EXCERPTS FROM PRIOR WEEKS BELOW         
December, 20—25, 2010  CLOSING OUT THE YEAR   Normally, I’d expect Portfolio Manager’s leaving for the holidays to close out their positions, this week, causing a dip that sets up the Santa Claus rally starting next week. However, consumers are setting retailers afire, at the malls, exactly the kind of news the Street needs as an excuse to stay long.

Admittedly, expectations for additional big gains next year—the third year of the Presidential cycle--remain too universal for comfort. And clearly, stocks are long overdue for a bout of profit taking. The VIX is ridiculously low, given some major hurdles still faced by global economies, including high unemployment in the US, and the possibility for more sovereign stress in European peripheral countries. And that’s before we even mention North Korea’s threatening actions against the South, and the continuing war in Afghanistan, even as war in Iraq can’t be said to be over, by a long shot. But the truth is, big data won’t arrive until Thursday, after most PM’s have already flown the coup. That means any actions they might take in response to the coming data will have already been executed by Thursday, when Nov Durable Goods Orders & Shipments, Personal Income & Spending, and New home Sales will be released. Wed’s Final 3Q GDP and Corporate Profits shouldn’t deliver any big surprises: GDP should finish near the 2.5% Street assumptions, while Corporate Profits should be little changed from the earlier revision. November isn’t a big month for Existing Home Sales and, no matter what’s reported, there should be general agreement that banks suspending foreclosures, after October’s disclosure of faulty affidavits, will pressure the numbers. Heck, not only do QE2 buys by the NY Federal Reserve go on hiatus by Thursday but the Treasury market closes early, leaving stocks to the amateurs, late that day. Volume should decline significantly by then.

Earnings promise a number of somewhat big reports, including Adobe, Darden, Jabil Circuit & Paychex Monday. Tuesday, CarMax, Carnival Cruise Lines, Conagra, Hovnavian Enterprises, Navistar, Nike & RedHat, all notable within their sectors and likely to deliver, Carnival could disappoint if the Street hasn’t sufficiently adjusted its numbers to account for the Splendor being out of service, for longer than anticipated. But then, news could be strong for early bookings of spring cruises.

Wednesday, Walgreen, Bed Bath & Beyond, and Micron will be commenting on earnings that ended in November, a lifetime ago during the holiday season. Furthermore, Micron, in particular, was kicked out of the NDX Q-50(NXTQ), the 50 securities just below the top 100. That probably impacts MU more than earnings. Bed Bath & Beyond didn’t suffer from Best Buy’s disappointment, which is curious. Just as BBY benefited, last year, from closure of most of the Circuit City stores, BBBY had been benefiting from the closure of Linens ‘N Things, the effect of which is now two years old. Plus both Macy*s and Kohl’s have been targeting the heart of BBBY’s linens & towels business. The Street’s failure to see a connection or raise any doubts about BBBY’s coming report is just plain curious, as I said, especially when off-mall retailers often suffer when the malls are as strong as they’ve been, since before Thanksgiving.

Outside the FCC’s vote on Net Neutrality, expected Tuesday, and Analyst meetings Monday for both Genzyme & Hansen Natural, there’s not much going on this week, except watching the clock tick down to Christmas. Still, given the strength at retailers, and what seems to be record pent-up demand after two years of frugality, it’s hard to see how even big disappointment Earnings would derail the bulls.

In sum, should stocks see a bout of profit taking, I’d expect it to be seen as a buying opportunity, especially come the week between Christmas & New Year’s, when the traditional Santa Claus rally arrives. Generally, watching the new annual lows list is a good place to pick up stocks likely to benefit from the January Effect—early in the New Year outperformance by small and micro caps that performed poorly the prior year. One stock I’d put on the potential January Effect list is far from a small or micro cap but worth consideration—Cisco. The stock has been beaten to a pulp, and should be worth a fly in the New Year, perhaps best tried with LEAPs, since January Expiration usually suffers from large outstanding open interest, much of it losing with the stock under $20. With 4G and LTE rolling out across the country, and Verizon, supposedly, preparing for an iPhone of its own, the build-out of the Internet should continue apace. I still like the prospects for Cache to recover, after a strong response to only 30% off, when most stores are offering 40, 50, or 60% off, even as it set the first complete refresh in more than 18 years. I’d continue to avoid Bebe Stores, Talbot’s, and Coldwater Creek, all of which remain disasters. None of those retailers are, necessarily, Christmas stores. Bebe often does better between Christmas and New Year, sought out by women looking for the perfect sexy dress for the last night of the year but, even at 80% off PH8, hasn’t attracted customers. BEBE, or any chain, will be hard-pressed to make up for a lost season with a few days of sales after Christmas. And let’s not forget PH8 was the second iteration of BEBE Sport, only, stores, which also failed miserably.

For what it’s worth, I think the bashing the credit card network stocks took after the Federal Reserve’s transaction cap proposal is far worse than what the end result will look like. Similarly, I seriously doubt any retailers will benefit from lowered transaction fees, given the other rising costs they face. I’ve been involved in Discover (DFS) for a while, and picked up Visa on the big sell off. The group has survived similar caps in Europe, big anti trust settlements, and everything else thrown at them, including a spike in delinquencies, and shrinking credit balances. Not only do I think the Federal Reserve’s proposed transaction rate of 12—17c is unrealistic and likely to be revised up considerably but the strong activity in mall stores this season, will help the group print profits beyond their guidance. And that’s before the post-Christmas sales are even considered. Normally, I’d recommend selling naked puts against the names, as a way to try to buy them more cheaply but I’m not sure they’ll stay at their reaction lows long enough to make that the best way to position.

This is our last report until January 2^nd. A Merry Christmas, and Happy, Healthy & Profitable New Year to all.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence. 
December 13--17, 2010    WINDING DOWN   Well, China's November CPI came in at 5.1% but the Central Economic Work Group ended its weekend meeting without announcing another rate increase. Perhaps the Buddhist Chinese Central Bank worried the West wouldn't like it if it was done around Christmas, perhaps upsetting markets.

While Earnings reports, I-Bank & Trade Events are winding down, 'tis the season for next year's financial guidance, so the schedule is flush with significant names. BMC and Broadcom stand out on Tuesday, Avnet, AmerisourceBergen, Danaher, Delta, and Dollar General are Wednesday. Thursday, P&G is the headliner, while Friday it's probably ITT. All but Dollar General are multi-nationals, so should provide great perspective on economies around the world. Some recent updates, from 3M, DuPont, Texas Instruments, and others weren't quite as bullish as markets have been. While Cisco was the first to throw the worry ball into the gutter, it doesn't seem to be alone. With crude and other commodity prices still running, inputs could still run ahead of possible end market price hikes.

Of course, the Quadruple Options Expiration and S&P Index rebalances, as well as Nasdaq rebalances, should be on the radar. Given Cisco's poor performance, one should imagine there will still be sellers, as its weight in indices is likely to shrink. Speaking of shrinking, keep an eye on the new lows list. That's often the best place to harvest potential "January effect" stocks--stocks battered by tax loss selling at the end of the year that manage the best bounces early in the New Year. I feel reasonably certain Cisco will see a January effect surge of inflows, but it's not the only one. Some of the other stocks on my list include Chico's (CHS), which hasn't really gotten sufficient respect for turning around its stores. A name I'm only recently warmed up to is Cache (CACH). Like a children's store which expects its customers to outgrow its merchandise, CACH for years ran the same styles, year in year out. Furthermore, you didn't need a calendar because you could guess the month by the colors of garments on the rack. While now it's different: For the first time in 18 years, styles are new, colors are new, prices are more reasonable, and customers are, again, responding to promotions like 30% off entire purchase. As investors in Aeropostale have learned, even the best merchants, sooner or later, come up against comps that were so strong they can't be beat. That's why retailer specialty investors like to buy into multi-year losers, in hopes of a turn around, the minute they see better merchandise and traffic. CACH has the opposite luxury of ARO. It's done so poorly for 2 years, the only way to go is up.

I had American Apparel (APP) on my list, too, but now would wait for a little pullback from last week's gains. APP got to much comment around last week's meeting and its acting President. If it pulls back again, I'd be interested. APP ALWAYS had the right fashion--skinny jeans, leggings, and such but was run like an exclusive club--if you didn't know what it carried, you shouldn't shop there. Promotions were a joke: "buy 3 of an item and get the 4^th one for 15% off." Earlier this month, the chain actually ran a clearance sale, offering as much as 50% off some garments and, whaddya know? Customers actually responded. There are a sufficient number of big investors putting their money into shares to suspect there's more support for success than when Dov Charney ran everything himself. It could still wind up failing under its debt load and slow sales but, then, it's option priced and many options expire worthless.

Master Trust Data is out from credit card companies, this week, which could surprise with even bigger improvements in credit, thanks to seasonal hiring. In that space, I like Discover Financial on pullbacks to near $18 or better. Justice isn't going after it because the majority of its debt doesn't revolve. It owns its own network, which might be attractive to acquirer. While not very popular here, it is overseas. Europeans use it extensively for travel/entertainment related expenses, and there's less of a "everyone's doing it" mentality on defaults over there. Fewer people think its acceptable to merely walk away from obligations. Perhaps the biggest plus is that DFS never worked as hard to develop new cards to snag worse credits, like AXP did. Nor was it big on offering zero interest payment "demand" checks to cardholders. AXP used to include them in Nov. statements in the hope cardholders would spend money they had to spend, on things they couldn't afford to buy with cash, so that they'd pay it off at higher interest rates, once the zero interest period ended, often at 28.99%. hose offers were probably responsible for a high proportion of AXP's overall write-offs. Now, of course, those balances are subject to less favorable Credit Card Act/Consumer Protection rules about payment application.

I'd be remiss if I didn't touch on the extreme cold in the south: Big beneficiaries are Campbell's Soup, and Home Depot, Lowe's, Target, Walmart, and similar, who sell space heaters, heated blankets, and/or hats, mittens, scarves, and other cold weather gear. The brand of space heater most prevalent here is Honeywell but I believe that's licensed by KAZ, which Helen of Troy (HELE) just announced it's buying. I've occasionally mentioned HELE because I think it's a company P.E. could scoop up and make much more profitable doing nothing but trimming the number of SKU's in its hair care division. A company shouldn't need 36 different hair dryer SKUs, or need to pay licensing fees for that many, either. One irony of the, literally, frigid weather has been Gap's de-empharsis of scarves, gloves, and hats, here, this year, after 4 years of loading its shelves and racks with them in various colors, solids or stripes, most sold for 70--80% off after Christmas. First time GPS could have actually sold them, and it offered only a very limited supply. What GPS did stock here, was 50% off back in October, along with heavy outerwear. On the latter, though, it wasn't alone. When Back To School didn't light any fires, and the early fall saw unusual heat, retailers panicked and dumped the very garments they could have cleaned up with last week and this, sub-freezing temps expected, again, tonight through Wednesday, almost to Miami.

As traders were wrapping up last week, for-profit Education stocks were spiking on word that the incoming Republican chair of that Congressional committee was less enthused about gainful employment rules bandied about by Dems. The Republicans should reconsider. I've known people who went undercover who swear many of the schools are nothing but a sponge for Federal funds--that they could be profitable only as long as the Fed is paying the tuition, and any supposed "entrance exams" are a sham.

                                                                                        
December 06—10, 2010  DÉJÀ VU ALL OVER AGAIN I can’t help feeling a strong sense of déjà vu, since stocks surged out of the gate to open both October & November and it was all downhill from there. Granted, this is a more favorable time of year for some ebulience and, to my surprise, consumers didn’t back off after a week of strong shopping at the Mall. Instead, it appears, there’s an abundance of pent up demand that retailers are helping to unleash with extraordinary discounts very early in the season. For some, the best question is what they’ll have left to sell after Christmas, if cruise & spring isn’t delivered and set tout suite (if you’ll pardon the followup to the French title.

This week will be a very big week in so many ways. First, there’s talk about the EU backstop growing even larger, come its 2013 permanent version. Second, the US Treasury is auctioning a slug of longer term debt and, reopening both a 10-year and 30-year tranche. With EU Peripheral country rates so much higher than US rates and backed by the EU, absent the Federal Reserve, it’s uncertain who’d be buying what the Treasury is selling. The 60 Minutes interview with Ben Bernanke, though, didn’t offer anything new except to, perhaps, confirm what traders have long assumed—if $600B in QE2 doesn’t boost the economy and hiring, than helicopter Ben will do something else until he succeeds. It’s almost ironic that the miracle of "productivity" Greenspan so enjoyed is exactly what’s working against hiring now. Expect nothing earth shattering out of either the Canada’s or Bank of England’s central bank meetings, this week.

Earnings, too, are in dial down mode but reports from Korn Ferry, Costco, Oxford Industries, Brown-Forman, Smithfield Foods, and National Semiconductor are worth a glance, as are both Ciena & Harry Winston Diamonds though, the latter won’t reveal much about the economy but, rather, about the whether the wealthiest are indulging their pent up demand like the middle class has been for weeks.

There are numberous big conferences, not the least of which is Goldman Sach’s U.S. Financial Services Conference, the UBS Global Media & Communications Conference, and Barlcays Global Technology Conference which, for all intents and purposes, will be a massive mid-qtr update. While we couldn’t get an agenda, the Premium Calendar has a long list of confirmed speaking companies that baffles in its size, ranging from Internet, to tech, to alt energy, to payments. A PM could attend the conference and miss of the companies she wants to hear because so many will speak concurrently to fit so many in. I’d be remiss if I didn’t mention, also, the Wells Fargo Real Estate Conference, since that group has lagged, somewhat, the recent surge in stocks. But to be fair, there are multiple other worth conferences, this week, that aren’t being singled out here, ASTA’s Corn & Sorghum and Soybean Seed Research Conference just one you won’t hear much about in many places. If you usually glance at the Calendars below this update, this isn’t a good week to do that, because analyst meetings, also, will demand attention, whether GE Capital, MetLife, 3M, Cardinal Health, Genworth, ArvinMeritor, Home Depot, Yum! Brands, Akamai’s, Brown-Forman’s, Dupont’s, United Technologies, or Black Box Corp’s. And that’s bfore considering either of the Salesforce.com or Oracle Devcons, the latter in Brazil which has become a popular place for channel checks and research, as well as conferences.

So, even as it feels like the year should be winding down, the I-Banks and Companies are cranking out one more week or overload before heading out of town. Sometimes too much information is too much—and one should be on guard for that this week, especially with stocks pulling the same opening of a new month surge they pulled both prior months, without getting very far for their effort. In fact, there are a fair number of stocks still wallowing under the November highs, others still under the April highs, even as some are threatening to challenge 2007 highs, still others, like Cisco making new lows. And as I occasionally do, I’d suggest keeping an eye on Cache (CACH) which is selling at a mere 2x cash on hand, and has so badly lagged retail this year. When tax loss selling looks over—perhaps not for another 2—3 weeks, it’s one I’d consider sub $4. For the first time in years, it isn’t simply recycling prior years’ styles and, for its freshness, seeing more shopping interest. A poor performer this year, that won’t protect it from more selling in the short term but should make it a a fair risk for the real Santa Claus rally which, by definition, can’t start until after Christmas. And, as a more New Year’s Eve than Christmas retailer, it’s far too soon to worry about missing what could be a nice coming run. Ditto Cisco, which won’t get out of its way until tax loss selling subsides.

I wouldn’t take anything for granted right now. Bernanke is succeeding, only, in inflating commodities and the intangible assets that are stocks. With the economy lagging, badly, the rise in stocks, te party could end any time—the dollar, apparently, key to the markets’ fate, still. On Tuesday, Ireland's finance Minister will present the 2011 budget to Parliament. That could be pivotal or not--with so much else happening this week. Obviously, a compromise on the expiring Bush Tax Cuts would be reason for another upside fling. Just don't forget what happened to the early October and November rallies. There are no rules exluding a 3peat, and as PM's planning on taking long end of year vacations consider their risk, strength could turn to weakness, if only for a few weeks.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions are the author’s, alone, and should be just one factor in more complete due diligence.                     

November 29—December 03, 2010. WHAT’S SO GREAT ABOUT RETAILERS BEING ABLE TO SELL MERCHANDISE MARKED DOWN ANYWHERE FROM 50—80%?    It used to be that 50—80% off discounts were reserved for the day after Christmas or, even, New Year’s Day. Today, they’re as commonplace in any mall as signs touting the mall owner and that owner’s gift cards. As a former New York City and Long Island retailer of high end, imported sporting wear, I remember the days when sales were semi-annual events, perhaps with one extra thrown in during October, to drum up early sales of ski wear. With most retailers keeping tight reins on their inventory, since last year, there should be no reason to slash prices this early in the holiday season. The nearly universal 50%, 60%, up to 70%, and even 80% off signs offered on and offline this week strikes this former retailer as simply insane. It destroys margins and conditions consumers to wait for equally deep discounts before buying next time. From my perspective, there’s nothing to celebrate, about what’s going on in retail today—Nordstrom about the only one not running a wall to wall sale and, it’s worth mentioning, not suffering because of it. Furthermore, chains like Macy*s, that offered 8am to noon Black Friday sales saw their aisles empty out, once the sale ended. At the local Macy*s, the end time of its 50% off storewide sale ended an hour later than planned, at 1pm, at which time the 50% off signs were replaced by 25% off signs, before giving effect to the mailed, newspaper ad and circular coupons that every clerk was willing to honor, even when the shopper didn’t have the coupons with them. However, shoppers had already move don to the next insane retailer, emptying Macy*s aisles tout suite.

Then, again, you might wonder with me, what the heck retailers will sell as Christmas approaches, and in the days immemdiately after Christmas and New Year’s, when sales have often, in the past, been equally strong—and 50—80% is appropriate, to clean out last season’s merchandise to make way for cruise and spring. Manufacturers aren’t sitting on merchandise to fill in. They gave that up in 2008, when retailers cancelled orders and, even, shipped back merchandise they couldn’t sell. Retailers, here, took outerwear to 25—50% off in October, afraid they’d be stuck with it, despite the fact that winter never really arrives, here, before December. So when consumers will actually be looking for outerwear, none of the stores will have any to sell. That might be something to celebrate if one owns an eCommerce site with outerwear. And that, inevitably, will occur, especially since so many bricks and mortar retailers, here, have given up selling overcoats and raincoats, altogether.

In short, retailers holding their clearance sales before winter has started, and while the holidays are still weeks away, is as askew as the Federal Reserve being the biggest customer for US Treasuries. So when good comps are reported, wonder about the margins, and why other analysts aren't asking the same question.

The Bureau of Labor Statistics’ seasonal adjustments contributed hugely to last Thursday’s big dip in new unemployment claims. Having said that, however, let’s grant that retailers and winter resorts have been bulking up for the holiday season. Unfortunately, come February, if not sooner, many of those jobs will end, proving as temporary was they’ve always been. On top that, Unemployment benefits for approximately 2m people expires at the end of November, because they’ve maxed out their 99 weeks, having collected, already, the multiple extensions provided because of the recession’s severity. Pres.Obama is meeting with Republican leaders this week but, it appears, the Republicans’ chosen way to prove the Democrats must be run out of office is by objecting to anything the Democrats propose—even the safety net for long-term unemployed. While everyone presumes the Expring Bush tax cuts will be the principal topic of the White House Bi-partisan meeting, Tuesday, the expiration of extended benefits will be on the table, too. And much as I’d rather the White House find a way to pay unemployment benefits to companies that hired the long term unemployed, as Germany did at the depths of the recession, there’s little hope that such a radical suggestion will pass during a lame duck session of Congress. And it’s altogether possible the best Unemployment Report in months will arrive Friday—thanks to seasonal, temporary employment.

Fed speakers will be out in force, this week, though defending QE2 has, clearly, taken a back seat to the Ireland’s bail out, and worries that other EU countries are next, Portugal & Spain in particular. Also highlighting the Economic Calendar, this week, November Vehicle Sales, expected to be strong, an ECB announcement, and the Fed’s Beige Book, which might be slightly more upbeat than recent ones, which could but probably won’t revive worries of the Fed not completing the entire $600B QE2 announced.

Earnings, dominated by retailers, probably take a back seat to both the Economic Calendar—and comp sales in particular, for that group—there are a few notable events. the Credit Suisse Technology Conference one of the biggies, along with Citi’s Basic Materials Conference, which gets kick off by a one-day Chemicals for the Non-Chemist, Aviation Week, and an unusual number of high profile Analyst Meetings. BB&T’s Consumer, Food, & Retail Conference could preview Thursday's Comp Store Sales, probably one of the highlights of the week, given the hype around Black Friday. Otherwise, despite a heavy Trade Show and, especially, I-Bank Conference Calendar, typical of the squeeze in between Earnings Season and the shut down for the holidays, (the likely noisiest of the events emboldened on the Calendar below), it’s really the U.S. Economic Calendar and happenings in EU credit markets that should sway trade most. With Ireland’s problems, apparently settled, for now, and the EU designing a work-out mechanism to use in the future, the bulls will probably try to regain control, giving institutional portfolio managers the opportunity to sell out to retail investors, just as they were doing prior to last week’s tiny stumble.

Between the celebration of QE2, required because of such a, still, weak economy, and the celebration of retailers hosting their end of year clearance sales so early in the season, making sense of the world and economies, in particular, is a little like viewing yourself in a warped fun house mirror. Making sense of so much distortion creates a challenge to those who’ve trading the market successully, until recently, since old-fashioned fundamental analysis is superfluous. Perhaps, as some say, it’s not more complicated than dollar up, equities and commodities, especially, down, dollar down, equities and commodities up. If that’s true, then even talking about retailers’ comps or whether margins will hold up, or whether the Beige is more optimistic, is a complete waste of time. Tricky market, best handled with protection.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.  

November.22—26, 2010 MORE ANIMAL SPIRITS AFTER MONDAY’S POST-EXPIRATION DIP  All the shouting should be over by Tuesday’s close. Typically, Mondays after Expiration see a dip that, let’s be honest, is likely to be bought. Given the reliable lift that, predictably, surrounds holiday trading—especially half days like Friday’s, it’s fair to expect stocks to lift into the week’s end no matter what it does in between. If you look at enough charts, and mind the volume, especially on last week’s steep sell off, Tuesday, on worries over Ireland, one can’t help but get the feeling some Institutions are, already, selling out of winning positions. For the moment, though, there are sufficient buyers to meet that supply, proof in last week’s somewhat flat ending.

Because of the upcoming holiday, the important data will be out of the way by Wednesday’s close, even as volume should shrink after Tuesday. We know the Fed decided on initiating QE2 to the tune of $600B in buys, at the November 02—03 meeting, and that Hoenig dissented, so there shouldn’t be any surprises out of the Minutes to be released on Tuesday (originally Wednesday but changed by the Federal Reserve 2 weeks ago.)

To Our surprise, Barron’s was a lot more optimistic about the coming holiday shopping season than most of the industry is. Barron’s threw caution to the wind which not many retail execs are willing to do. When I owned Retail Stores 40% off was reserved for a week of clearance sales, twice a year. Now, go into any mall mid-week or, even, after 4pm any day near the end of a month, and you’ll see 40% signs appear on easels in front of many stores. Some will up the ante to 60 or 70% off, especially on true clearance—last season’s merchandise. There are chains, like Ann Taylor and Macy*s that have adjusted their original retail price to account for the first 20% discount, which is helping their margins But then, smart retailers, like Nordstrom, are proud to price the first time at keystone, and keep it there for most of the year. Maybe that’s why Nordstrom is, consistently, the busiest store of any kind in any mall.

Earnings wind down, this week, Analog Devices and Hewlett-Packard two tech names that will get outsized attention, with Brocade & Nuance bringing up the rear. Wed’s reports from Deere & Tiffany will be a strong bookend to the big reports Monday.

The Events Calendar doesn’t really quite down, since JPMorgan takes it show on the raod to London, even as analysts—including armchair analysts—will have their eyes on the lines waiting for stores to open in the wee hours of Friday morning, before dawn, even as a few retailers are enabling shoppers Thanksgiving day—Kmart & Sears in the morning, Toys R Us at 10pm.

In sum, a couple of weeks of inflows into US Mutual Funds is timed perfectly, for smart Institutional Portfolio Managers to turn over their shares to retail investors. There should be nothing to deter those inflows this week, as the script for Thanksgiving week has been written over decades of trading history, those years with losses the exception, rather than the rule. Absent Hewlett-Packard warning the way Cisco recently did, the appearance of a rally merely consolidating while posting less stellar gains should assure more retail inflows to take stock from Pro’s for another week. In short, the rally will continue on lower volume, the big money selling out, like it did, say, on Vornado, recently, won’t count until it does. Sure, the IMF/EU Backstop for Ireland is just another band-aid over the problem but, for now, the markets seem not just satisfied but pleased with band-aids. Downright celebratory! Someday, things will be difference but that won’t be this week’s problem.

Happy Holidays to one and all!

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November 15—19, 2010  RISK HIGH TO THE DOWNSIDE   The talking heads assumption has always been that Portfolio Managers would run up stocks into year end, and pile into the year’s biggest winners so they look smart to shareholders. However, most Mutual Funds have ended their year, already, while hedge funds could very well be seeing redemption requests. That’s the thing about institutional investorsl unlike retail, they don’t think stocks will go up endlessly--they’re more comfortable buying when stocks are down, rather than when they’re sitting just under their highs. Especially highs that represent steep resistance, like a retest of the highs registered in April, the recovery highs.

The giddy confidence in QE2 "working" ignored the reason QE2 became necessary—an economy that’s barely off life support, even as credit cotninued shrinking for over 2 years. Sure, the most recent survey showed credit is loosening a bit but the American economy ran on a whole lot more than "a bit" for decades and some still can’t see that it’s never getting back to the credit fueled bubble it’s twice been. If you see "Inside Job," a documentary of the credit bubble bursting, it won’t register the same way it does for non-financial viewers but it did convince me that there’s less hope for the economy as long as the people who let the financial bubble inflate—even blew the bubbles--not only remain in power but attempt to use the blow yet another inflated credit spiral to "cure" the collapse. So it’s with a bit of irony that I mention this week’s scheduled IPO’s: General Motors & Caesars Entertianment. The only question is whether Caesar’s, once known as Harrah’s Entertainment, will actually debut or get pulled because the glow of QE2 seems to have dulled. You might recall Liberty Mutual shelved a planned IPO recently, because of "market conditions," in what turned out to be one the strongest weeks if not monthly rally that began early September.

The week’s Earnings are dominated by retailers who should, wisely, register the same restraint about the holidays they managed after the last two quarters of reports. Traffic in malls has been picking up but with nearly 10% Unemployment, there’s a wide swath of Americans who simply can’t afford to shop, even as those shopping are demonstrating some retraint of their own, waiting for retailers to make their best offer—waiting for the steepest discounts, before plunking down their money or credit cards. Apparel & Shoe Retailers have been doing their part, already offering 40% off and more, not bothering to wait for Thanksgiving weekend to take it lower. Bloomingdale’s, this past weekend, had plenty of merchandise 40% off plus another 20% off for "Friends & Family." In need of some baby gifts, I picked up 9 onsies for $18, including tax, some of which were orignally priced at $48 for 2, others originally priced at $26 for one. Of course Macy*s caught a big break, in recent months, as shoppers actually resumed buying furniture, mattresses and bedding, after 4 years on hiatus, and with offers like 50% off plus anothre 15% off. A couple of years ago, consumers could do better at all the furniture stores going out of business but they’re gone now, leaving Bloomingdale’s one of the best buys in town. The retailers I’ll watch most closely are Lowe’s, Nordstrom, Home Depot, TJ Maxx, Walmart, Target, Ross Stores, and GameStop. The only one I’d consider buying at Friday’s closing price is GME. With Move, Kinect, Call of Duty (Black Ops) and Need for Speed (Pursuit) big November debuts, there’s high likelihood that GME and the industry will, finally, be able to post strongly positive comps. Even Nintendo’s Wii and DS could attain a second life in Red, the special 25^th Anniversary limited edition. With game consoles able to hook up to movie and TV downloads, they’ll serve dual purposes in the living room and den. Not only that but one would save, at best, $20, buying a used, contemporary console at GME, PS2’s a little bit better buy but not what any kid wants this year.

Other notable reports this week include Applied Materials, Netapp, School Specialty, Dell, Intuit, Salesforce.com, and H.J. Heinz. Analysts love to focus on Staples though I think all the reasons of the past have since evaporated. Williams Sonoma will, also, attract lots of analysts commentary but Pottery Barn is the chain around its earnings for which both the flagship and West Elm have to compensate. SCHS slipped into the mix because of Cisco’s comments on public/government spending.

The Event Calendar overlaps the Economic Calendar, because Treasury Secretary Geithner is a speaker at the Journal’s CEO Council, while the Cato Institute’s 28^th Annual Monetary Conference reads like a who’s who of the Federal Reserve, present and past. Fed’s Raskin spoke after markets closed Friday, and pointed fingers at the mortgage service industry, for standing in the way of work outs. You can read her comments here: As a freshly appointed regulator, few knew what to expect and her views get to the heart of some of the problems in the housing industry: What’s good for servicers is often bad for homeowners and, not infrequently, bad for investors, too. She all but blamed them for the failure of HAMP.

You’ll note QE2 is scheduled for every day this week—virtually every day until next year. All those who predicted stocks would sell off on the news of QE2 at the Fed’s 11/02—03 FOMC meeting seemd a bit surprised that the sell off came on the first open market operations in service of QE2. Looking back, it makes some sense, now.

Of all the Trade Shows & Events scheduled next week, there are numerous ones that stand out so I took the liberty of emboldening them, but also did the same to the tickers either meeting with analysts of scheduled for other stock specific events, like FDA meetings or product introductions. Besides the WSJ’s CEO Council and Cato Institute, there’s Congress reconvening, Fed speakers galore, G2E for the gaming industry, a big convention and trade show supplemented by a conference hosted jointly by Deutsche Bank and UBS. At one time, Bear Stearns owned the Gaming Conference at the year’s biggest gaming event. Some gaming/hotel names will, also, show up at Morgan Stanley’s Credit Conference, and the NYU Sack Institute Annual Conference on Capital Markets in Real Estate, like Cato, Thursday, even as REIT World starts off the Week, Monday, while RBC hosts an annual REIT CFO Dinner the same day.

With Republicans preparing to swagger in the House, this week, NARUC for Regulated Utilities could be a more festive affair, since it seems cap & trade is dead—regulation, now, likely to be perceived as looser. Morgan Stanley hosts Consumer & Retail but will be swamped by the number of retailers reporting so, therefore, skews the event towards the pantry & lunchbox. BAC/MER’s Banking & Financial Services Conference is timed, perfectly, for release of credit card Master Trust Data. September/October does see school-related workers get their first check in months but, also, the expense for school supplies if not tuition, for parents of students. For many, the 99 weeks of extended benefits is running out, making a terrible situation even worse unless retailers truly higher as many temporary workers as they’ve announced. Deutsche Bank & Morgan Stanley go the Media/Telecommunications route Wednesday but MS’ is in Spain, so more EU centric. Roth’s Semiconductor 1-1 Conference could be drowned out by some of the Analyst/Investor Meetings scheduled, F5, NCR, SunPower, and Qualcomm come to mind, even as, stated earlier, AMAT & CRM earnings are likely to capture outsized attention. If you’re looking for interesting non-I-bank conferences, NBMD for Building Materials & Distribution, Tuesday, World Generic Medicine Congress, the same day, the Building Industry Show Thursday, Scotia Capital’s Pipeline & Processing Day, just as an MLP ETF debuts, under Ticker AMLP, Toronto, Psychiatric & Mental Health Congress, the same day, or Stifel/TWP’s Aerospace, Defense & Airline Conference could break above the news. Web 2.0 sounds like no big deal but the biggest companies are the web will be speaking there, so don’t dismiss it out of hand.

After all is said and done, keep the Options Expiration in the forefront of things to remember, since Expiration, generally, creates volatility, often delivering reversal days between Tuesday and Thursday. Traders were scrambling for some cheap put protection, last week, but were still heavily weighted to the call side, a skew that had built up over two and a half months. The dominance of calls could make for some air pockets and panic, if the downside picks up more steam. With Oct Retail Sales, PPI and CPI out this week, and Expiration ending the week, any downside acceleration could reach deep before its arrested. Some bloggers have noticed stocks holding the 13-day moving average on each sell off since the rally started in September. I’ve simply heard too many PM’s talk about the "Bernanke put" that eliminates the need for purchasing actual puts. That confidence has worked for months but will someday be the markets’ downfall. That "someday" could be a lot closer than the talking heads think. The S&P 500 did manage to hold 1194 and add a tiny safety cushion by Friday’s close but the risk seems higher to the downside. When it comes to big profits, the rush to book ‘em could rise as year’s end draws near.

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© Sandi Lynne 2010 Nothing contained in this commentary should be considered a recommendation to buy or sell any security. The opinions are the author’s, alone, and should be just one factor in more complete due diligence.                                                                         
November 08—12, 2010  TIME FOR SOME CONSOLIDATION  The Street missed the really remarkable statistic last week, buried in the Minutes of the Meeting of the Treasury Borrowing Advisory Committee of the Securities Industry & Financial markets Association. There, it said, the Treasury had received more corporate and personal income tax payments than expected, putting the budget deficity for FY10 at $1.294. Total recipts are expected to increase to 15.8% of GDP in FY11 and, over the coming years, it expects receipts to rise to 18%, the historical average though it can’t say for sure since there are potential changes in individual tax codes that remain undecided. SO, not only are corporations and individuals uncertain about coming tax changes, the government, itself is equally uncertain. (Obama discussed the Bush tax cuts on 60 Minutes Sunday night and emphasized where he agrees with Republicans—not raising taxes on the middle and lower class at this stage of the economic recovery. He did seem to waiver, some, on $250K annual income defining the "wealthy.)

© Sandi Lynne Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions are the author’s, alone, and should be just one factor in more complete due diligence.                                                                           

October 18—22, 2010 EARNINGS END CORRELATION    It’s the opposite of merger Monday: BHP and Rio Tinto have called off their planned iron ore joint venture after regulatory resistance. Cablevision & Fox are still fighting. New Yorkers who get TV from Cabelvision found Fox missing all weekend. Oh, and if Bank of American shareholders aren’t already beleagured, enough, it turns out the company will pay $20m of Angelo Mozilla’s $67.5m fine, for activities at the former Countrywide Financial, which BAC bought. Speaking of BAC, Wells Fargo, and other banks connected to the mortgage foreclosure mess, one has to wonder if John Paulson was dumping his shares Friday because that sure wasn’t retail selling that many shares.

The AOL/P.E. conversations about taking over Yahoo seem preposterous to me. Yahoo has more in cash and liquid investments than AOL has market cap—the latter barely more than 1/10^th the value Yahoo might command. Plus, Carol Bartz would hardly jump at an offer. She’d be likely to want something close to what Microsoft once offered--$33 per share—which pre-Bartz YHOO rejected. If anything, perhaps AOL sees its exit strategy as a bid for YHOO, which it hopes turns around and, instead, buys AOL though what that’s worth is questionable, since AOL’s share of search and other metrics don’t impress, even as Google has predicted a $2.5b run rate for display--—om a company that rarely guides. AOL has sold off many assets, like ICQ and would need YHOO to unload its Asian assets to bring its value down to AOL-digestible size. Alibaba’s CEO, Ma, isn’t interested in helping out Yahoo: He’d rather see the company and its CEO go away. AOL could sell its remaining dial up business to United Online or Earthlink but that’s viable even without any YHOO deal and, then, where would it get its cash flow from, with its ad business lagging so badly almost everyone else’s?

Talk Casino Stock Market, please: CME is going to start offering rainfall binary options, options on futures, and futures on rainfall in 9 U.S. Cities, available March through October. Given the disuprtion of drought in Russia, and impact of monsoons on rice production in the near & Far East, I could understand some Rainfall Futures for those major producers but areas around Airports LaGuardia, Chicago, Dallas-Ft Worth, Detroit, Jacksonville FL, Los Angeles, Portland (OR), Raleigh-Durham (NC), and my favorite, Des Moines, the only one that might, actually, have an agricultural bent? Can’t wait for these to start trading November 1^st, can you? Looking forward to the prospectus so I can see if "rainfall" includes snow. Other than an airline and airport caterer, andm perhaps, a jet fuel supplier, where’s the volume for this going to come from?

NPD, for the first time I can recall, cautioned in its September video game-related sales release the impact of online sales, which its report doesn’t encompass. Furthermore, it doesn’t include Walmart, which leaves a big portion of US sales of anything but luxury goods out of the survey. And, while we’re on the subject, GameSpot has been hit, recently, by worries over a court decision banning resales of software when certain restrictions are included with the copyright. However, I haven’t heard any game company say it wanted GME to stop selling used games, and it’s possible many of the game makers would be reluctant to hurt their big customer—the only specialist—that way. First, many games are dated within months. Without that, Madden NFL and Y2K Sports games, from ERTS and TTWO, respectively, are designed for annual obsolescence. Furthermore, many of the games published as recently as a few years ago aren’t anywhere near the equal in realism, as the latest games are, many of the coming ones planned to take advantage of Microsoft’s Kinect—a motion controller for Xbox 360, for the first time. More and more, game publishers are planning to work full feature in 3D into future games, to take advantage of the TV’s already available in 3D, as well as Nintendo’s coming 3D DS which won’t need glasses to work.. A kid who can’t afford a new game may buy a used game, an accessory, and save for a new games in the future. The more kids that buy games—whether new or used—the more potential there is for new game sales. For some families, the credit available for trade ins makes the new games affordable, especially in this economy. And despite the bashing GME has taken, I’ve yet to hear Amazon, Walmart or other wannabe used game sellers announce they’ve given up trying because of the court ruling. No doubt, GME’s future in a world of downloads could be numbered; unless it can become the Netflix of downloaded games. It might be the next Blockbuster or Hollywood Video but the fact that games are moving from keyboard and stick controllers to motion controllers, and eventually, 3D, guarantees there’ll be a large number of even recent games obsolete almost as soon as they’re released, and games will remain so large that downloads will remain impractical for a few more years That, alone, is reason for game developers to hesitate before killing the golden goose that is GameStop, whose stock at $18 has often seen support—a level from which the buyers I recent years have profitably traded

The EARNINGS CALENDAR represents highlights of companies reliable sources have reason to expect will report. We used to check, personally, EVERY corporate earnings date but not longer do so, because the link we provide has proved, over 2 years, to be the MOST reliable source, anywhere. Plus it offers links to the conference calls. It gets it wrong, sometimes, but infrequently, and offers more foreign stock earnings than any other site we know. Well, it is, but not within the bounds most of think of as an analyst meeting or every listed company would be "hosting an analyst meeting" every time they report earnings. The tickers selected for the Earnings highlights are completely capricious. They’re big, market-moving companies, deal companies, deal-rumored companies, collateral damage from a break in a leadership sector, or, simply, a company someone has asked me to check. On the flip side, there’s a concerted effort to include some of the larger or better known companies in a sector, especially if they’re first to report, mentioned if the sector is well-represented in a particular week—like airlines or MedTech appear to be this week—or if I know or suspect something about the coming earnings I believe shouldn’t be overlooked. Many of the companies are not in my coverage universe but should be important to their sector, or for what they tell us about exports, consumers, or enterprise spending. Sometimes, stocks are left behind and I believe their Earnings will bring them to the attention of the very analysts who, to date, have neglected them. Because the financials are front and center of what is quickly developing into one of the largest legal contretemps in history—for a change--it was hard to overlook some of those anointed by the Fed and Treasury, with TARP funds, even if some think they’d have been better off failing—should have, rightly, failed. Nonetheless it’s the reports with the potential to move markets most that have been emboldened.

The Wall Street Journal and other media portrayed heavily anticipated speech Friday, 10/15, as "Bernanke Argues for More Fed Action." Anyone who reads the speech will quickly see that he acknowledged that the Fed is worried about too low inflation, a whole new but unfamiliar set of problems, after most of its existence worrying about inflation. Bernanke, also, stated the job of fighting deflation is complicated by the fact that the Fed cannot reduce interest rates to below zero. But he didn’t argue strongly for QE2. On the contrary, he talked about the risks of QE2, including the possibilty it will trigger too much inflation in the very things eliminated from core CPI, because food and energy are so volatile. And he worried that QE2 wouldn’t, after all, fail to spur hiring, which is essential to job creation, something its mandate includes. set the stage on which so many Fed speakers appear for this week’s calendar and, possibly. And if anything, he laid out the reason for transparency, and strongly refuted the reservations of the FOMC’s lone dissenter, Thomas Hoenig "Clear communication about the longer-run objectives of monetary policy is beneficial at all times but is particularly important in a time of low inflation and uncertain economic prospects such as the present. Improving the public's understanding of the central bank's policy strategy reduces economic and financial uncertainty and helps households and firms make more-informed decisions. Moreover, clarity about goals and strategies can help anchor the public's longer-term inflation expectations." He did say, "the risk of deflation is higher than desirable," a somewhat shocking statement, since the Central Bank has gone out of its way, it has seemed to avoid using the word "deflation." And in that statement there is an argument for additional measures.. He went on to say, "unemployment is clearly too high relative to estimates of its sustainable rate. Moreover, with output growth over the next year expected to be only modestly above its longer-term trend, high unemployment is currently forecast to persist for some time." On where they are on QE2, Bernanke argued the pros and cons.. He said, "One disadvantage of asset purchases relative to conventional monetary policy is that we have much less experience in judging the economic effects of this policy instrument, which makes it challenging to determine the appropriate quantity and pace of purchases and to communicate this policy response to the public. These factors have dictated that the FOMC proceed with some caution in deciding whether to engage in further purchases of longer-term securities." From my seat, it sounded like Bernanke is still struggling with the timing and size of any future QE2. He might have backed himself into a wall, and probably celebrates, nightly, that the S&P has mounted such a large and extensive rally, for the confidence it instills in companies and investors, not to mention the help it provides pension funds invested in too much of their own company stock. But the market has priced in shock and awe QE2, and that clearly isn’t happening, based on what Bernanke said Friday. He says the FOMC has developed a set of new tools to withdraw accomodation when ready, an we’ve seen testing of auctions of CD investments for direct dealers, but Bernanke doesn’t sound as confident as, perhaps, some would like. "substantial further expansion of the balance sheet could reduce public confidence in the Fed's ability to execute a smooth exit from its accommodative policies at the appropriate time. Even if unjustified, such a reduction in confidence might lead to an undesired increase in inflation expectations, to a level above the Committee's inflation objective." And clearly, one of those tools is talking the markets up and down, using the policy statement to convey to markets whether their expectations are correct or overblown, yet admits, talking the talk has limitations—again, perhaps, answering Hoenig’s objections. "A potential drawback of using the FOMC's statement in this way is that, at least without a more comprehensive framework in place, it may be difficult to convey the Committee's policy intentions with sufficient precision and conditionality." He went on to say the committee will continue to review their language and statements but, hey, they wanted to lift inflation and get money into risk assets, and no one would argue they’ve accomplished that, with stocks up anywhere from 9—27%, depending on sector, since late August, stuff stocks benefiting the most. But how that will boost employment is beyond me. No gas station has to hire more workers because pump prices are up over 10% in the past month. No supermarket has to hire more workers to sell iceberg lettuce at $1.89 a head, when in past summers, it was $0.99, or grapes at $1.79 instead of $0.89. And I’ll bet tomato pickers aren’t staying ahead of inflation because Whole Foods Markets accepted a penny a bushel higher prices from its suppliers. From low rates that punish savers, to food, gas, and other necessities, all Bernanke’s management of inflation and inflation expectations has done it put consumers even farther behind their cost of living, even as the unemployment rate has changed not an iota in the past year. .

What it all means is that the economy, and stocks are riding up the the same, familiar overloaded escalator that will break before long, the route they took in 1999 and, even 2007, when traders ignored the gathering storm clouds and bid up stuff and stocks. The advantage the economy had, in 1999, was that the internet truly became the transformational and disruptive technology the eye-ball counting analysts claimed it would become, and one day Bernanke and other Central bankers will have to consider how something as deflationery as the internet is impacting inflation and employment. The advantage, if one can call it that, that the economy has now is that the truly emerging markets like China, Brazil, and India will, someday, have a populace that will make the same frivolous consumption mistakes American and Western Europeans made in 2005—2008, and hopefully find something American worth buying.

Among current and more immediate worries are stock indices=s that have, historically, sold off in the fall, into, approximately, 10/25, where they’ve often found a bottom and surged into Thanksgiving. One has to ask if, instead, the contra pattern for September into October, so far, means stocks will, instead, peak by October 25^th. After all, it would pay to heed Bernanke’s warning, found in his conclusions: "…clearly many challenges in communicating and conducting monetary policy in a low-inflation environment, including the uncertainties associated with the use of nonconventional policy tools. Despite these challenges, the Federal Reserve remains committed to pursuing policies that promote our dual objectives of maximum employment and price stability. In particular, the FOMC is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation over time to levels consistent with our mandate. Of course, in considering possible further actions, the FOMC will take account of the potential costs and risks of nonconventional policies, and, as always, the Committee's actions are contingent on incoming information about the economic outlook and financial conditions." S there’s a real possibility the street might have baked in more than the FOMC will deliver—despite NY Fed President Dudley’s argument for QE2. This week promises a slew of Fed speakers, all of whom will offer their position on QE2, if they speak about monetary policy. The most important question, at this time, might just be whether Bernanke runs the show, or whether he, truly, is a consensus builder, who lets the voting members of the FOMC call the shots. A close read of Bernanke’s speech suggests he’s still torn on the subject—perhaps more worried about the consequences than the street is. That, alone, is scary. If the expert on the Great Depression is conflicted about QE2, the Street’s enthusiasm is too grandiose, perhaps why bad earnings, outlooks, or large revenue misses got punished so severely last week.

The reactions to Earnings from GE, Mattel, JPMorgan, and Google strongly suggests that the Age of Correlation has ended. That might be important as the meat of Earnings season arrives, this week one, clearly, the busiest for Q3 to date. And it’s not just the sheer volume of Earnings reports scheduled but the heft of the companies about to report—perhaps none heftier than Apple & IBM, Monday after hours. IBM could, well, announce a stock split, since it’s often done so between $140 and $180 per share. Apple should annnounce a stock split shortly after earnings, if it follows its earlier pattenrs. Shareholders, though, should worry about the possibilty that the $NDX or Nasdaq 100 will be rebalanced, to reduce its influence. Not only has Nanex tied its share activity to the May 06 crash but, on the day it opened down 15, when a rumor circulated that Cook might be leaving, so too did the $NDX gap down. Had buyers not been waiting, there could have been another flash crash, and that’s precisely what the SEC has worked since May to avoid.

There are too many Events scheduled for a week so packed with Earnings. Insurance, Communications, Medical Societies/biotech/pharmaceuticals, and Consumer Electronics are headliners but it’s some of the others that could hog the headlines. Real Estate Investment Securities, NAIC (State Insurance Commissioners), Defense, and Energy could sneak to the front of the pack, especially after Honeywell, commented Sunday, that its pushed back the recovery in business jets to 2012. Then, again, TechAmerica plans Defense Strategic Vision Forum, even as the fast approaching elections are not sure thing.

And, then, after all is said and done, the dollar perked up Friday, even as the BHP/RIO JV fell apart. There are some very crowded trades in tech and commodities, not to mention less than 3% dollar bulls—a perfect place for the dollar to pull a fast rally. Perhaps forex traders even read Bernanke’s speech and realized, QE2 won’t be as big, or nearly as damaging to the dollar as presumed before Bernanke’s speech. VIX, also, suddenly showed it can move both ways.

Risk is very high, and it’s not too late to take profits or buy protection. Now that correlation is faltering, stock picking should matter, again. The problem is, with so many stocks carried along to the upside, the selling, should it happen, could be as indiscriminate to the downside as it’s been to the upside, since early September. As of last week, Earnings matter again—so that will be the starring Calendar. If you’re uncertain about your holdings about to report, protect yourself. Monday's after expiration, generally, see selling for an hour or two, even when stocks open strong and look like they won't dip. With October options run off, there's less support under the market but that doesn't, necessarily, mean stocks will take a stiff swoop to the downside. It could happen but, as one web blogger pointed out, sell-offs have been contained by the 13-day moving average. That should run through the S&P near 1160 Monday. Given the number of computers trading, these days--dominating trading, these days, the battle lines are pretty clearly drawn. Below support, Mutual Fund profit taking is the biggest risk, since their Fiscal years end on 10/31. Then again, if John Paulson was selling banks, Friday, it's worth wondering where else he might look to lighten up.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.

October.11—15, 2010 THIS, TOO, WILL END BADLY    We KNOW this rally will end badlyl we’ve seen the script play out before and it ends in devastation each time. But for now, few are choosing to fight either the tape, or the Fed, and the sidelines is safer than an attempt to short prematurely. And in the meantime, the rally will help earnings, both directly, since junk bonds are up, and indirectly, because the value of shares held by company pensions are improved, as shares soar. Curiousier, and curiousier, is the continued selling in the dollar despite the warnings about potential terror attacks in Europe & the U.K. Imagine for a moment, even a thwarted attempt hitting the news wires. Do you think the dollar would continue being trashed? Or would it be the safe haven it’s usually been?

A recent article in WSJ, "Malls Begin Healing Process" is some of the worst journalism I’ve read in a long time. FACT: Simon Property (SPG) is charging $5--$8K per month to pop up stores, like Halloween stores, for large retail spaces that used to go for $20K per month, as of the last permanent tenant in them. At a Taubman Center (TCO), a retailer who left SPG’s Town Center Mall in Boca, ditching a $20K a month lease, moved into a nearly equal space for $5K per month, which TCO’s former tenant used to pay $15K a month for. Now, MAYBE, some of the malls with older mortgages can afford to take those kinds of cuts, temporarily (so far, for 3 years, but it could be another 3 years—before rents get back to 2007 levels, let alone the increases and escalators that were built into long term leases that into which SPG built re-negotiation and back-out clauses after 7 years, obviously not expecting its retailers to leave).But pop-up and other temporary stores are not a permanent solution and, clearly, makes the ROI lower, the value of the property lower. And in fact, many mall owners kept refinancing, at ever more inflated appraisals, during the boom (just like homeowners), which helped finance new property builds and purchases. IF this is the healing process beginning—holiday pop-ups and kiosks evacuating their locations in January--then we define healing differently. It’s more like the Desperation process, than Healing process.

Heads up to St. Louis Fed President James Bullard, who stated (on CNBC, 10/08) the FOMC could wait for December, to launch QE2, depending on the incoming data over the weeks and months before the November and December meetings. Since the David Tepper win/win comments on CNBC, which advocated buying stocks and "stuff," the markets have rallied with abandon, certain QE2 will launch on the day after the mid-term elections, when the FOMC ends its 2-day meeting. Lousy employment numbers last Friday make QE2 sooner rather than later the reality stocks are building in. But the rally represents both the certainty that QE2 launches and singificantly boosts economic activity, which seems silly on the face of it. With consumer credit still contracting (19 months in a row), and the velocity of money barely changing in the past 16 months, and down from April, additional liquidity may do nothing but send more money into stuff—commodities—and perhaps, ultimately, fuel another big spike in oil prices, which in 2008 rose to $147 a barrel, more than twice current prices. That was a good reason for me to recommend keeping an eye on oil last week. When pump prices neared and, in some high tax states, exceeded $4 per gallon, it deterred economic activity, pressured consumers, and acted like a pay cut for those driving to work.How worried is anyone about oil? The media has hardly mentioned, at all, either quotas or the OPEC meeting Thursday.

On the flip side, the belief in QE2’s imminent arrival has boosted stock prices which, everyone agrees, and Alan Greenspan has said, numerous times, itself boosts consumer spending. That it could fuel singificant inflation is too readily dismissed, despite the price of precious metals, gold and silver in particular, and recent spikes in all sorts of essential commodities, like corn, rice, cotton—you name it. K.C. Fed’s Thomas Koenig’s still calls for the FOMC to drop its "extended period of time" for low rates, and even advocates raising rates a smidge. And that begins to sound reasonable, for those can remember the pain of filling a gas tank in 2008, and the bubble in real estate rates too low launched.. And the stock rally has certainly helped pension funds that are heavily invested in company shares. At any rate, despite NY Fed Dudley’s advocating for QE2 urgently, immediately, the market is not prepared for the disappointment of the FOMC waiting to launch, or launching in amounts lower than the Street contemplates—a trillion bucks in the most optimistic forecasts. Pity the poor seniors not getting a Social Security increase again, next year, for the second year in a row, despite soaring food and medicine prices, and lousy yields they can get on their meager nest eggs, thanks to rates that have been falling as fast as the dollar.

Come November 3^rd, the combination of the FOMC meeting statement, and results of the mid-term election, represent more risk than the Street seems to be accounting for, at least to date. And as mentioned, last week, most of the mutual fund complex ends its fiscal year at the end of this month. It would be foolish not to expect some machinations related to that—even if that leads another week for performance chasing. This was changed last century to minimizing tax loss selling at the end of the year, and to allow the funds time to complete their FY accounting so they can notify fund holders of taxable gains or losses in time for them to file their estimated tax, if necessary, by the Jan 15 deadline to avoid penalties nad interest. SO, all those saying the rally that started early September is going to hold through year’s end could be surprised if asset allocation changes and profit taking occurs in the latter days of this month or as soon as November starts. Having said that, of course, we realize the mid-term elections and the FOMC meeting which ends 11/03, could steer the course of November, not fund post-tax year machinations. Let’s just say Halloween, this year, could be more frightful than either stocks or options volatility belie.

I had written a paragraph about legacy "defensive" stocks switching to beverages this year, from the household non-durables of years past. (Short CL and long CLX has been a terrific trade this year) Before I could mention the action in beverages from Fortune Brands (FO) to Constellation Wine & Spirits (STZ) to Coke (KO), and MolsenCoors news of big hedge funds loading up on JCPenney and FO hit the wires—JCP a name I’d mentioned, nightly, 3 days in a row, two weeks ago, in the institutional Nightly Notes. Now that the action isn’t a secret, there are are still names that didn’t get the FO & JCP treatment from guys like Bill Ackman that are still worth a look. They’ve been strong, and seem to be spurred on by the admiration afforded a select few.

Which brings us to this week, the FOMC 9/21 Meeting Minutes out Tuesday, when both Hoenig & Vice Chairman of the Fed, Janet Yellen, will speak at the NABE Annual meeting—National Association of Business Economics. See Tuesday on the Economic Calendar for other notable speakers on that schedule.

Thursday brings Sept PPI, the Aug Int’l Trade Deficit, the OPEC meeting, another Fed speaker, as well as the 30-yr Bond Auction. Whether that or Wednesday’s 10-yr Note Auction is going to be more frightful remains to be seen. Rates are too low for the term of either loan but someone keeps buying—maybe that’s how the Japanese are supporting the yen, by converting it into dollars they can invest in the U.S. at higher than their own zero rates. Thursday’s speech from the new Minneapolis Fed President is from someone who’s too new to the Fed to garner as much attention as the rest of the speakers.

Friday will be a big day, too. Sept CPI, Retail Sales, and Bernanke, among other speakers, at a Boston Fed Conference, not to mention U.M.’s survey of 250 people who’ll determine the preliminary October Consumer Sentiment read.

That’s a huge Economic Calendar for a short week (Treasuries are closed Monday, for Columbus Day, as are Japan’s markets), which it just so happens is the real launch of Q3 Earnings season. Barron’s says Novellus reports Monday but the company has not, yet, announced the date. Dow Jones, also, claims Petrobras will report this week but, in fact, it will on NOVEMBER 12th. Likewise, Dow Jones (Barrons/Wall Street Jounral) got wrong STMicro, doesn't report until 10/27, while Gilead's date has not been released. Still, even without NVLS, CSX and Intel Tuesay, JPMorgan and Apollo Wednesday, Safeway, Winnebago, Grainger, AMD, and Google Thursday, as well as GE and Mattel Friday, makes for a small but significant Calendar of its own. Then, again, we’d be remiss if we didn’t point out Staffing World & Multiple Solar/Alt. Energy events Tuesday, along with Walmart’s Analyst Meeting. At half all US Chain Sales, WMT as the power to worry or please the Street, and there’s little reason to expect it to please. While it is more than holding its own in Groceries, and probably won’t acknowledge any damage from Target’s roll out of Fresh, which is still in a limited number of stores, the fact that WMT is the last resort for welfare shoppers, before the clock strikes 12:01am on the first day of every month, is not what the Street is interested in. It wants to hear it is getting its apparel sales in order, and that hasn’t happened. Also notable, Tuesday, Chevron’s Q3 Interim Update. Gap Stores (GPS) may have picked the wrong week to host an analyst meeting--Thursday. In its stores, across all its brands, for Columbus Day weekend, it was hosting a fire sale of its inventory, with prices as much as 80% off, thanks to multiple interim mark-downs plus another 40% off at the register. You’d think its stores would have been jammed at those discounts—the Banana Republic chain, especially—but that wasn’t the case on Saturday, anyway. Then, again, in a big surprise, J Crew (JCG) was offering discounts as big, which rarely happens outside its winter clearance sales, long after Christmas. Take last week’s terrific Comp Store sales with a grain of salt. As fall turns into winter, the comparisons get a lot tougher, even as promtional activity is rising and occurring more quickly, and earlier in the season, than ever before. Would be nice, though, to hear more granualarity from WMT about its video game related sales, just as NPD prepares to release September numbers, WMT the glaring man out of NPD’s surveys. Speaking of low cost consumer sales, the Fast Casual Restaurant industry started an annual executive summit Sunday. Analysts should be speaking about the group, this week.

Among other events I expect to make noise, this week, includes the big Content & Communications World Conference, which includes multiple co-located conferences, including SatCon, HD World, AdWeek Media & Social Media Strategies, and IP Media Expo. For sheer momentum, though, TIA’s Travel Distribution N. America could, well, be the star. Then, again, the negative action in Whole Foods Markets, even as retailers are rallying and in advance of All Things Organic+Natural Products seems curious. Does someone think WMT has a spooky surprise for WFMI at its analyst meeting or has big money been exiting those shares to follow Ackman and Vornado into JCPenney? There’ll be plenty of pharmaceutical/biotech development news all week, thanks to several scientific meetings for the medical community, that group not only still lagging the rally in other sectors but Merck had a particularly bad week, last week. Speaking of medical, Cerner hosts its annual User Conference. Get ready, too, for newspaper to talk about furniture styles and colors for next year, as the semi-annual High Point market gets underway at the end of the week. Not much was made of Haverty reporting September sales up over 4% but the home category has been Macy*s’ key to its stronger than expected comps, thanks to big ticket sales in both home & furniture.

Expect a somewhat directionless market, Monday, with Treasuries and Japan closed for separate holidays. From there are in, it feels like the challenge will be for the bulls to keep the QE2 rally going, perhaps forcing more sector rotation and selectivity, after weeks of high correlation. The bears are likely to bide their time until later in the month, expecting a bout of profit taking as November 3^rd draws closer, the end of the month the end of mutual fund fiscal years reason enough for PM’s to harvest some gains against still lingering 2007—09 accumulated tax losses. Perhaps there'll even be statements of plans, at either the Conclave of the Bears or Value Investing, both events starting Tuesday. It may be too early to short but, also, a little late to join the rally whole hog, the sidelines looking ncreasingly attractive here. There’s unlikely to be anything much said to change the QE2 celebrants’ minds despite so many Fed speeches, this week. The Street and every else knows Hoenig is the lone dissenter, and there’s no "quiet period" this week, for the next Fed meeting, though some FOMC members who may feel QE2 should wait could argue their position in their speeches.

It’s time to rent stocks for hours or a day, not to marry them. Given the still lackluster velocity of money, expectations for QE2 to do what QE1 and TARP didn’t seems rash. We’ve seen frothy celebrations before and they always end badly but rarely do they occur in the presence of as big a mess as the state of the foreclosure segment of housing is in now—and just as every politician was failing around for a cause to sink their teeth into to sway voters to their side. Any QE2 success at reinvigorating the velocity of all the liquidity already in the system, may only push out the duration of "extend & pretend," for all the loans against properties whose value has collapsed, without generating sustainable economic activity that can thrive in the absence of government intervention. In other words, what the economy needs now is jobs, and it seems all the Fed’s liquidity is fueling is a repeat of the commodity run of 2006—08. It’s a little surprising that the burst bubble in "cloud computing" stocks didn’t ripple out to other sectors but that tells us the rally has more room to run, and it’s too early to short aggressively. I don’t know what straw will be the one that breaks the rally’s back: It doesn’t appear a disappointment from JPMorgan could do it, since numbers have been coming down for financials so aggresively, in the past month. The risk may, just, be to the upside there, too. If anything, it’s possible stocks and commodities see more parabolic moves up before they register key reversals, as they will, ultimately. Timing that, however, is dangerous in the absence of a clear sign, and the bashing of cloud computing stocks was a sign of quite the opposite. The bears may be frustrated but they’re not impatient. You shouldn’t be either. Think back to 1999, and the dot.com rally that carried into March. Some bulls are already setting up for a repeat this year, with retail investors bound to be attracted to stocks, once October and the risk of tax consequences in mutual funds’ fiscal year end—a fact that’s been drummed into them for years..The rally could well survive the FOMC meeting and elections or end before this week is out but it doesn’t appear it will end until everyone seems certain that this run is good into the New Year. That’s when the smart money will get more aggressive shorting. Until then, don’t fight the tape—no matter how strongly you might agree with the likelihood of this rally ending badly.

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© Sandi Lynne 2010Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence

October 04—08, 2010  SELLING MAY NOT WAIT FOR THE UNEMPLOYMENT REPORT   The tone of the market has been changing, very subtly, for days. For what felt like weeks, the markets opened down and wrangled a positive close. For a few days, last week, markets opened big then struggled to close positive, failing on the last day of September. Notably, also, some of the stiffest sell offs, like the one in August, began within days of the start of a new month, soon after Mutual Fund Monday had sucked in the last of the come latelies. And while it might feel like stocks forgot how to fall in September, on all but the last day of the month, the fact is, there was little progress last week. Only the Russell closed up on the week. Also, Libery Mutual cancelled its IPO, while AIG, this weekend, trimmed the size of its Asian unit’s planned IPO, supposedly under pressure from Kuwait. None of these alterations in the tone of the markets is an all clear signal for the bears, at least not until Mutual Fund Monday has come and gone but the market is priced for more perfection than it was going into the Q2 Earnings season, in July, with fewer companies upsiding, so far. On the other hand, the Double Dip seems to be off the table until Friday’s September Unemployment Report, about which I’m less pessimistic than the street, thanks to support personnel being rehired by school districts—summer lay-offs a tactic used by many to "excuse" the low pay afforded teachers in some districts. The Annual Revisions, expected Friday, also, could cause more angst than September 2010’s release.

There are several troubling stats the Street has ignored, to date, including housing starts still tracking about twice sales, last reported, 598K starts against 288K sold. The ISM showed both orders and backlogs down, and employment intentions down, as well. It hasn’t mattered but should, ultimately, as Earnings season peeks out of its shell this week. And I’m not talking about Alcoa’s Earnings, which the media makes so much of because it is a DJIA stock. Instead, I’d submit, the important earnings are those emboldened, below, namely Yum! Brands, Monsanto, Marriott, PepsiCo, and Micron Technology—the latter hardly ever profitable but still in business.

Because Meredith Whitney, recently, dissed banks but threw her support behind Visa & MasterCard, the ATM, Debit & Prepaid Forum, which starts Today, could be one of the week’s highlights. Ditto the World Commodities Week, in London, as oil reared its head at $80 again, last week, and is threatening to be the next commodity that’s going to substitute for currency. Again. We saw that movie in 2008, when oil soared to $147 and gasoline prices almost singlehandedly broke the economy. A replay may be in the cards if the dollar can’t find support—something that may not happen until closer to the mid-term elections, or as late as it did a year ago, in mid-to late November.

The CTIA Enterprise & APplications Conference/Expo should be noisey, though it’s tablets more than cellphones that will take centerstage, Developer meetings scheduled concurrently. (And, trust me, the "AP" in APplications isn’t an error, though it took a while to convince Word of that, since it kept trying to put the "p" in lower case.) By extension, the Frankfurt Book Fair, starting Wednesday, could be the first at which digital books replace paper books as the star of the show.

I can almost promise analysts will start talking up PetSmart (PETM) this week because the industry meets at the "Christmas" show starting Friday. Just as analysts say parents don’t skimp on their kids, they’ll say they don’t skimp on their pets, either. You would have to visit a Target SuperCenter to realize how seriously TGT is taking pets, just as Walmart does. Then, again, given the number of Halloween shops that have popped up in empty storefronts all over town, at every strip and enclosed mall, it’s hard to fathom the commitment TGT has made to Halloween, too, offering bags of candy that cost as much as $14.99, even as the drug chains use candy as loss leaders to attract consumers. (You can’t get mini-Tootsie Roll pops, easily, any other time of the year and it remains one of the bargain candies, still).

Management meetings with GameStop and The Warnaco Group should be in high demand. Likewise the CVS’ Analyst meeting, Friday, that will end cap September Comp Store Sales, which start arriving Wednesday night, and come in full force on Thursday. Back to School (BTS) shopping largely took place in September, because of the late Labor Day but wasn’t as big a benefit as last year’s lousy comps are. Stores in New York City, like Saks, Neiman Marcus’ Bergdorf Goodman, and even Lord & Taylor, owe more to tourists than back to school. With the U.S. Open Tennis Championship opening the month, the U.N. General Assembly, both the Foreign Policy Association and Clinton Global Initiative meeting concurrently, in New York, the dollar’s weakness was a boon to luxury retailers on 5^th Avenue. Foreigners attending those events swooped up goods in September, like it was 2007, all over again. The mall, though, was a different story—sort of like the beleagured dollar, retailers in a that looked like "how low can prices go?" Decades in Retail taught me there are some core necessities for a succesful sale, infrequency chief amongst them. With "SALE" signs everywhere in the mall, since January—a favorite Buy One Get One (BOGO) at least 50% off if not free--retailers are still playing for survival, despite their recent stock recoveries. Just bear in mind, there are other non-B-T-S chains, besides the New York stores mentioned, above, among them, Ann Taylor, Talbots, and Bebe, which has only, just, introduced the Kardashian line. Shoes shined in August, especially athletic footwear, for which there was payback in September, which translated into slower sales. And no one can make a business on "jeggings" alone, some priced for as little as $9, like the Material Girl ones at Macy*s (M). But, as stated earlier, it was a forgiving market, in September, that all but ignored bad news, like the celebration for M*s forecast for 2H comps up 3—3.5%, despite a much better showing in 1H, Terry Lundgren singlehandedly responsible for the endless mall sales: Bloomingdale’s extra 40% off all permanently reduced apparel started last November, 2009, and continues uninterrupted, now picked up by Dillard’s (DDS), too. Then again, with the south and California posting record heat in September, A Jewish Holiday on a Saturday, and flooding from storms around the country, the few fall-like days the Northeast experienced probably weren’t sufficient to move the needle on heavier and more expensive fall clothing. Aside from last year’s disastrous comps at some of the teen stores, they were fighting uphill all month. At least 2 weeks in September were more ghost-town than "entertainment center" at the mall. Like dieters who binge and purge, a busy week was, inevitably, followed by an exceptionally weak one, inconsistency retailers are sure to consider when providing outlooks.

Perhaps the fact that bulls will try to retain the market-wide momentum, and ultimately fail, at least temporarily, early in the Earnings Season, should be secondary to last week’s rise in oil that may have only just begun. It’s the sector I’d watch most carefully, especially as gold starts giving investors vertigo, and the government nears issuing new deepwater Gulf of Mexico drilling permits, as the hiatus winds down. It should be interesting, too, to see what the Supreme Court accepts for its docket, Elena Kagan seated for her first sessions.

August Consumer Debt may very well show a rare expansion, month over month, back to school shopping that at least included a backpack, pencils, and other required supplies, along with those athletic shoes that were strong, that month. Even the financials could play some catch up, lead by JPMorgan, touted in this week’s Barron’s, with a price target 50% higher than current prices, in 2012.

Stocks may very well meander most of the week as they did last week, awaiting Chain Store Sales and, particularly, Friday’s Unemployment Report but time is running out on the bulls. It could take nothing but a few polls showing the Dems retaining more seats in Congress than expected, November 2^nd, to get traders focused on how fully stocks have priced in a double dip being off the table but still lackluster growth. Despite NY Fed President Dudley’s call for more Quantitative Easing, Bernanke must, surely, realize, it’s the last arrow in hi quiver, to be used when stocks are doing worse than they have been. If anyting, the markets are backing the FOMC into a wall, setting up for huge disappointment if QE2 isnt the sum of the group’s statement on November 3^rd. Since acknowledging the upside is the right side, weeks ago, I remained on board for the rally but find myself much more cautious now. After big runs in September, October could, once again, earn its scary reputation, for a couple of weeks in the middle. Bears could just prove there’s some renewed life in them, now that retail investors are starting to redeploy money into stock funds.

EDITOR'S NOTE: Sorry for the delay getting this posted Sunday night. We, literally, fell asleep on the job!

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.

September 27—October 01, 2010     QUARTER ENDS WITH BULLS LIKELY TO TRY FOR ONE MORE UPSIDE FLOURISH BY FRIDAY  The big question for this week is whether the run stocks have been on can continue without a major stumble. Or, do portfolio managers chase into Quarter’s end a rally already long establish, which has covered considerable ground, or start taking profits while the getting’s good. So let’s look at what the markets face in the coming week, in addition to any end of quarter index rebalancing.

For Merger Monday, there’s a report Unilever is near a deal to buy Alberto Culver (ACV), according to the Wall Street Journal. ACV makes Nexxus, Alberto VO5, and TRESemme, a brand P&G has been trying to slaughter with promotions for Pantene, which currently dominates drug store, big box discounters’ and supermarket shelves. Then, Sanofi-Aventis is planning a drug development and research, rather than financial analyst meeting Thursday, one day after it appears at the CA Chevreaux Conference, all of which is mentioned because The Wall Street Journal, also, reports SNY is trying to raise additional funds to back a higher bid for Genzyme.

And if that weren’t enough for a merger Monday on its own, the WSJ also reports that M&T Bank (MTB) and Banco Santander (STD) are stuck over control on an MTB bid for Sovereign, a unit of Santander. Whether such a deal would pass regulatory muster is besides the point. Financials largely sat out of Friday’s jollies, and the whiff of M&A might be enough for them to play some catch up.

It’s another week during which an abundance of events have been scheduled, in a crush prior to Earnings season. Plus, the first of the month Friday, holds out the usual Economic Data, as well as the first meeting of the Financial Stability Oversight Council, and a speech by NY Fed President, Dudley, from whom I wouldn’t expect too much of essence, given the audience: Society of American Business Writers & Editors. A coupld of auctions should remain on your list of things to watch, as rates keep plumbing the depths. Of course, no one has schedule Earnings warnings but it’s hard to ignore the possiblity that they’re coming as the week goes on and into the following week. For some granuaarity, Jabil reports Monday. The assembly of tech circuit boards and products for major tech companies is on the front line of channel slowdowns. I highlighted the Annual Benefits & management Forum & Expo because, conveniently, Paychex reports, and there’s much concern about activity at brokers, exchanges, and fund managers, many of whom would love nothing more than to adminster some of the bigger pension funds. BAC/MER hosts Banking & Insurance CEO in London, though I expect more ripples from the S&P Higher Education Summit, BAC/MER’s Real Estate Conference, D.A. Davison’s Engineering, Construction, Construction Products Conference, NYSSA’s Construction & materials, JMP’s Financial Services & Real Estate, or, even NAPS: Recruiting. Real Estate—or at least homebuilders—lagged Friday’s rally along with Financials. If the rally is going to continue, a pick up from those two sectors would be helpful, while giving some of the overcooked sectors a change to consolidate gains. The action in semiconductors after Larry Ellison’s comments on the group was too strong for its own good, especially since he already owns the Sparc chip, which came in the Sun Microsytems package—a hearty offering of its own.

Media companies lagged Friday’s huge rally, too, so the fact that this week is Ad Week, and ther’s a NAB Radio Show, with a number of sub-conferences, should be noted. Likewise, RBC is hosting management meetings with Viacom. In a sign of apathy, despite Pres. Obama’s certainty that bashing Wall Street plays well with votes, note Wall Street:Money Never Sleeps, Oliver Stone’s sequel, took in an estimated $19m this weekend. While that may have been enough for the number one box office slot, it’s a far cry from the opening weekend drawn for more popular characters, like Iron Man, Spider-Man, or even Freddie Kreuger.

For the next few days, I suspect, stocks that lagged will become a little more popular, while the biggest winners will struggle to hold onto their gains through month’s end.Come Friday, though, if Motor Vehicle Sales don’t disappoint, and Aug Personal Income and Spending doesn’t reinforce the fact that consumers are, really, buying only what they need or want most—like smartphones, the stocks spending a few days consolidating could manage another upside spurt—to the great frustration of the bears who are well aware the dollar won’t go down forever, rates won’t decline forever, and even the touted Durable Goods report, said to be responsible for Friday’s gains, was punkier than the reception belies. But give the bulls credit where credit is do—they’ve put on a fantastic display in September, one that isn’t likely to be repeated in October.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.

EDITOR'S NOTE 09/23/10: Although the S&P has hit a near term peak and looks likely to lose around 10 points, today, end of quarter next week should assure that any erosion of this week's peak is mostly recaptured, as part of quarterly window dressing. Beyond that there could be trouble as the arrival of October and earnings season brings out warnings that, typically, outweigh upsides, in the last 2 weeks before earnings start arriving.   

September 20—24, 2010 STUCK IN A RANGE FOR FOUR MONTHS Those expecting an upside break, next, are as certain as those who see a coming break to downside   The first thing traders in Chicago and other trading centers have to realize is that this week New Yorkers who travels above ground in a foul mood will be in a foul mood. The U.N. General Assembly convenes, meetings of both the Foreign Policy Association & the Clinton Global Initiative timed, precisely, to coincide.Then, to throw some extra wrenches into the scene, Pres. Obama is planning on meeting with China’s Premier Wan Jiaboa, even as he hosts, Friday, a meeting of Southeast Asian Leaders. Meanwhile, in Washington, the FOMC will meet, Tuesday, for a rare one-day meeting, even as various overseas markets are closed some days of the week, the most Thursday when Hong Kong and Japan are closed, among others. And that’s before we even contemplate the OECD evaluation of the U.S., due Monday, which is sure to point out the large Federal deficit.

Federal Reserve Bank speakers will pop up Thursday and Friday but, perhaps, it’s Paul Volcker, speaking Thursday, who’s to be more feared. Of course, banks will remain interested in Friday’s 4^th and final hearing on the Home Mortgage Disclosure Act (Reg C), hosted by Elizabeth Duke, Thursday. Speaking of the Federal Reserve, some economists, including JPMorgan’s, expect the FOMC to talk of buying $200—300B in Treasuries monthly. Given how well the markets have thrown off worries of a double dip, since August ended, anything that sounds like QE2 out of the FOMC might hurt sentiment, more than help, at this point.

The financial press seems certain that the August Home Sales data out Thursday & Friday will improve on July’s disastrous numbers but, even beyond the ease of beating a disaster, the extension (until end of September) for closing deals contracted by April 30, as well as families moving before school reconvened, almost assures improement in August. What that will, actually, tell us about housing or the economy seems less than is likely to meet the eye, especially as the slowest three months for housing approaches.

Once again, the Event Calendar is ridiculously busy, as firms try to squeeze in as many conferences as they can before Earnings season starts. A couple of the more notable events include the Denver Gold Forum starts Monday, as does Oracle’s OpenWorld, with a pre-OpenWorld Java+DEVELOP conference starring Mark Hurd, late of Hewlett-Packard. The Energy OTC Derivatives Futures & Swaps Summit, is also Monday, along with Transmission Summit West, and EASD: the European Diabetes Summit. Tuesday, Goldman Sachs hosts its XIX Annual Communacopia Symposium (Verizon a developers meeting), while TCT—the Transcatheter Cardiovascular Therapies Scientific Meeting will be the excuse for Lazard to host clients as they walk through the booths, even as Edwards Lifesciences has plenned an analyst meeting to coincide. It appears the Dept of Education’s crack down on for-profit schools based on a measurement of "gainful employment" has taken some of the schools out of Morgan Stanley’s Education & Business Services Conference (Wednesday). Some of the largest for-profits will be missing at MS, unless there are more late confirmations and, for some, after appearing at BMO last week, while MS could be stretching with appearances by companies like Granite Construction, which builds school buildings. (Premium Subscribers can find the rest of the presenters by logging in.)

As busy as the Event Calendar is, replete with analysts meeting with Oracle, nVidia, Intuit, Cubist Pharmaceuticals, CSX, Phillips-Van Heusen, WMS Industries, Skyworks, Lowe’s, Flowers Food, Kimco Realty, Blackstone, and more, it’s the Earnings Calendar that captures imagination for the magniture of the reports, rather than the quantity. Much more will be learned about housing from Lennar, Monday, and KB Home Friday, than the Data on August sales could say. More may be gleaned about consumers from earnings reports by Carnival Cruise, Conagra, CarMax, Darden Restaurants, General Mills, Bed Bath & Beyond, Vail Resorts, Scholastic, Finish Line and Nike—even AutoZone, though the local mechanic is its regular customers, the backbone of its business. In tech, there might be little more Oracle can say at its developers conference and analyst meeting, after last week’s outstanding earnings report but this week’s report from Adobe and Red Hat, combined with the INTU, NVDA SWKS analyst meetings mentioned above, could be as telling as Cintas’ comments on blue collar workplaces, in its own report, If hiring has picked up at manufaturers, then CTAS is sure to know. For that matter, FactSet Research and Jefferies will be the first hard data on the struggle borne by brokers and advisors, after a remarkably slow summer punctuated by a steep equity sell off accompanied by painstakingly slow volume.

And after all is said and done, it’s the markets themselves--the trading band between 1040 and 1128 (or so) that the S&P has observed for some four months, now, that has turned everyone into a chart follower, whether they believe in the predictive value of technical charts, or not. No matter which camp you’re in, bull or bear, one must acknowledge that, eventually, stocks are going to either break out or break down—they’re simply not going to observe the four month old band forever. Elliott Wave followers are quite certain the next break is to the downside, in a third wave. Others say, no, the time for the bears to seize control has already passed, thanks to September’s surpising rebound from the stiff August sell off. There’s evidence of a "w" bottom in the S&P, the inverse head formed by the lows in July, the inverse shoulders set in May & August. Heck, even the Tea Party’s primary wins, last week, which raised the specter of Republicans too splintered to win back too many seats from Democrats in the mid-term elections wasn’t enough to derail the bulls. Stocks, it can be said, spent most of last week digesting the month’s gains topped early in the week. Mondays after expiration often open to the upside but quickly sell down as positions are squared. That may be exaggerated, this week, given the surprisingly strong gains the bulls strung together so far in September, even as the first waffling was seen in the bull market in Treasuries. There are many who’d simply love to see a strong and swift swoop down, so they can buy in—afraid they’ve missed the boat on September’s rally, just as performance anxiety dials up into month’s end—quarter’s end. It’s that performance anxiety that may, in fact, help support stocks into quarter’s end—especially if companies hold off warning on their Q3 earnings, and there’s no exogenous event to remind traders that the war on the Great Recession hasn’t been won, just yet—at least not everywhere.

Seasonally, the window on another Q3 sell off is fast closing. As stated in a mid-week note posted last week (see below), the risk may just be to the upside, now. Whether that will change with the calendar, come October, is another story, one whose plot is not, yet, written. Is it possible to be negative on the economy but not on stocks, at least temporarily? Evidently it is, ‘cause that’s exactly where I find myself, since the middle of last week. The 40 –some odd stocks the biggest hedge funds are trading between themselves are setting the levels for the indices. It may not be healthy for a market of thousands of stocks to come down to a few dozen but, alas, that's the market we have. To continue to anticipate a sell off when there’s nothing visible to support that view would be a bigger mistake than sitting on the side lines, waiting for the catalyst that will, finally, vacuum out some of the froth. Until I see concrete evidence of liquidation, I’ll simply wait and resist the urge to anticipate. Meanwhile, I suspect, the next test of 1040—whenever it does, finally arrive--will be shortlived and heavily bought—by those who think the markets are going to immediately snap back to 1120, just as they’ve done for four months now. Whether I’ll be in there with them or not will depend, completely, on the Economic Data and Earnings we get between now and then, as well as the substance of whatever new regulations are written between now and then. At best, it seems, buying at 1040 would be safer than getting in now.

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September 13—17, 2010  DO THEY CELEBRATE OR SMASH FINANCIALS OVER BIS GLOBAL REGULATIONS? The finance chiefs meeting in Basel, Switzerland, at the Bank for International Settlements, announced an agreement for banks to hold higher capital levels and lower multiples of risk (VAR), nearly exactly the way the media had written about it with one exception. The first phase in 2013 was a year earlier than some touted. So the questions, now, are whether the banks will be feted or bashed, and whether weaker financials derail the bulls, who’ve been in complete control this month. We all know markets can neither rise nor fall without the media attributing it to some "cause," in a foolish attempt to pin a reason on what’s been very technical action, driven by computers, not people.

And there’s another fly in the bulls; ointment, now: GOP leader, John Boehner, has conceded he will support ending the Bush tax cuts for the "wealthy," (anyone who makes more than $250K a year), if the only other option is losing all the expiring Bush tax cuts, instead. Losing the low cost tax treatment of capital gains, is supposed to cause "rich" people to sell stocks before the end of the year, to avoid the higher rate, next year. Then, again, there’d also be higher taxes on dividends, in this scenario, a problem for the funds that have been piling into high dividend paying blue chip stocks, like telcos, and for the analysts pounding the table on legacy techs releasing some of their cash hordes to shareholders, in the form of dividends, to boost their stocks. I’m no accountant but think worries about "beat the tax change" stock sales are largely bogus, since the alternative minimum tax impacts tax rates for many wealthy people, anyway, and there are probably enough built up tax loss carryforwards from the last two bear raids (2001 & 2008) to make the point mute, initially. The fact that the Street may act on its faulty assumptions and theories, though, could make for some dicing trading in the year’s particularly big winners.

So, before the opening bell even rings, on this coming week, stocks have a couple of media ready excuses to stop rising, before Tuesday’s August Retail Sales, Thursday’s PPI, Friday’s CPI and Quadruple Options Expiration, or Thursday’s revision to last week’s weekly unemployment claims, in which the government reported claims fell by 47K, with the asterisk of 2 states estimating the number of claims, the Federal Gov’t estimating for another 7 states. Yup! The markets’ have media ready excuses for a correction even before Earnings from such telling companies as Best Buy, Kroger, Neiman Marcus, Discover Financial, Fedex, Oracle, or Research in Motion. About the only thing one can say about the coming earnings is that the bar is so low for BBY, it could win by merely reporting in line and guiding in line. Too bad deflationary pricing in technology and TV’s is the battle BBY can’t manage around when consumers are so stingy. It offered 10% off coupons for 6 days around Labor Day, too late to make a difference to the quarter being reported. Chip stocks are strongly telegraphing a party over in tech.

Speaking of consumers, neither Hasbro nor Mattel really celebrated news that Toys ‘R Us will open 600 pop-up stores for the holidays. The good reason for that is the possibility that TOY will negotiate a consigment type arrangement for a good portion of the goods it will stock, shifting the risk onto manufacturers. A court ruling, late Friday, on software resales, though absolving the seller in the case at hand, since he never opened and agreed to the license before reselling the software, determined that reselling software is a violation of the customer agreements in most software, which are licenses rather than outright sales. That raises questions about GameStop’s previously owned software sales, as well as many eBay and Amazon resellers. GameStop has, for years, openly resold games traded-in by its customers for store credit, and competitors keep trying to get into the business, themselves. Could GME get hit come Monday, even as the packaged software industry might rise?

As you’ll see from the Events highlights below, the schedule is packed, now that summer is over and in a rush before Earnings season starts. Likewise, more than a few companies have scheduled their analyst meetings, this week, the fact that Prudential & MetLife are doing so in Tokyo no barrier, thanks to webcasts. And there’s really not a sector or niche the Events calendar overlooks this week, which might make it tough to avoid bad news, even as we’re far enough into the third quarter for earnings warnings to start sputtering out no later than the end of the week. Add Geithner’s calling out China for doing "very little" on the yuan, and the stage is set for "mutual fund" Monday to mark a potential high, even if Expiration helps put a floor under the market for the rest of the week. After all, banks need a little time to assess whether they need to raise capital under the new rules, and they have until 2013 to do it, even if first mover is usually treated better than the johnnie come latelys. The revised agreement between Hertz & Dollar Thrifty Automotive is not a market moving event that will send markets into a happy frenzy. A rumored Hewlett Packard bid for ArcSight could raise analyst concerns, rather than champagne glasses in toasts. Such a large company, without a leader, making two extravagant acquisitions, after firing a well respected CEO, under weird circumstances.would rouse more questions than celebrations.

I’ve been skeptical of the rally since it started, given such atrocious volume. A few weeks ago I posited that the regular S&P holds at 1040 could be lulling investors into a dangerous sense of security about the strength of market support at that level. A level tested gets weaker each time it’s tested. Granted, most believe a double dip is off the table, now, and such low interest rates encourages merger activity, which always gets the bulls’ juices rushing. But an economy that is barely growing is not one conducive to generating enough jobs to reverse the level of Unemployment, which should be key to ameliorating the weakness in construction, key to growth in consumer companies, and key to the major indices going significantly higher. Granted, many multi-nationals are doing well, thanks to strength in overseas sales, especially in emerging markets. But to forget the lesson of recent two bear markets and the strong correlation between countries, markets, and most asset classes, is to risk stepping off a cliff with eyes blindfolded. If stocks continue higher without a significant pick up in volume, it’ll only be a matter of time before another strong downdraft materializes. That may not happen until the S&P kisses 1120 but, then, again, it could happen sooner, and with the same vengence seen in the recent, reversal that launched the current low-volume rally.

Be very careful about staying long, too long, without strongly protecting the downside. Even blue chips with big dividends, alleged favorites of long term, stable investors, now, will suffer with the rest of the market. I can’t say I totally agree with SocGen’s economist, who thinks the recent rally in stocks is 2007, all over again. But I disagree only because I think banks are in better condition today than they were then, and because retail investors have been wisely avoiding stocks-- steadily withdrawing money from stock mutual funds since the May "flash crash.". What we’ve got, now, a dozen or two of hedge fund computers swapping shares back and forth between each other, each of them believing they’ll be smart enough to be out of the market when another chair is removed from the game of musical chairs they’ve been playing with each other.

L’shona Tova

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EDITOR'S UPDATE 9/15/2010: Pleased that THQI didn't collapse after pushing a major title out until next year. Obviously, extremely surprised by the relentless rally, through today. Whether it lacks vol (conviction) or not doesn't matter: The risk is to the upside as hedge and mutual funds, which had a lousy August, suddenly decide to throw in the bear (rational) towel and jump aboard a train that's starting to look like an uphill run away.--exactly what Greenspan said, in a recent speech, would do more for the economy than QE2.  Likewise, the relentless rise may spur analysts who'd been reasonably cautious to jump on the positive bandwagon, and start recommending some of their former neutrals. Because no one is quite sure why sentiment did a 180 degrees since end of August, there's little reason to remain cautious when everyone is partying but the analysts. Talking heads on financial TV may spout comments about the data improving but that's not, technically true. For instance, the fact that August Retail Sales rose doesn't change the middling comps retailers reported for their Month of August on 09/02, and those comps didn't change just because the analysts/eocnomists were wrong about the level at which they thought Retail Sales would print. What was strong in the official Commerce Dept release of Retail Sales? Gas Stations & Building materials (LOW looks like it's trying to build a bull flag, the latter thanks to Hurricane Hermine who slammed TX and points north.  But, of course, Markets do what they do, often irrationally, and especially when some 18 collosal hedge funds trade almost exclusively a select 40 stocks, or so, that have the heft to set prices for the indices. . And for now, the markets are threatening to break to the upside.  Whether that ends with expiration, Friday, or continues into end of month/quarter, is anyone's guess. One can either trade the market there is, instead of the one they think should be, or sit it out. I was wrong about this week, and am sitting it out. I just hope the Street hasn't switched from Sell Rosh Hashana, buy Yom Kippur back to the old adage, Buy Rosh Hashana and Sell Yom Kippur, which had governed for decades before the flip flop in the '90's. A Saturday Yom Kippur simply means traders will leave early Friday, the 17th. Who'd notice the difference? They've been doing that all summer and have hardly checked in the other days of the week! 

© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.
September 06—10, 2010 DOWN SO LONG IT LOOKED LIKE UP TO THEM  My negative market outlook has been only strengthened by the 2 day upside surge, heightened by the uniform reaction by each sector—so called correlation—which proves that stock indices are being driven by BIG institional traders who may just have set up the markets for a BIG tumble over the cliff they’ve built to start September. There was nothing particularly good about any of the Economic data reported, which was simply a case of being down so long, anything better than expectations looked up. What’s good about building permits coming in twice the level of sales? Anyone?

And don’t even get me started on CNBC’s talking heads who, insisted, last week, that the "big boys" would be back this week, and then we’d really see some volume. Not only won’t "big boys" be back this week in droves but many who will return will quickly exit, around 2:30pm Wednesday, so they can eat and get to shuel by sundown (which is decidedly earlier in the northeast than it is here, in the rain & lightning capital of the world, in Southern Florida). So any "big boys" back Tuesday will have a little more than 24 hours to position for being out of touch for the rest of the week. (Rosh Hashana ends Thursday for Reform Jews, Friday for the other two sects, Conservatism the predominant US sect of Judaism). I’m not saying the boys will return to short but I am saying the shorts may just find last week’s enthusiasm for equities overdone enough to position for downside. Whether that involves shorting or mere profit taking, remains to be seen. On the Charts, the potential for a pullback before another surge up is as good as any. The WSJ ran a story on 8/31, claiming the stats show Short Sellers Are Taking a Long Vacation." (Author Kristia Peterson). Why wouldn’t they give the "fools" another day or two to finish the rally started last week before going into action? The S&P has room to 1120, technically, if there’s any build upon last week’s rally. So why not wait?

We may just find this week’s 10 & 30-year Treasury auctions are more informative than any data release, the Fed’s Beige Book, out Wednesday, also, something many of us could write ourselves. ‘Some districts reported softer conditions, while the manufacturing sector was a stand out, benefiting from export to emerging markets. Retailers saw mixed sales for Back To School but were withholding judgment, given the late Labor Day.Likewise, vehicle sales suffered from comparisons to the year ago ‘Cash for Clunkers’ Program, even as housing is still suffering from withdrawal of the tax credit." One thing they may not say but could be true is an uptick in home sales in early September was a function of the late Labor Day and late start to school as well." July Consumer Debt should show a smaller decline than recent series, while EIA petroleum stats delayed a day by the holiday, provides an excuse for traders to focus on a very weak Hermione, for lack of other meat on the bones.

The Earnings Calendar doesn’t roll my socks up or down and shouldn’t yours, either. Navistar, Tuesday, will confirm exactly what we already know: exporters are benefiting from emerging market growth but absent another change in EPA rules, there’s little incentive for companies to replace trucks, right now.

The Event Calendar is ridiculously busy. It doesn’t give any returning "big boys" a chance to catch their breath at their desks before pulling them out of the office. There’s plenty more on the website, not just events but links to those featured here, as well as more extensive information on the presenters at events noted below. The biggest news of the week is already out: The Financial Regulators meeting have decided 9% Tier 1 capital will suffice, according to Bloomberg.

I have a pick for holiday, which I would hesitate to mention if the stock wasn’t option priced. IF—and it’s a BIG IF—THQ Interactive (THQI) can release its uDraw Game Tablet on time, for holiday sales, I think it will be one of the BIGGEST attractions of the season for kids. Call it the poor man’s iPad, or the kid’s iPad, but it has the potential to succeed the way SNE’s DS line did, with the under 10 set, in a season that promises, also, MSFT’s Kinect, and SNE’s MOVE. The uDraw Tablet launch is planned for holiday, exclusively for Wii, and will come bundled with an art-based video game, uDraw Studio, for a suggested retail price of $69.99. Two other games designed for the tablet, Pictionary & Dood’s Big Adventure, are scheduled to hit the same day the tablet is released at a price of $29.99 each—below the $34.99 charged for major DS games. It won’t hit Europe or international markets until 2011, with more games scheduled for release next year, too.

Given how littlel the motion detecting devices will do for either MSFT or SNE revenues, in the larger scheme of their size, they’re disqualified as single product bets. The uDraw Game Tablet has the potential to do for THQI what WWE and UFC did in the past few years—has the potential to put the company back on the map and, possibly dress it up for a takeover while we’re at it. These favorable comments are framed against the background of my serious reservations about the outlook for stock markets between now and at least 10/25, possibly through Election Day—as well as skepticism about whether THQI can deliver the product soon enoug to capture holiday sales, and in the quantities necessary to capture sales, if the product is a hit. .

What can uDraw do? It can save kids doodles to an SD card, print the artwork, and handle multple player for games like Pictionary. A drawing stylus comes with the 7x9 inch device which sports a 4x6 inch drawing space (Imagine kids interactive books moving to the uDraw. I can.) The tablet docks with the Wii Remote for power, so no extra batteries needed. Wii has a 30m installed base, and has proved popular with people of all ages, and brought gaming to seniors, who might be the ones to buy this for themselves and grandkids, this holiday season. THQI is hoping to sell 1m units over the holidays, based on its planned production. It’s certainly priced right.

Then, again, given the release of uDraw, Kinect, Move, and some major games before the year’s out, one can’t help but wonder if GME should be under consideration, as well. Relying on its used video exchange/sale business for most of the past year, the release of so many hands on devices for holiday could, once again, make it a retail contender, after months of connected mobile devices usurping consumers’ discretionary spending. Cheap stocks can certainly get cheaper, especially in light of THQI’s spending necessary to launch the product and recent disappointing release. The loss reported in August was lower than expected, despite weak Q2 sales. But given the fascination with handhelds and touch screen products, uDraw could, possibly, do proportionately, for THQI what Guitar Hero did for Activision (ATVI) but at a much more reasonable price. A second drawback, if you will, the ease with which SNE, probably, could enlarge the DS screen to develop a competitor, which I simply don’t see happening, at least not in 2D. SNE is fully focused on 3D development, which would be lovely on uDraw, if SNE happened to buy an hors d’oeurves like THQI, which has a 67.12m float and a market cap of $241.23m at today’s prices.

Of the 11 analysts who cover THQI, some haven’t said a word about it in a year. The only Buy is Kaufman Bros, from June, which, at the time, lowered the target it had set in April. Despite the success of Red Dead Redemption, out months ago, THQI could have an awful quarter, given how much it has to invest to ramp up manufacturing of uDraw units for shipping but the market and analysts will look through that if uDraw is a big success. It was, recently, cited by TheStreet.com, as one of 10 stocks that could double in a year, which is, sometimes, reason enough to turn me off to a company but, not in this case. I like all the insiders buying, even as MAK Capital One, a 10% holder, sold 1.1m shares. Often, those too early give up just when they should stay. (If you ever sold a car, after you paid for the last repair you’ve sworn to ever pay for, only to learn the successor owner never had a problem, you know what I mean). MAK Capitat made its bets in late March & April, the last of its buys right near the market top. I’d look for a 50% rise in THQI by December, and would be thrilled if it doubled by March 2011, ASSUMING it delivers uDraw on time for holiday.

Which brings us back to the markets, and the thin evidence upon which last week’s rousing rally materialized. I mentioned skepticism about the markets, last week, after an earlier Friday surge. While the Street might see something to celebrate in the double dip being taken off the table, an economy growing as slowly as ours is hardly reason for celebration. And as long as it grows this slowly, the rate of unemployment won’t fall much, housing prices certainly won’t rise, and the summer relief from consumer falling behind on all sorts of credit could turn into the fall of pain. While schools reopening does return some workers to the paycheck set, it also forces some spending on the kids’ of the millions of unemployed. And worse for the U.S., lots of 62—70 year olds who haven’t been able to secure new employment are simply deciding to file, early, for Social Security. Weak employment is already straining that system, without so many applying early for benefits. If the economy isn’t out of the woods, then neither are the markets. Consider any additional gains the gift that will keep on giving if you bet on the downside.

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August 30—.September 03, 2010  PRE-HOLIDAY TRADE PLUS SOME ASSET ALLOCATION FAVOR MORE UPSIDE  Perfect for Picking a Place to PREPARE FOR SOME SEVERE SELLING the WEEK of LABOR DAY  The trigger for another markets seizure, at this point, could come from NONE of the road posts the Street is currently considering. What if Iran and/or Israel made a move over the Labor Day weekend, when both Israeli & Palestinian leaders are in the US trying to negotiate a Mid-East peace? Think about it: Iran has upped the rhetoric about its prowess, even showing off an unmanned missile bearing plane, even as Netanyahou has said that, ultimately, Isreal will do whatever it takes to protect itself.

I bring this up because, the full text of Bernanke’s speech at the K.C. Fed’s Jackson Hole Forum, after reading. There’s no way to conclude anything but that the FOMC has few options—really few options, even as some economists within the Fed are finishing a paper advocating government guarantees for almost all the credit markets, including ABS, as a means to get money moving again. And there was a subtle change in tone, as the FOMC Chairman promised the Fed will do "all it can," rather than "whatever it takes," the latter his promise early in the crisis. In fact, a close read of the speech suggests Bernanke is starting to deflect blame for the way the country is mired in a recession some, like Paul Krugman, have already taken to calling a depression. In what sounded like a plea to Congress and the White House, the Chairman said sustaining the recovery and accelerating it isn’t up to the Federal Reserve, alone. Of course, in advance of mid-term elections, Congress is not listening. In fact, the opposite: The Republicans will blame the weak economy on Obama, even as Dems will point out the Republicans have tried to stand in the way of every policy the White House and Dems have tried to initiate. And if anything, the Fed’s prediliction to maneuvers behind closed doors, despite promises of "openness and transparence" is seriously jeapardized by the Financial Reform bill, that allowed for an audit, the concept confirmed by a judge even as the Fed is likely to take the issue all the way to the Supreme Court. The Fed has no bazookas left in its arsenals and Bernanke has promised to do little more than get out its squirt gun. Really! Lowering the rate it pays on bank reserves at the Federal Reserve to 0.10% instead of 0.25%? Fhegheddaboudit!

As we enter the two most historically dangerous months of the year, with the Street well aware of the axiom, "Sell Rosh Hashana, Buy Yom Kippur," the US economy is, truly, poised at the edge of a precipice, with no safety net below. Any spare safety net was already deployed during the 2008 rescue of the global.economy.

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10.08.23—27 A SLOW WEEK FOR THE CALENDAR COULD BE AN ACTIVE WEEK FOR THE BEARS   As specified in an e-mailed note last Thursday, I’ve turned decidedly more bearish. With a holiday fast approaching, and the Earnings & Events Calendars thinning out, the bears could become more active just as the remaining bulls are looking to lighten up in front of late summer vacations and the Jewish Holidays, which fall the same week as Labor Day.

Toll Brothers’ report Wednesday made for an irresistable opportunity to quote a comment from D.R. Horton’s CEO, Donald Tomnitz, during DHI’s recent post-earnings conference call. "We wanted to give every buyer the opportunity to buy and close on a home. And so, if they had a pulse and they were warm, we wrote" {contracts}. In all probability, other homebuilders did the same. That was the effect of a tax credit on home purchases—to hell with whether they’d qualify for a mortgage, or not; Writing a contract with every warm body, qualified or not, is why any appearance of strength in new home sales until April 30^th will not translate, one-to-one, into closings. (The extension of the tax credit until September for closings of homes contracted by April 30^th probably won’t make a difference to many hopefuls who simply won’t qualify for loans.) Instead, there’s risk of a bounce up in cancellations, the deeper we get into summer, until the deadline for closings in September. (Do the builders blame the banks for losing so many sales opportunities, when 9/30 roles around?) That’s just an example of the way targeted stimulus can distort reality. Despite using TOL’s earnings as an excuse to cite the quote that all but blew me away, it won’t necessarily apply to TOL. Buyers of TOL homes are not nearly as influenced by tax credits as DHI’s buyers were. In fact, many TOL buyers may earn too much to have qualified for the credits. Toll sells homes to wealthy people who are more likely to be influenced by losses in stocks and bonds than an $8.5K tax credit. And since builders’ Sales of New Homes are counted at contract, Existing Home Sales on closings, it’s July Existing Home Sales, out Tuesday, that could continue to see the effect of the tax credit not expiring until September, for contracts signed by April 30^th. TOL, though, was no doubt, helped, some what, in extraordinarily expensive markets, by FHA raising loan limits. For an additional look into the high end market, there’ll, also, be a report from Tiffany, Friday. Otherwise, the retailers reporting this week won’t be influential on the market—except for their coments on the early returns for Back To School shopping.

Then again, the scariest item for stocks, this week, may be Friday’s revisions to 2Q GDP. The Street knows the Trade Deficit rose so much it willl subtract from GDP but traders always act as if they hadn’t a clue, even when a well telegraphed revision down is released. That may be a function of optimism dying hard—the hope things will turn out better than common sense says it should, despite the evidence. So, despite a handful of firms yet to release their economists’ new guesstimate on GDP, and the likelihood that most will coalesce around 1.2 to 1.4%, stocks should sell off Friday again Friday after the release, unless it surprises to the upside.

And speaking of optimism, we might as well touch on Friday’s final U. Michigan Consumer Sentiment. At the bottom, in March ’09, neither business executives nor consumers were optimistic—surveys said sentiment was probing new lows but the fact is, the economy was already improving and markets were about to scream higher. The big risk to markets, now, is that all the talk about a double dip—all the talk about a renewed or second recession becomes a self-fulfilling prophsey. Luckily, consumers often say one thing and do another, as they surely did in the fall after 9/11.

Last week, the President of the Minnesota Federal Reserve Bank echoed comments made in this space last week: The FOMC never intended the market to react so negatively to the committee’s decision to keep its balance sheet constant—to reinvest funds that come in on its bond holdings in US Treasuries. This week there’ll be more chances for similar comments, not just from Evans on Tuesday but out of the Kansas City Fed’s annual Jackson Hole Symposium, which will kick off with a speech from Ben Bernanke, himself, at 10am. Of course, by Friday, those who need to square away their positions for end of month will probably have allready done so. Those turning Labor Day weekend into a long holiday, probably won’t get started quite this early but, instead, will make next Thursday or Friday their last day of work until the weekend after Rosh Hashana (09/08—09).

One piece of good news should arrive via the Mortgage Banker’s Assoc’n’s Mortgage Apps, Wednesday, given how many homeowners must be aching to refinance, with mortgage rates at generational lows. A 30 year fixed can be had for as little as 4.49% according to Freddie Mac, for the best qualified borrowers. We saw the first of that last week, when refi apps rose 17% but this week there should be more new financings, as parents seek to close on their homes and move prior to the start of the new school year.

Be on the look-out for comments from analysts conducting Back To School Mall Tours or commenting on the appeal of chains’ fall lines Analysts can’t predict what consumers will buy any more than retail managements can and, usually, the analysts are worse. Furthermore, analysts have been shocked at how well missy retailers and department stores are performing compared to teen stores, though it makes perfect sense to me. Women are shopping again, after a hiatus that began as long ago as fall 2006. They’re also buying more for their homes, again, and missy sized women don’t shop at teen retailers. They do at both missy specialty and department stores. As I’ve said before, teen retailers will not recover until teen hiring picks up. Not only do teens spend most of their earnings before they leave the mall but their friends visit them at work, and shop while they’re there--eat in the food court while they’re there. Parents often prefer department stores, whether it’s for the in-house store card points they can rack up towards gift cards or because of the diversity and a level of comfort with the less intrusive staff at department stores. Parents "trust" department stores and don’t really enjoy, say, walking into an Abercrombie & Fitch which is pricey and assaults the senses with music blaring and air drenched in a smell (ANF’s house fragrance is Mark) to the point of nausea. Teen retailers can cure what ails them by hiring more teens. End of teen story. On the other hand, binge and purge is typical of the way people shop. Women had built a lot of pent of demand after skirting stores for all but necessities, in the last 4 years. When they, finally, shopped again, last winter they went all out at deeply discounted prices. They are next likely to return when the weather cools enough to warrant fall clothing. Until then, all the discounts in the mall—all the 60--75% off plus an extra 15, 30, 50, or 65% off--deals will fall on deaf ears. Times have changed. The days of silly shopping are over. We live in more frugal times, exactly why an Abercrombie & Fitch’s stock got killed when it said it boosted inventories by 47%, despite the fact that the cogniscenti all agree, the chain’s inventory got TOO lean this past season.

And speaking of large adjustments, the 2^nd Phase of the new Credit Card Rules are effective as of today, 08/22. One of the new rules says late payers can be charged either $25 or the minimum payment due, rather than the $39 often charged in the past. However, the late fee can be boosted to $35 for repeaters. As of today, Card companies will have to review the rates they charge every six months and LOWER interest rates for those to whom they were raised, if the card holders are back in compliance. Bank of America shocked by saying it might have to take an $8—10B charge in the valuation of its credit card business, because of the new rules, while Discover projected a more modest $80—90m. Still, many companies haven’t quantified the lost revenues, which won’t stop analysts from taking a crack at it for the silent. That’s likely to hurt those the analysts choose to speak about. On the other hand, the first tranche of new rules went into effect last February, giving card issuers plenty of time to adjust their businesses to compensate for this phase of the new rules. A risk to American banks, this week, is reports from Canadian banks like BMO, Canadian Imperial Bank of Commerce (aka CIBC), and Royal Bank of Canada which, largely, avoided the mortgage debacle to which domestic banks succumbed. Then again, BHP’s report is expected, as well, and it’s knock out offer for Potash wasn’t enough to support stocks any more than Intel’s offer for McAfee could. If a sudden rash of big deals come in rapid succession, that would do a lot to boost banker sentiment but not, necessarily, consumers’.

Two other items of note this week, includes Durable Goods, Wednesday, and the SEMI Annual Forecast, the same day, for the equipment makers. Oddly, Morgan Stanley is hosting a Semi & Semi Equip Conference the same day, in an entirely different city, the names speaking at that meeting, more chip designers than equip names. During an otherwise pretty slow week for name brand events, Barrington's Healthcare Conference could make more waves than usual. Do note, though, that RBC is marketing with bigger companies than usual, this week, including Intel & Colgate though neither should have anything revealing to say and are more likely to reiterate comments made after their recent earnings reports. One can only hope thy sound more convicning, the second time around. The only earnings report, this week, other than TOL and TIF that could really get the Street talking is Diageo (DEO) because "people have to eat."

As stated bluntly in last week’s e-mail, expect a bounce Monday morning, typical of any Monday immediately following an Expiry. That may be the last chance to sell longs and position for a deeper downside probe. Whether the press is talking about the "Hindenburg Omen" or rising wedge matters not—except to those who’ll tell you all that negative noise is precisly why you should be buying stocks now. (Gary Kaminsky, on CNBC, insisted in late April that stocks "never crash when so many stocks are making new highs" but, in fact, the steep correction that started in late April—had already started by the time he made those comments--felt a lot like a crash for the speed and depth of the sell off.) It’s the time of year when hedge and mutual funds started raising cash, while consumers have other things to pay off, like the credit card bill for summer vacations, or tuition for the kids’ school. IT appears retail investors and pros, alike, have been piling into Treasury Notes, Bonds, and hi-yielding quality stocks like telco’s and tobacco. In a less talked about corner, Preferred Trust Notes have been catching a lot of flows, as well. That’s a way to play yield and stock gains, while protecting the downside from the full brunt of a steep sell off. This Monday morning’s bounce might be quite spirited, given two rumored deals over the weekend, a form Chinese finance official quoted as saying China is more interested in supporting the economy than slowing it down, and is more likely to cut reserve requirements than increase them. Those comments, at least, should help offset the disaapointing earnings and outlook from a Buffett favorite, BYD. But don’t be fooled by an enthusiastic start to the week. The risk seems all to the downside, for the time being.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommedation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.      
  
August 16—20, 2010  EXPIRATION MAY OFFER SOME SUPPORT But Not at a Level Equity Investors will Like  Is there anyone who thinks Bernanke expected the market to sell off as hard as it did, last Wednesday, in the wake of the FOMC statement released a day prior? At some point, the Street will change its stripes; Analysts and economists will revisit the FOMC action 08/10, and view Bernanke’s decision to keep the Fed’s balance sheet static through the lens he probably intended—as proof that he’s well aware of the fears of a double dip recession the Street is broadcasting, well aware the economy is softer now than it was in Q1, and is prepared to stay on the case, offering support for the economy, without Jim Cramer or any other talking head screaming that "they’re idiots! They don’t know what they’re doing!" That may not be this week’s story—and certainly, reinvesting an estimated $20B in run off funds pales in comparison to the trillions purchased earlier in the credit crisis but, still, it was only March of this year when Bernanke thought the economy was strong enough on its own to allow the Fed to start winding down some of its extraordiary measures—to end its purchase program. The quick switch from March to August confirms Ben knows what’s going on, and shares the Street’s worry. Sooner or later, he’ll give a speech reiterating his intention to "do whatever it takes" to keep the economy on a stable growth path and the street will be reassured. There’s no doubt he got the market’s message when it sold off so hard only one day after last Tuesday’s FOMC meeting. At some point, he’ll talk up the measures still in his tool box, despite Hoenig’s objections. Whether Bullard & Evans will speak his mind for him Thursday, when both have speeching engagements, remains to be seen but Bernanke could speak up as soon as the Kansas City Fed’s annual Conference in Jackson Hole, usually the last weekend of August. But give Bernanke credit for one thing:The billions in additional debt the Treasury is issuing carries ridiculously cheap yields—cheap enough that the debt burden keeps shrinking even as issuance is till expanding. Were Michael Lewis to write a novel about the current situation, he might imagine Bernanke actually dreaming up the current soft patch expressly to lower the nation’s interest on debt burden. And at some point investors who qualify for credit will find current rates so irresistible, they’ll start increasing their use of credit. After all, millions more are employed than unemployed. And at some point, there won’t be any new investors to pile into Treasuries that pay such minuscule yields. In the meantime, it would greatly help if the Fed stopped paying interest on cash parked there overnight that’s equivalent to slightly more than three times the rate, as of Friday, on 52 week bills (0.24%). As long as it does, banks will continue to leave more on deposit there than is necessary, curtailing the amount of money circulatingf.

For those tempted by retailers that were punished after they reported earnings, consider this: August sales will be released September 2^nd, while Labor Day weekend doesn’t start until the 3^rd. That will move all of the holiday weekend’s sales into September, especially since meany states have eliminated August BTS sales tax holidays because of budgetary concerns. The holiday shift will be good for September but a detriment to August sales, especially as consumers buy closer to need, and less of they what they want; i.e. less frivolously. Honestly, the weather In most of the country isn’t conducive to fall clothing sales. To the upside, Labor Day was equally late a year ago, so August ’09 comps, while a big improvement from earlier in that year, are not challenged by a holiday shift. Speaking of retailers, Kohl’s (KSS) transferred its private label credit card and $3.3b of receivables to Capital One (COF) from JPMorgan (JPM). JPM which sends out press releases if Jamie Dimon goes to the bathroom didn’t send one out for that. And it might pay to wonder WHY KSS made the move: Could it be JPM was more stringent about credit lines and eligibility than COF, which is expert in subprime, promised to be? Meanwhile, WalMart's earnings Tuesday morning are a lose-lose situation. If it reports well, that means consumers are scrimping and WMT is gaining share from more fashionable stores; if it misses, that means consumers are scrimping on apparel and cutting back on food purchases. Either way, there's almost nothing WMT can report that will benefit retailers.

Talking heads on CNBC, Friday, said buy stocks because they’ll be up on Mutual Fund Monday. Sorry if I don’t give that much credence, though a brief bounce that gets sold is always a possiblity after a 3%+ dive. Ironically, retail investors have been out of the market, especially since the May 6 "flash crash," and this is the time of year when financial pressures rise. Not only do consumer have to pay off their summer vacations but many are, also, making additional payments to their kids’ private schools and colleges. In fact, combined with hedge fund redemptions and fear of what Q3 earnings will look like, school related expenses are a reason September is, historically, the worst performing month of the year. What September is often good for, on the other hand, is employment, as teachers and support personnel return to their jobs at schools that were closed over the summer, even as the pool of workers looking for jobs shrinks, as college and high school kids return to school, and unemployed college degree clutching young men and women often choose graduatee school degrees, as well, especially when employment prospects are as grim as they are now. Those who enroll in B-school, or law and medical school, hope the job market improves by the time they get their professional degrees. We’ll learn more about hedge fund holdings and returns in the coming days, as they file their quarterly reports with the SEC.

Several Preferred Stocks were called for redemption last week. Under new accounting standards, to be phased in starting 2013, Preferreds will no longer be counted as Tier 1 capital. Furthermore, many of the Preferreds issued in the last two—three years were set at much hgiher rates than many of the issuers would have to pay today. For instance, it’s unlikely Prudential would have to pay the8.75% its Preferred, ticker PHR, was issued at. Even JPM issued preferreds at much higher rates than would be required now. That may be another reason more investors are pouring into preferreds, their yields a heck of a lot better than Treasuries and CD’s or money market funds. Many are trading above their issue price yet still yielding above 6% but could get called under current trading levels. If you’re considering preferreds, it’s important to read the original prospectus, to learn the earliest callable date. Buying now at $27, only to see a security called at $25 would be painful. Still, the buying in preferreds, telcos, tobacco companies, and US Treasuries are all a function of investors looking for returns with less risk than common stocks, a vote for dividends and interest over the uncertainty of common. The demand defies the talking heads who predicted they’d sell off the rest of the year, if the favorable tax treatment of dividends is allowed to lapse with the Bush tax cuts at the end of the year.

Raise your hand if you never heard of the "Hindenburg Omen" until recently? Make sure you search and read up on it since it’s something the street is talking about, just as it did the "death cross" right before the July rally launched. In fact, so many talking about the Hindenburg Omen is one of the few things the remaining bulls have going for them. The Market rarely cooperates to make it easy for bull or bear.

Tuesday promises a bonanza of data including PPI, Housing Starts/Building Permits, July Industrial Production & Capacity Utilization, and Minneapolis Fed President Kochertakota speaking. Wednesday is crude oil stats, and Friday’s Options Expiration. Thursday, in addition to the two Fed speakers mentioned earlier, the Treasury will announce the size of the coming 2, 5, & 7-year Note Auctions. But it’s Friday’s Options Expiration that will probably influence the week’s trade as much as all the data, together. That almost guarantees at least one surprise day to the upside. And it’s possible, all the put buying in recent days could help support the market through Expiration, holding the S&P 500 above low seen July 30, at 1010.91, at least and possibly as high as 1040. However, should stocks open to the downside Monday, and accelerate down without a bounce, then all bets are off for puts supporting the markets through the end of the week—especially if volume spikes up since the low volume even on strongly negative days is one of the most disturbing aspects of recent trade. And at least two equity sectors should outperform all but the high yielders: Deere reports Wednesday, and Caterpillar hosts analysts Thursday, which should combine to bolster both mining & agricultural sector shares, not that either need much help, especially compared to the rest of the market .Furthermore, chip and semiconductor equipment stocks are so beaten down, any downside extension is likely to attract bargain hunters who expect tech to outperform for both back to school and the holidays, especially if Applied Materials earnings and outlook, Wednesday isn’t as upsetting as Chambers was after Cisco’s report.

There a few BIG events this week, one of them the Conference on the Future of Housing Finance, Tuesday, about which there’s more in the Events Calendar, below. It’s ironic that so many retailers report, this week, even as many merchandise buyers, institutional investors, analysts, and manufacturers will be in Las Vegas for MAGIC, the one-time men’s expo that has morphed into the largest fashion event in the country. This MAGIC is for Cruise/Spring 2011 though Off Price retailers will have their pick of immediate delivery merchandise. Manufacturers always sew a little more than their orders on hand to accommodate retailers looking for re-orders. This year, manufacturers are unlikely to hold onto merchandise they can sell to the off price channel, given the cautious comments out of retailers that have already reported, and the obvious slowdown in the economy since last winter’s heady rebound. Furthermore, there’ll be retailer shipments that are held for credit reasons, looking for a new buyer. The Flash Memory Summit, also starting Tuesday, will be an important link for analysts who rely on checking the channel before initiating ratings changes and tweaks to earnings estimate. With flash memory in phones, cameras, and PC’s, and a history of booms and busts, the Summit will be telling. And expect to hear more about Brazil, which many believe will continue to flourish since commodities are in demand, and the infrastructure build out has years of growth ahead, as the country prepares for the 2014 FIFA World Cup, and the 2016 Olympics. The Santander Brazil Conference, starting Friday, is just one of many scheduled there in the coming weeks and months.

Having done a decent job calling the April top, and signalling the July rally, it appears time to sell on rallies—and purchase puts and contra funds when opportunities present themselves. Never mind the heat along the East Coast—it’s about to get brutally scorching for any remaining bulls. Some will look to the Conference Board’s July Leading Indicators, Thursday, in hopes that there’s no more deterioration but that would be foolish. The severe response to Bernanke’s, probably well intentioned, signal that he’s still on the case, looking to help support the economy before it deteriorates more tells all a bull or bear needs to know about the psychology, now. It’s a market that’s shooting first and asking questions later. Last one out shut the lights.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommedation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.                 

August 09—13, 2010  CHINA DATA AS IMPORTANT AS FOMC STATEMENT?  The Street will be focused on the FOMC meeting, Tuesday, a rare single day meeting after most ly 2-day confabs since the credit crisis began. Chinese Economic data, expected to be released Tuesday, could be just as important. Both represent a conundrum, since the street isn’t really sure what it wants, now that attention has turned away from inflation towards deflation.

China, in recent months, has worked to slow economic activity, after pushing massive lending programs through regional banks, to avoid the recession most other countries endured when credit siezed up. The Street wants China to slow just enough so that its economy doesn’t get out of a control but not so much that there’s curbed demand for commodities. What the Street wants from the FOMC is harder to define. More money isn’t an answer. The Fed has pumped liquidity into the system but the money has no velocity. Most of its is sitting at the Federal Reserve Bank, collecting 0.75%. The Street wants the Fed to do something about the slowdown seen since spring yet, were the FOMC to unleash more quantitative easing, the Street could react just as negatively as it will if the FOMC does nothing but stand "ready to act, if necessary." Therefore, there’s almost nothing the FOMC can do or say that would mollify the Street. Friday, fewer than 1B shares were traded on the NYSE despite a huge range on the day. The lack of volume seen Friday is more typical of the old half days before long weekends. Traders old enough to remember the 70’s know that kind of apathy results from pro’s folding up their tents, and retail investors turning away from stocks. Trade should pick up around the FOMC statement but soon return to the doldrums. More and more, the battle between bulls and bears is being fought by computers, without much human intervention, and that makes this market particularly dangerous and vulnerable to another flash crash like the one May 6th.

Last Sunday, I said stocks were likely to peak Wednesday, and they did. On Thursday evening, in the Nightly Notes, I wrote that stocks were likely to plunge and immediately come back, no matter what the Employment Report looked like since, on the charts, stocks looked determined to run higher. They still do, on the 750 end of day charts I reviewed over the weekend. But the kind of clarity I experienced last week eludes me, this week, because I don’t believe the Street knows what it wants from either China or the FOMC, which means traders will be hard to please. That may leave stocks to trade on technicals, alone and, given the major indices at the top of a recent range, there’s the likelihood of another swoop down, even as the fight back from deeply negative territory, Friday, suggests there remains some will for higher prices. The opposing views of bulls and bears are both operational and impossible to accomplish simultaneously yet, by this coming week’s end, it’s possible we’ll see both—a rise to slightly higher prices and another swoon. Seasonally, it’s typical for stocks to hold onto the gains won since early July, at least until Options Expire, a week from Friday—something the charts don’t completely disallow. One wild card is redemptions, since those looking to withdraw investments from hedge funds at the end of Q3 may have to get their request into managers by the middle of this month--45 days before the quarter ends. And let’s not kid ourselves, when funds like Paulson & Co lose 9%+ in a month or quarter, as it’s said Paulson did in June, redemptions make sense. Paulson, like many hedge funds, loaded up on financials and gold, betting on an inflationary spiral that not only hasn’t occurred but looks like the least likely risk, now. The Street’s worries shifted from a double dip to deflation, a fear given voice by the Fed’s Bullard in a paper much talked about. In a deflationary period, the value of cash rises, as prices for goods and services fall. That may explain why, suddenly, old world pharma, telcos, and preferred stocks are getting the lion’s share of stock inflows. Dividends are valuable in a world in which stock price appreciation is doubtful. And it would explain the continiuing large inflows into bonds and bond funds, which has driven rates down to ridiculous levels: the 2-yr note traded below 0.50% at one point last week.

Friday’s July Retail Sales and CPI will be examined more closely than seems natural, for backward looking data that omits the largest retailer of all, WalMart. Still, Retail Sales could reflect better sales of food, given the World Cup and b-b-q season. (Too bad there’s no pure play ice cream maker to bet on, anymore. The scorching East coast heat wave was perfect for ice cream sales and, probably, will be reflected in frozen drink sales at MCD, SBUX, and BKC). CPI is, perhaps, the biggest fiction of all, since the "core" eliminates food and energy, and is not worth the respect accorded it. Skewed by housing costs—owner equivalent rent—and the Fed’s imagination which supposes chicken will be substituted for steak, if prices of steak are too high. It never captures the rising costs every consumer experiences and, probably,’ never will, since the Fed doesn’t want to boost the entitlement programs pay-outs that are adjusted, annually, for inflation. With cherries selling for $2.99 a pound when they’re usually $0.99 this time of year, and chicken parts going for $5.19 a pound, instead of one-fifth that, every shopper is experiencing the very inflation the Fed fails to acknowledge and the Street fails to see. In fact, if the Fed wanted to reduce fears of deflation, it could start by comprising a more realistic CPI. Should China’s data please—not too hot and not too cold—anything commodities related will respond.

Earnings season is winding down for all but retail sector investors. The most notable earnings, this week, will come from Dish, Cree, Tyson, Scotts Miracle Grow, Sysco, Walt Disney, Cisco, and Brinker, as well as Estee Lauder, Macy*s, Kohl’s, Nordstrom, and J C Penny. Still, many will tune into Ambac Financial and MBIA for comments on mortgage payments, while it’s Kelly Services that may have important insights into the outlook for jobs. It’s doubtful any earnings will trump either the Fed or China, which will paint the background against which all other information will be shaded. The U.M. Preliminary August Consumer Sentiment Suvey, released Friday, is based on 250 responses. Such a small sample should be ignored but the Street insists on treating it as important—never mind that consumers often say one thing and do something completely different.

There’s a mini-boomlet of Investment Conferences, this week, covering a wide range of sectors—from Ag to Utilities--even as a good part of the retail world and the analysts covering it will be in Vegas for World Shoe. Footwear is an interesting niche, since parents can’t avoid buying new shoes for growing children, no matter how strapped they are for cash. Footwear has been posting stronger sales than apparel but rarely has a group reported such outstanding earnings and outlooks to so little enthusiasm. In fact, despite stellar earnings and outlooks from companies like Steve Madden (SHOO), Skechers (SKX), and Deckers Outdoor (DECK), all three stocks are lower than they were when they reported. It will be hard to sell the news, since there have been steady outflows from retailers for weeks. The tell is Nike, stuck under $74 for two weeks and doesn’t report, again, until late in September. When it breaks out, that’s usually been a signal for traders to buy into retail, again. I’ve often said that happens around February 5^th and August 5^th, with some regularity. A late Labor Day and few states offering sales tax holidays, however, will push out most of back to school shopping until next month. It appears the caution retail managements demonstrated after last quarter’s earnings releases was warranted. Consumers are shopping but only when the discounts are big enough—making 75% off the new 50% off, and BOGO (buy one get one) a favorite device. With inventories curbed, there’s less clearance to move out the door while the weather is not conducive to fall fabrics. Expect outsized caution when retailers report, this month.

One event, which doesn’t start until Saturday, August 14^th, should be on every trader’s radar. NAIC is for insurance commissioners—the state regulators that set capital levels for insurers doing business in their states. Sucker punched by AIG’s collapse, they’re changing the way they look at insurance companies—beyond their capital levels, and are likely to reverse some of the capital easing they granted, case by case, during the heart of the credit crisis. When the Financial Regulatory Reform act was being written, the state commissioners fought hard not to lose their jurisdiction over companies operating in their states—even as the companies would prefer a single, nationwide regulator, and easy cross border access. As the individual state healthcare pools are created to comply with the mandatory health insurance the Obamacare bill requires, it’s these commissioners that will make the ultimate decisions for each state.

The Financial Times/HSBC Conference in Sao Paulo is the first of what will be many Brazilian focused conferences to take place there over the next month. The country assessed a 2% fee on foreign money looking to invest in the country, which temporarily cooled flows. Portfolio managers seeking growth have added Brazil to their tool box, a country that doesn’t suffer the totalitarianism of China. Be sure to access the Premium Calendar on our website for more events and information on the events highlighted below. For most, there’s a link to the conference agenda and/or a list of companies involved.

In sum, I’m experiencing the "unusual uncertainty" Bernanke spoke of when he testified in Congress, recently. I have no doubt that the intermediate term will see stocks lower than they are now but, in the immediate term, I expect stocks to try slightly higher. Though the fall swoon has often waited until after August expiration, how quickly the downside overwhelms the indices may be determined, this week, by either the FOMC statement or China’s data. Then, again, there’s almost nothing the FOMC can say that would convincingly mollify traders increasingly worried about following in Japan’s footsteps, into deflation, which is harder to arrest than inflation. I’d rather not play any additional gains that stocks may scratch out. Higher prices will be nothing but a better level at which to position for downside almost certainly around the corner.

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August 02-06, 2010  JOBS REPORT TOPS ALL ELSE  Not to take anything away from some other major events of the week but Friday’s Jobs report is the be all and end all. Tuesday’s July Vehicle Sales and Thursday’s Chain Store Sales are significant, the latter to include quarterly sales reports, even from some retailers that no longer report their monthly sales. Furthermore, the Earnings Calendar promises lots of media and healthcare providers/insurers, all of which will snag heightened attention and press. But there’s nothing else that will impact markets more than Friday’s Jobs Report, unless Ben Bernanke speaks unusually frankly Tuesday, which seems doubtful. Not only does the FOMC adhere toan unwritten quiet period prior to meetings (next one 08/10) but speaking frankly is exactly what upset markets more than a week ago, when the Chairman admitted during Congressional testimony that there’s unusual uncertainty surrounding the economic picture. It’s hard to feel secure about the economy’s direction when the man in charge admits to unusual uncertainty. Makes you wonder who’s in charge and if there are mistakes being made.

Nordstrom's July Chain Store Sales should demolish all comers, its Anniversary sale a big draw that allows it to both clear summer merchandise and introduce fall/ back to school/ transition merchanidse at discounts supported by its suppliers. Late on 08/02, staff in the store will be ripping off the bottom perforated portion of every hangtag representing manufacturer supported promotional inventory, leaving only the "after sale" price which was visible during the entire sale. However, JWN's outperformance will come as no surprise since the anniversary sale occurs annually, and JWN guided analysts according. Luckily for JWN, it suffered a steep drop in comps a year abo of nearly 11%, which will also boost results. But then, it won't be good enough for JWN to merely meet or slightly beat consensus expectations. Therefore, the question remains of how far above the consensus comps must comps increase to please? That might be as much as 5% about expectations, bringing comps to 19--20% before shares celebrate. Elsewhere in the mall, while analysts concede July is a near throwaway month for spring/summer clearance to make way to set fall, steep discounts may hurt more than they realize. Throughout this clearance season, this year, in fact, 75% off has become the new 50%, while BOGO 50% off is nearly pervasive on fresh deliveries, which will make it hard for retailers to post good margins. The battle is stiffest in jeans and tees, where prices range from $8 for Target's (TGT) kids, to $298 for True Religion (TRLG). And it's fair to ask why stores are stocking so much denim, when jeggings are the hot new product? Jeggings, a contraction of jean and leggings, are leggings printed to look like 5-pocket jeans and, for some women and girls, will replace the purchase of a new pair of jeans. Think about it, if distressed and torn jeans are in vogue, why buy a new pair? The older your current jeans, the more fashionable they are. For something new, jeggings fits the bill but with jeggings costing so much less than denim jeans in some of the most fashionable stores, replacing the lost revenue will be a challenge. Beyond Nordstrom, some retailers have incredibly easy comps to beat, like Abercrombie & Fitch's (ANF) negative 28% from a year ago, while footwear stores were a bright spot, whether athletic footwear or Journeys, a Genesco (GSO) division, as Steve Madden (SHOO) and Skechers (SKX) earnings reports confirmed. In Florida, the athletic footwear stores soared, if they had sufficient stock of Heat merchanidse, after the team's well publicized signing of 3 top NBA players, including LeBron James, whose #6 proved the hands down favorite. Unfortunately, sales of team jerseys sometimes stole wallet share from other categories. Already, analysts are talking about chains that ordered too much merchandise for fall, based on strong sales at the beginning of the year. Those orders are now being delivered at a time consumers have reverted to slightly more frugal spending ways. Worse, the weather is a real deterrent to fall shopping. Who wants a plaid coat or heavy sweater when temperatures are reaching 100 degrees in a good portion of the countr?. And Labor Day is late this year, which will postpone some shopping, as kids wait to see what everyone's wearing the first day of school, before spending their last budgted B-T-S dollar. At least one trend endures from earlier in the year: home related sales have met with shopper interest, after an almost 5 year neglect of that category and despite weak home sales, especially since the tax credit ended. Therefore, a chain like Macy*s can hide weak apparel sales with very strong home, furniture and mattress sales at much higher price points, even after the 50% off plus another 10% off advertised.That will boost comps without doing much for its fashion racks which remain more overstocked with clearance merchandise pushed with a multi-tiered discount scheme of 50% off, plus another 40% off, plus another 10 or 15% off with mailed and newspaper coupons, and another 15% off if purchased with a house credit card or, in the alternative, merchandise card credits for the last 15%, against a minimum purchase, a tactic both Saks & Neiman Marcus used during one day in July. Teen retailers are still suffering a lack of disposable income due to high teen unemployment but there were the first signs of parents doing back to school shopping with kids, in July, if unenthusiastically. On the missy side, I'm more than a little surprised by the steep sell off in Chico's (CHS), accelerated after Goldman slapped a sell on it. Missy customers have been shopping more, this year, than they have since 2006.(Who do you think is buying all those pillows, comforters, kitchen appliances, and furniture?) While CHS gets a better response at White House Black Market when it advertises 30% off, it has a core customer while the flagship brand is, by far, the best trafficked missy store in the mall--albeit very promtionally. Reg FD: I own CHS November calls.

As for the week’s outlook, I’m feeling slightly Bernankish: New months often see strong inflows, though that’s benefited bond funds more than stock funds this year, and bonds are probably extremenly overpriced after they surged Friday. One would think the asset allocators would be looking to trim their bond holdings but, then, why break stride when bonds have worked so well, and the future is so cloudy? While last week was a consolidation week, there’s no way to measure whether stocks held together, at all, simply because it was month’s end, and institutions pursued an agenda that included window dressing. Was the surge in bonds some window dressing itself? Clearly, the S&P has traded range bound between 1060 and 1120 and is likely to await the Jobs Report before breaking the range. About the only thing I can say for sure is the charts suggest the top of the range will be kissed, again, before we learn much more about employment in July—the ADP Survey released Thursday simply not worth the paper it’s printed on. Having said that, a rally probably doesn’t get going much before Tuesday, when fund managers see how much new money was sent their way, and could easily give back gains with the nearly worthless ADP report Thursday. In fact, the markets could well peak Wednesday, after MasterCard has reported (Tues.), Amercian Express has met with analysts (Wed), and with Kelly Services’ report (Wed.), since there’s a widely held belief that strong temporary worker activity presages better permanent employment. In short, another bounce but no break out, except in the highly unlikely event that the employment gains I know are occuring finally show up in government data. Unfortunately, with the last of census workers seeing pink slips in July, goods news, probably, isn’t in the cards for the July report. On the other hand, the consensus estimate for July private sector jobs gains is between 50—90K which doesn’t seem all that challenging to achieve.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.  

July 26—30, 2919  CONSOLIDATION BEFORE ANOTHER FLING AT 1120    Last week’s big gains were a bit of a surprise, more typical of this week during the Earnings cycle, than last week. It may mean the weeks have flipped, and this will be a consolidation week which will end with a punctuation mark—Friday’s first guesstimate of 2Q10 GDP. With the month ending Friday, the Conference Board’s and U.M.’s pulse on Consumers, Tuesday and Friday, respectively, and both June Durable Goods Orders and Shipments AND the Fed’s Beige Book Wednesday, the Economic calendar won’t be completely submerged by the Earnings deluge. It is more than likely that the Conference Board’s most larger survey will not be as dour as U.M.’s first take on July sentiment, based on all of 250 people. In fact, U.M.’s final July take is likely to rebound from its initial release. However, the optimism of BP finally capping its Gulf gusher is sure to be offset, somewhat, by the stifling heat that’s blanketed much of the country, with temperatures along the East coast worthy of a steamy Florida August, in fact topping those of Florida which were tempered by rain and tropical storm Bonnie’s winds.

Once again, the Events Calendar is slim, though not without notable mentions. The FDA is exceptionally busy this week, while Citi hosts clients at Target headquarters, Invesco, Polaris and Mcrosoft host analyst meetings of their own. The noisiest events should be AACC (Am. Ass’n of Clinical Chemistry), the Brazilian TMS/ABM Materials Congress, Keefe Bruyette & Woods’ Community Bank Investor Conference, Morgan Keegan’s Insurance & Total Return Conference, and the 140^th Correctional Congress. Not on any calendar but sure to influence trade in financials, this week, is the release of the dissection of the EU’s stress tests by Street analysts. It didn’t seem kosher for the EU to exclude "held to maturity" sovereign debt from its tests, under the assumption that the nearly $1trillion EU backstop guarantees there won’t be a sovereign default. Nonetheless, the banks that released their exposure will be picked apart, this week.

Someone has been buying the growth story; materials stocks found their bearings, last week, even as gold has poked around, not quite swayed by either the inflationary or deflationary scenarios the bulls and bears defend. Some wonder if the, now, infamous Paulson & Co could have been unloading some gold held through the GLD Trust, as well as its favorite gold and financial stocks, Citi and Bank of America, in particular, after a rumored 9% drawdown in June returns. Neither financial company reported earnings that provided reason for Paulson to stick around, while a goodly number of gold miners report this week. Furthermore, the US Treasury is planning to sell another 1.5b shares of Citi, through Morgan Stanley, again.

Still, I’m not completely negative for the week. There’s no change in my expectation for the S&P to achieve a higher target—at least 1120, even if it’s thwarted this week, by the advance GDP. It might be time for some consolidation of the recent gains. With the heaviest week of Earnings releases ahead, and Mutual & Hedge Funds closing out their months and, possibly, the latter facing redemption requests in the weeks ahead, the lack of volume on last week’s rally could catch up with stock levels, triggering a drawdown prior to a last fling to 1120, minimum, before the summer rally is complete. Given the gaming of end of month, it’s not inconceivable that that level could come by Friday, even if stocks are weaker in the beginning of this week. I don’t expect GDP to please but, rather, confirm what stocks priced in with the June swoon—still weaker activity in Q2, after Q1 was weaker than Q4.

In short, I’m bullish short term but more negative for the intermediate term. I foresee the major indices reaching higher levels before this rally is over, even as I anticipate some disappointments in July retail comps and August retail sales. That leaves the government and corporations to take up the slack, something companies are doing with technology, almost exclusively, as Microsoft should emphasize, when it meets with analyst this week. But the continuing shrinkage in credit outstanding—the lack of velocity of all the liquidity pumped into the system, will act like a governor on economic activity. Recall, also, September and October are notorious for equity market upsets, the early birds known for getting a head start by lightening up in August, especially in front of the Labor Day weekend. That suggests the window of opportunity for the bulls to take stocks much higher is narrowing with each passing week, even as the focus will shift, in August, to retailers hawking back to school products while much of the country is suffering from either flooding or 100 degree temperatures—rarely good for fall apparel sales. Texas schools, by law can’t open until the 4^th week of August. Atlanta schools open August 9^th while Florida schools, by law, can no longer open earlier than two weeks prior to Labor Day, which is late again this year (Sept. 6^th), even as the Jewish Holidays are very early (Sept. 8^th), starting Labor Day week. The calendar may push out back to school shopping until mid-September, spoiling any number of retailers’ outlooks when they report next month. Nordstrom should, again, be the exception, thanks to its Anniversary Sale, which was well received when it started July 17^th. But the argument has shifted from worrying about consumers to worrying about deflation vs inflation. That’s an argument no one will win this week, even if the miners report strong earnings, thanks to strong gold prices that will be at risk if the deflationists win. When stocks take their next swoon, I expect gold to take the ride down.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.  

July 19—23, 2010 MAJOR TREND IS DOWN  It will be interesting to see how the court handles Goldman’s settlement with the SEC. Bank of America had a settlement with the SEC that was rejected by a different judge. Furthermore, I don’t see what the celebration is about. Goldie’s admission that its marketing materials omitted material information could be Pandora’s box opened for investors in other Abacus CDO’s, not to mention CDO’s with other names. Plus, if investors should get $250m in restitution, why shouldn’t they get more? And worse, what does the Goldie statement and settlement mean to other Street firms? Do they have to, from now on, disclose who’s betting against any CDO being marketed?

Then, again, speaking of questions, I don’t see how the new Financial Regulatory bill settles anything. Instead, those responsible--or newly responsible--for regulating different aspects of our finance-based economy are being given a framework within which they’re to write the rules. In some cases, like prop trading, they’re charged with studying AND defining the issue before ever writing a rule. And we all know that when it comes to rules for financial firms, the regulators like to allow for long lead times for new rules to be phased in. It could be a decade before the last of what FinReg was intended to modify is translated into actual changes. I feel like Congress just spent a year arguing about whether to throw a party, decided it will but hasn’t, yet, settled on the date, time, or place. There was simply too much left undetermined, outside of who’d be responsible for chaperoning the party. And when it comes to appointing those chaperones, (for the new Consumer Financial Protection Agency, for instance), no one knows when it will meet for the first time. Not only hasn’t Obama worked fast with appointees but Congress reserves the right to reject candidates. Look how long it took for Obama to nominate Federal Reserve Bank replacements. I don’t know how in the world Bank America could claim that it might have to take a $7—10B goodwill charge against the value of its credit card business to account for the new rules. The new rules haven’t been announced, beyond those that went into effect in February, and those yet to go into effect in August, all announced over a year ago. About the only firm, new credit/debit card rule is allowing consumers to be charged less for cash than for transactions completed with a credit or debit card. That’s been going on for years, mostly on the Q-T, American Express the only merchant services company that threatened to drop retailers if they charged different prices for cash transactions, which would discourage consumers from using its card. NOW, Congress has handed to retailers a license to go ahead and expand the cash component of their business, enlarging the number of untaxed sales already taking place. That’ll work out well for the US deficit and state sales tax coffers. To borrow a Steve Jobs term, what a crock!

Four entries on the Economic Calendar scream for attention. At the top of that list is Fed Chair Bernanke’s successive appearances at the Senate & House, for his semi-annual report to Congress on Monetary Policy. Because the Street reacted so negatively to the June FOMC meeting minutes, last week, it’s a certain bet that Bernanke will try to calm the Street to whatever extent he can without lying about the current state of the economy. He is likely to point out that Europe’s problems seem to be subsiding, perhap even that the problems didn’t seem to have a particularly dampening effect of the Economy. He’ll probably claim he awaits the results of the EU bank stress tests, on Friday, as much as anyone. No doubt, he’ll suggest that any capital raises necessary is additional proof that the EU is handling its problems. Thursday’s June Existing Home Sales is the fourth item on the list of important data, since sales all but collapsed in May, once the buyers’ tax credit ended April 30th. If he’s called on to address that issue, it’s almost certain he’ll say the tax credit pulled some business into earlier months but he thinks that will wane in the coming months. Surely he’ll point out that that was the case with auto’s, after "cash for clunkers" ended. The pace of auto sales picked up again in a few months, and seems to have reached a self-sustaining level. Whether the Street will be reassured by any of Bernanke’s enthusiasm, is another story, very much dependent on Earnings and the outlooks provided by CFO’s.

OUR EARNINGS Calendar has changed but still presents highlights only. The difference is that none of the tickers are underlined, which used to designate those whose earnings release timing was independently verified by us. We will no longer check each and every ticker on company Investor Relations websites. Instead, we’re directing readers to a website we’ve cited in the past, for those who sought more than our highlights. After almost 24 months of double checking this provider’s list with ours, every week, we have utmost confidence in the site, and feel you can do no better, anywhere. We have always pointed out that our Earnings section contained only highlights because Earnings are one leg of four that influences the week’s outlook. Years ago, we sat with S&P books, calling market leadership companies’ IR department to verify their coming earnings release date. For decades, we’ve checked individual company IR sites on the web, because too many other sites provided inaccurate information. Precisely because the internet proved a tremendous time saver we felt we had to check many more companies. But, after over 3 decades of compiling Earnings information weekly, breaking our backs and necks during the heaviest earnings weeks, like this one, working 12—16 hour days to assure you got the most accurate information available, we are relieved to find a free site that does an oustanding job equal or better than we did. We’ve found only rare instances of errors, while the links it provides to conference calls is an enhancement we never provided. If anyone knows of a better free provider, it’s never come to our attention and, until then, we will direct subscribers to that site, with a link from the Weekly Outlook. So why include an Earnings section at all? Because Earnings, Economic Data, Events, and context/psychology combined meld to suggest the market’s direction in the coming week. We use Charts for context/psychology. Without being able to reference the Earnings schedule, there’d be a huge hole in the information we need to form an opinion about the markets. And some weeks, almost everything pales next to Earnings.

The coming week’s Earnings reports includes at least a smattering from every sector and many market leaders, as well as a heavy representation from some sectors, like big tech and airlines. Anyway it’s sliced, this week and next will be the Earnings deluge that will pre-empt almost everything else. Because of the sheer mass of information, this particular week of earnings season is usually a stalemate for bulls and bears, with a slight edge to the bears. It should take another 10 days to two weeks of reports before relief starts winning out, spurring stocks to one more upside fling before worries about Q3 hand complete control to the bears. The expected Earnings reports in our highlights are all a cut above those that aren’t on the list but scheduled to report. Those tickers emboldened are likely to be the most talked about and analyzed.

Not only will Events take a backseat to Earnings but the Events Calendar is trim on its own. Events were always more sparsely scheduled, in the summer, but the mergers of many big investment houses and 2008’s bashing of luxury get-aways spurred some other events to be scheduled outside summer. Aside from the events for specific companies, or small, niche segments, like the FDA CDER for Roche’s Avastin in 2 additional indications or HostingCon, respectively, there’s little reason to expect the Events calendar to usurp either Bernanke or Earnings. One Event that sounds like nothing, Comic-Con, could be more important to media than it appears at first blush. Not only will celebrities be plentiful but trailers for coming blockbuster movies, like Tron and Green Hornet, will be previewed there. Given how few media companies report this week—most of cable & Hollywood not reporting until next month—and how movies influence everything from video games to toys to licensed clothing and school supplies, it shouldn’t be summarily dismissed. If it’s on the list, we had a good reason for including it in the highlights, even as the complete schedule is available to subscribers at will, on our webstie.

The S&P’s failure to get back above 1100, and the series of lower highs made since April 26^th on 4/30, 5/13, 6/21, 7/4, and last week, define a downtrend. On each of those days along the downtrend, markets managed to bounce, sometimes with vigor but none of the bounces diminished the downtrend. Not only will the S&P retest support at 1000, it is likely to probe even lower in the fall, if not before, even if Friday’s sell off is, temporarily, arrested at 1060, 1040, or any of the other of the familiar levels seen previously. So if you’re short, loaded up with contra-ETF’s, or holding puts, you’re on the right side of the trend. Just be aware that both Bernanke and release of the results of Europe’s stress tests could throw some squiggles into what’s, otherwise, a major decline. Of course, Europe may hold its stress test results until after the U.S. markets close, Friday, but I don’t see how. To do so would be to embargo them until 10pm eastern time. And with the ECB meeting to review the results, Thursday, there’s room for rumor and leaks to sway trade at the end of the week. Despite the potential for a squiggle or two to the upside, until Earnings forecasts and Economic Data provide reason to expect better growth, stocks will struggle. Whether its loan books at major banks, or the seriously shrinking outstanding credit card debt, released monthly, most signs point to a continuing contraction. That’s never favorable for stocks, no matter how many Fed or White House boosters try to paint it differently. It’s going to be a long, hard, quarter for the bulls. Rallies are selling opportunities, until further notice.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence.

UPDATE July 15: The US Treasury and SEC have joined to figure out how to bring down the US deficit quickly, and expeditiously. The SEC will file chargs of fraud against banks and brokers, then settle for hundreds of millions of dollars in fines. The two agencies, today, demonstrated just how easy this is, in settling a case brought against Goldman Sachs, regarding an Abacus deal built at the request of hedge fund manager Paulson, and sold to unsuspecting "sophisticated" investors, who'd never heard of him. The take for the US Treasury today was $300m out of the $550m settlement, losing investors in the failed Abacus fund getting the rest. Since it took only a few months for the agencies to accomplish this feat, there's a good chance the US Deficit could start shrinking quickly, even in the face of talk of Stimulus 2, which would really be Stimulus 3, since the first was under former President George W Bush. Of course good news for Goldman, first out of the gate, could be bad news for the other brokers and banks. Historically, the first to settle usually pays less than the later hold-outs. That puts a target on the back of Bank of America, Citigroup, Morgan Stanley, and all the other players on Wall Street..Then, agan, all the firms will have to figure out if they need to disclose who'll be betting against the CDO's their marketing. At least one wag has referred to it as the "equal opportunity lawyer" settlement.                                                                

July 12—16, 2010  AWAITING EARNINGS Before anyone gets too excited about the EIA announced oil drawdowns, announced last Thursday, recall that first, it covered a holiday weekend (Jly 4^th) when driving and airline activity got a boost, second and probably more importantly, some of the Gulf of Mexico production was wound down and employees evacuated, not because of the disputed moratorium but in advance of the arrival of Hurricane Alex which ultimately, hit northen Mexico on the US border. Such instances of evacuations are usualy a 5-day affair (evacuate and repopulated and restart) and, so, could still impact the coming week’s data but should not be misconstrued as a sudden bout of enduring economic growth or sustainable consumer demand. Add in record heat in the northeast, with temps in the triple digits, and it’s easy to see how a number of one-time "exceptions" combined to skew reality, temporarily. Therefore, additional bounces in crude are for selling but not shorting, absent another hurricane developing that might threaten GOM production or, more permenantly, the White House winning a blanket moratorium on deep water drilling in the Gulf, which it still seeks depite a Federal judge thwarting that path, for now. .I’d caution against shorting because it is hurricane season, and the result of the stalled moratorium remains an open question.

The markets delivered a strong bounce, last week, perhaps even stronger than expected when I wrote, last week, that the risk is all to the upside but it’s Thursday’s curious late day surge to the best levels of the day that got my attention after Consumer Credit was released, revising April’s $1M increase to a $14B collapse in outstanding credit while May’s drop was half that amount. That was a most curious background for a 3^rd in a row daily surge in equities, especially in light of the caution expressed by even some of the most winning retailers who reported June comparable store sales. Shorts were covering but, mostly, programs were playing technical levels like Izak Perlman plays a Stradivarius. They can easily reverse and go the other way in coming weeks if earnings, and more specifically, the outlooks provided with earnings, heavily suggest that the initial rebound seen late last year and early this year has petered out—a seemingly strong bet since GDP growth is likely to fall far below the 5.9% initially posted in the early rebound. There could be an excuse for a big bounce after the EU releases the results of its stress tests on 91 big banks, scheduled for July 23 but that would be awfully late in the quarter to help change the results. Is a market response like the one seen after the US Stress tests were released in the realm of possibility? Doubtful depending how traders view the actual stress tested. So far, there are serious doubts about the EU tests stressing anything near what markets can envision.

Anything that’s been bothering me for months, which I haven’t fully fleshed out in this space before, is the fact that Consumers are credited with 70% of GDP. That’s true but not really in the way most visualize. Consumers buy services from doctors and health insurers, accountants, plumbers/home repairpersons, gardeners, etc, and spend monthly for mortgages or rent, food, gasoline, electricity, internet access, phone and cable or satellite service, and sometimes buy air conditioners, toaster ovens, coffee makers, hair dryers or irons, and other appliances that need replacement, aside from underwear and shoes that fit. Consumers buy, just as occasionally, movie and theater tickets plus school supplies and tuition, in addition to computers and phones, themselves, but most of the spending does not fall into the discretionary category. More than three-quarters of "consumer spending" is for the basic necessities of life, child rearing, and getting to work or school. Anyone who argues their discretionary spending hasn’t dipped must not have been into the mall to see that 75% off has replaced 50% off as the new clearance lure. Whether it’s the June comps from Neiman Marcus or Saks, or those from Target, there’s no question that consumers have trimmed their discretionary spending after late last year’s rebound that ran into Q1. It appears, though, that Q1 strength sated pent-up demand after a period of austerity that for missy retailers, for example, started as far back as 2006. The mall was very quiet this weekend at all but athletic stores and Genesco’s LIDS, where tees and jerseys that say Heat on the front and "James 6" on the back were the hottest item and difficult to keep in stock. (I’m in Southern Florida where Heat mania nearly equals the celebration in Spain tonight) But, otherwise, consumers don't really seem to care about the discounts in stores.

Corporations, also, splurged a little late last year and early this year after a year or more of austerity. With pent-up demand now sated, both consumers and corporations have returned to more frugality borne of two economic volcanic eruptions in the last 10 years which have instilled, perhaps permanently, a more prudent mindset. As PIMCO’s El-Ehrian terms it—the new normal.

In sum, my shortest term outlook is for some payback for last week’s rally, early in the week, before the rally revives later in the week. The next leg of the rally should barely get going over the next week or two, before it builds into early August. If Alcoa, once again, is blamed for the first Earnings dip it'll be nonsense but rather typical of both Expiration week and activity after a big rally like last week’s. S&P 1080 screams resistance, on the charts. It's a level that shouldn’t give way on the first attempt. My intermediate and long term outlook remains decidedly negative. I fully expect the summer rally to transition into a fall decline—possibly, a fall decimation. That won’t diverge far from seasonal patterns but, ultimately, could rank with some of the ugliest fall declines we’ve ever seen, as the last bull realizes things will never return to the insanity of the late 90’s. At some point, I fully expect the markets to face the realization that the Federal Reserve has nothing left in its ammo bag, and the final leg of credit destruction that started in mid-2007 has to be allowed to run its course. Credit destruction is associated with economic contractions, a doozy of one taking place right under our eyes, as the Consumer Credit data perfectly captures. Ultimately, the economy will be healthier for the process but it will be painful while it occurs—perhaps more painful than what was seen in 2008.

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July 05—09, 2010 ARMAGEDDON or a SHORT TERM BOTTOM APPROACHING? Preparing the August Premium Calendar update, last week, I stumbled on an entry for August 15 that noted that date would be 45 days prior to Q3’s end, a last chance to provide notice of redemption to one’s favorite hedge fund. That got me wondering whether any of last week’s low volume selling was related to funds raising cash for redemptions. Surely, some wise big money investors were smart enough to sell after a year long 80% rally off the March 09 2009 low, weren’t they? Nary a word on the subject in the financial press doesn’t mean it didn’t happen.

Asset allocators were also, surely, rebalancing after Q2 ended, weren’t they? Could they still be piling into US Treasuries? Not last Friday, anyway. So, are we close to a near-term bottom or, as Robert Prechter has been widely quoted, on the precipice of a bigger drop, the biggest drop that will last into 2016 and find the DJIA under 1000 when it’s over, the S&P around 100 by then?

On the daily charts, this weekend, there wasn’t much good news for bulls. Even JPMorgan couldn’t find buyers at its lowest price in months. There was buying in biotechs, after a major (SNY) said it would look for targets under $2B in market cap, while former favorites, like Apple, proved they weren’t done selling off, even as the contra ETF’s saw limited inflows--not much volume—as was the case in most of the market. There was some nibbling in retailers, including Skechers (SKX), and Best Buy seems to be taking a stand around $34 but, honestly, I’d be cautious about investing in retailers this time of year and, especially, in front of June Comp Sales, Thursday, which won’t WOW. Lousy comps in 2009, and a month designed by the NRF (Nat’l Retail Federation) to include parts of both the Memorial Day & July 4^th holiday weekends wasn’t sufficient to yield impressive results, even though 75% off is the new 50%ff, and should have been more tempting than it turned out to be. Footwear did shine in the month, along with home-related items, and Victoria’s Secret, relative to other categories and brands, but that was about it. Shoppers sought the mall as diversion, crowding the corridors but not stores. And men were some of the biggest disappointers. Evidently men who shopped the sales, a year ago, to self-gift for Father’s Day, decided they didn’t really need too much beyond new sneaks, this year. Nordstrom still outshines other department stores but Macy*s is hurting competitors with its, now, 6 month running home, mattress, and furniture sale. That won’t do much for M’s margins but it will help boost top line sales given that couches, mattresses and, even, comforters are higher cost SKU’s than a bathing suit marked 75% off after tiered discounts. Traditionally, retailers sell off until August, and analysts lose faith when teen retailers aren’t growing comps. So seasonally, it’s a bad time for retailers, and the fact that teen retailers are still suffering more than either other speciality stores or department stores, is a big black mark against them.

I singled out Microsoft, in recent posts, as a selling target associated with end of quarter window dressing and index reweighting but think it’s a buy now—if you’re willing to take a shot at the long side at all. 2013 LEAPs are open for trading and are a defined risk way to play the name. Whether corporations like it or not, the PC’s in their buildings are aging and vastly underpowered for today’s computing environment. Those old XP OS PC’s with 2G’s of memory are a drag on productivity. MSFT is still the biggest beneficiary of the inevitable upgrade cycle, even as companies are sitting on some of the biggest cash hordes in history, and the tax code rewards capital investment. I’m more puzzled by the sell off in Cisco. Every provider is touting its nextgen phones—either LTE or 4G—and selling on the speed and coverage of their networks. They’re upgrading their networks at the fastest pace possible yet, the company sitting at the center of those upgrades is being treated like trash. Again,m if you’re inclined to any longs, at all, 2013 CSCO LEAPs are a defined risk way to take a position while remaining patient for a bounce due an extremely oversold market. Instead of tying up cash in stocks, 2013 LEAPs are a better choice, to be traded like stocks on bounces. These are not instant buys but, instead, a wish list to be executed while VIX is down.

Obviously, I’m looking for longs to pounce on when the timing feels right because I believe there will be a bounce in before this month ends, even if there’s more downside to probe, first, in the first hours of the coming short week. Communicating the growing potential for a bounce of some substance strikes me as even more bold than my mid-April call for a correction precisely because there are so few bulls around, and earnings warning season precedes the earnings season, which doesn’t really flourish for another two weeks, putting us right in the warning season. here and now. There’s Prechter’s call for a long term market collapse that he claims has already started, and economist Rogoff’s claim that the Chinese property market has already started to "collapse." There’s even a regional (Ganghzhou province) Chinese bank official who called for tighter rates, this weekend, all reasons to expect more downside, especially given that much of the bulls’ talking points for recovery are based on Chinese consumption. But the contrarian in me can’t overlook the accelerants that provided the spark for additional selling last week: A lousy end to the quarter (and first half) with June posting the worst showing in decades; employment data that thwarts economic recovery; other tepid economic data and a disaster in homebuying in the wake of the tax credit ending; retail returning to a moribund state after pent up demand was sated earlier in the year. But extremely oversold markets, and the St. Louis Fed’s charts (http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=M2&s[1][range]=1yr, which I’ve pointed to a few times, got me looking for the flip side. The St Louis Fed charts are, again, suggesting the Fed has its foot on the accelerator. A new quarter started and portfolio managers have to deploy cash. The ECB has been following through on its promised quantitative easing, and is finishing up its "stress tests" for Euro zone banks, which it intends to make public and "transparent." Then, there’s the prospects for strong Q2 earnings reports that, granted, might have to overcome some cautious commentary but that could be dismissed as low balling to tame expectations—depending on what companies say, exactly. Do I think the S&P sees 980? Absolutely, and that could happen in a swoosh down early this week or in dripping Chinese torture, or a reversal after a bounce. But within the first few hours of trade Tuesday, I expect to see enough divergences to have taken off my contra ETF and put bets, until a bounce emerges or selling volume picks up.

The long and short of the week is the lack of catalysts in any of the three pillars we track every week: Economics, Earnings, or Events. Therefore, absent a mega cap market leader warning on Q2, it’s the markets, themselves, that will dominate trade, and technical analysis that will capture all eyes—even those of the few who claim they never consult or consider it. With downside volume shriveling up, last week, and a few consumer names refusing to decline—even rising when everything else was falling—a snap to the upside from near 1010--1015 on the S&P seems the biggest risk to bears celebrating their wisdom and good fortune. Should the S&P break below 1000--1004, though, 980 should arrive much more swiftly than I currently expect.

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© Sandi Lynne 2010 Nothing contained in this commentary should be construed as a recommendation to buy or sell any security. The opinions expressed are the author’s, alone, and should be just one factor in more complete due diligence. 

EDITOR'S UPDATE 6/30/10: With the Quarter over, Portfolio Managers starting fresh and freed from communicating their new quarter results to shareholders for another 3 months, I expect a healthy rally on July 1, albeit one that won't last. With Friday's Unemployment Report largely feared after ADP's punk private payrolls report (+13K)--despite a lousy track record--those fearing a double dip worry their greatest fears will be confirmed Friday.Therfore, a rally Thursday could start big but should peter out before the close, as the street literally braces for Friday's BLS report. Still, some of the stocks that outperformed Wednesday despite the late day sell off should see more inflows Thursday and retain a good percent of their early day gains. Sandi      EARLIER OUTLOOKS HERE

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