addition to $s. No economic data today. Tomorrow's FOMC minutes from March meeting could be the highlight of the week in that some elaboration for their inflation comments will be given.

Friday, April 08, 2005

Give him $200k and he'll give you a solution to the world's energy crisis...

http://auctions.overstock.com/cgi-bin/auctions.cgi?PAGE=PRODDET&PRODUCTID=2238062

Morning Comments... The logic this morning may get confusing. Yesterday’s drop in Oil was based on speculation that rising US refinery output would boost fuel supplies for the peak driving season (start your engines for May!). With refiners already running at 93.7% of capacity, it seems like gas production is already scraping the bottom of the barrel. Since the sell-off in oil was caused by greater supply rather than lack-of-demand- the bond market sold off on a faster growing economy, rather than rallied on an ease in inflationary pressures. The sharp pullback in oil initially also sparked the equity markets, only to be short-lived when stocks caught a whiff of the sell-off in bonds. The equity markets inability to catch a bid in the face of plummeting oil is demonstrative of its obsession (or fear) of higher rates. No economic data today. Greenspan speaks at 12:30pm on consumer finance. AMG equity inflows of $1.22B but what's become a pattern, 83% went to int'l funds. Overseas markets are higher following decline in oil and better than expected Japanese machinery orders.


Morning Comments... The logic this morning may get confusing. Yesterday’s drop in Oil was based on speculation that rising US refinery output would boost fuel supplies for the peak driving season (start your engines for May!). With refiners already running at 93.7% of capacity, it seems like gas production is already scraping the bottom of the barrel. Since the sell-off in oil was caused by greater supply rather than lack-of-demand- the bond market sold off on a faster growing economy, rather than rallied on an ease in inflationary pressures. The sharp pullback in oil initially also sparked the equity markets, only to be short-lived when stocks caught a whiff of the sell-off in bonds. The equity markets inability to catch a bid in the face of plummeting oil is demonstrative of its obsession (or fear) of higher rates. No economic data today. Greenspan speaks at 12:30pm on consumer finance. AMG equity inflows of $1.22B but what's become a pattern, 83% went to int'l funds. Overseas markets are higher following decline in oil and better than expected Japanese machinery orders.


Thursday, April 07, 2005

Yet another reason why I will refrain from long distance swimming off the coast of Florida
Money quote:
Lifeguard chief Paul Milne said: 'We are closing the beaches to swimmers because we don't want to tempt fate.'

<> <>http://www.thisislondon.com/news/articles/17768049?source=Evening%20Standard
<>April 7 (Bloomberg) -- Jim Rogers, who co-founded the Quantum hedge fund with George Soros, comments on commodities. He spoke in a televised interview with Bloomberg News. <>

On oil:
<> ``When you hear Wall Street firms talking about $100 a barrel it's probably time for a correction,'' he said. Still, ``oil will go over $100, even $150.'' <>

On steel:
``There's no question steel has had a huge run,'' he said.``Whether the bull run is over I don't have a clue. Iron ore is in short supply. The real commodity is iron ore not steel.'' <>

On other commodities:
``No one in the last 25 years was ringing you up and saying `let's invest in a sugar plantation,''' he said. Investors focused on stocks or technology investments at the expense of commodities, he said. ``Now we have to pay the price.'' <>

``Inventories of foodstuffs are still very, very low,'' he
said. ``Coffee trees, rubber trees, orange trees take a long time'' to grow. <>

We're ``nowhere near the end'' of commodity price gains, he
said. ``The bull market in commodities will last until 2014 to 2022,'' he said.


Morning Comment... Same-store sales stumble in this morning, and WMT has already stated that #’s would be at the low end of the range, as does CHRS, TLB, and PIR. Better-than-expected #’s have come from JWN and AEOS. Results may be impacted by an early Easter and other calendar events. 10 yr tsy yield at 4.43% (earshot from the psychological level of 4.40%) ahead of the weekly claims # at 8:30am. Estimates are for 330k down from the surprising 350k last week, which was partially impacted by the Easter bunny. Sauds say they will pump oil to its limit, but with oil +.75, talk is cheap. Bk of England and ECB left rates unchanged as expected. At 8:30 ECB Pres will have a press conference to give further color on their views of inflation and growth. The $ giving back some of their recent gains but on little news.

Wednesday, April 06, 2005

Morning Comments... ABC Confidence Poll dropped 4 pts last week to -17 (lowest level since June 2004), marking an 8 point two week decline. It has fallen as much in a two week period only 11 times since late 1985. Mort aps fell 4.4% with refi’s down 3.1% and purchases down 5.3%. Lower oil and higher bond prices the support for the futures this morning. No economic data today. Greenspan speaks at 10am on the GSE's where he will likely reaffirm his view that they should be liberated by the Govt. Lower oil prices giving overseas mkts a lift. II #’s: Bulls 47.9 vs 51.6 Bears 29.2 vs 28, levels last seen in August '04. The spread b/w the 2 got as tight as 9.4 at the Aug lows in the SPX vs 18.7 today.

Tuesday, April 05, 2005

The Old Man and the Oil Patch... Alan Greenspan’s comments are being broadcast to a petrochemical convention in Texas. The Old Man refers to oil prices as a "frenzy". This leads me to believe that he thinks it's only temporary, until I'm reminded that he's been calling the rise in oil "temporary" since last June. More importantly is the comment that "higher oil prices slow demand only 'modestly'", and that demand (if it’s inflationary) would need to be slowed by more traditional means (additional rate hikes). Basically, the Old Man won't stop raising rates because of higher oil prices effect on the economy, which he thinks are temporary anyhow.

Morning Comment... Post Time .... Professional handicappers will tell you- when you pick a horse to lose, make sure he’s racing against horses and not ponies! I’m sure horses and ponies have become hot topics at the bridge table as the $ climbs to a 5-month high vs the yen and 7-week high vs the Euro. Overnight, the economic disappointment continues from the pony corral. Japanese household spending drops 3.7% from a year ago and Euro-region services industries stagnated in March, a day after the EC cut its growth forecast. Greenspan speaks on energy via satellite to a petrochem conf in Texas at 1:50pm. Alcoa kicks off earnings season tomorrow… and they’re off!


Morning Comments- Post Time... Professional handicappers will tell you- when you pick a horse to lose, make sure he’s racing against horses and not ponies! I’m sure horses and ponies have become hot topics at the bridge table as the $ climbs to a 5-month high vs the yen and 7-week high vs the Euro. Overnight, the economic disappointment continues from the pony corral. Japanese household spending drops 3.7% from a year ago and Euro-region services industries stagnated in March, a day after the EC cut its growth forecast. Greenspan speaks on energy via satellite to a petrochem conf in Texas at 1:50pm. Alcoa kicks off earnings season tomorrow… and they’re off!


Monday, April 04, 2005

"Cold Blooded!" from the NY post...

April 3, 2005 -- A HATTIESBURG, Miss., policewoman and her husband found out the hard way how popular Dave Chappelle's Comedy Central show is - especially his catch phrase, "I'm Rick James, bitch!" Diane James' husband, Rick James, is running for Hattiesburg City Council. She wrote to Comedy Central: "Due to the popularity of the Dave Chappelle show, people keep stealing our 'Vote Rick James' yard signs ... we would appreciate a small campaign donation for more signs, as we are working-class people and financing this campaign out of our own pockets. Each time a sign is stolen, it costs us $4.75! Every time a 'Rick James' piece runs on your show, we stand to lose dozens of signs overnight, which end up decorating people's front yards and dorm rooms ... the yard signs have been spotted at least 100 miles from our home by truckers ... Also, young children on bikes scream, 'I'm Rick James, bitch!' as we drive by in our car with our 'Rick James' car signs ... People even drive by our home and scream, 'Super Freak.'" No word on whether Comedy central will pitch in for more signs.

Morning Comments... Bulls looking to press their luck for big bucks this morning will have the double whammy of higher oil and lower bond prices to contend with. Stock futures are back to their lows of Friday afternoon. Fed Pres Poole on Saturday agreed with the market’s reaction to their inflation comments and reflected his opinion of the changing inflation environment. EC cuts its ’05 GDP growth estimate from 2% to 1.6% and Japanese finance minister says they have no plan to change reserves, both helping the $. Alcoa kicks off earnings season on Wednesday, but just because a company doesn’t preannounce doesn’t mean they don’t have anything negative to say. WMT March comps slightly higher then expected, likely the result of an earlier Easter.

Friday, April 01, 2005

Secret Service Rulebook Chap 3, page 45….
<>“Never, ever, ever sit anyone with a red mohawk in the front row when the protected congressman/senator/president’s views lean even slightly to the right…”

This might happen.
<>


Morning Comments... Act a fool! Yesterday’s follow-through rally (or lack thereof) was held back by a rally in crude prices brought on by a Goldman analyst claiming a “super-spike” could push prices as high as $105/bbl. After the said analyst underestimated 2004 oil prices by $14/bbl, something tells me he either went “all-in” on a 2-7 offsuit or we are soon to hear “April Fool’s!” Economic data act a fool today as the 8:30 March Payrolls # is for the creation of 213k new jobs vs 262k in Feb. With the record number of speculators’ shorts in 10 year futures, I think the Fed should release a two-digit number, let the shorts scramble to cover, and then scream “April Fools!” Unemployment rate expected to fall to 5.3% from 5.4% and avg hourly earnings expected to rise .2%. Final U of Mich expecting 92.7 from 92.9 initial. ISM will reconcile the regional mfr #s expecting 55 from 55.3 would be lowest since July '03. Vehicle sales looking for 16.7mm SAAR. Japanese Tankan report weaker than expected. AMG equity inflow of $220mm, most went to domestic funds.


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