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February 20, 2007

Stubborn Irritation

SPX 1460. Wow. The only thing better for this market than all the deteriorating economic news would be seeing GM and Fannie Mae file for bankruptcy citing excessive debt levels and waning consumer demand. Then maybe we can get the SPX to a new, all-time high.

As you may infer, the bears did not receive a favorable post-holiday greeting. After being teased with gaps lower on most major indices, we equity pessimists got to watch stocks reverse and launch higher once again. I suppose a bear should be used to this incessant drubbing by now, but I am not. I remain stubbornly irritated.

The strength seemed to be instigated by a strong earnings report from Wal-Mart, which posted a 9.8% gain for its fourth quarter. Frenetic bulls ignored the fact that Wal-Mart's domestic sales were flat... the earnings gains came from international stores... and the fact that Home Depot bombed their numbers, showing sales declines of 7% in December and 11.4% in January due to the rapidly-weakening construction environment. Home Depot also described a challenging environment going forward.

No matter. These days bad news is ignored, and the tiniest modicum of good news is extrapolated to the whole economy. Wal-Mart's earnings are up. That must mean the consumer is doing fine, so the sub-prime meltdown is just an annoyance, and the fact that tech manufacturers have world-record levels of depreciating inventories is just a temporary setback. Okay.

To add insult to injury, precious metals were lower, weighed down by the drop in crude prices. Metals have recently shown some independence from the oil correlation, but today was an exception. With crude down a buck and a half, gold slumped $12 and silver dropped 25c but recovered half its loss as the day progressed.

Just in case no one noticed, the dollar is threatening a bigger breakdown:

stock chart

Recent history has seen dollar declines lead stocks lower and precious metals higher. Some nice slippage in the greenback may be just what we need to knock the torpor out of Papa Bear.

Disclosure: None


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