NEW YORK, NY

Note: The response to my question about the financial regulatory overhaul and government grab for more power has been overwhelming We've posted many of the responses on our website so please go to www.wstreet.com to see what others are thinking. If you want to weigh in we would appreciate it as well.

If the market seems disoriented of late consider all the stuff coming at investors. Just as the so-called "earnings season" was winding down, the news from Washington shifted into another gear. There is healthcare reform, financial reform, and promises of more regulations. I sincerely believe that Congress will step up and fight for its own survival once they realize they have more in common with protestors in the streets of Tehran and the ruling council. Of course, investors must be concerned about all the spending and the fibbing that means new entitlement programs and a nation so deep in debt as to not be able to reverse the trend. For sure, the astronomical debt combined with the inability for capitalism to really operate should scare everyone. Hence, the market, on a roll for so many weeks has gone into confusion mode.

The broader equity indices haven't seemed panicky but there have been massive declines in formerly hot sectors like basic materials; thus suggests to me the hot money crowd is reloading, which isn't a bad idea. (Note: I've said this a fair amount of times, and I need to reiterate, that if you buy a high beta stock, one that generally makes wide moves up or down, you have to be able to handle the down part.) This week, we could see two unlikely sectors attract hot money based on released economic data. Homebuilders and retailers could benefit if home sales data and consumer spending come in at, or ahead of consensus. Friday really looms large as we'll get an update on personal income and consumer sentiment (Michigan).

Economic Data Releases This Week

The one thing that has been occurring with the "green shoots" theory is a lack of follow up. In fact, the one thing that has been bothering me much is the rapid decline in mortgage applications. This is one of the key data points that sparked the round of green shoots accolades that overshadowed horrific, and otherwise depressing, economic trends. At some point we need to see where consumers are feeling confident enough to put their wallets and pocketbooks to work instead of seeing it reflected only in responses to pollsters. If you like the direction of the nation then it means you will be comfortable enough to spend money. If you think that the economy is going to magically turn around as you stuff money into your mattress then it's going to be a long road ahead.

Yet, stuffing mattresses is what people should be doing if they aren't fixed properly. Of course, the mattress thing is a euphemism as it would be smarter to stuff money into the stock market or even consider starting or buying a business. The point is that one has to wonder how many people believe the government will wave a wand and make it better or will actually get out there and spend

At this point the government is between a rock and a hard place. Just consider the strain on the printing machines. The Fed says that it may not buy more treasuries but also that it's not abandoning its quantitative easing policy. The White House is pushing a nationalized medicine plan that looks like a fiscal disaster. The CBO says that Senator Kennedy's plan would cost $1.0 trillion and only end up covering an additional 16.0 million people currently without health insurance, or just 1/3. The worrisome problem is that 15.0 million people would abandon employer-sponsored care and 8.0 million would quit Medicare to join the cheaper government plan. There is something unnerving about the government pushing out private business, and if this steamroller continues we will see the government in a position to adversely affect the ability of private industry to function and make profits.

* Financial industry (Citigroup and AIG)
* Automobile industry (Chrysler and General Motors)
* Medical industry (government printing presses and astronomical taxes on the rich and so-called "rich")

If consumers don't step up to the plate look for the government to sweeten the pot. There is a fair amount of scuttlebutt that the administration will amend the housing plan and offer $15,000 in first-time homebuyer cash, and maybe even drop the discriminatory practice of excluding certain Americans. Then, there is talk of expanding the refinancing program parameters from a LTV ratio of 80-105 to 80-125. This means if the value of the home is 25.0% less than the loan obligation the government would work with the lender for newer terms. The thing for the borrower to consider is what kind of commitment they want to make to a home that has sunk so much. Even if we see housing sales improve in back to back months for the first time since 2006 we know that it will be driven largely by foreclosures. Sure, I'll take any kind of good news even if proves to be a green shoot growing out of a ton of manure

Sector to Watch

Homebuilders have been retreating of late and need a spark to avoid filling that large gap in the Dow Jones US Home Construction Index (see chart below). A break of 240.0 could spread enthusiasm to other parts of the market.

Another area of interest is in the oil patch, where crude oil prices have drifted of late in part to an odd epiphany on demand. I say odd because the fact of the matter is that there hasn't been much of an up-tick in demand in the United States, which is sitting on inventories that are near two decade highs. Crude oil is still above its pivotal moving averages but looks like it will open under the 20-day. If crude oil holds and reverses, the next move through $72.00 a barrel should spark a further rally that lifts it to $80.00 a barrel.

Local Headaches and Strange Bedfellows

* Over the weekend three banks went out of business or were closed down. These banks were in North Carolina, Georgia, and Kansas. It underscores a serious problem of local challenges.
* Also late Friday there were objections entered into the General Motors bankruptcy hearing. Ten states including Connecticut, Kentucky, Missouri, Maryland, Vermont, Minnesota, North Dakota, Ohio, Nebraska, and West Virginia joined union retirees and Chrysler.

I hope that these objections get a fair hearing and aren't swept under a rug. One thing is for sure...local economic problems can't be swept under a rug either. Twelve states now have double-digit percentage unemployment rates and five are above 9.0%.