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May 11, 2008
Week in Review #19 (2008-05-11)
Apologies to the many that write but have to go without answers. When you are taking a break, as I am, there are only so many hours to blog.
As dinner waits, I’ll have to cut short the usual opening remarks. Otherwise the Week In Review is pretty much as usual.
There is a serious commodity bubble building in the market here. The economy cannot take much more of the rising prices. Less fortunate people than ourselves are struggling to survive.
They too have mothers and are mothers with children to feed, clothe, educate and protect. Yes, we who are well-to-do can celebrate ours, but who is looking after the rest?
Global Economics Review
The key links between macro-economic data and the equity market showed up again in the first part of this month as the deteriorating state of US manufacturing (fewer orders, worker lay-offs, plant closings, etc) hit the shares of Fedex (FDX -6.7%) and UPS (UPS -4.1%). Now, we’ll have to see if the incredible run-up this year in the Trucking index is sustainable.
Here are the key US economic reports and the Econoday analysis from last week.
US ISM non-manufacturing survey for April. The business activity index, equivalent to a production index, slipped -1.3 points to 50.9. New orders slipped 0.1 to 50.1. Just remember that 1-800-HELP doesn’t last forever.US Productivity and Costs report for Q1 unadjusted. Before the report was released I wrote: “I say this report will be nonsense. Wait til next month and the month after to see the adjustments.” The report stated that productivity for the 1Q08 gained an annualized +2.2%, up from 4Q07’s annualized gain of +1.8%. I say if you lay off enough people, these stats will look really impressive. Like me—doing the job of 10 people. (LOL)
US Existing Home Sales Index for March. Before the report was released, I wrote: “Watch for the spin here. Banks are in trouble if this report looks bad...” After the report, Econoday opined: “New home sales showed a staggering 37 percent year-on-year decline in March.” Ergo, the Financials were smashed -6.1% this week. Mortgage providers Countrywide (CFC -20.4%), Fannie (FNM -5.7%), and Freddie (FRE -7.2%) all plunged. Bankers like UBS (UBS -10.8%), Citi (C -10.5%), Morgan Stanley (MS -8.7%), Merrill Lynch (MER -8.1%) and Lehman Bros (LEH -7.4%) had miserable weeks.
So, you tell me when the housing industry troubles are over and I’ll tell you when the Financials and Consumer Cyclicals (XLY -2.98% W/W) will take charge of this market and lead it to a new long-term Bull phase.
Interesting story came to me from an associate in San Diego. In the lobby of his bank (Bank of America BAC) there had been a 60-foot sign that promoted $500,000 mortgages to people who had no federal tax i.d. Bedroom communities were built. Now those bedrooms and kitchen sinks and everything else that can be stripped from a house have been rolling down the Interstate in a convoy on their way to Mexico. Did nobody see this coming? Is everybody that dumb?
Did you want to know why those financially-engineered asset-backed securitized investment vehicles are worthless? This was a scam from the beginning. Now, there is even a scam on top of a scam as bankers are doing write-downs of worthless holdings instead of write-offs, which would destroy their capital, putting them below their reserve requirements. To make it even sicker, they even pay toady Talking Heads to tell the audiences on Financial Entertainment Television that in a year or two these assets will be revalued higher, providing instant profits to the banks. This stuff is truly sick. America is in deep trouble unless the legislators and regulators wake up and take action.
US International Trade Deficit for March. The March number was an unexpected drop. Then again, Americans can no longer afford imported cars and energy.
The Bank of England and the European Central Bank both decided to keep monetary policy unchanged in their meetings on Thursday. That weakened the trade-weighted $USD and sent oil and gold soaring, again.
The heat is now on Bernanke. The Professor, being a smart cookie (or so I’m told), may soon have to raise rates. A lot of capital flowed out of T-Bills this week and into 2- and 5-year Treasuries, so that helps. But the T-Bill rate is still 1.60% vs the Fed Rate at 2.00%, which needs to be closer before the Fed can raise.
Clearly, they’d like to. Nobody, including the Professor’s family, wants to pay $4 for a gallon of gas—unless, of course, their employment income doubles (helping chase inflation higher).
So much for last week, this was another bad one. Let’s look ahead. Here is next week’s economic calendar:
US Treasury Budget for April. Right before 1-800-HELP. Anyway, this should be interesting.I’m sure the Treasury Secretary’s expenses-paid vacation to the Far East in April—the Great Congressional Hearing Avoidance Tour, I called it—is hidden in the billion dollar line items that can’t be managed off-balance sheet.
US Import and Export Prices for April. Did you note how right after the Treasury Secretary took office the import prices collapsed and stayed down for a year? What chicanery. Now the data is beginning to reflect the facts of life in America.
Conversation from a couple months ago: “$4 gas, Mr. President”. “Really, I hadn’t heard that”. Hollywood doesn’t need comedy writers.
US Retail Sales for April. A growing concern… then bankruptcy. Retail stores are counting on 1-800-HELP to stay alive.
US Business Inventories for March. If a company wants to show a profit, they build their inventories. The problem is, they have to sell it.
When you see rising inventories in an unhealthy economy, and you hold the stock, consider selling it.
US Consumer Price Index for March. I suppose if we didn’t need to eat or fuel our homes or drive to work, we could be satisfied with the so-called core rate. Alas, there is a part of life in America that is real. Unlike reality TV, the average American knows what’s like to be a Survivor.
Isn’t it funny that Survivor’s first winner is currently in prison for tax evasion? Tough living in the real world! No games there when it comes to money.
Did you notice that all this reality TV stuff began the year George Bush first took office? Eight years later, and people are looking for change. Hahaha. Coming soon: Reality TV 2.New York Fed survey for May of manufacturing in NY. Can we really trust the New York Fed? Did manufacturing really stabilize in April?
Philadelphia Fed survey for May of manufacturing in the region.
US Industrial Production Index (mines, factories, utilities) for April. If production is down and construction is down, there is a reason the whole economy is weak.
US Housing Starts for April. It’s been a tough two years (look at that chart), and there is enough inventory of empty houses that have been boarded up to last for several years.
It was not long after I boldly challenged CNBC to save the tapes of their “Crossing America Hyping Real Estate at the Cycle Top Tour” that the real estate market crashed. I guess if they didn’t have Cartoon Cramer, the advertising budget might not be enough to carry the network. People are looking for real TV, not reality TV…
Bill Cara: Miami real-estate boom or bubble? Mon., May 16, 2005 ... Please, Bill, save the tape. It was a classic study in bubbleconomics. Let's play that tape a year from now. Yes, I love Florida's Gold Coast. ...Bill Cara: Hey Bill Griffeth, did you save that tape?, Mon., May 15, 2006...
15 May 2006 ... Tomorrow is the anniversary of your interview of realtors on Florida's Gold Coast, and I asked you to please save that tape. ...
The Reuter's/University of Michigan's Consumer sentiment index for May. This is the new American dance, “The Paulson-Bernanke Limbo”. How low can they go with US rates before the people of the world rebel at the high cost of commodities?
The economic issues that Americans are struggling with are global in scope.
Weekly International Economic Report .
(From last week’s WIR)
It’s amazing to me that central bankers can say they are putting the screws to inflation as Job #1, but in fact are doing just the opposite. These people need to be strapped to lie detector apparatus when they speak.
Check the international stock exchanges’ Week and Y/Y losses. If their local and regional economies were as strong and vibrant as you have been led to believe, those minuses would be pluses.
But, who’s counting anyway? It’s only monopoly money. :-)
US Equity Markets Review
DJIA stockcharts.com chart
A week ago there were 23 of the Dow 30 stocks up, 7 down. I wrote: “Party hard my friends; Dow Theory may say otherwise, but this is still a Bear market.”
This week: 24 down and 6 up.
The DJIA, S&P 500 and NASDAQ Composite dropped -2.4%, -1.8% and -1.3% respectively.
NASDAQ Composite ino.com chart
NASDAQ Composite stockcharts.com chart
Microsoft! (MSFT) said they no longer want to deal with those yahoos at Yahoo! (YHOO). Good on them, but they will be back—with a lower bid.
MSFT was one of the six winning Dow stocks this week, along with Hewlett-Packard and IBM. So the tech-heavy NASDAQ dropped a little less than the other indexes.
Here is the list of the ten highest-weighted non-financial stocks in the Nasdaq Composite. Put them in a watchlist (see Google Finance Portfolio) and watch them like a hawk. If you want, add a couple like SNDK and ADBE:
AAPL MSFT GOOG QCOM RIMM CSCO INTC ORCL GILD EBAY
Daily RSI-7 for the Nasdaq 100 Big-10
The US equity market Sector ETF Summary
This week, there were 2 sectors up and 8 down. A week ago, it was 8 up and 2 down, and I wrote: “Turnaround from a week earlier and everybody seems to be saying the next Bull market has started. Let’s wait a couple weeks.”
Anyway, let’s agree that it’s a Bear market. We could even agree that it will be that until (i) Industrial Production and Real Estate Construction turn around, and (ii) Humungous Bank & Broker (HB&B) starts writing off assets and accordingly restocks their capital base, if they can.
Here’s the SPY Monthly, Weekly and Daily data charts:
SPY Monthly data:

SPY Weekly data:

SPY Daily data:

The tables I now show are for eleven GICS Sector Index Funds (ETF’s), including two for Technology (XLK and SMH), for a total of ten GICS sectors. They cover the full spectrum of the US equity market.
Table 1: Cara ETF List is sorted by price performance Week over Week (W/W), i.e. 1W%N.
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
You can do this table yourself by entering the following string into the Summary window at Billcara2.com and then clicking on the link for Performance. SPY XLE XLB XLI XLY XLP IYH XLF XLK SMH IYZ XLU . You can also add more ETF’s – up to 30 in total.
For a list of components to many ETFs, go to the AMEX.com web site, and click on ETF’s.
10 (energy: XLE)

15 (basic materials: XLB)

20 (industrial: XLI)

25 (consumer discretionary: XLY)

30 (consumer staples: XLP)

35 (healthcare: IYH)

40 (financial: XLF)

45 (technology, semiconductor: SMH)

50 (telecom: IYZ)

55 (utilities: XLU)

Individual Sector ETF Review
I now use XLK for the Tech sector and revert to a total of ten (10) sectors, but also include Semiconductors (SMH) because it is my bellwether on the economy.
Sector 10 (energy: XLE, IYE, VDE, OIH, PBW and IXC)
Here’s the XLE Monthly, Weekly and Daily data charts:
XLE Monthly data:

XLE Weekly data:

XLE Daily data:

Table 2: Senior oil & gas equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Energy (XLE +4.5% W/W with a small loss on Friday) plus a week ago Friday’s gain of +1.89% means that XLE jumped +6.4% in five trading sessions.
Crude Oil ($WTIC +8.29% W/W) went ballistic. With the prior Friday’s move of +3.38%, that is a gain of +11.7% in just six trading sessions, which is simply ridiculous. The $USD has not fallen much at all over those six sessions, and the economic fundamentals have not improved, and probably worsened. This is what happens when certain people corner markets and then speculators jump aboard.
A week ago, I wrote: “Big gain on Friday; bigger loss the rest of the week. Commodity prices are sinking, and I expect that to continue.” What we discovered is that the Fed was printing money massively. That sent oil, platinum and palladium soaring the previous Friday. Then this week, the European Central Bank and Bank of England as well as the central bank of Australia all held the line on rate cuts, and that sunk the $USD a bit, but flooded capital into Energy and also Basic Materials, chasing inflation.
The Cdns (ECA +11.9%, IMO +4.3% and SU +11.9%) were hot. But PetroChina was not (PTR -10.5%). The data for PetroBrazil is incorrect. There was a 2:1 stock split, which halved the price. Google Finance picked that up immediately, but Yahoo Finance did not. Kudo’s to Google Finance.
How high can the oil price go is anybody’s guess! As long as the Bernanke-Paulson team have things under control, I’m sure they’ll put it where certain people want it.
Oil & Gas Exploration & Production -Canada
Sector 15 (basic materials: IYM, XLB, IGE and VAW)
Here’s the XLB Monthly, Weekly and Daily data charts:
XLB Monthly data:

XLB Weekly data:

XLB Daily data:

Table 3: Senior metals and steel equities:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Basic Materials (XLB +2.42%) was the other winning sector this week in what resulted in a totally bifurcated market. Traders were buying the inflation beneficiaries and selling everything else. Interesting that they took capital out of T-Bills and jumped into 2- and 5-year notes that pay less than inflation.
The strong stocks were TCK +10.1%, AA +8.1% and MT +6.1%.
Sector 20 (industrial: IYJ, XLI, VIS, and IYT)
Here’s the XLI Monthly, Weekly and Daily data charts:
XLI Monthly data:

XLI Weekly data:

XLI Daily data:

Table 4: Senior capital goods makers and transportation:
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Except for FLR (+7.3%), most of the rest on my Industrials watchlist (XLI -1.67% W/W) were losers.
Sector 25 (consumer discretionary: XLY, IYC and VCR)
Here’s the XLY Monthly, Weekly and Daily data charts:
XLY Monthly data:

XLY Weekly data:

XLY Daily data:

Table 5: Senior consumer discretionary equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
You have to know that when fuel costs soar, the Consumer Cyclicals (XLY -2.98% W/W) will sink. So a week ago, with Crude Oil ($WTIC) off -1.86/bbl, the Carnival Cruiselines (CCL +6.3%) was strong. This week CCL dropped -5.3%.
Sector 30 (consumer staples: XLP, VDC, RTH and IYK)
Here's the XLP Monthly, Weekly and Daily data charts:
XLP Monthly data:

XLP Weekly data:

XLP Daily data:

Table 6: Senior consumer staples equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
Consumer Staples (XLP -1.10% W/W). BUD was still foamy, but the rest got nailed down.
Sector 35 (healthcare: IYH, XLV, VHT, IXJ, and IBB)
Here’s the IYH Monthly, Weekly and Daily data charts:
IYH Monthly data:

IYH Weekly data:

IYH Daily data:

Table 7: Senior healthcare equities
| Symbol | Close | 1Day Change |
1Day %Change |
1W %Change |
2W %Change |
4W %Change |
YTD %Change |
3M %Change |
6M %Change |
12M %Change |
