Taking Stock of Wall Street 2008-08-27

When we hear the various bosses at the Fed Reserve and the regional Feds speak in quick succession, it is a Tower of Babel. We get confused about what they are talking.

So just listen to which of the two words come up too often in their talk: inflation or recession. You may hear "stagflation" once in a while but that means the speaker of the word is not sure what is happening. As for the words "growth" and "wealth", those two have not been in our economic dictionaries since Clinton left.

Within the last seven days, we heard speeches from at least five Fed bosses. Most of them now say they don't expect the inflationary pressures to last too long.

The puzzling fact is that at the beginning of this year, the presence of inflation or impending inflation itself was denied. There were even talks of "deflation." So, at what point during the last seven months did "the present inflationary pressures" sneak in?

The Average Joe already knew that when he went to the grocery to buy his weekly bag of onions. Millions of tax-payers' money is being spent just to find out the changes in economic cycles and to give us adequate warnings in advance. Still, what we got were denials, generalizations and sudden talk one fine morning about "being under inflationary pressures."

So, as an aside, which is better for forecasting: a cents-worth bag of onions in your neighborhood grocery or millions worth of whole buildings full of computer-modeling equipments and wiser-after-the-event experts?

This farce happens when every government data is oriented towards a single entity called Wall Street, conveniently forgetting that its main goals are aimed at the society at large, one that now exceeds 500,000,000 living souls.

Even after receiving data convenient for them, did Wall Street make any contributions to the economy other than mounting losses? Remember, Katrina's happening too was denied by our labor data even as hundred thousands lost their jobs - all just to suit the Wall Street.

Currently, indices are in a ranging tunnel since June after that precipitous fall in the May-June period. The Dow has been trapped between 11000 - 12000, most of the time hovering around 11,500.

Here is Wall Street's performance for today:

Dow went up by 89.64 (0.9%) to 11502.51
Nasdaq up by 20.49 (0.9) to 2382.46
S& P 500 by 10.15 (0.8%) to 1281.66

Advancing stocks were more than double the declining stocks
NYSE: 2383 v. 730, Nasdaq: 1816 v. 966

Oil went up by $1.88 to $118.15 per barrel. US Government's weekly crude oil inventory fell by 177,000 bls instead of a forecast increase of 1.1 million bls. Gasoline reserves fell 1.2 million bls. With tropical storm Gustav causing worries, we may be paying the price for concentrating our oil installations in and around the Mexican Gulf area.

Gold rose by $5.90 to $834.

Market rode on the momentum provided by the unexpectedly good durable goods orders data for July. July's new orders for durable goods rose by 1.3%, the backlog of unfilled orders by 0.8% and shipments by 2.5%. This shows a good performance by our manufacturing sector.

How things can change with government backing! Much-maligned Freddie Mac (FRE) and Fannie Mae (FNM) are market's darlings now, regardless
of their bottom lines. May be, that is reflective of the faith in Uncle Sam and his currency-printing presses. Of course, financials followed the government's two stepchildren.

Another group that had a heyday today was the construction sector. Homebuilders were spearheaded by KB Home (KBH), Centex (CTX), Lennar (LEN) and Toll Bros (TOL).

Techies Intel (INTC), Cisco (CSCO) and Microsoft (MSFT) led the party at the Nasdaq.

Healthcare stocks were plagued by a spate of bad news today:

Partners Amylin Pharmaceuticals (AMLN) and Eli Lilly (LLY) went down with the announcement of four more deaths attributed to the diabetes drug Byetta.

Bristol-Myers Squibb (BMY) and Pfizer (PFE) also suffered setbacks when their anti-clotting drug, Apixaban, failed phase three clinical trials.

Cell Genesys (CEGE) had to halt its clinical trials for prostate cancer therapy after 20 more deaths happened among the subjects.

But Novartis (NVS) had happy tidings from the FDA who agreed to expedite the review of the use of its anti-leukemia drug Glivec for post-surgical therapy of stomach and intestinal tumors.

Another sector that fell today was the consumer retailers, on the heels of some poor company results.

M & A:

ConocoPhillips (COP) is selling its 600-strong gasoline station operations to PetroSun West for $800 mln.

COMPANY RESULTS:

Charming Shoppes (CHRS), China Mobile (CHL), Cnooc (CEO), Dollar Tree (DLTR) and Solarfun Power Holdings (SOLF) returned results that
beat forecasts.

Results of PetroChina (PTR), CIBC (CM), J. Crew's (JCG) and Brown Shoe Company (BWS) were below the market expectations.

Dillard's (DDS), Jo-Ann Stores (JAS) and Talbots(TLB) posted quarterly losses.

ANALYSTS' RATINGS:

Today's upgrades are:

Copa Holdings (CPA), ONEOK (OKE) and Wimm-Bill-Dann Foods (WBD).

There is a long list of downgrades, a sign of the times:

Accuride (ACW), American Axle (AXL), AMR Corp (AMR), Amylin Pharms (AMLN), Autoliv (ALV), Bankunited Fin (BKUNA), Commercial Vehicle Group (CVGI), J. Crew (JCG), Lear (LEA), Magna (MGA), Methode Electronics (MEI), Modine Manufacturing (MOD), National Grid (NGG), Quality Systems (QSII), Stoneridge (SRI), Strattec Security (STRT), Superior Ind (SUP) and Tenneco (TEN).

Yes,the bull was puffing and heaving to attain a day's win over the bear. More stocks went bullish and advanced. All this, despite higher prices of oil and gold. In fact, this was a day when all major sectors chipped in to support the market.

Still, cynical? Yes.

Because, market mavens themselves taught us the cardinal rule that a win is not a win if adequate volumes don't accompany it.
Now, we can't opportunistically change that volume rule to suit them, unlike Katrina job data.

There lies the rub.

Compare last week's NYSE volume with that of the previous week: 4,828,909,000 v. 5,757,459,000.

Now the picture becomes clear, isn't it? Unless some miracle happens, the story won't be different this week either.