MP 5/15/08

Traders,

The CPI news – there is No Inflation (yeah right) initially sent a jolt to the upside in the market, while the INDU and SPX managed to hold some gains – the NDX and the broader index gave up the gains and finished down on the day. The market remains in this upper resistance band in another mix trading session. It has neither indicated a follow-through to the upside or that we are heading back down. The uncertainty in this market is daunting – as the economic data continues to point negative – consumer confidence remains weak – but investor confidence remains strong? And that SPELLS future volatility.

____________________________________________
Jobless Claims last week were up

Jobless claims came in higher than expected, with 6,000 new filings last week – bring it up to 371,000. The number of people “still” collecting unemployment checks is over 3 million people. Remember – they only get those checks before they FALL OFF unemployment (regardless if they have a job or not) and we no longer count them into the jobless numbers – giving us less clarity as to the impact to the real economy.

The numbers put a little pressure on the futures – but they remain slightly higher to fair value for now.

____________________________________________
GE auctioning off their Appliance division

GE was built 100 years ago as a appliance company – and now they are looking to sell off that division of the company in an auction. The profits continue to decline in their appliance division as competition continues to heat up on a global scale.

I remember Jack Welsh (ex CEO) a long time ago telling a story about one of their appliance divisions, I think it was clock radios – but don’t remember. The story went along something like this - they were losing market share and profit to Sony and other Asian manufactures. He said if we cannot make money at it and do not have a shot at being number one – we should not be in that business. He gave them 6 months to get it into the black, otherwise he was cutting the cord. One person said – what about the jobs – Jack said we are running a business not a charity. If we can’t make money we can’t pay people.

It is interesting that IBM a couple of years ago made a similar move. More and more companies are trying to reduce their manufacturing (which has tremendous over-head and their associated risks – from commodity prices, R&D, shipping, etc.) – moving more into the service industry, which IBM did, really boosts the margins and cuts overhead. While GE, unlike IBM, is still a major manufacturer.

It will be interesting how much they get for their appliance division – some expect between 3-8 billion. Maybe they should have the auction on EBay. GE is seeing a small pop in the pre-market – which should push the INDU up a little at the opening.

___________________________________________
CBS making a big move into the Internet Space

CBS is acquiring CNET (a large internet website conglomerate – tech news, gaming sites, news sites, mp3 sites, etc.) for $1.8 billion. CNET stock is up big in the pre-market (trading $11). There are some synergies here in their content providing and will also increase ad revenue for CBS and allow for some cross marketing of AD space. The question is how well the manage the new acquisition and if they keep the well known (in the internet community) CNET branding – which equates to Tech News and lots of internet websites. The networks have been making larger moves into the internet space beyond their own portals – as the internet expands to provide other content of video and music – more and more technology is bringing that content to portable devices.

An interesting survey yesterday reported on NPR – said 1 in 6 homes in the US is wireless and do NOT have a land-line phone number. Only 2 years ago it was 1 in 20. As more and more people move to portable devices that provide email, web surfing, music, and videos – the internet is turning more and more into the media center of choice. TV is now broadcast on the internet.
It seems a wise step for CBS – let’s see how they are able to merge that acquisition into their current properties.

__________________________________________
Ross and Trump tag-team on CNBC

I watched Squawk Box this morning (CNBC) because Wilbur Ross was a guest host and Donald Trump was going to call in and answer questions. Ross still says we are and have been in a recession – and that his concern is that with 23 trillion in residential mortgages and having 20% of that decline in the last year – we are talking SERIOUS money being sucked OUT of the economy. Mortgage holders are upside down and do not have any more money to tap. Ross said “People started treating their homes as an ATM with a Bedroom attached, well they can’t do that anymore!” – he expects it to get worst.

But the real entertainment was Trump – he just went on a rant – but the funniest thing he said, which I had to rewind a couple of times because it was funny, was at the end of his rant on Oil and how the housing market is going into the toilet and that we ARE in a recession….. “I watch your show in the morning, Joe, and I hear your guest say we are NOT in a recession and I wonder who are these MORONS!” – of course reading it doesn’t have the punch that Donald was able to deliver in his strong “your fired” voice. He has a point, the consumers are starting to really feel it. Two other comments that were spot on by Trump: “A wise billionaire investor friend told me when oil gets over $50 a barrel we ARE in a recession, so I guess at $120 a barrel we are in a depression?” and “Oil is the blood of this country and unless it comes down in price then this economy can NOT recover.” One thing you have to agree with – is he speaks his mind. While I am not a big fan of Trump – I can’t argue with some of his logic or the size of his bank account.

Those few – that walk the walk and talk the talk – putting their own money on the line and invest in their Machiavellian ways cannot really be argued with – they made billions – so they did something right. That is why – when Ross, Rogers, Trump, Bogle, Buffet, etc – the “club” as Donald calls them speak – it is a good time to listen. The keep it simple and when it doesn’t make sense (like the government data reporting) they have no problem calling it out!

At the end of the day – as confirmed by Trump today – the billionaire independent investors “the club” say the US economy is in a recession, it’s going to get worse, and they are all investing overseas. The disparity of what analyst and government data vs. what is going on in the real world – as a measure of inflation, the dollar, and consuming spending power – is getting wide. When will the rest of us see the light?

_____________________________________________
Futures Pre-Market

The futures are slightly over fair value, the INDU is getting a good boost from GE as well. Expect some upside pressure on the cash basket as the Arb traders short futures and leg long into the cash at the opening. However – the spreads are fairly tight – so the after the opening it is anyone’s guess.

_______________________________________________
Support / Resistance

We are in the upper band of resistance still – the INDU had a good move – but it is still short of the 13000 mark. I am still not sure if we can break out and how much legs will be behind it if we do break out.

INDU 12750 / 13000 (We are in the middle of the higher resistance band – trading range – we had a decent move up yesterday and GE may help push it higher – but we need to close above 13000 and STAY above it to help break us into new territory.)

NDX 2000 (We had a good run up yesterday only to see it get sucked out into the close back to the 2000 mark. Is there a magnet at the strike? There are some heavy weights that push and pull on this index for sure – so keep a good eye on them.)

SPX 1400 (We closed above it yesterday but enter into the final trading session with weak legs back into 1400. Let’s see if we can stay above it.)

RUT 700 / 740 (Closed down on the day – showed the broader market lost all positive ground an moved negative – can we get above 740?)

___________________________________________
Conclusion

As long as we remain in this upper resistance band and we can’t confirm above it or break down from it – it is really anyone’s guess. The market does have some fundamental strengths that ARE good plays – those are companies that rely on oversea sales or are being rewarded for higher commodity prices (yeah Oil – but also grains too). The weak issues are those that rely on the US consumer and are domestically over weight.

I feel this country is going through a major economic evolution as it tries to break out of a self-centered financial economic driven economy focused domestically and not globally. The global economic landscape is TRYING to grow – China, India, Brazil, Russia and other emerging markets are fertile grounds - but it is like the US doesn’t not want to give up center stage. Those companies that have embraced the Global economy and have moved their core business into that landscape are doing well. Additionally this global growth is built on commodities – nations can NOT grow without steel, cement, oil, coal, energy, food, etc. The commodities are the staples of any civilization and the WORLD is growing.

However –the US has stretched their credit line to a point of breaking at the same time this massive move to globalization is happening. The GDP of this country still relies on the consumer to keep money flowing – but they are tapped out.

We are in an interesting time as we are trying to grow globally – but domestically our credit lines are tapped out. We do NOT have the money to grow – and that is the problem.

The market may become as polarized as the economy – with some sectors doing well and others falling down hard. The problem is that it is a mixed bag.

These are the times to stay slide line and wait for volatility to play itself out.