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2009-06-29 01:17

SHORT WEEK, BUT BIG CLUES WAITING IN THE WINGS

NEW YORK, NY Goodbye. See you later. Bon voyage. Auf viedersehn Bernie Madoff had the book thrown at him today, receiving the maximum sentence of 150 years in jail by a Federal judge. The court sent a definitive message to would be ponzi schemers; if you engage in hurtful, greedy activities to turn a profit you will be shown no mercy. This message was apparently ignored by Mr. Madoff as he watched the footages of Skilling, Ebbers, and Lay carried off to the slammer. With that rant out of the way, as Charles touched upon in the morning commentary, there is somewhat of a holding pattern by those investors that already bought into the rally and those who failed to anticipate changing market sentiment back in March and now want to join the party. To pinpoint the root causes of this near-term wait and see approach by both camps one should look no further than the economic docket this week. Jobs report. Yes we have that ISM Manufacturing. Yes, also in the cards. Possible disappointing 2Q financial pre-announcements? Always a possibility. While I am not discounting the importance of the looming jobs report (the May reading surprised many, but was disregarded as an outlier) what I believe should be of greater focus is the start of earnings season next week. Make sure to have a hearty July 4 weekend of food and relaxation as the latest batch of earnings will certainly cause many late nights. In order for the market to move beyond its recent consolidation pattern, corporate America must convey that conditions are improving instead of stabilizing. Drawing a distinction between these two words is critical at this juncture. Given the outcries seen in 2008 that corporate executives were still too optimistic as the economy fell off a cliff, do not expect a wave of positive commentary in the press releases. Rather, investors will have to take their cues from the financial data. Second Quarter Investor Checklist: * Sales percentage change year over year benchmarked against 4Q08 and 1Q09 rates * Gross margin; energy prices have remained low, now pricing power must be evidenced to support notion of improving economic conditions * Expenses; is there is anymore low hanging fruit to cut? * Anything pertaining to orders for 2010 (Nike shares were recently hammered on poor backlog totals) * Words such as "improving" or "increasing" as opposed to "stabilizing"; the mystique that is the term "green shoots" is so March (said with a valley girl voice) Afternoon Notes from WSS Research Desk David Silver For a beautiful summer day (at least in New York City), there has been much news out this morning. First, as my colleague described above, Bernie Madoff got the maximum of 150 years in prison, and his wife will be forced to live on $2.5 million. Hold on while I go grab a tissue to wipe away my tears for her. She could live on $125,000 per year and that money would last until she was 100 years old. Also in the news is the fact that Chrysler restarted many of its manufacturing plants this morning. Seven factories, from states such as Ohio, Michigan, New York, and one in Canada will reopen their doors today following Chrysler's almost two-month hiatus as it was in Chapter 11 bankruptcy. The new Chrysler, which halted production on May 4 (following the April 30 bankruptcy filing), restarts many of its manufacturing plants with only a few days left of inventory. Many dealerships around the country (of the 800 or so that weren't shuddered) were actually reporting that demand was higher than supply. I guess that can be construed as a positive, but Chrysler still has a long ways to go before it will be profitable again. Only a portion of the company will be reopened today, the remainder will be reopened after the normal two-week summer break in which all factories will be closed the weeks of July 13 and 20. When the factories come back on line, their work will be done under a different manufacturing system, one used in Europe by Fiat Group SpA called "World Class Manufacturing." Union officials say that training in the new manufacturing methods got underway in early June, with workers learning a more detail-oriented, data-driven process that is similar to, but less bureaucratic, than Chrysler's old system. Whether or not this will be successful is still up in the air, but could it get any worse? There is still way to much supply to meet the current level of demand. These seven plants (and the parts production that goes along with it) are being restarted, but it will be interesting to see at what utilization level. The company emerged from bankruptcy, but it will be many, many years before the success of the endeavor could be determined. Conley Turner In early afternoon trading, crude oil has extended the gains recorded in the morning session. Traders and investors remain expectant of the slew of economic data set to be released later this week. A key data point being considered is the Labor Department's unemployment report, which will provide clues as to the near-term direction of the economy. Thus far, the unemployment figure for May attained a 25-year high of 9.4% from the 8.9% recorded in the month of April. More immediately however, oil traders appear to be embracing any positive news about the economy. In the earlier part of the session, Eric S. Rosengren, President of the Boston Federal Reserve stated that he expected that GDP in the U.S. to be positive in the second half of 2009. This to traders was suggestive of an increase in demand for crude oil due to an expected increase in economic activity. Geopolitical incidents are also having an impact on black gold today as militants in Nigeria inflicted damage on an offshore drilling platform being operated by Royal Dutch Shell PLC. Similar incidents in the past have shut down production by over 20.0%. The fact that China is considering boosting its crude oil reserves by approximately 160.0% is also acting as an upside catalyst today. Looking ahead to the very near-term, however, it is likely that trading volume will be comparatively low as we approach the holiday weekend so some price volatility can be expected. Light, sweet crude oil for August delivery was trading at about $70.89 a barrel in early afternoon trading on the New York Mercantile Exchange.

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Disclaimer: Securities Operations Forum is providing this research to assist investors in determining when to buy and when to sell. All investment decisions are yours and as a result you could make or lose money. Securities Operations Forum, its employees and/or its affiliates and family members may from time to time take positions in the open market or otherwise with respect to the securities discussed, but not have stock ownership equal to or greater than 1% of the outstanding stock of the covered company nor does any employee of Securities Operations Forum sit on the Board of Directors of any covered company. The statements made herein include information obtained from sources believed to be reliable, but no independent verification has been made and we do not guarantee its accuracy or completeness. The statements made herein contain general information and do not constitute an offer to buy or sell any security.