Tuesday, December 19, 2006

12/19/2006 Morning Market Comment

Economists - you've got to love them. If you think weather forecasters are the bunch who get away with botched forecasts - think again... it's the economists. The mostly guys who are surveyed for the Wall Street consensus forecasts make a heck of lot more money than your average meteorologist, or really most anyone for that matter. The survey of economists showed expectations for a .7 rise in overall PPI. The government reported a number nearly 3-times higher at 2%. Core PPI which was expected to nudge higher by .3, jumped by a whopping 1.3% - the biggest gain since 1980.

Energy, truck prices, etc led the way higher. While the Fed can now say.. 'look, see, we told you inflation remains a risk that needed to be watched - NO RATE CUT FOR YOU!!! (in my best Soup Nazi voice)', helicopter Ben is on quite a tightrope. This type of data amid the backdrop of an economy with GDP that's still in the 2% area keeps monetary loosening off in the distance which is what the Fed seems to greatly desire. At least that's my kooky take since I think Bernanke is pre-occupied with his inflation targets and inflation in general and loathe to hurt the dollar with rate cuts and expand froth in the equities market with rate cuts. On the other hand, if this marks the start another leg up in pricing pressures even after last May's crash in many commodities prices, or if more data comes through to reinforce the weak manufacturing data we saw late last month and the growing concern that the coming economic landing might be like my landings when I was a student pilot (hard - boy I drove my instructor nuts) then Bernanke is up that certain upleasant smelling creek without a paddle.

The soft, hard landing debate will rage on for some time to come. Of intitial concern on the street is that Bernanke and the Fed won't be cutting rates for months to come and that they may have an inflation headache on their hands. I won't even get into "stag-flation". So an initial nudge lower... maybe we'll get another 100+ down day before Christmas? Or better yet, maybe we just get the leg lower in the morning, but then rally 200 by the end of the day for no good reason except to get the financial journalists scrambling to come up with a reason. Seriously, the reaction is just a slightly negative bias this morning... all of this inflation news is really more of the same. With so much liquidity sloshing around, it's likely that major indexes will remain confined to their recent upward trading channels, which would keep the Dow risk to a drop of no more than a few hundred points, initially unless there is a shift to bearish sentiment, but that has yet to happen.

Housing starts rebounded in November, but permits fell again... (Read about that here). I expect that we could see starts move along in December as well with this great weather we've been having, but until actual builder sentiment and permits really take off housing will remain on the skids.

Gold getting a nice boost... up more than $2.. glad I stayed away from the short. With 0 CPI numbers, hadn't put much weight into the possibility of completely insane PPI numbers.

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