Which Way Wednesday? – In progress

I'll be happy if we hold yesterday's levels at the EOD.

Tough reports from IBM and YHOO and INTC certainly didn't save us as their sales were soft but brilliant management increases gross margins anyway.  That does not give hope to most companies, as management there does not tend to be brilliant.

MOT has brilliant management but gets no respect.  The problem at Motorola is that they actually plan and spend on a time horizon that stretches further than 24 months, something analysts don't even have models for.  Meanwhile RIMM is having a mini-meltdown today as ALL Blackberrys on the Western Hemisphere are down today due to "technical problems."   Watch people in NYC this morning and you'll see why they call them Crackberrys…

Our country's other addiction, oil, faces a critical test today as the now-inevitable raising of the EU interest rates is causing Brent to finally turn down but it remains to be seen how much effect that will have over at the NYMEX as we head into a contract rollover weekend.  Our nation's pesky insistence on continuing to live on food is also somewhat of an issue as we try to pretend the CPI is not a problem by eliminating the two most important components (I can live somewhere cheaper, I can buy cheaper clothes, I don't have to pay $10 for a movie but I sure do need gas and milk…).  Dr. Irwin Kellner of Market Watch has joined my camp and writes:

"Soaring food and energy prices are the reason why consumer confidence is sliding, and why retail sales, excluding the effects of higher gasoline prices (which push up their dollar value) are softer than merchants had expected, thus causing retail inventories to rise…  The financial markets aren't fooled. They've boosted yields on the 10-year Treasury over the last couple of weeks. Even more important, the Treasury-TIPS spread has jumped sharply since the beginning of this year.  When this spread goes up, it means that investors are buying Treasury Inflation Protected Securities to protect themselves against inflation. This pushes these TIPS' prices up, and thus their yield down compared with the plain-vanilla 10-year note.  This spread is now at its highest point since the middle of 2006 – when the Fed was still raising interest rates. Along with the state of inflation as those of us in the real world see it, it's the reason why I think the Fed's not done, when it comes to hiking interest rates."

Dollar buyers are also paying attention and David Fry points out that we are about to cross yet another nasty level that will take us down to 2005 lows:

The British pound is already at a 25-year high against the dollar, perhaps if we are nice to all the British tourists they'll take pity on us and make us a colony again (it's the perfect time for it as we've been dismantling the Constitution for the past 6 years anyway!).

Keep in mind when we get these earnings reports that "non-core" CPI is up 7.2% so any gains below that mark means a company is not even treading water, especially for the heavy consumers of energy (Transports, for example).  Of course there is nothing really to cheer about with the companies that are able to pass their costs along to the consumer since that's us.  Luckily that hardly affects the top 1%, whose pre-tax income has climbed from 8% of the nation's total in 1980 to 17% last year.  The top 10% now receive 44% of this nation's income, the highest level since the 1920s and 1930s vs. the 1944 to 1980 range of 32%.

In the defense of the top 10% I will say that half of those people don't even belong there as the 90th to 95th percentiles "only" had incomes of $110,000 – hardly enough for even a weekend club membership! 

Just like in 1929, the Gatsby's have forgotten the little people who, ultimately, buy their goods.  In the 1925 book the rich were worried about "The Rise of the Colored Empires" while callously crushing their fellow Americans underfoot.  We have learned nothing since then,  there has been a mad orgy of wealth and power grabbing in this country that is leading to the collapse of the middle class and may pull the supports out of this whole house of cards we have built – but that's more of a weekend topic…

Over in the rising empire of Asia,Singapore's Prime Minister cautioned: "Distracted by problems elsewhere, the U.S. isn't paying enough attention to Southeast Asia, losing its regional influence to a rising China and potentially weakening antiterrorism cooperation."  Unlike the U.S., he said, China has been very skillful in increasing its economic and political clout across this area, which includes traditional U.S. allies such as Singapore, the Philippines and Thailand, and is home to valuable oil and mineral resources. "The Chinese are very active, assiduously promoting their relationship with Southeast Asia," Mr. Lee said.

While I know your knee-jerk reaction may be to brush the PM of Singapore off, let's bear in mind that Mr. Lee is a former Brigadier General and a graduate of Harvard University's Kennedy School of Government, a good friend of the US and is making these comments ahead of a meeting with Bush this week.

Asian stocks finished well on the whole with the Hang Seng taking a pause that refreshes.  Our TM is coming on strong and, most significantly, export companies are holding up against a falling dollar as the emphasis shifts to the strengthening Euro and the very healthy EU economy.

Europe is trading sharply lower on worries over our market as a commodity sell-off over there led to declines in steel and mining stocks.  Auto makers are also taking a hit as DCX pulls back and TM continues to trounce the locals in sales.  Of course the inevitable rate hikes aren't helping either…

At home, we will be happy to hold flat today and we'll see if a strong showing from JPM and INTC can offset disappointments from IBM, STX and YHOO.  Foreclosures are up 47% so far this year with some parts of the country, like California, up 148% – all the better to make room for Mr. Gatsby's extension!  We'd better hope the top 1% are in a buying mood today because that's 37,994 families in California alone this quarter who are unlikely to be buying Google this morning.

We just want to not go down too far today, I'm still bullish on the overall markets – I just want to make sure we're all aware of the TREMENDOUS RISK that underlies the bullish position.  Without Europe's support we are doomed though so consider any turn by the European indices into the red to be a very bad sign:

It looks like we have to be very concerned about the FTSE and the DAX today but the SOX will give us a quick indicator as to the fate of the Nasdaq.  Let's watch IBM closely as our game plan on this was to buy on disappointing earnings but not if the SOX and the Nasdaq keep trending down.  2,500 MUST hold on the Nasdaq, although I have a fistful of Q puts that says it won't!

Zman is keeping gasoline in the spotlight today and this will likely be a wild inventory day so let's stay sharp in the chat room today as we line up some plays around the reports.  I expect a bullish (for oil) inventory report but I don't see where they can put any more barrels which should keep a lid on prices regardless.  While it will be exciting to see WTIC drop below $62.50 again, it will also be meaningless 2 days ahead of the rollover so let's keep our eye on the June contracts.

The dollar may find some mild support here but gold will tell the tale and, as long as it holds $690, there's not much hope for our currency.

Be very careful out there today!