Sunday, November 14, 2010

14 November 2010 The Week Ahead

BAGAKOAA 14 November 2010 The Week Ahead

It’s a busy week this week and it has nothing to do with my Dentist appoint or several dinners we have planned. There is a lot going on with the economic calendar and earnings this week. Overall it has been a good earnings season, now that we are about half way through it. More than 77% of the S & P 500 have beat earnings estimates, yet the average Price to Earnings ratio remains around 15, lower than its 10 years average of 18.5.

First off on Monday we have our month to month analysis of retail sales. The estimates are in the mid range with a gain of .7%. (Including auto sales). We are a bit more optimistic and are looking for .9%.

Monday we will also see the region manufacturing report known as the Empire State Manufacturer report. This is an indexed number and the estimate is almost flat at 15. As a reference, it was a minus 24 in March of 09. We again are thinking we will see a beat of the estimate at 16.2.

And to round things off, Monday will also see business inventories. This data point is a ratio of inventory to sales. It is expected that we will see .9% indication we are selling more than what we are putting on the shelves of businesses in America. As a comparison, in January 2009 when the consumer was saving, paying down debt, and not spending, this ratio was 1.48. Our guess is a little better than expected to .8%.

There is now way sure way of playing these guesses. First off they are guesses from a guy who has no credentials to make guesses in the first place. However putting that aside, if you support the guesses, the news is fairly positive which means we could see a drop in the VIX, The CBOE volatility index that climbed a bit last week from 14 to 20. We could see the number to drop again if the news is positive. We might also see a bump in the retail sector if retail sales and the inventory ratio drops. Look for good value retail stocks or a broad based retail TEF like XRT. Do your homework as there are many Retail based ETFs.

Tuesday we have the PPI. That’s right the Producer Price Index. It is the average price of a basket of capital and consumer goods at the producer’s level. The estimate is a double in one month. That is right, the expectation is for prices to go from .4% to .8%. I can’t see any reason why this is a bad call. I actually could be higher. I would take it to the high end of the estimate range and say prices are going up 1%. If that happens it is difficult to say how the market might react. We will have those that think inflation is going to explode and that is bad. You will also have people say the fear of deflation is now gone. That would be a good thing. Either way, we could see a goosey (financial term for volatile) market after the announcement. (Hint:play VXX and GLD).

Later Tuesday we will see Industrial Production and capacity utilization. Both should improve marginally and have no significant impact to the market.

Also look for the Housing market index which should also show a measured (be it small) improvement.

Wednesday we will see the mortgage applications numbers and we should see a slight improvement in that number.

Wednesday will also reveal the CPI. The Consumer Price Index. Indications are a slight move upwards. The guess is the fully weighted index will move from .1% to .4%. That would put us on an annual rate of inflation of 4.8%. I can see a .2% or even .3%. Adjusted for food and energy, they are looking at .1% making a 1.2% inflation rate.

Also on Wednesday look for housing starts to disappoint. The guesses are at 590,000 units down from 610,000. I am guessing 575,000 and a negative reaction from the market.

To finish the week, we will have the jobless claims report on Thursday. Last week we had a nice surprise as this came down to 435,000. The fortune tellers are saying an increase to 445,000. I think we will stay in the 435,000 range and possibly improve.

Salve Lucrum


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