From Birinyi:

Third Quarter Earnings

Two weeks into earnings season and the numbers have been strong once again. As of Friday, 206 of the 284 (73%) S&P 500 companies that had reported this season beat estimates while 16% missed. Upside guidance, however, is down this quarter, with only eight percent of companies issuing a more positive outlook.

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I've noted the paucity of upside guidance. In crafting my investment thesis, I had expected this, but I had not expected the markets apathy toward it.

Cost-of-Living Increases Don't Come Cheap
By Allan Sloan
Tuesday, October 31, 2006; Page D02

http://tinyurl.com/ubcl6

Bolivia, Firms Reach Deal Nationalizing Oil and Gas

By Dan Keane
Associated Press
Monday, October 30, 2006; Page A14

http://tinyurl.com/slp5y

Note: Leftist governments have the notoriously political habit of nationalizing their country's natural resources.

http://ia.rediff.com/money/2006/oct/31cred.htm?q=bp&file=.htm

India's version of the Fed tries to control money supply, albeit half-heartedly

Just in case you forgot: More Rate Hikes May Be Needed

NEW YORK -(Dow Jones)- R. Glenn Hubbard, former chairman of the Council of Economic Advisers, said it would be unwise for the Federal Reserve to move to cut rates soon and that inflation pressures may make further rate hikes necessary next year.

"I think there are inflation pressures and the economic outlook I think looks very good, so I disagree with market participants who would say that this is a time to be cutting the federal funds rate. I think that would be both unwise and unlikely," he told Dow Jones Newswires on the sidelines of a conference on Japan's economic policy at Columbia University.

Hubbard, who was considered a possible candidate to replace former Fed Chief Alan Greenspan when he retired in early 2006, said the Fed may have to hike rates next year "if inflation continues at this level."

"If you believe the forecasts that" put "GDP growth in its potential range for next year," the Fed may need to tighten policy again, he said. "Obviously if inflation abates, that's another story but inflation is still uncomfortably high."

Hubbard's comments come after the Fed on Wednesday held its benchmark interest rate steady at 5.25% for the third successive meeting. In its accompanying statement, the Fed said the economy has moderated and said it remains confident that a slower economy will bring down price pressures.

But Hubbard, who is now the Dean of Columbia University's business school, said he is not so sure inflation is likely to cool.

"I guess I don't see as much moderation in the economy perhaps," he said.

Fed can't like today's ECI report.

Well how about that. Chicago PMI and Consumer Confidence both down significantly. This could get interesting if the bad data barrage continues.

http://www.bloomberg.com/apps/news?pid=20601103&sid=aiJisKrRlvcM&refer=news

http://www.bloomberg.com/apps/news?pid=20601103&sid=aoz52hIDt084&refer=news

Wow!

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alZ83kYOa2IA

U.S. Data Fluke Exaggerated Growth, Will Be Reversed (Update3)

By Carlos Torres

Oct. 27 (Bloomberg) -- An unexpected increase in auto production last quarter was a statistical fluke that will be reversed, making current U.S. economic growth even weaker, according to a former Commerce Department economist.

Last quarter's annualized 26 percent increase in motor vehicle production shocked Joe Carson, now director of economic research at AllianceBernstein LP in New York. Without the gain, the economy would have grown at an annual rate of 0.9 percent, not the 1.6 percent the Commerce Department reported today.

The reported increase in output came despite cutbacks announced by General Motors Corp., Ford Motor Co. and others. A drop in the wholesale price of SUVs and light trucks as the automakers cleared leftover 2006 models made production look stronger than it actually was, said Carson. The economic fallout from the auto-industry cutbacks will instead come this quarter, he said.

``Last quarter was weak even with the benefit of this mismatch and the fourth quarter will now also be weak because it's going the other way,'' Carson said. ``Whatever output you have this quarter, which will probably be down, will be discounted by a likely rebound in prices.''

Carson stressed that there wasn't an error in procedure requiring a correction from the government. It's the way the Commerce Department always computes the data and doesn't mean the statisticians committed any mistakes, he said.

Adjusting For Prices

The mismatch can be explained by looking at how the government adjusts the figures for price changes.

Commerce Department economists use wholesale light truck prices, from the Labor Department's producer price report, to eliminate the influence of inflation on investment and inventories for that category. A 5.5 percent drop in price of SUVs and other light trucks last quarter made output look stronger when adjusted for inflation, Carson said.

Declines in shipments of vehicles and parts from the Commerce Department's durable goods report over the last three months and in the Federal Reserve's output numbers in its industrial production figures, reinforce forecasts that the fourth-quarter growth numbers will show the auto cutbacks, Carson said.

Growth Pessimism

Carson currently forecasts the U.S. economy will grow at an annual rate of 1.4 percent this quarter and said he wouldn't be surprised if growth came in at half that pace. AllianceBernstein is an asset management firm.

The median forecast of economists surveyed by Bloomberg News earlier this month was for fourth-quarter growth of 2.5 percent.

``We are looking into it to see if we can better understand the reasons for the large decline'' in prices, said Brent Moulton, associate director for national economic accounts at the Bureau of Economic Analysis, part of the Commerce Department, which produces the report on gross domestic product.

Carson wasn't the only economist shocked by the auto- production figures.

Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut, called the numbers ``the most unbelievable detail'' in the GDP report. Stanley didn't lower his estimate for fourth-quarter growth because, while auto production will probably drop next quarter, other areas such as investment in aircraft and defense spending will probably rebound, he said.

The surprise for Stanley wasn't in the price component. It was that even before adjusting for inflation, the figures showed an increase that doesn't jibe with the numbers from the manufacturers, he said.

Composition of Growth

The composition of growth last quarter, which included an unexpectedly large accumulation of inventories, also prompted other economists to reduce estimates for fourth-quarter growth. An increase in inventories overall suggests manufacturers may need to trim production this quarter.

The economy will probably grow at an annual pace of 1 percent from October through December, down almost a full percentage point from his earlier estimate, according to Joseph LaVorgna, chief U.S. fixed income economist at Deutsche Bank Securities Inc. in New York.

``A relatively large inventory build last quarter will need to be worked off and that will produce a negative hit to production, employment and income,'' LaVorgna added.

Ford, the second-biggest U.S. automaker, said car and light truck sales dropped 17 percent last quarter compared with the same period last year. The Dearborn, Michigan-based company cut third-quarter production by 11 percent, and plans to slash output by 21 percent this quarter.

To contact the reporter on this story: Carlos Torres in Washington at ctorres2@bloomberg.net

How to start a hedge fund.

http://www.hedgefundcenter.com/wrapper.cfm?article_type=basics&content_id=41&content_type=articles&aff_id=0

Bran flakes and bread prices to double?

http://www.bloomberg.com/apps/news?pid=20601082&sid=auvqbembBFB8

Canada Bread, the Etobicoke, Ontario-based unit of Canada's largest food processor, Maple Leaf Foods Inc., reported a net loss of C$2.7 million on Oct. 26, in part because the company wasn't able to raise product prices fast enough to offset the surge in the cost of flour.

I was curious about the sudden rise in the Dow and Nasdaq at around 3:15EST today and love the explanation on the 3:30 Market Update on Yahoo Finance:

"Stocks are still improving their stance going into the close as the underlying bullish tone responsible for three straight months of gains continues to resurface."

Yes, like a submarine, the sudden appearance of the mysterious bulls appears to have saved the day :-)

Maximilian-

There was a coupon pass this morning around 10:30 a.m.

Maybe the money was put to work this afternoon by buying stocks.

I like the angle, Tradesman. I found the link from the Fed site (http://www.ny.frb.org/markets/pomo/display/index.cfm)
; is there any way to find out when future purchases might take place?

--Max

Max- If we knew that and knew what the money was going into - we'd all be millionaires -right?

A better tell would be if the market fell despite the extra liquidity... this could indicate a sign of weakness or at least that the money is not going into equities or at least not going in as fast as it is coming out.

Anyways there's usually short covering at the end of the day if the market stopped falling in the early afternoon - so it is not always just 'helping hands' lifting the market in the last hour IMO.