Saturday, April 22, 2006

The Situation

4/23/06 The Situation

Paul Kasriel : "The year-over-year percent change in the LEI (Conference Board Leading Economic Indicators) tends to lead the year-over-year basis point change in the fed funds rate by three quarters. Given the current downward trend in the LEI, if history is any guide, we will likely be looking at year-over-year declines in the fed funds rate next year."

OSK Research manager Chris Eng expects dry bulk charter rates to trend downward on average over the next two years although there might be spikes along the way.
“We expect clean tanker rates to average out flat,” he said in an interview.
On the outlook for the shipping industry, Eng said the general outlook was “not so favourable'' on expectation of rates for dry bulk, container and dirty tankers trending down over the next two years.

Over the years I have noted an observation made by Barry Ritholtz this weekend. It is worth repeating. In a Biryini Associates study, during the prior 9 interest-rate cycles, stocks have fallen an average of 7% between the time of the last Fed tightening and its first easing. The two exceptions were in 1989 and 1995.

Robert McHugh: "There was not one major decline (over 10 percent) that did not first have a Hindenburg Omen present to give an early warning. We were warned every time there was a crash, or multi-month plunge, of the higher-than-normal probability of one coming, through the presence of a Hindenburg Omen. Well, once again we have one on the clock, right now, April 2005. Since April 7th, when we observed the first one, there have been three official confirming Omens, so we now sit with four...Here's something interesting: Oftentimes equities will rally after a Hindenburg Omen occurs, faking folks out, then the plunge comes on the other side of the hilltop. 1987 is a perfect example of that. We are also seeing that now."

In Iraq, yesterday five American soldiers were killed. Today three more perished. Each day the toll gets greater. Only if you are delusional would you state progress is being made.

Oscar Wilde: "There is no such thing as an omen. Destiny does not send us heralds. She is too wise or too cruel for that." Maybe so, but caution is warranted.

Friday, April 21, 2006

Earth Day

4/22/06 Earth Day

The Swedish Central Bank said it had significantly reduced its holdings of dollars in its foreign exchange reserves. The Riksbank said it cut the share of dollar-denominated assets by 17% to 20% and boosted the euro's share by 13% to 50%. Will Russia be the next country to follow in Sweden's footsteps?

Doug Noland:"Rampant liquidity and speculative excesses demand that global rates rise across the board, while the stability of the dollar depends upon the Fed’s willingness to maintain significant rate differentials. Our foreign creditors will demand higher rates and much tighter monetary conditions, and the Fed’s dream of wrapping things up before it gets painful faces the reality that our creditors are increasingly tired of getting hurt."

Jim Rogers, who joined George Soros to start the Quantum hedge fund in the 1970s, said the yuan may overtake the US dollar as the most accepted currency among the world's central banks. The yuan may surge in years ahead and the US dollar will fall, Rogers said.
According to Dennis Gartman, word that foreigners bought a net $86.9-billion (U.S.) in U.S. securities in February should have pushed the greenback sky-high on Monday. The U.S.
securities report was “stunningly, shockingly, egregiously bullish and yet the dollar refused to rally,” he wrote in the Tuesday edition of his influential investment newsletter, stressing that “a market that not only will not rally on bullish news but falls materially on overtly bullish news is a market in very serious jeopardy.” Months from now,
the currency's failure to rise in the wake of Monday's report will be seen as a “tipping point of very real importance,” he said.

The headlines from the media this week have been about the Dow, the S&P 500, the Russell, and the Midcap indices. Possibly the more important issues are the dollar and rising inflation and the latter's impact on interest rates.

You want to see optimism? Rambus is trading around $38 and the May 90 calls are going for fifty cents. The last time the stock traded above $60 was in 2000. The last time it traded
above $90 was in 2000. Google has earnings to support a $400+ price. Rambus does not have earnings to support a $45 price, in my view. The market cap is a mere 20 times sales. Maybe Rambus is in the tulip planting business.

Russia's Gazprom is the world's largest natural gas producer. Gazprom CEO Alexei Miller stated in a recent speech "attempts to limit Gazprom's activities in the European market and to politicise questions of gas supplies" would "not produce good results. It should not be forgotten that we are actively seeking new markets such as North America and China."

It was just the other day this week that a big deal was made of crude crossing the $70 level. Less was said on Friday at $75 a barrel. How much longer until gas averages $3.50 a gallon? How would you like to be a trucker and fill up the tank with diesel? How about the jet fuel for the airlines? The analysts will tell you not to worry. The truckers and airlines will simply add a fuel surcharge. I'm not worried. I wouldn't own a trucking stock or an airline stock with your money.

People must be planning vacations. Travelzoo went from $16 to $45 in one week. The short sellers are taking some roundhouse blows.

In honor of earth the leading coal company shares rose sharply on Friday. Usage is rising and so are prices. Coal is cheap next to oil and natural gas.

U.S. Energy Secretary Samuel Bodman said the switch to ethanol in gasoline may cause supply disruptions for several months.
Refiners are seeking to replace the additive MTBE in gasoline by May because of changes in fuel requirements in the energy bill that Bush signed in August.
"We're going to see some problems,'' Bodman told reporters after giving a speech at a conference in Washington. ``I do believe over a period of time -- that is, a matter of months -- it will level out.''

Do you remember when Bush stated "it was the job of the U.S. president to jawbone members of OPEC to bring the price down"? And there were WMDs and mission accomplished! Jaw on that bone!

Gary Lemmert: "That American consumer, the
primary engine of recent global economic expansion, is faced with the
reality that has been directly caused by excess borrowing and money
creation - inflation of raw commodities.
The American consumer is a member of the interconnected global economy
and is indirectly and directly competing with the Asian service and
manufacturing worker. Further loss of manufacturing jobs will occur.
Unbalanced US wages relative to those foreign workers must and
inexorably will reequilibrate. US wage earners with their two cars,
extra investment house, and high debt load have been, are, and will
be, unlikely buyers of US debt instruments.
Foreign owners of US debt instruments are now choosing between
ownership of dollars or debt instruments. While both are backed by a
military and an arms legacy of an earlier American tradition,
ingenuity, and engineering value system, both are poor long term
investments in a country sans manufacturing, tradable international
services, huge unpayable entitlement programs in a reequilibrating
rebalancing global macroeconomy."

Today Bush will tour a fuel cell research facility in Sacramento.
Obstacles to a shift from the internal combustion engine to fuel cells include the lack of a hydrogen infrastructure and the cost of making hydrogen. In addition, the fuel cells themselves are still significantly more expensive to build than a traditional engine.

Another thought on alternative energy from Michael Alexander: "As the energy content of ethanol is about 84,000 BTU/gallon, these old plants sometime consumed more energy to make the ethanol than what was contained in the product. Even the state-of-the art process requires energy equal to about 40% of the energy in the product to manufacture fuel ethanol. The effect of plant efficiency has affected the conclusions of studies looking at the total energy efficiency of corn to ethanol conversion."
I prefer methane gas as a source of ethanol. You make it from manure. That is something all
politicians should understand quite readily.

From Bloomberg:“Russian Finance Minister Alexei Kudrin said his colleagues around the world are concerned the dollar’s ‘instability’ in recent years is hurting its credibility as a reserve currency. ‘If a currency is used for different reserve purposes, reliability is needed,’ Kudrin told reporters… ‘The international community can hardly be satisfied with this instability’ in the dollar ‘in the past years,’ he said…”

Thursday, April 20, 2006

The Way It Is

4/21/06 The Way It Is

"Mortgage rates drifted upward this week following the release of the Consumer and ProducerPrice Indexes for March, which came in at the upper end of market expectations for inflation," said Frank Nothaft, Freddie Mac chief economist, in a statement. "As a result of higher mortgage rates, housing market activity is beginning to slow, as evidenced in the lower housing starts statistics for March."

"Only unrealistically large adjustments in fiscal expenditure and/ or revenue polices would have a noticeable effect on the U.S. current account deficit," said Treasury economists Marvin Barth and Patricia Pollard in a paper released Thursday. "The necessary fiscal adjustment would come at a high economic cost to both the U.S. economy and the world economy."

Chris Meyer: "The manipulation of the CPI explains the great disconnect between what the man in the street feels when he pays his bills and what the confident, well-dressed Fed chiefs and politicians try to tell him. The cost of living is rising a lot more than they want you to believe. At a 7% annual rate of inflation, the cost of living would double in about 10 years. Looked at differently, the purchasing power of your dollar will fall in half."

The Conference Board reported that the Composite Index of Leading Economic Indicators dipped 0.1% in March, following a 0.5% decline in February.
Says Ken Goldstein, Labor Economist at The Conference Board: "With the
price of a barrel of oil rising above $70, and with interest rates slowly
increasing, the global economy isn't likely to be picking up steam soon.
The spillover from increased energy prices is on the horizon (including
higher prices for derivatives such as rubber, paint, plastic and
chemicals). Rising business costs and uncertainty in many companies about
price hikes is a major consideration now in how fast the domestic economy
can grow, especially in the second half of the year. The latest leading
indicator readings suggest some slowing in the pace of economic activity
through this summer."
The Conference Board also reported that the Coincident Index increased
0.2% in March, following a 0.2% increase in February, and a 0.1% increase
in January. The Lagging Index increased 0.3% in March, following a 0.1%
increase in February.

Silver futures for May delivery fell $1.997, or 14 percent, to $12.525 an ounce on the Comex division of the New York Mercantile Exchange. The percentage drop was the most since February 1983. Gold for June delivery fell $12.90, or 2 percent, to $623.10 an ounce.

May crude closed at $71.95, down 22 cents. June crude lost 43 cents to finish at $73.69 and May natural gas lost 12.8 cents to end at $8.064 per million British thermal units.

I especially found two items of interest yesterday. It was the big gain in GM that carried the Dow to a closing 6-year high. That's right. GM. In addition, despite softer-than-expected monthly leading economic indicators and a below-consensus reading of the Philadelphia Federal Reserve's latest manufacturing survey, the yield on the 10-year Treasury rose a bit to 5.05%. In other words, weak data did not generate a rally in the Treasury market.

Lehman Brothers lifted its price target on Internet search giant Google Inc. to $530 from $450, citing the group's forecast-beating first-quarter results. The broker told clients it expects the company to continue to increase its search market share and actually grow the pie of overall advertising dollars while expanding into new products and other forms of media. Goldman Sachs raised its 2006 earnings estimate to $9.39 from $8.87 a share and its 2007 earnings forecast to $12.70 from $11.85 a share.

The U.S. economy is strong but price pressures and shortages of skilled labor are on the rise, according to a quarterly survey by the National Association for Business Economics released on Friday.

San Francisco's average price for a gallon of regular hit $3.03 Thursday, jumping more than 4 cents overnight. San Jose reached $3.01, according to the AAA auto club.
California, as a whole, now averages $3.02. Some parts of the state, including Santa Barbara and much of the Central Valley, passed the $3 mark days ago.
"I certainly see nothing on the horizon to say that we'll see a significant decrease in prices anytime soon, short of a quick and tidy resolution to the Iran nuclear confrontation or a global recession," AAA spokesman Sean Comey said. How high will prices climb?
Denton Cinquegrana with the Oil Price Information Service, predicts $3.25 gasoline in California by mid-May.

Chris Meyer: "Years of such deficits have created a mountain of obligations for the U.S. government. As John Williams says, “The fiscal 2005 statement shows that total federal obligations at the end of September were $51 trillion; over four times the level of GDP.” These debts are unsustainable. The bills must go unpaid. If the U.S. government were a private corporation, its bankruptcy would be beyond dispute."

Wednesday, April 19, 2006

The Bullet In The Chamber

4/20/06 The Bullet In The Chamber

Over the past 12 months, the medium rise for the CPI has been 2.7%. The latest
reading was 3.1%. Inflation is the bullet in the chamber. It impacts long-term
interest rates, the dollar index, our purchasing power, and the price/earnings ratio
for equities. It's not a hidden tax. It slams you in the face each day.

The Energy Department said motor gasoline inventories dropped 5.4 million barrels for the week ended April 14 to total 202.5 million. Supplies have lost a total of 23.4 million barrels in seven weeks and are 4.6% below the year-ago level, the government data showed. Crude stocks fell 800,000 barrels to total 345.2 million barrels -- 6.6% above the year-ago level. Distillate supplies fell 2.8 million barrels to 114.6 million. They're 9.7% above the year-ago level. May crude rose to $72.17 a barrel, a new record. May unleaded gas rose to $2.24 a gallon and May heating oil added 0.52 cent to $2.056 a gallon. Not to be left out, natural gas continued to climb above the $8 level to $8.19, the highest point since February.

In the early part of the week I wrote about Cascade Natural Gas. I want to expand on that
discussion. The company has not had a rate increase for 11 years. Unlike other Washington state companies, its operating costs have not been adjusted upward- as is allowed under the current law. Both situations will be remedied this year. Cascade has been able to grow its customer base by 4% to 5% a year, and, at the same time, its customers have utilized 2% less gas each year since 2000. Consequently, the company's earnings and dividend have been
stagnant for several years. Beginning in 2007, that will change for the better. Meanwhile, the company's balance sheet remains strong. In my view, this is a natural (no pun intended)
acquisition merger candidate for Northwest Natural Gas. Cascade has a monopoly in the regions it serves in Washington and Oregon. Its infrasture was essentially completed in the 1950s and 1960s. That infrastructure is worth considerably more today. In my view, the shares are considerably undervalued for both patient investors as well as on a potential
merger candidate basis. I view it as a win/win situation with limited risk.

According to Wal-Mart's CFO, they are bracing for a potential sales slowdown due to the possibility of spiking gasoline prices.

Why are Americans down on the economy? Simple. Average weekly earnings adjusted for inflation fell 0.3 percent in March and were up 0.1 percent in the last 12 months. In
effect, consumer prices rose by 3.4% over the past 12 months, and that's why wages are consistently behind the 8 ball. Overall, a 0.2 percent increase in average hourly earnings was more than offset by a 0.5 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. Average weekly hours were unchanged.

Metals continue to spike with gold hitting $636 and silver approaching $14.50. It's like a freight train picking up speed.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices consumers pay for services, ranging from medical visits to airline fares and movie tickets. Service prices rose 0.2 percent for a second month and are up 3.8 percent over the last year. The cost of medical care rose 0.4 percent last month after a 0.5 percent increase in February. When you have Main Street
worried about gas at the pump, taxes, wages having difficulty keeping pace with inflation,
the ever-increasing cost for medical care and education, and rising interest rates and their impact on ARMs etc, it is only a matter of time until the economy starts to sputter.
Unfortunately, that does not mean long-term interest rates will come down-- not with twin tower deficits at record proportions. The government's solution is to spend. The Fed's solution is to crank up the printing presses.

George Ure of urbansurvival.com points out the following:
"For the first six months of 2006, BLS also will calculate Old Weights CPI-U and Old Weights CPI-W based on the 2001-02 expenditure pattern used in the CPI from 2004 through 2005. These Old Weight data are contained in tables 1(OW)-4(OW). From February to March, the Old Weight CPI-U rose 0.7 percent and the Old Weight CPI-W rose 0.6 percent. Note these series are not seasonally adjusted."
So there you have it: Inflation at an annualized old weight 8.7% rate. If you believe the Fed's done raising rates, which pimped the market so well yesterday, you might volunteer to go through drug testing and counseling, 'cuz it seems to me you're "on something."

There is life for GM outside the U.S. General Motors Corp. Wednesday evening said first-quarter global sales hit more than 2.2 million vehicles, up 4.4% from the same period last year. Sales outside of North America grew 15.9%, GM said. Some notable figures include Chevrolet sales, which were down slightly in North America, rising in Asia Pacific 62%, with sales in China up 180% and up 19.3% in India.

Tuesday, April 18, 2006

A Relief Rally

4/19/06 A Relief Rally

Treasury prices rallied to a higher close Tuesday, pressing down on yields, after the minutes from the latest Federal Open Market Committee policy meeting showed that most members thought the current program of rate hikes was nearing an end. Despite $71 crude, the glimmer of the Fed almost at the end of rate increases sent glee into the buying veinsof traders and investors. Reality is not important- not in 2006. Do you really think the Fed will take their foot off the printing press or that the federal government will cut back on spending?

The dollar slumped to a seven-month low against the euro and an almost two-week low versus the Japanese yen Tuesday after minutes from the latest Federal Reserve monetary-policy meeting suggested the policy-making board could be at the end of its cycle of tightening interest rates. Meanwhile, gold, silver, and copper continued on with their respective rallies.

U.S. producer prices rose 0.5% in March. Outside of food and energy, however, the core producer price index increased 0.1% in March, the smallest gain since November. The PPI is up 3.5% in the past year, the lowest year-over-year gain since September 2004. Core prices are up 1.7% in the past year, the same year-over-year gain as last month.

Construction of new U.S. houses declined for the second straight month in March after hitting a 33-year high in January. Starts fell 7.8% in March to a seasonally adjusted 1.96 million annualized units, the lowest level since March 2005, the Commerce Department estimated Tuesday. Starts of new single-family homes fell by 12.0% to a 1.59 million seasonally adjusted annual rate. Building permits for new housing fell 5.5% to a 2.06 million annual rate, the largest decline since September 1999. Permits are also at their lowest level in a year. Permits for single-family homes dropped by 6.9% to a 1.54 million annual rate.

According to the WSJ, Apache Corp. will buy BP's remaining oil and natural-gas fields on the Gulf of Mexico's continental shelf for $1.3 billion. Apache will acquire 18 fields with proved reserves of about 57.8 million barrels, working out to price of $22.50 a barrel, the report said.

Jim Rogers said the boom in energy and raw material prices will drive gold to a record $1,000 an ounce.
"The shortest bull market for commodities lasted 15 years, the longest 23 years,'' Rogers, 63, said in an interview. So if history is any guide, ``they've got a long way to go.''
The Goldman Sachs index of 24 commodities has more than tripled in seven years.
"Supply and demand is terribly out of balance for nearly all commodities right now,'' Rogers said in Singapore April 17. ``This is not a bubble.''

Robert McHugh: "Believe it or not, we got a fourth Hindenburg Omen since April 7th during the mega-up day Tuesday." Investors went home giddy after yesterday's strong rally. The market will open on a strong note this morning. And yet, there is a back-to-back Hindenburg Omen. Do you let the good times roll or sell into the rally? It's like a line from a favorite Clint Eastwood Dirty Harry movie. Holding a Magnum 44 he asks "how lucky do you feel today, Punk?" There really was a bullet left in the chamber.

Monday, April 17, 2006

Current Picture

4/18/06 Current Picture

Back in January, Cascade Natural Gas stated it had hired JP Morgan
to "provide strategic and financial advice." According to
SparkSpread.com, JP Morgan is now soliciting bids for the company, which
distributes natural gas to 235,000 customers in Oregon and Washington.
At a current price of just under $20, Cascade is being valued at
approximately $1,000 per customer. With a yield close to 5% and an
improving rate picture and cash flow position, the risk/reward
looks favorable.

Net foreign capital inflows into the United States increased to $86.9 billion in February, the largest purchases since November, the Treasury Department said Monday. Net foreign purchases of U.S. financial assets were $99.5 billion, while U.S. owners purchased a net$12.6 billion in foreign financial securities. Net foreign capital inflows were revised to $69.1 billion in January. Foreign central banks bought $15.7 billion of securities in February, down from $22.3 billion in January.

Manufacturing activity in the New York area slowed in April, the New York Federal Reserve Bank said Monday. The bank's Empire State Manufacturing index fell to 15.8 in April from a revised 29.0 in March. The decline was larger than expected.

Boeing Co. said on Monday it planned to lay off 900 more employees from its operations in Wichita, Kansas, citing defense budget cuts, delays in some contracts and the completion of others.

Wal-Mart on Monday said it will halve the waiting period for part-time staff members' eligibilty for health benfits and offer benefits to such staffers' children, starting May 13. The world's largest retailer will also, starting next January, cut co-pays on generic medications for common conditions such as diabetes, hypertension, high cholesterol and infections, to $3 from $10, and will offer 20% discounts on prescription drugs otherwise not covered in the plan. Wal-Mart will also provide a contribution of up to $1,200 and an additional match of up to $1,200 to staffers' health savings accounts, and will provide a 10% staff discount on healthy foods, such as fresh fruits and vegetables, in Wal-Mart stores and Sam's Clubs. An additional health plan enrollment period will be offered in mid-May, Wal-Mart said.

The U.S. housing market index fell by four points to 50 in April, the lowest level since the recession ended in November 2001, the National Association of Home Builders said Monday. A reading of 50 indicates builders' views about the market were evenly balanced between good and bad. The index was at 67 a year ago and has fallen 18 points in the past six months.

Gold for June delivery finished the session up $18.70 at $618.80 an ounce. Silver futures closed up 51 cents at a 22-year high of $13.365 an ounce. Copper rose 7.95 cents to a fresh closing all-time high of $2.895 a pound.

Nearly one in 10 households with a mortgage had zero or negative equity in their homes as of September 2005, according to First American Real Estate Solutions, and of those who
bought or refinanced homes in 2005, 29% had zero or negative equity, and 15.2% were underwater by 10% or more. In addition, interest rates on about a quarter oof all
mortgage loans outstanding, or $2 trillion, are scheduled to reset this year and next, according to Economy.com.

Crude oil rose to a record closing price of $70.40 a barrel in New York on concern the dispute over Iran's nuclear program may disrupt shipments. This morning U.S. West Texas Intermediate crude oil hit a record $70.88, smashing through its end-August high of $70.85.

Retail gasoline prices rose another 10 cents last week to an average of $2.83 a gallon, the highest since early October, the Energy Department said Monday.

Bernanke said energy prices so far have had a "relatively modest" impact on core inflation, which excludes more volatile energy and food costs. "In the longer run, these inflation effects should fade even if energy prices remain elevated, so long as monetary policy keeps inflation expectations well-anchored," Bernanke wrote. What an idiot!!!!

Berkshire Hathaway agreed to buy Russell Corp. for $18 a share in cash.

Yesterday we saw a very weak dollar index.

Homebuilder D.R. Horton expects fiscal year earnings to be between $5.25 and $5.35 a share -- below Street estimates of $5.38 a share -- on revenue of more than $15.5 billion.

If U.S. Federal expenditures continue to expand at a 30% rate, how would you expect the GDP
to slow down by a considerable margin? Inflation will bubble over and the dollar will dwindle to nothingness as the twin tower deficits reach closer to the sun. All the while the Fed will say inflation is tame and GDP growth is moderating. I suggest you buy WD 40. The Fed printing presses will work ovetime.

Mike Shedlock: "Let's make a list of Florida attractions.

1. Hurricanes. check
2. Sinkholes. check
3. Condo Mania. check
4. Unsustainable Appreciation. check
5. Clueless Snowbirds. check
6. Wells Running Dry. check
7. Earthquakes. no
8. Unbearable Heat and Humidity. check
9. Insurance Problems. check
10. Mudslides. no
11. Termite Problems. check
12. Severe Affordability Issues. check

Florida is ground zero for housing bubble fallout, but rest assured the problem will spread. Trapped buyers have not yet begun to panic. They will."

Brad Setser: "By my calculations, the US needs a bit over $80b a month just to cover the expected 2006 current account deficit, and over $80b a month if it wants to use long-term debt to finance foreign direct investment abroad."

Robert McHugh: "We received a third Hindenburg Omen Monday, April 17th, 2006. This extends the risk period, as the clock continues to tick on the 73.8 percent probability that equities are about to fall over 5 percent from current levels over the next four months, on the 52 percent probability that equities will drop more than 8 percent over the next four months, on the 39 percent probability that equities will drop 10 to 14.9 percent over the next four months, and on the 26.1 percent probability that the stock market will crash — either fast or slow motion — over the next four months. Only one out of 11.5 times does this signal fail to generate at least a 2 percent decline from current levels. Most declines are well underway within a month of this signal. This is only the 24th confirmed Hindenburg Omen in the past 21 years, and so far has a cluster of three signals. We got one almost exactly two years ago, on April 13th, 2004, which led to a 5.4 percent drop before the PPT stopped it cold with massive infusions of liquidity. We got one on September 21st, 2005, which the PPT also stopped with huge chunks of M-3, that one coming along with the three devastating Hurricanes of 2005. There has not been one major stock market decline over the past 21 years that was not first preceded by a confirmed Hindenburg Omen. Here we go again."

Reported Earnings And Expectations

4/17/06 Reported Earnings And Expectations

Earnings season begins in earnest this morning. One should remember that the forecast for the companies in the S&P 500 is for an average quarterly gain of at least 10%; however, expectations going forward have been declining to the single digits. As such, the market is placing increasing importance on company guidance for the next several quarters. Why pay a premium for double digit growth if that will slow to single digit growth? In sum, it is best to be conservative at this time and leave plenty of room for disappointment. Do not be surprised to see your stock of choice decline by close to 10% in a day should future expectations be less than the current street forecasts. Saying it another way, maybe stocks, in several cases, are selling at prices that cannot meet earnings expectations down the road.

Samuel Johnson: “It is generally known, that he who expects much will be often disappointed; yet disappointment seldom cures us of expectation, or has any effect other than that of producing a moral sentence or peevish exclamation.”

I found it interesting that China's third largets bank is looking at buying 20% of Bear Stearns.

There are plenty of gas stations in California with prices at the pump starting at $3
a gallon. It's still only April 17. Will road trips for families this summer be closer to home? That $3 gas combined with higher credit card rates, higher mortgage rates, and overall higher taxes make for an unpleasant picture for family cash flow. In sum, there is less discretionary income and that will have a domino impact on company earnings in future quarters. You can go to the bank on that.

Bill Fleckenstein: "If there is a nasty sell-off into earnings season, if we do in fact see some negative economic data, coupled with problems in the real-estate market (none of which would shock me), the Fed might be inclined to stand down on May 10. Either way, the rally that we get when the Fed decides it's done will be the last one before serious downside action occurs."