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Thursday, June 30, 2005

Morning Comments... Elliot Spitzer, take note. Last week, CNBC’s Maria let the cat out of the bag early on BAC’s $35bln purchase of credit card issuer MBNA. After the second helicopter crashed into the east river which contained a group of Wilmington, DE based MBNA executives, she speculated as to why they are all flying in a helicopter to a meeting in NY. Hmmm…

FOMC announcement today at 2:15pm, and the street expects a 25bp hike to 3.25%. Outside of possibly creating a housing and credit bubble, the Fed’s attempt at transparency appears to have bred complacency amongst investors. Greenie & Co. have diagrammed every play countless times before it happens, inoculating us to the fear of inflation or a sudden move by the Fed. The environment will only serve to make the eventual landing all the more tougher.

At 8:30am, May Personal Income is expected up .3%, running at 7% y/o/y (vs 5% in previous expansions). Personal Spending is expected up .1%. Greenspan's favorite inflation data the PCE deflator is expected up .1% at the core for a 1.7% y/o/y #. On the heels of the weaker than expected NY and Philly Fed #s a few weeks ago, at 10am the June Chicago PMI expecting 54 vs 54.1, the lowest level since June '03. ISM is out tomorrow.


Wednesday, June 29, 2005

Morning Comments... After beating 36 counts of fraud, Dick Scrushy moonwalked out of court. I would note, however, that the prosecutors failed to charge him with “fashion faux pas” for demanding a portrait of himself in every Healthsouth center while he was CEO. Rivaling Tyco’s Dennis Kozlowski’s obnoxious misuse of corporate funds on a $15,000 umbrella stand, Scrushy once erected a statue of himself outside corporate headquarters in Birmingham, AL. This brings up the question- if there are surveillance cameras in 7-11’s where thieves can steal $800 and a slurpee, why aren’t there surveillance cameras in boardrooms where CEO’s can steal $2.7bln?

<>Is the housing market exhausted? In light of 10year yields below 4%, weekly mortgage applications fell for the 2nd straight week by 1.1% with refi’s down 1.8% and purchases down 0.4%. At 8:30am the final revision to Q1 GDP expecting 3.7% up from 3.5%. The # is quite dated since we are 2 days away from the end of Q2. Tony C notes that a jump in inventories added about a full % point to Q1 GDP and the draw down should be a drag on Q2. Greenspan lugs the clunky briefcase to the FOMC meeting today, with the rate decision expected tomorrow at 2:15pm.

Tuesday, June 28, 2005

Morning Comments... I can’t find any overnight news to account for the 65c drop in oil, and if anyone out there in cyberspace has an explanation, please advise. One point of interest from oil trader Dougie “Fresh” at Man is that the gasoline front month contract is only down 55c, while the back month contracts are trading down $1.40+. With the constant overhang of inadequate refinery capacity, gasoline remains the only market with backwardated spreads, a signal of strong demand which should keep a cushion under the price of Oil. The $ is stronger vs the Euro on more weak economic data out of Italy and Germany, however France business confidence was plus bien then expected. $/Yen at 8 month highs, probably due to Japan’s reliance on oil imports (over 90% imported). At 10am June Consumer Confidence is expected 104 up from 102.2 in May (100.4 average over the past year). Responses to the hiring questions will provide economists with better guesstimates for next Friday’s payroll data. The Old Man lugs the clunky briefcase to the 2-day FOMC meeting starting manana, with the rate decision Thursday at 2:15pm.

Monday, June 27, 2005

Morning Comments... Oil matters again. Last week’s breach of $60 and a subsequent round of corporate ‘fessing up to the economic effects of expensive oil led to last week’s 325 point drubbing in the Dow. This morning, we neared $61 as Iran’s new president-elect pledged to limit outside investment into its oil fields. Euro stronger vs the $ after an ECB voting member said 2% on the benchmark rate “is appropriate”. Also, German business confidence rose for the 1st time in 5 months. All quiet’s on the domestic economic data front, but the 4th of July fireworks come early on Thursday with the 2:15pm release of the FOMC decision.

Friday, June 24, 2005

Morning Comments... “The War of the Worlds” with China continues as CNOOC’s proposed purchase of Unocal has ignited resistance amongst the protectionists (who fear the loss of US jobs) and the “rationalists” (who fear a communist controlled company paying with monopoly money (aka “yuan”)). Philly Roth, our technical guru, says the market can’t take another down day (like yesterday) without disrupting the “fragile” recovery. Traders have a few economic releases to contend with today before we commence the weekly Cannonball Run to the Jersey Shore and the Hamptons. At 8:30am, May Durable Goods expectations are for a gain of 1.5% and up 0.5% ex-trans (vs +1.9% and -0.2% in April). With the May ISM # being the lowest in two years, mostly due to the new orders component, there is risk to the downside. A few months ago, the weaker than expected Durable Goods # started the soft-patch talk. At 10am May New Home Sales (a measure of contract signings) expecting a new record of 1.32mm vs previous record of 1.316mm. Overnight and overseas, the US equity malaise carries on, and global bond markets rally. AMG inflows of almost $1.1bln with 68% going to domestic funds.


Thursday, June 23, 2005

Morning Comments... Another day, another $/Euro (rally) on the back of more disappointing economic data out of Europe as Italian consumer confidence falls to its lowest level in 9 months and UK factory orders index falls to its lowest level in 1.5 years. Greenspan and Snow testifying on China in front of the Senate at 10am, which is starting to shape up like an economic “War of the Worlds” after China’s CNOOC trumped Conoco’s bid for Unocal. GE reaffirms guidance. FDX warns that eps will be lower due to “jet fuel prices”. Initial Jobless Claims expecting 330k vs 333k last week, consistent with a monthly payrolls average of 175k. May Existing Home Sales expected to ease slightly to 7.15mm from the record high of 7.18mm in April. The forward looking New Home Sales Data will be reported manana.

Wednesday, June 22, 2005

<>Morning Comments... Low interest rates in the house as US and Euro bonds rally for the second straight day after the Bank of England said two policy makers voted for lower rates. This comes on the heels of a Swedish 50bp cut and a Bill Gross prediction that the Fed will start CUTTING rates early next year. Mortgage apps momentum slowed with refi's down 13.2% and purchases down 9.4%. Quick review… strong economy – strong commodities – strong bond market – strong equity market. Which shoe will fall first?
No economic data today.

Tuesday, June 21, 2005

Morning Comments... With Oil teetering around the $60 level and Dec ’07 $100 calls trading yesterday, nothing matters until it matters. At what point does the 7% rise in commodity prices in the last month either spurn higher interest rates or dampen the purchasing power of the consumer? Over the past month, strong inflation data was “priced in” and dismissed in light of a declining CRB. Now that commodities are back en vogue, what excuses will the inflation doves contrive to dismiss future strong inflation reports? In a nutshell, the 10year at 4.11% has some catching up to do with a CRB index that is +16% y/o/y and upticking. Overnight, the $/Euro bounced strongly after Sweden cut its benchmark rate to a record low 1.5% from 2.0%, pressuring the ECB to also lower rates. My neighbor here, Peter Boockvar, is anxiously anticipating “the headwind a stronger $ will have on US corporate profits” and sees it as the “main reason why profit growth is expected to slow to mid-single digits.” NUE lowered guidance last night, kicking off the beginning of confession season.

Tuesday, June 14, 2005

Morning Comments... After a rejected EU treaty, declining growth, and record high unemployment, France and Germany finally have something to celebrate as Jacko is found “NOT GUILTY” on all counts of child molestation. Even though the trial has ended, there is an onslaught of economic reports “sharing the bed” today. The May PPI is expected -0.2%, vs +0.6% last month, and the estimate for the core # is +0.2%, vs +0.3% last month. Lower oil prices and a slumping ISM prices paid component are guilty of the lower estimates. At 8:30am, Advance May Retail Sales are expected -0.2% vs a whopping gain of +1.4% in April. Unseasonably cold temps (the average temp in May for Boston was 10 degrees colder than Anchorage, Alaska) were the likely culprit. However, it’s been hotter-than-hades the past week in the Northeast, so any shortfall in summer items will be short lived. $ weaker vs the Yen after the Japanese Finance Minister forecasts a coming yuan revaluation. UK May house price survey hits a 12 year low, and a few years ago it was at record highs before their central bank started raising rates (is this a sign of things to come)? OPEC expected to raise quotas to what they’re currently producing anyway.

In light of the Jacko acquittal, does anyone else find these Thriller lyrics creepy…

You Hear The Door Slam And Realize There's Nowhere Left To Run
You Feel The Cold Hand And Wonder If You'll Ever See The Sun
You Close Your Eyes And Hope That This Is Just
Imagination
But All The While You Hear The Creature Creepin' Up
Behind
You're Out Of Time”


Monday, June 13, 2005

To the “grumpy old men” on the Morgan Stanley board,

Please view my attached idea for the new NBC reality show, “You’re Hired: The Search for the New CEO”. My goal is to re-brand the image of the company (Trump style) with weekly doses of one-hour episodes of praising and promotion, culminating in a weekly firing of a possible candidate by the audience. One of freshly ousted Purcell’s goals was to gain market share amongst the middle class investor, what’s not a better medium than network TV. Taking out 1-page ads in the WSJ is a waste of $ as most readers don’t get past the first page. The strategy worked for Donald and Martha, why can’t it work for you?

Overnight, the $ shows continued strength vs the Euro after ECB Chief Economist Issing hinted the bank may reduce rates for the first time since 2003. $/Yen also higher after Japan’s Q1 GDP grew only 4.9%, vs initial estimate of 5.3%. Oil slightly lower, Arlene causes little disruption to production. CFTC data from Friday showed the first net long in crude since May 10th.

Independence Day fireworks may come early the year with this week’s onslaught of economic data, which begins tomorrow with the May PPI data, and the headline # is expected down after a drop in oil prices in May (which has since been reversed). The May CPI will follow on Wednesday, along with Business Inventories, Empire Manu, Industrial Production, Net Foreign Security Purchases, and the Fed’s Beige Book. On Thursday, the Philly Fed survey, and Friday, the release of the Current Account Balance.


Friday, June 10, 2005

Morning Comments... Just a few economic releases to get through this morning before traders commence the “cannonball run” to the Jersey Shore and the Hamptons. At 8:30am, April Trade Balance is expected -$58.0bln vs the narrower-then-expected -$55bln in March. The March # boosted Q1 GDP estimates and rallied Treasuries on the thought that a weaker $ was leading to a current account adjustment. In the meantime, the $ has strengthened and last month’s data contained the Chinese lunar holiday, so a wider than expected # might be in the cards. May Import Prices are expected -0.4% vs +0.8% in Apr, mainly on the decline in oil (this # is somewhat dated). The IEA cut Q2 oil demand estimates on an expected China simmering, but raised its 2nd half estimates with the net ’05 demand estimate remaining unchanged. INTC slightly lower even after raising Q2 sales to $9.1 - $9.3bln from $8.6 - $9.2bln, but the undisputed chip champ is up 25% since mid-April. The $ is little changed after Apr French IP was weaker than expected. ETFs received 56% of equity inflows of $1.71B. PPI and CPI should provide some early Independence Day fireworks next week.


Thursday, June 09, 2005

Morning Comments... While most of Eastern Europe awaits the Jacko verdict with bated breath, market participants will be holding their collective breaths ahead of the 10am release of Greenspan’s comments. The text of his speech will be released just before he begins his testimony in front of the Joint Economic Committee. There is wide spread belief that the “chief inflation fighter” will echo his name-sake, and that the Fed will continue to raise interest rates until the inflation infection is subdued. The Senators and Representatives will then ask wordy, drawn-out, ostentatious questions related to the 10-year “conundrum”, “froth” in the real estate market, and the tale of twin deficits. The Q&A session will be closely watched as the grace he exhibits in his dodge and parry defense will impact the markets. Currently, Fed Fund futures price in a 100% chance of 50bps by year end, and a 50% chance of 75bps by year end. Outside of “rookie” Fed Member Fisher, every recent Fed member has explicitly stated that the hikes will continue. Jobless claims expecting 333k vs 350k last week.


Tuesday, June 07, 2005

“There’s too many men
Too many people
Making too many problems
And not much love to go round
Can’t you see
This is a land of confusion.”

<>Genesis’ lyrics seem very apropos today as the economic world seems to be scratching its collective head. Greenspan, speaking via satellite to the International Money Conference in Beijing, commented that the “unusual” decline in long-term US Treasury yields still can’t be fully explained. Greenie is also not sure if we’ll see an inverted yield curve, and if we DO see an inverted yield curve, he’s not quite sure if it would mean the same as it has in the past. Citibank announced yesterday that a box containing personal information on 3.9mm customers disappeared, and they’re blaming UPS. Goldman lowers its GOLD forecast on a stronger $, after the $ has already rallied 10%. Russell Crowe still can’t dial Oz from his lower Manhattan holding cell. At 3pm, Apr Consumer Credit is expected $7.4Bln.

Monday, June 06, 2005

Morning Comments... After last week’s focus on economic reports (cons conf, PMI, ISM, ULC, payrolls), this week’s focus will be on mid quarter updates (TXN Tuesday, INTC Thursday). Traders will also have to contend with 90+ degree temps, making the hellish subway commute even more hell-ier. Crude climbed to a six-week high overnight (55.55) on concerns that fuel demand is straining refinery output. The Euro is bouncing this morning after Friday’s CFTC data showed a new record long in $/Euro, and an ECB member said he wouldn’t rule out a rate cut to stimulate their economy. Apr German Factory Orders were weaker than expected. Yen rallying after Japanese Q1 capital spending stronger than expected which will lead to an upward revision in their GDP #. WMT reiterated 2-4% June comp gains. Jacko’s psychosomatic back pains are back again as the world awaits his future. No economic data today. Greenspan speaks tonight and Thursday with anxiously awaiting markets in light of Fed member Fisher's comments last week.

Friday, June 03, 2005

Morning Comment... Today’s look at the May jobs report carries added importance as yesterday’s 3.3% rise in Q1 Unit Labor Costs was blown off on the belief that future employment growth would be necessary to sustain the current elevated rate. Expectations are for a creation of 175k jobs in May vs 274k created in April. The GS Deriv auction is roughly inline with this estimate. The other expectations: Avg Hourly Earnings (+0.2% vs +0.3% prior), Avg. Weekly Hours (33.8 vs 33.9 prioir). The 10am ISM Non-Manufact is expected 60.0, down from 61.7 last month. $/Euro is slightly weaker after European Services Growth rose at fastest pace in 7 months. $/ Yen also weaker ahead of the payroll data in the US. Oil up almost .50. Mediterranean tanker rates rise for the first time in 3 weeks.


Thursday, June 02, 2005

Morning Comments... Yesterday’s dovish talk of the Fed being in late innings was cheap, in light of Fed Pres Moskow’s comments one week ago claiming the Fed still has “more ground to cover”. Tony C highlights today’s 8:30am Unit Labor Cost #, which account for about 70% of the inflation picture, and might steal the spotlight from commodity prices. A sharp upward revision to past months could bring labor costs up 3.0% y/o/y, double the average of the past 15 years, and the Fisher could be HBP (hit by pitch, for those keeping score). $/Euro weaker overnight as the US10year yield advantage over a German 10year shrank to the lowest level in 3 months. Weaker vs the Yen as BoJ member said the central bank should stop plowing cash into the econ a year from now. 8:30 Initial jobless claims (5/28) expected 325K. Also at 8:30, nonfarm prod 1Q05 final expected to be upwardly revised by 0.4 to 3.0%. Unit labor costs cons is 2.1% with est as high as 2.6%.

Wednesday, June 01, 2005

Morning Comments...


<>
I finally got around to seeing Star Wars Episode III last night and would note that Hayden Christensen may play Darth Vader, but in real life he will soon be playing Mark Hamill, exiled to the dark side of trade shows, cameo appearances, and illicit substances.

Another day, another cut to the Q2 EU growth forecast as a shrinkage in manufacturing and drop in retail sales will result in only +0.3% growth (+0.4% previously expected). The Euro dropped to an eight-low vs the $ ($1.2232) as politicians are now calling for the ECB to lower rates in the wake of the EU constitution debacle. With CFTC data reporting a record # of Euro shorts already, it will be interesting to see if the $’s rally still has legs. Oil sets a three-week high after pipeline ruptures shut down two RD units in Texas. Mortgage aps -2.8% vs +4.3% last week, and we are still waiting for the surge in new aps with the recent drop in rates. At 10am, May ISM Manufacturing is expecting 52.0 (vs 53.3 prior), and is the number du jour on the recent weakness in NY, Philly, and PMI.


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