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| Mon, May 05, 2008 | ||
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The Greek's Week Ahead - Linens and Nothing
This week's Chain Store sales report looks to confirm the anecdotal evidence seen at Home Depot, Linen 'n Things, Talbots and others. Also, this week's decision by the ECB might offer insight into the durability of any dollar rally.
Chain store sales should offer no surprise when they disappoint later this week, in our estimation. Linen 'n Things went bankrupt last week, and Home Depot announced the closing of some stores, offering more anecdotal evidence into the trouble ahead for retail. Some would argue that the tax rebate will help, and we agree, but we see only a one quarter benefit. The trouble is longer-term than that, especially if energy and food costs remain so troublesome for Americans, and credit so tight. The Greek has singled out this week's ECB announcement and press conference as the most important event of the week. What the ECB does and says this week has the potential to move the dollar, commodities and stocks. Eurozone regulators are inflation manic at the moment, but they are also well aware of the competitive position of American goods in Europe, and that potential impact to European manufacturing. The consensus sees no move ahead for the ECB and the BOE, but we expect not soon after the Fed turns hawkish or neutral, the ECB will want to hike rates as well to contain inflation upward of 3%. So, dollar enthusiasts should be aware that a rally would most likely be a short-lived event (less than a year). The market closed higher last week and for April, as stronger footing was established by a better than expected Employment Situation Report on Friday. The report indicated that 20,000 jobs were lost, which was better than the 75,000 economists expected, according to Bloomberg’s survey. Also, the unemployment rate fell to 5.0%, from 5.1% in March. Unfortunately the unemployment rate misses the fact that most people are generally not lazy. The number of individuals working part-time for economic reasons, meaning they or their spouse probably lost their full-time job, increased by 306K in April, and it measured 849K more than a year ago. These under-employed individuals, while not considered jobless, are certainly having a tougher time making ends meet. Thus, the data offers a falsely positive indicator for the near-term economy. Even so, the growth in Q1 GDP reported earlier last week was also more enthusing to see than contraction would have been, and gave stocks even more reason to seek higher ground. Tax rebate checks have started rolling out, and offer tax paying consumers a chance to catch their breath in the near-term. If the government’s other intense election-year actions help the economy gain traction before too long, we’ll have to offer Bush, the Dems, Paulson and Bernanke and company kudos for staving off a deeper economic downturn than would resulted otherwise. The Week Ahead This week contains important reports concerning the housing and retail industries, as well as noteworthy news from Europe. Monday A significantly lighter load of economic data is in store this week, and Monday's schedule holds just one item. At 10:00 a.m., the Institute for Supply Management reports its Non-Manufacturing Survey. While Barron's notes expectations at Lehman Brothers for an ISM service sector measure indicative of economic expansion (+50.0), Bloomberg's survey of economists has set expectations for a reading of 49.3, just below the breakeven point. Bernanke looks to start his post FOMC meeting tour, beginning with a Columbia Business School dinner. Markets will be closed on Monday in Australia, Japan, South Korea and the U.K. As earnings season remains hot and heavy, Monday's schedule includes Goldcorp ( Tuesday On Tuesday, we advise investors pay attention to the weekly same-store sales report from the International Council of Shopping Centers – UBS. Last week’s report showed growth of 0.9%, but the week before that posted the first year-over-year decrease in our memory, as sales fell 0.7%. Just last year, sales growth was running at a pace of 2%-3%. While the Japanese market remains closed, Australian bankers will announce their latest rate decision. The Bank of Australia is expected to keep rates steady. In the States, Kansas City Fed President Hoenig keeps the Fed post-FOMC tour rolling with his address in Colorado. Democratic state primaries are scheduled in North Carolina and Indiana. Some would argue that it was South Carolina that set the wheels of change in motion for Barack Obama, and so perhaps it's appropriate that North Carolina can complete it; however, NC is a very different state and Bill Clinton is a very different campaign factor now. Up on Capitol Hill, the Senate Banking Committee is working on a bill to create a new regulator to watch over Fannie Mae ( Fannie Mae ( Wednesday Wednesday offers a busy one for economic news, and some of it capable of moving the market. Before the open, the Mortgage Bankers' Association will report its weekly take on mortgage activity. This report has been sort of a nonfactor of late, because until it and other housing data indicate a housing market turn in earnest, investors are just not going to find value here. We have noted in the past that mortgage rates have started to reflect increased expectations for inflation, and so some of the anticipated impact to housing from the rate cuts (in isolation) has been offset. At 8:30 on Wednesday, Q1 Productivity and Costs will be noted. Pay attention to late coming reports and revisions, especially those that play a role in the GDP calculation. Economists will be adjusting their forecast for GDP ahead of its reported revision this month. Nonfarm productivity is seen improving by 1.7% in Q1, after an increase of 1.9% in Q4 2007. Unit Labor Costs, the more important part of this report now due to its contribution to inflation, is seen increasing 2.6% in Q1, after an increase of 2.6% in Q4. We expect this figure to decrease in future quarters as lower cost workers replace higher paid legacy employees. This has been a staple factor in the cost reduction efforts at General Motors ( The stock market has proven resilient to recently deteriorating housing data, and it will get another resiliency test on Wednesday when the Pending Home Sales Index is reported for March. February’s report displayed a decrease of 1.9% from January. While many economists are pointing toward another double digit decline in home values before we touch bottom, and we agree values must still adjust lower, major media has started to pick up on vulture investing opportunities in the foreclosure market. However, if the foreclosure market is getting so much attention, this says something about the still wary buyers in the general real estate market. It's hard to overspend in the foreclosure space, if you do your research and do not enter into a contract for a home loan involving a property that has other liens against it. In other words, do you homework. Petroleum Status is on tap for its regular 10:30 reporting. Last week, a precipitous decline was offset by Turkish bombing of Kurd positions. Thus, you can expect oil to start lower again this week, but The Greek is on record warning about future ECB actions and how they might some day end this dollar rally. If the ECB raises rates, a real possibility, look for dollar enthusiasts to get a slap in the face, and commodity bears also. Still, everything depends on that ECB decision and press conference on Thursday, and the most important thing you can do on Thursday is pay attention to that news flow. With Congress coming down on credit card companies, and rightly so, the Consumer Credit Report should get more interesting in the near future. Many of you may not be aware of credit card company roughhousing, so we'll inform. When the less fortunate get into a bind and fall behind a payment or two, the credit card companies tighten the noose around the borrower's neck, often times raising the APR on consumer credit above 30%. This places the borrower into a deeper hole he often cannot get out of, outside of settling on partial payment or declaring bankruptcy, both detrimental to credit record. And many poor folk don't even understand their options and continue to struggle month to month, paying late fees, over the limit fees and a plus 30% interest rate. This highway robbery has to stop, and I don't care if it's in the contract or not. If you tell me you are going to rob, rape and murder me in fine print, that still does not make it okay. Consumer Credit for the month of March is indicated to rise by $6.0 billion when reported on Wednesday afternoon. February credit increased by $5.1 billion, and the rate of credit expansion looks to have decreased this year generally. One will have to wonder if the Antichrist has ushered in the "beast" when Vladimir Putin hands over the Kremlin to Dmitry Medvedev on Wednesday. Medvedev is officially inaugurated on this day, but whether the puppeteer's strings are severed or not is another question. Markets in France will be closed on Wednesday, presumably to make sure all the nuclear energy plants are working properly as Russia prepares to hold Europe hostage for heat and electricity. In the States, a Senate subcommittee considers the Delta-Northwest merger ( Wednesday's earnings schedule includes Croc’s ( Thursday On Thursday, the Chain Store Sales Report for the month of April is likely to offer further verification for what we expect will be an ongoing deterioration of the retail sector in 2008. Supporting anecdotal evidence has been mounting, with news last week that Home Depot ( Last week’s spring economic forecast published by the European Union, brought Europe’s inflation concerns to the fore. Anyone who watches European TV occasionally, like me, knows all about the mania in Europe concerning rising costs. Americans with travel plans across the pond are certainly working the calculator these days, and watching the likelihood of this year’s trip dwindle with each passing day, and each penny the euro strengthens against the dollar. This week, the ECB might put its money where its mouth is, and God forbid, raise European interest rates as it battles the inflation enemy. The ECB and Bank of England will announce their respective rate decisions on Thursday morning. A rate increase would almost surely prove damaging to the dollar, but it's not generally expected. The regular reporting of Weekly Initial Jobless Claims is due for 8:30 release. Bloomberg's consensus of economists forecasts a level of 370K claims this time around, after the measure rated at 380K last week. March Wholesale Trade is due for mid-AM report, and inventories rose 1.1% in February (+0.8% in Jan.) on the wholesale level. The ratio of inventory to sales is more important, and there's been an uptick in the trend recently, indicating the impact of recession or fear of it in product flow and purchases. The long-term trend, however, shows great efficiency gain from improved global distribution, technology and just-in-time production. The weekly Natural Gas Report is on tap for its usual 10:30 notation. In the pending war with Iran, natural gas will be our energy resource of choice. We have nice stores of coal-bed methane in the Colorado Rockies, and plenty of gas in Canada. Coal of course is an important resource in North America as well, if you're forecasting the possibility of serious competition for control of Middle Eastern energy resources. Hey, this is not so far fetched, so fetch your one eyebrow back from that raised position. India is reportedly considering similar protectionist measures to China regarding rice, and so it's becoming plainly obvious that the free market extends only as far as free availability of commodities. Then, we're sorry to say, protectionism and maybe even war become real possibilities... Thursday's earnings include American International Group ( Friday Friday offers two reports, including the International Trade data for starters. The deficit is expected to narrow to $60.8 billion in March. "What about China!", we hear you screaming. Remember, there are important dynamic factors at play now offsetting the global production factor. First of all, with global development comes international demand for U.S. branded goods. If you've ever been to Eastern Europe, you know they'll pay $100+ for a pair of lousy old Levi's. Anything American sells way above value, and they seek "made in America" tags even more intently then super-patriotic types do here. Besides this, of course the decline in the dollar has helped American exporters, and manufacturing is getting a well-publicized boost from it all. Finally, never forget there are two factors to this equation, and when America nears recession, demand for overall goods and services declines, and so import demand wanes. In a report last week, we saw imports and exports both rose recently, but exports exceeded import growth near three-fold. After April ended five consecutive months of stock market decline, expect the RBC Cash Index to begin to show the signs of confidence building. Sure, sure, the little guy is still hoarding cash, but we bet the investments he's buying now include some names he would not have touched months ago. Heck, I bet even SIVs have made some courageous folks some money lately, considering the government's willingness to hold risk. Friday's earnings schedule includes Allianz S.E. ( Please find our daily market commentary and our disclosure at Wall Street Greek. 
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| Mon, Mar 24, 2008 | ||
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The Greek's Week Ahead - Fed Nearly Out of Bullets! Thank God?
One has to wonder what exactly turned the stock market around last week, while at the same time slapping some sense into the dollar and shooting down commodities like geese in open season? A lot happened last week, so it's not so easy to discern which factor was most important in driving change. We had many variables in play that ranged from the so-called bailout of Bear Stearns (
Bear bailout... We are quite sure Bear Stearns employees have a few other choice words to describe the deal that left them high and dry, and for many, unemployed. The Fed brokered, or was it strong-armed, Bear's managers into settling for $2 a share in exchange for JP Morgan Chase's ( While it's easy to rip the deal now, if the Fed let Monday start without one, Bear Stearns might not exist today, not even at $2. Bear's mistake was in not moving its Thursday scheduled earnings report up to the Friday before it's demise. Still, Monday morning should have been soon enough to appease the market's concern; unfortunately it was not soon enough to appease the Fed's. After Bear's competitors all reported better than expected numbers last week, and Bear basically pulled its report from the board, it seems plainly obvious that BSC would also have had uplifting news to note. Apparently, this information is now insignificant, or would that be embarrassing, to report posting selling out for next to nothing... Was it Fed action, or its limited ability to take future action that helped stocks and the dollar, and hurt commodities? As the Federal Open Market Committee cut the fed funds interest rate 75 basis points, to 2.25%, it became plainly obvious there’s only so much the Fed can do before it runs out of gunpowder. Is it possible, however, that the stock market viewed that reality as a good thing. Maybe the stock market's rise displayed its satisfaction with the fact that there’s only so much more damage the Federal Reserve can do to the dollar going forward. While the government, from all its facets, desperately worked to spur the election-year economy, stocks came back to life last week at the expense of newly rich commodities. The dollar also regained some serious lost ground by the close of trading on Friday. Yet another possibility exists as to why this occurred. Perhaps the Fed’s words also scared some trigger happy, profit-rich investors out of commodity plays at the end of last week. The FOMC Policy Statement published last Tuesday contained this prescient notation, “The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization.” Stocks got a noticeable lift on Tuesday, before giving back ground on Wednesday. By Thursday, however, the dollar was surefooted and strengthening, stocks rising and commodities crashing. The Dow Industrials closed the week up 3.4%. After first weakening sharply, the dollar strengthened to finish the week at 1.54 euros. Gold and oil closed the period well off where they started it. Or, maybe none of the aforementioned factors drove the change, or all of them combined. Plenty of cash has built up on the sidelines, as noted by a Barron's article this weekend. The panicked public has stored some $3.45 trillion in money-market funds, and that compares to $2.2 trillion stashed away at the market low of March 2003. Plenty of capital was also piled up in the commodity market, so when catalyst came forth, money started moving into better balance (read back into equities). The Week Ahead The last week of March offers little in the form of market-moving economic events, and mostly wraps up prior reports with final update. We took a look at a recent forecast published by the National Association of Home Builders. The group is projecting a bottoming of housing starts this year, with modest improvement in 2009. The group interestingly forecasts the fed funds rate to average 2.17% in 2008, and that would seem to imply their view that the Fed should be near finished in its expansionary rate action. The group's fed funds rate projection for 2009, however, looks flawed to us, as it forecasts a rate of 2.13%. At first sign of economic stability, we expect the Fed to quickly hike rates to combat inflation. Thus, we would look for a higher average fed funds rate in 2009 than in 2008. Recall the Economic Fishtail of a monetary policy we anticipate Bernanke and Mishkin are planning, as per their own discussion in white papers and consistent with current inflation concerns. Monday We will get some indication of the current housing situation when February’s Existing Home Sales Report hits the wire on Monday and when New Home Sales are reported on Wednesday. Bloomberg’s consensus sees the annual pace of existing home sales running at 4.85 million in February, compared to 4.89 million in January. The week ahead holds a few noteworthy earnings reports including Monday's news from 3Com ( Tuesday The state of the consumer will receive another check up this week, as the Conference Board’s Consumer Confidence Index is reported on Tuesday and the University of Michigan’s Consumer Sentiment Index reaches the wire on Friday. Bloomberg’s consensus is looking for a reading of 73.0 for the Conference Board measure, down from 75.0 in February. The ICSC will also weigh in with its weekly take on same-store sales. Last week's figure offered 1.6% sales growth, year over year. Tuesday's earnings include Fortress Investment Group, LLC ( Wednesday Economists measured by Bloomberg expect February’s Durable Goods orders, scheduled for report on Wednesday, to increase 0.7% month-to-month. This compares with a sharp order decrease in January. Recall, because of widespread penetration of efficient just-in-time processes, orders and inventories now move on a dime and can show volatility when reported. New Home sales are seen running at a rate of 575K in February, compared to 588K in January. While we are still analyzing winter data, spring is the most important season for housing. Still, the continuation of the decreasing sales trend in February should dim near-term hopes for the industry's shares. The S&P Case Shiller Home Price Index (Jan.) should not offer any good news either, as prices likely continued their slide. Look for the regular mortgage activity and petroleum status reports on Wednesday morning. Petroleum inventory information should regain trading significance now that the loft is coming out of oil prices. Fed rate cut dissenter, Richard Fisher, is scheduled to find a microphone on Wednesday when he addresses a group in Texas. Wednesday earnings include Deutsche Bank ( Thursday Thursday's final take on fourth quarter GDP is expected to still show an increase of just 0.6%. Weekly Initial Jobless Claims, a closely followed barometer of the labor situation, is seen drifting to 370K, from 378K reported this past week. February's reporting of aggregate corporate profits is due for release at 8:30 a.m., and the Natural Gas Report at 10:30. Thursday's earnings include ConAgra Foods ( Friday Personal Income and Outlays are expected to show increases in February of 0.3% for income and 0.1% for spending. The PCE Deflator is expected to still measure hot (above 2.0% yr/yr), bringing inflation concerns back into focus. Fed rate cut dissenter #2, Charles Plosser, will address a group overseas on Friday; all ears will be on Plosser, as we seek more detail on exactly what he's thinking. Considering the sudden drop in commodity prices last week, Friday’s Farm Prices Report should garner some attention. The Department of Agriculture releases its data at 3:00 p.m. The University of Michigan Consumer Sentiment Index is expected to read 70.0 for March, down from 70.8. Ironically, poor sentiment should help stock fuel for an eventual robust rally. Friday's earnings reports include Coca-Cola Hellenic Bottling ( Inquire about advertising at The Greek. If you operate a business that employs a web strategy, we can help to significantly improve your effectiveness. Ask us how - Email: ads @ WallStreetGreek.com. (disclosure)  
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