Financials Sector ($XLF)

My e-mail inbox is filling up with heated treatises about whether to
buy the financials in the wake of a year of searing losses or to punt,
figuring there are more searing losses to come.

The SP 500 financial sector Spyder (XLF) is down about 50% from
the record high set in spring '07. On a 12 month basis, sector net
per share is off about 90% through mid-year. The collapse of
earnings naturally reflects the subprime/CDO fallout plus the
ongoing substantial dilution to earnings from the replacement of
washed out capital.

In view of the collapse of earnings, capital impairment and the
leveraged financial structure of the sector, a 50% hit to group
value seems apposite. From a fundamental perspective, the XLF
deserves to be trading so low. However, the sector is spectacularly
oversold on a technical basis.

I think it is wisest to assume that 1) the system will be repaired and not
scuttled, 2) the repair process will take considerable additional time, and
3), that there will be additional hair raising incidents before the process
is complete. Repair should accelerate after GWB leaves office. The
laxity of regulation, the unpreparedness of Messrs. Paulson and
Bernanke, and the initial macho posturing of no bail outs by the GWB
crew puts this crisis a little bit a head of Katrina in the annals of
plutocratic indifference by the current resident of The White House.

It is reasonable to expect that the mere absence of mega writeoffs as
witnessed in Qs 3 & 4 of '07 and Q1 0f '08 will restore half of lost
net per share over the next 12 months. That would put the XLF at
fair value at the current price level.

I might be willing to take a flyer on this XLF pup on positive turns in
the 10 and 25 day m/a. There could be good 2-3 month upside if
it gets put into positive play. I shall pass it by until there are signs
of a positive turn in trend. XLF chart.

Stock Market Conjecture

Recent weakness in the market brought a new cyclical low and
re-confirmed the bear market. As recently discussed, the market
was deeply oversold, so today's moderate bounce cannot be viewed
as a surprise.

Since I think we are in a low visibility economic environment, I
do not have strong views about where the market goes from here.
Housing is in the dumper, and although pent up demand is building,
the experts claim that lender financials and housing affordability
will not be in decent enough shape to support a recovery this year.
Since the spring selling season was weaker than I had hoped, I
find it hard to argue with this view. The broader economy is
afflicted by a wage / cost squeeze on household incomes and a
price/cost squeeze on business profits. A continuation of these
patterns spell additional trouble. Yet, in just two days, as the
commodities market has weakened, the inflation thrust indicator
has taken a big hit to the downside, as players become more
concerned that global economic demand is imperiled. Now, if it
turns out that fuels and other commodites are set to contract
further, or even flatten out, the squeezes mentioned above may
well ease some, and the Fed may feel less constrained to keep
monetary liquidity on such a tight rein. With this view,
fundamentals can begin to improve quickly, and a market rally
would likely ensue.

So, like the recovering addict, I am tending to take matters day
by day as I have since the end of 2006 when the economic crystal
ball first clouded up. At any rate, the main point is that when
commodities play such a strong role in global economic weal and woe,
matters can turn on a dime when it comes to the forward view, and
that leaves investors and traders having to be prepared for abrupt
turns no matter their convictions.

Economic Indicators

The theme is easy enough: Weakening economic growth and
continuing inflation pressure. It may have started in the US,
but it has gone global.

The weekly leading indicator sets have reversed mild, shortlived
uptrends of early spring and are headed back down. They remain
consistent with development of recession in the US.

The monthly leading indicators weakened in June, but are not yet
consistent with recession as new order diffusion indices remain
significantly above recession levels. But, the trend is down in
both manufacturing and commercial sectors.

Underlying growth potential in the US (real wage plus employment
growth) has dropped to -0.9% reflecting a persistent slowing of
nominal wage gains, accelerated inflation in recent months, and a
slight downturn in yr/yr civilian employment. The situation looks
measurably better when the current flow of tax rebates are added
in. Potential swings to a +0.6% then, but, keep in mind that the
former measure was +3.9% at the end of 2006.

Inflation is reducing consumer purchasing power and is becoming
well established in the cost structure of businesses, with the latter
leading to reduced margins of profit for many companies worldwide.

My inflation thrust measure is as strong as it has been for many
years and is consistent with development of a 12 month CPI of
5%. The weight given to the commodities price component is now
dominant by far. This gives the thrust measure low visibility and
high volatility.

Stock Market

Technical

In last Friday's post I mentioned that the market had fallen to a
tradable oversold, but that I was not going to play this week, as
the recent action gave me considerable pause. Today, the SP 500
fell to a new cyclical closing low near 1260, taking out the double
bottom set earlier in the year around 1275. So, the oversold has
intensified, but now it may be wise to see if there is a breakaway
downleg in the offing. I am going to give it a few days, letting
everyone sleep on it over the long weekend.

Fundamental

The key elements I follow to see if there is a cyclical buy in the
offing are not in place yet. The drop in short rates is a positive,
but a rising level of corporate bond yields, particularly mediocre
credits, shows diminishing confidence in the economic
environment and is now a veto. As well, monetary liquidity
remains flattish and has yet to exhibit the "pop" that precedes
profit and market recoveries. (I do have a monetary base model
for the stock market, and this model stands a paltry 3% above
levels reached in early 2006.)

The SP 500 Market Tracker is in a clear cut bear market, with
the current reading of 1180 about 27% below its 7/07 high.
The drop reflects the recent acceleration of inflation and a decline
in the index of 12 month earnings for the "500" from 91.25 to
74.50 presently (-18.4% point to point). At 1261, the "500"
is trading 6.9% above the Tracker and has been losing its premium
steadily since mid-May, '08.

I'll pick this up tomorrow or Friday with a little conjecture work.

Stock Market

Well, there has been a roundtrip back to the Jan. / Mar. '08 closing
lows. The rally off the Mar. lows was a bit of a rocket, but it lasted
a couple of months and provided solid trades. The news needed to
ratify it as the opening run of a cyclical recovery -- evidence inflation
was set to moderate plus evidence that earnings would soon be
turning the corner -- was not forthcoming. So, the market has fallen
back.

There could have been a panicky downside breakaway move today,
but there wasn't. There could have been a hard driving rally off
important double support, but there wasn't. The SP 500, now near
1280, is deeply oversold on measures out through six weeks and
down enough to perk up trader interest. Guys who are thinking
"nice oversold and a triple bottom, no less" may be prepared to
move right in on Monday, an hour or two after the opening.

For my part, I think I'll wait a week or two. Today's wind up just
above '08's closing lows is too pat for my taste. Moreover, I would
like to see how much punch the bears have left in the short run,
and whether the bulls are more discouraged after a deflating round
trip.

I am also interested in whether this week's "in your face rally " in
the oil pits will go anywhere. They have called the Saudis' bluff and
have given an increasingly agitated US Congress the finger. Given
the damage a new and strong oil price breakout may do economically,
it will be well worth a look to see if producer and consumer leaders
are willing to turn a little nastier, and to what effect.

I have all my deck furniture spruced up and set up. The glass pitchers
are ready for whisky sours and vodka collins's. I have some nice hand
rolled leaf and my lighter at the ready. That's where I'll be this
coming week.

Monetary Policy

As expected, the Fed kept the FFR% at 2% today at its FOMC
meet. No surprise there, and no surprise on the more hawkish
talk about inflation (See 6/16 post).

Looking at the long history of the Fed's decisions regarding the
FFR%, this latest pronounciamento puts them about where they
should be, and maybe 25 bp. to the low side.

A current favorite among the pundits is that the Fed is "between
a rock and a hard place" or "caught in a box". The news here is
that the Fed is always between a rock and a hard place, since it is
charged with fostering full employment economic growth and riding
herd on inflation.

So, It is on now to incoming data. This being a national election year,
the Fed is going to be keen to see whether the current round of tax
rebates can spark an economic rebound over the summer.

Gold Price ($892 oz.)

The gold price remains in a well established long term uptrend
which is supported by my macro and micro economic indicators.

Since topping the $1000 oz. mark in March, gold has diverged
negatively from the fundamental indicators which have remained
in uptrends. This is the first substantial such divergence since
the bull run for gold started in earnest in 2001. It appears to
reflect a pullback from a super extended position for seasonal
reasons coupled with development of an interim bottom in the
value of the US$ following the Bear Stearns rescue.

By my dim lights, gold goes into bubble mode above $1000 oz.
It is interesting that after topping that milestone, gold has
retreated instead of taking off. Well, despite the recent correction,
gold remains in mania mode nonetheless.

My macro and micro economic indicators are attuned to the gold
price as an inflation hedge. I do not include currency values in
the calculations. That would be redundant from an inflation
hedge perspective, but not so in the case of financial crisis, when
there may be flight from a range of currencies.

As of now, the fundamental inflation hedge oriented indicators
suggest gold should be at a new high. With seasonal commercial
demand set to strengthen, it will be interesting to see whether gold
can regain the high ground, or whether this current consolidation
process is a prelude to the discounting of weaker commodities prices
and lower inflation in a more sluggish global economic environment.
In this regard, a break in the gold price below the $850 level might
be telling.

For a weekly gold chart, click here.

Jidda Bugs

Oil producers and consumers meet in Jidda, SA this weekend to
hash over the oil market. Since it's the king's dime, the Saudis
can be expected to put out an ass-covering spin, and also to
announce another moderate hike in production. On background,
the Saudis maintain they can add 500k bls daily production this
year to bring them above 10 mil. daily in total. They also claim
that by later in 2009, new fields output would give them production
capability of 12.5 million bd. More than a few think they are
using funny leaf in their water pipes.

At any rate, if the producers / consumers are smart, they will look
for ways to insure greater spare capacity than the current 2 mil
bd, whch has been a linchpin for the run up in the price. And they
will look at agreements to secure production when disruptions
could be at hand. A little co-noodling here and perhaps a dash of
fraud in the way of arriving at a larger surplus production estimate
would help. If the Saudis do have the goods, this would be a good
time for them to show off to the arriving poohbahs.

If I was in attendance, I would also urge the producers and the
major consumers to start fiddling in the oil and dollar futures
markets to make the speculative ride in these markets grow more
painful to the folks who have had rather a free ride for years now.
Periodic bloody noses for the hedgies, indexers and pension funds
might just build some respect. Unlikely? Maybe. But lots of guys
in the room can deliver and take delivery on crude and currencies,
and dropping a few $bil in the process may be much cheaper than
what transpires if oil remains on its happy course skyward.

The oil market is now range bound between (roughly) $130 - 140 bl.
The sharp intraday volatility of late reflects uncertainty in the
market. If Jidda is to be more than a Saudi PR show, the boyz in
attendance best come away with some actionable ideas to create
pain and suffering for the long side only whiz kids.

Notes on Profits, Economic Liquidity

Corporate Profits

Measured yr/yr, the $ value of production came in at 4.1% for May.
This matched the April reading, and the two months taken together
suggest that many US companies are experiencing intensification
of downward pressure on profit margins in the quarter. Even
offshore operations, where yr/yr physical volume comparisons may
be better than in the US, cost pressures are nibbling at margins.
The exceptions would continue to be primary materials producers,
many of whom have maintained pricing power that compares
favorably to cost pressures. In all though, and looking ahead to the
release of Q 2 results in July, we may find more somber reading.

Economic Liquidity

I like to compare the yr/yr change in the $ value of production with
the yr/yr change in the broad measure of financial liquidity to see
how much of the financial resources are being claimed by the real
economy. For May, $ production was up 4.1% compared to 5.1% for
the liquidity measure. The 1 point spread for May compares to a
5+ point spread in favor of liquidity over much of the middle part of
2007 when the stock market was strong. Now, the liquidity tailwind
for the stock market is far more subdued.

The modest readings for profit margins and economic liquidity
reflect a continuing sluggish economy, elevated inflation pressure and
the effects of the subprime fiasco on the banking system.

Interest Rate Comments

Of late, Fedspeak has been hawkish on inflation and has spoken
fondly of the US Dollar. Itchy trigger fingers? Well, inflation has
exceeded the Fed's expectations, and the economy has not yet
developed the deeper weakness the Fed has feared.

For example, take the ISM survey of manufacturing. This broad
diffusion index made an expansion cycle low of 48.3 for 3/o8. A
reading below 50 on this index signifies contraction, but it
usually needs to fall below 43.5 and stay down for awhile before
recession is confirmed. Importantly, it is rare for the Fed to
elect to raise short rates before a recovering ISM index breaches
54 on the way up. If the Fed stays true to its longer term behavoir,
the ISM index (now 49.6) and other critical data such as the capacity
utilization rate would suggest a FFR% increase could be down the road
some, especially since it is not clear that the economy has bottomed.

The entire Treasury yield spectrum has risen since the March
shotgun marriage of Bear Stearns / JP Morgan Chase. The 91 day
T-bill yield has moved up sharply from a panic low of 0.5% to nearly
2%, or in line with the Fed Funds Rate. Comparably, the 30 year
Treasury has jumped from 4.11% to around 4.80%.

Quality spreads at the short end remain quite elevated and are in
line with recession levels. So too at the long end. The panic in the
wake of the subprime bust may be over, but most players are
indeed conservative and are not yet avidly chasing yield.

The Treasury market is too low in yield relative to the inflation
rate. A 2% bill is a loser compared to the recent 4% yr/yr CPI
readings, and the bond market puts you out over 20 years just to
earn modest amounts in real terms. You have to assume that the
big money which needs to own Treasuries to match liabilities (such
as retirement funds) is hedging with oil or gold or other commodities.
So too, foreign players may also have been carrying long
euro positions on top of inflation hedges.

To wrap up, I have long found it tiresome to try to psyche out the
Fed. It is understandable with the run up in oil et al that They
would like to get back to spotlighting inflation. But well observed
history says that action to match this new yearning is premature.

Stock Market

Back on 5/29, it was noted that the stock market rally off the March
lows was discounting both an economic rebound and a moderation
of inflation, and that good news in both categories was needed "very
soon" to hold the rally in place. The news since has suggested the
advent of neither. Fundamentals are not good for short term
timing, but it was obvious back then that the rally had traveled a
fair way without the kind of positive news it needed and that
investor and trader patience was getting thin.

Now we have a substantial short term oversold developing, and
a further drop in the SP 500 from today's 1335 close down to
1320 or lower would yield the kind of decline that shorter term
players might well find interesting for a week or two play on the
long side.

The daily SP 500 chart is linked below. Note the RSI is moving
toward a tradable oversold. The chart.

Stock Market -- Technical

As discussed in the 5/27 post, the short term outlook for stocks
had turned shaky, as one could see the 10 and 25 day M/A s set
to roll over. And so they have on the SP 500, with the market now
mildly oversold in the short run.

Back in late May, it was mentioned that the market was also
working off a powerful intermediate term overbought (6 - 13 wks).
That has been completed and we are now neutral on the
appropriate oscillators. I am a little concerned about the 14 week
stochastic. That is on a mechanical sell (See chart link below). The
stochastic can whipsaw around, so I use it in conjunction with a
number of other measures.

From a trading perspective, I would not mind seeing the market
correct further as that would set up a decent short term long
trade. But alas, not being a timer, I would have to say the
intermediate indicators are in a "no man's land" as far as direction
for the next several weeks is concerned.

On a long term basis, the SP 500 is going to need to rise above 1400
and stay there from here on out by mid - 2008, or else the secular
bull case will need some significant revision in terms of the plot
going forward. With 1982 as a base, the secular case is fast fading.
However, I have long preferred the 1987 low as a base because so
many fundamental pro-earnings growth changes were implemented
in the corporate world in the wake of the '87 debacle. Since breaks in
a well established long term price trend should never be ignored,
we have a topic that will require more discussion as the year
progresses.

The weekly chart for the SP 500 is here.

Economic Indicators

The weekly leading indicator data sets fell very sharply from
06/07 through the end of Feb. but have stabilized since. In
line, the monthly data -- built primarily around new order
measures -- has moved up some off the Jan. - Feb. lows.

The weekly data indicates a US recession is a lead pipe cinch
based on historical comparison. The monthly data is holding
well above recession levels so far. The monthly lead indicators
suggest a slightly weak economy with a large and growing
export book offsetting much of the pronounced weakness in
housing and autos.

As mentioned earlier in the week, global supply management
surveys indicate sweeping increases in costs. Productivity
remains strong, but indications are that profit margins are
continuing under pressure.

The underlying economic power measure for the US -- yr/yr real
wage growth plus total employment growth -- looks to be around
-0.3%. This number understates potential now because it does
not factor in the current round of tax rebates and because the BLS
admits it may be overstating job weakness for seasonal reasons.
All that said, short term growth potential remains very subdued.

A massive short squeeze and some dumb, threatening remarks
by Israel's transport minister Mofaz directed at Iran pushed the
oil price to a record $138 today. This gets the inflation thrust
measure off to a strong start for June. Isn't it interesting how
quickly folks come out to kite the price when there is some
weakness? Not long back Goldman's guy did it and this week it
was Morgan Stanley's guy with a $150 call for July 4. If I was not
such a supremely dispassionate and logical guy, I'd be inclined to
say there is a concerted effort to push oil higher.

Inflation -- Longer Term Potential

In recent years I have discussed in this blog how a strong upturn
of commodities prices, particularly oil, initializes an acceleration of
inflation. I am comfortable utilizing this approach to projecting
inflation in the near term, but not in the long run. For longer term
inflation potential, I prefer to work with long range broad money
growth detrended by real economic growth potential. Forget this
method for short run forecasting and also realize that other
credit and economic factors can work to bring in longer run
projections well off the mark.

For money, I use M-2 (cash, checkables, household savings and
money market funds). I detrend 10 year growth with 10 year
real GDP growth potential. Since the 1950s real GDP growth
potential has dropped from 4.0 % to 2.8% currently. From 1989 -
1999, detrended M-2 growth was a scant 0.3%. Inflation pressure
subsided, interest rates fell, and the stock market p/e ratio soared.
However, from o5/'98 through 05/'08, M-2 detrended grew by
3.5% per year. Thus, the US, thanks to Uncle Al, has transitioned
into a moderately inflationary environment, with sufficient excess
liquidity to support the tightened supply/demand fundamentals in
the commodities markets, and re-launch a new inflationary epoch.

As it turns out, the CPI over the past 3 years has averaged close to
the 3.5% mark as indicated by the model. Since 10 year M-2 growth
does not change that rapidly, the 3.5% benchmark is likely to be
around for a while.

Interestingly, there are monetary and credit factors at work now
that may reduce inflation pressure going forward. One is the now
nearly $700 billion blowout in the commercial paper market over
the past 10 months. This has led to a large decline in the growth of
the broader measure of credit driven liquidity. As well, monetary
liquidity, which influences the cash and checkables component of
M-2, has been growing very slowly for several years. Note though,
that these measures need time to work.

This is stuffy stuff, so fear not, I shall not belabor you with it
often.

Inflation Situation

The inflation thrust indicator through May was again very strong
on a yr/yr basis and is consistent with 12 month readings on the
CPI of 3.5% - 4.8%. Inflation pressure still stems largely from
the powerful uptrends in energy and other commodities indices.
An array of purchasing management surveys show that an
ever increasing majority of companies are paying higher prices
for materials and services, and this, on a global basis. So far
in this global expansion cycle, the pass through of the longer
run surge of commodities has been muted, but as more
companies face profit margin pressures, pass through will come
easier as the costs of maintaining or increasing market share
pile up. Wage pressures in the large block of OECD economies
have remained subdued, to the detriment of household buying
power. Sluggish Western economies reduce labor mobility, but
when faster growth does return, mobility will pick up swiftly
and the cheapskate companies will start losing their better
people, the threat of outsourcing notwithstanding.

Short term, the energy markets -- oil, gasoline and natural
gas -- are all extended even against powerful uptrends. This
does leave the door ajar for some inflation relief, if only
seasonally.

At some point ahead, the major emerging economies like
China and Brazil will feel the effects of the slowdown underway
in the large developed economies. Perhaps then operating
rates for a broader range of energy and industrial commodities
will begin to decline. Interestingly, US primary materials
providers were still operating well above long term averages
through April, '08.

If Colonel Sanders Was President...

Well then, if he was, chicken would cost a $100 a bucket (Bill Maher
joke). GWB and The Shooter, who was also once CEO of Halliburton,
have helped preside over a major bull market in the oil price. Even
the Commodity Futures Trading Commission, which has a Texas power
base thanks to ex-Sen. Phil Gramm and his lovely bride, has a Lone
Star hue. In short, ain't nobody at the highest echelon of US power who
wanted to maintain a low oil price.

But, consumers now see pig instead of bull, and a Democrat led Congress
is under increasing pressure to find mal-doers and scapegoats. Thus a
growing regulatory rush to find out why the oil price is in a full tilt
mania. Plus, and this is not trivial, GWB and the Shooter are out of
there next Jan. So, there is going to be more pushback as we go
forward. This week, NYMEX raised margin requirements by 10% to
show they're on board, and there will be a quiet dissection of the CFTC
to see whether they, er, inadvertently structured trading in a way to
allow some heavy duty speculation.

With the spotlight moving from Exxon-Mobil to the trading pits, all
the newer index players will need to get their attorneys to ratify
that their activities are legally up to snuff, and the chieftains of these
firms will be sitting down to make sure the boyz have everthing going
according to Hoyle.

The upshot will be an intended damper on activity which could be
very shorlived if the Congress / regulators drop the ball and do not
press on to determine if the oil pits are running the show instead of
being just part of it. Back lo in my banking days, we would call this
a "leaner", meaning the regulators were set to lean on you some.

There is also the issue of the general public getting into the
commodities market on top of pension funds who are already
crapshooting retirement money. Increasing securitization of these
markets means that a horde of less knowledgeable people can start
to spin the wheel with oil or gasoline or what have you. A good thing
it is in one respect, as securitization will give more people a chance
to hedge liabilities in a sensible way. But we all know that many
could come in simply to be fleeced.

So, yes, this new attention on the oil price is three years late, but
it could be welcome anyway.

Stock Market -- Fundamentals

There is an interesting divergence to discuss. The stock market
did rally powerfully off the 3/08 lows into May. Meanwhile, my
SP 500 Market Tracker fell sharply from the 1275 - 1300 area
down to roughly 1220. Operating earnings as reported came in
well below the earlier consensus estimate, reflecting a flattish
US economy, slower offshore growth, and the continuing
accumulation of red ink for the SP financials sector. Whereas a
year ago, strategists were using 90 - 100 as SP 500 Index
earning power, net per share for the 12 months ended 5/08 is
likely to come in around 75. Moreover, the precursors for a
"normal" economic recovery are not yet in place, as total
system monetary and credit driven liquidity are progressing
very anemically. Add to that the fact that the inflation thrust
indicator has yet to roll over, and you have confining short term
circumstance.

Near 1400, the SP 500 is now trading at a hefty 14.6% premium
to the Tracker level of 1220. Now, even allowing that the SP 500
financial sector could return to profitability in the months ahead,
the market is discounting a decent second half economic bounce
as well as some deceleration of inflation.

Since the market appears significantly vulnerable without the
development of a stronger economy and a moderation of inflation
pressure, the time interval known as "very soon" is where
improving economic performance needs to start taking place.

Stock Market -- Technical

The short term overbought has been erased over the past two
weeks. Now, the short run position of the market is a little shaky,
as the 10 and 25 day M/As will turn south soon without a rally
to reverse the gathering damage.

the rally off the 3/08 lows was quite strong and produced a
sizable intermediate term overbought, which is still being worked
off. The recent sell down has not been deep enough to jeopardize
my key intermediate term trend indicator.

This leaves me thinking the market could correct mildly further
before I would be inclined to say equities have experienced
a bear market rally that has simply failed. I have to admit that
it is worrisome that the SP 500 quit right at the 40 wk M/A
instead of crossing it. The old SP 400 Industrial Composite, which
excludes financials and utilities, did break through its 40 wk M/A
and its "40" is stabilizing.

Long years of experience have taught me that overtrading is an
easy way to lose money. Although I am eager to figure out the
direction of the market, I plan to wait for a better technical
"read" than what I see now.

Notes On the Oil Price & Stock Market

Oil Price
Well, it blew right through $133 bl. today and is up $7 on the week
to date.The bull side has been out in force this week, disparaging
the idea of a "bubble" or "excess speculation" in the price. The new
mantra is that tight supply / demand fundamentals warrant a
further move to $150 a bl. with an eventual spike to $200. This
view has carried the day recently and has engendered a fresh
regard for the market. My bubble-in-force price remains $170 and
my ignorance of whether we get there remains undiminished.
I would note that the oil price is fabulously overbought now at a
whopping 37% premium to its 40 wk. M/A. Solid trading rules
have been stuffed in the drawer as players join the champagne
waltz. Stretching it, I can justify a price of $80bl. on fundamentals.
Shows you what a piker I am.

Stock Market
The two day tumble for the SP 500 broke the uptrend line off the
March, '08 lows. At its high for this recent rally, the SP 500
kissed but failed to penetrate its falling 200 day M/A. It was also
guilty of wobbling when it broke through the downtrend line from
the Oct. '08 all time high. These are warning signs, although they
are not necessarily fatal. The market's overbought condition is
being rapidly alleviated, but do not be cavalier here if long.

The rapid gunning of the oil price in recent days has folks wary
of stocks because of its inflation potential. Even so, since oil is
sensationally overbought in the short run, equities longs may
need to hang tight until there is more resolution.

US Economy -- Short term lead Indicators

On balance, the two sets of weekly leaders have fallen far enough
to signal a recession environment. As well, those indicators made
bottoms at the end of March and have bounced modestly. I am
also curious that the initial weekly unemployment insurance
claims number has not risen more sharply to date.

The monthly data I use are getting a little stale, but I am struck
by the fact that the new order breadth indices I follow, although
weak, also have not pitched down yet as is consistent with a more
full blooded downturn. As I have noted, inventories have been
well managed at the retail level and wholesale and manufacturer
inventories, while signaling a degree of involuntary build, have
not yet bloated up big time to a level that assures that heavy
additional layoffs are in store.

US Economy & Liquidity

The $ value of industrial output edged lower in April, declining to
4.1% measured yr / yr. Growth below 5% normally signals
development of pressure on profit margins and often lower
domestic profits. Since the value of production is increasing faster
than retail sales yr / yr, further weakness in production may
result as inventories may be pared down more. Retail inventories
are in decent shape, but 6% plus 12 month rates of increase for
wholesalers' and manufacturers' stocks stand out. The large
number of unsold homes remains dauntingly high, particularly
single family units.

Broad, credit driven liquidity increased by only 4.1% over the past
year, reflecting the blowout in the asset backed commercial paper
market. I like to compare this liquidity number to the change in
the $ value of production to get a measure of whether there is a
pool of excess liquidity in the economy. There isn't currently, and
that implies that the capital markets have no liquidity tailwind and
must rely on sideline cash. At this point, savings and reserves in
money market funds total over $3 tril., a tidy sum. But, remember
that the real economy competes for these funds as well as the
markets.

The growth rate of monetary liquidity remains constrained. This
ongoing modest expansion coupled with the slow growth of credit
driven liquidity continues to signal that the economy has mediocre
potential looking longer term.

Inflation

Measured yr / yr, the CPI for April came in at 3.9%. There has
been some deceleration in 12 month momentum, as the yr /yr
reading for Jan. '08 was 4.3%. The 3.9% CPI topped the
comparable wage growth of 3.6%, keeping the real wage under
pressure. The comparison is worse when the CPI change for the
past 6 months is annualized. That works out to 5.6% and helps
explain the stress expressed by consumers in now countless
news stories.

My inflation thrust indicator has lost some of its momentum
since Feb. '08, but since this indicator is heavily driven by a
volatile commodities component, you have to be careful with it.
Fact is, the broad CRB commodities index remains in a powerful
uptrend and has yet to signal that relief for beleagured wage
earners is in sight.

As with the past two years, gasoline has spiked above its longer
term trend channel as the kick off to an expanded driving
season begins. Refiners are feeling a squeeze in the US. The
gasoline price has not matched the furious uptrend in the oil
price and petrol consumption has weakened as drivers seek ways
to cut back.

The mild deceleration of yr / yr inflation pressure has worked to
increase the p/e ratio of the SP 500 Market Tracker, but it
remains mired down in a 1275 - 1300 range reflecting earnings
weakness since mid-2007.

Not surprisingly, with inflation being driven by fuels and foods,
we are now witnessing stronger inflation pressures on a global
basis as well as deterioration in real wage growth. Global
growth is moderating, but we have yet to see the cracks in
pricing pressure that would herald a trend lower. In fact, in
the US, capacity utilization for primary materials remains high
and well above longer term averages.

Stock Market -- Technical

The market has worked off much of the short term overbought in
evidence over the past two weeks. Last week's sell-off was an
appropriate reaction, but was not of itself threatening. I still have
intermediate term indicators (6-13 weeks) on overbought readings,
but these are not always helpful in making shorter term decisions.
The market has maintained its uptrend off the March lows and
my tools do not preclude a further advance. Pieces are falling into
place to support the idea of a reversal of consequence, but the
case is still not clear. Keep in mind those intermediate term
overboughts and remember that the market is not finally clear of
the bear.

Stock Market -- Fundamental

From my perspective, the fundamentals needed to support a
sustainable cyclical advance in stocks are moving in the right
direction, but are not fully in place yet. Moreover, there is a
chance for a fundamentals driven whipsaw later in the summer.

I like the action in intermediate and lesser quality bonds in
recent weeks, and clearly, there is a downtrend in short rates in
place. Moreover, the tax rebate checks will swell transaction
driven money supply components in the weeks ahead. So, a
tailwind for the recent rally in the market is building. However,
the broader measures of financial liquidity remain very subdued,
and, importantly, measures of monetary liquidity growth such
as Fed Bank Credit and the monetary base are just inching ahead,
and do not support strong enough growth of the basic money
supply beyond the rebates effect to support a sustainable
economics and profits lift-off. Without more meaningfully positive
turns of liquidity measures, it is possible this rally could fizzle as
the positive effects from the rebates wear off later in the summer.
It would also be helpful to the bond and stock markets if the
gradual development of global economic slack was to lead to an
easing of inflation pressures. But I cannot yet make that case,
either. So, I am stuck with a cautious view at this point, while
remaining alert to the possibility that events could take a more
positive turn. At cyclical market bottoms, indicator turns that
point to recovery are usually cut and dried. Not so now.

The SP 500 Market Tracker is saucering around 1270 - 1300.
With the "500" now close to the 1400 mark, the market is
well along in discounting a cyclical advance predicated on an
eventual earnings rebound. If the fundamentals were solidly
in place, I would say, "Hell, don't worry about the premium, the
market tends to lead the Tracker when a new advance is
underway." But, at this point, I cannot say that. I can say
though that since I have an idiosyncratic way of linking liquidity
behavoir to stocks, that you make sure to get a second opinion
if not more.

Liquidity -- Dismal April

US financial system liquidity declined in April, following several
months of modest but steady growth. Once again, the weakness
showed up in the financial services sector commercial paper market,
with outstandings falling $77 bil., or 4.7%. Banking sector interest
earning assets declined modestly on the tighter funding available.
This was no doubt disappointing for the Fed, which has again
expanded and broadened its direct lending to the sector via swaps.

Financial sector paper yields remained relatively elevated to go
along with the lower outstandings and so it appears there is ongoing
concern about valuing collateralized paper in a weaker economy,
especially within the depressed housing sector.

It appears that another $150 bil. of financial sector short paper
could come off before we see outstandings hit levels last seen back
in 2004, before the junk presses got rolling with a vengeance.
Likewise, the Fed has significant room to further expand its swap
lending programs before more pointed questions about the integrity
of its own balance sheet arise.

But, let's not minimize the problem here. Should the new pressures
on liquidity seen in April extend through the spring, the Fed will wind
up low on ammo, and other US Gov. measures may have to be brought
into play to stabilize these markets and allow the banks to resume
more normal operations.

Let me also note that Fed Bank Credit growth momentum slowed in
April, standing a puny 1.5% over the comparable level of a year ago.
Naturally, the Adjusted Monetary Base has also flattened out as a
consequence. From a liquidity perspective, monetary policy remains
tight and to some degree offsets the "ease" evident in the Fed Funds
Rate.

There is economic risk in this situation, so a resumption of liquidity
recovery will be an important factor over the next month or two.

Economic Indicators

The weekly leading indicator data sets I use have flattened out in
recent weeks following steep decliness dating back to mid-2007.
These indicators are recession-consistent and the flat recent
readings have yet to challenge strong downtrends in place.

If the BEA measured inflation pressures more realistically, it is
very likely the case that real GDP was down in quarters 4'07 and
1'08. Not big downs mind you, but downs which show broadening
economic weakness in the private economy, save for powerful
export numbers.

Civilian employment data (which leads the less volatile but often far
more tardy payroll data) recovered some in April, but is up just 0.4%
yr/yr. Real wages likely declined slightly yr/yr, and this combo
underwrites the weakness in the system. Companies are moving
swiftly to dick over their huddled workers. Since, rebates are coming,
the chieftains argue, why give out nice raises in a lousy environment.
Other employment data is mixed. Help wanted web postings have
been rising nicely since yearend, but mass layoffs are up sharply, too.

If companies opt to beat their workers out of well earned raises in lieu
of the rebate money as the rebate period wears on, there will not be
much of a spur to spending.

My inflation thrust index has relaxed in recent weeks, but petrol and
broad commodities markets remain in punishing upturns relative to
wages.

The longer run indicators are marginally positive, carried primarily
by the sharp downturn of short rates. However, in terms of
confidence and growth potential, inflation remains the killer.

A stock market that is trying to discount a recovery of output and
profits growth could well struggle if inflation pressures persist.

More On Monetary Policy...

The FOMC cut the FFR% by 25 bp to 2.0%. This was probably the
consensus. The statement should be read as a shift of FOMC to a
more balanced assessment of economic growth potential vs.
inflation potential. The door has hardly been closed on further rate
cuts, but the "tilt" toward a more neutral policy is unmistakable, as
is the implication of the heavy weight to be placed on"reading"
incoming economic data and monitoring the standing of a still stressed
financial system.

For more, read yesterday's entry immediately below.

Monetary Policy

The Fed has started a two day meeting on monetary policy with
results to come tomorrow afternoon.

It's an interesting time for a meeting. The Fed has slashed the Fed
Funds Rate dramatically over the past six months. The cuts to the
FFR% match the severity of the blowout of shorter term business
credit demand resulting from the collapse of key components within
the broad financial service sector of the commercial paper market.
There has been a moderate offset to the $600 billion plus decline
in commercial paper outstandings via a nearly $300 billion increase
in commercial and industrial loans by banks, but this rise underscores
the stresses in the financial markets, because much of this paper is
comprised of levered and other low quality loans that are caught up
in a stalled deal pipeline. Viewed historically, the fast decline of the
FFR% is well out of proportion to the weakening of economic demand
witnessed so far. Moreover, weakening demand in the US economy
has been accompanied by an acceleration of inflation, that,
in itself, has contributed substantially to the slowing of the real
economy.

In short, the Fed's action has been apposite to the turmoil within the
financial service sector, but perhaps well overdone relative to the
broader economy and the inflation underway.

Now, fresh reads on critical economic data will become publicly
available over the next week. No doubt, the Fed has advanced
soundings, and if the fresh info does not paint a much darker
picture of the economy, then it is fair to wonder if perhaps a pause
period on the FFR% might be appropriate. After all, narrowing of
selected quality yield spreads, stronger bond market volume, and
a recent flattening out of the weekly leading economic indicators
all suggest relief of pressures, whereas the inflation situation is less
benign. In addition, the Fed knows the Treasury is starting to
distribute the tax rebates enacted earlier.

I long ago gave up trying to analyze the psyche of the FOMC, but
I think one has to be struck by the outsized cuts in the FFR%
relative to the real growth / inflation environment.

US Dollar ($USD)

Currency speculation is not my forte, so take the following with as
much salt as you see fit.

First, I always look at the USD in terms of whether it is attractive
to hold domestically. Principal terms of reference are Fed Open
Market activity and whether there is a real rate of interest on
dollars left on deposit. I do not look at the "cookie jar" dollar
concept, as money is meant to be put to work, even if as savings
rather than spending. On balance, Fed Bank Credit has been grow-
ing modestly now for several years to correct for the long period
of excess monetary liquidity growth engineered by the Greenspan
Fed. With monetary liquidity creation now well controlled, I do not
see a threat to the dollar from this quarter. The 91-day T-bill yield
of only 1.3% compares unfavorably to an inflation of 4.0%, as does
the 2.9% yield on prime 90 day commercial paper. A dollar saved
in low risk assets is losing its purchasing power, and there is only
the need for liquidity as a rationale for keeping the dollar on tap in
the US. The situation is not going to change until the T-bill and the
inflation rate begin to come into better balance.

Not surprisingly, the USD has come down in value relative to other
senior currencies since 2000 reflecting a low interest rate regimen by
the US coupled with a moderate but persistent acceleration of
inflation. Now, there is increasing speculation that with a weaker UK
economy and prospective decelerating growth across the EU, the
relative attractiveness of the dollar might increase as offshore
interest rates moderate. This is a sensible thought, since the US has
led the other majors in growth weakness and rate cuts, and could lead
later this year and next with better growth and short rate increases.

I do not mind the low relative value of the USD, since it is now the only
check we have on still rampant Asian mercantilism, but I would not
argue with a mild upward push in value for a six month - one year
trade. I would like to see evidence of an improving "real" yield on
short term paper here before getting on a go long the dollar band-
wagon.

Stock Market -- Technical

As expected, we did witness profit taking in the early going last
week, but it was surprisingly muted, especially given that the
SP 500 failed to take out key resistance on Fri. 4/18.

The market did take out that resistance by a whisker this Fri. to
close at a new rally high near 1398. Importantly, there is top - of-
channel resistance at 1400 dead ahead. A closing break above
1400 by the SP 500 next week would be a small piece of evidence
that a positive reversal of consequence is underway.

As of now, short and intermediate term uptrends are in place,
with the market laboring under a moderate short term overbought
condition. Morever, the market is extended enough in the short run
to take a correction of nealy 3.5% without fracturing the positive
trend underway since mid- March. This situation brings up the
same caution mentioned last Fri. about being disciplined and careful
not to chase. Since the rally is a good ways away from being in a
confirmed, sustainable uptrend, it is wise to keep the bear market
admonition that rallies are excuses to sell firmly in mind.

There is some interesting "buzz" circulating on the fundamentals side
of the markets, and I plan to use the next week or two to put the
focus of the blog on these issues.

Oil Price -- How Crazy Can It Get?

Light Sweet Crude hit $119.50 bl. today. Not a bad move, given
that crude touched $50 in Jan. '07. For my part, this is simply
another market mania evolving into a price bubble. And my
charts say the bubble level is $170 bl., double the breakout from
the long term trend of $85 bl. back in Sep. '07. Whether the price
extends up to $170 or not, I have no idea. Saxo Bank's strategist
has oil hitting $175 by late '08 and sees chaotic economic and
currency conditions as a result. A further sharp run-up in price
from the current level will turn the background noise of consumer
discontent into a roar, with unpredictable consequences, save for
eventual retribution for OPEC. Piggy Asian food exporters are now
also trying to cartelize the export of rice and grains, with this latest
insult serving to create increasingly widespread unrest among the
world's poor, who cannot afford these prices.

There is no shortage of managers of large pools of funds out there
who think they can enjoy the run and manage their risk in rapid
market conditions. Morever, if you are a manager who grows fearful
as the price of oil edges ever higher, you can lose your accounts if
manic attitudes remain after the plug has been pulled.

If you are playing this market, you best make damned sure you
know what you are doing because a concert of unexpected bad news
can easily take $40 - 50 bl. off your position and crush you out.

Stock Market -- Technical (SP 500 @ 1390)

Well, the shorter term trend is up, and the intermediate term
trend has turned up as well. The market has broke above the
downtrend line running back to 12/07 and is very close to
challenging the down line running from the 10/07 high.

The market is now moderately overbought short term. The
current advance has taken out all shorter run resistance save
for a close just under 1400 on the SP 500. That failure to wipe
out the 1395-1400 level set off selling today, and we could see
some more on Monday as some of the ruthless players take profits.

It is a tricky time now, as there is enough of an up-channel off
the 3/08 lows to withstand a sharp 30 - 40 point downdraft in
the SP 500 before you could claim with assurance that the
bears were back.

Chasing on the long side could be risky next week until we see
what the bears have in store.

Stock Market -- Technical

Officially, I guess, the current advance off the March lows counts as
a bear market rally. Shorter term trend indicators are positive. The
SP 500 at 1365 is mildly overbought relative to the short run trend.
The index also faces several discrete resistance levels from 1370
clear up to 1400. The weekly intermediate term indicators are also
rounding positive, suggesting further upside may lie ahead. These
largely momentum indicators have been trending negative since Jan.
of this year, so reversals require mention. I also like the weakening
in the 15 month-long uptrend in the $VIX.

But, look, first things first. Let's see how well the market starts to
challenge resistance, remembering that in a bear market, signs of
weakness in a countertrend rally often summon swift retribution
from the bears.

I am also watching the oil price relative to the stock market. The
stock rally has fared ok recently against a rising oil price, but there
is no shortage of players out there who act to crimp the market's
p/e ratio when inflationary pressures are evident.

For an intermediate term look at the SP 500, click here.

Business Inventories

Through 2/08, total business inventories growth has accelerated
to 8.7% annualized. That is much faster than the growth of final
demand, so we are now seeing some involuntary inventory
accumulation. Ballooning inventories can make a downturn far
worse if they are not brought quickly to heel. So far in this cycle,
inventory management has been keen, and one might expect a
fast adjustment. However, you need to watch inventory data
very carefully once a downturn has started, because it can be a big
risk factor in the outlook. Fortunately, end-stage or retail inventories
do seem to be under good control, at least through February.

BS Warning

2008 is national election year, and with all that is at stake among the
political players and their minions and friends, you will find that even
independent economists and analysts are not immune to "spinning" for
their favorites. Most of the BS is deliberate but some springs forth
from the unconscious, so to speak. When reading the economists and
pundits on the US and its problems, get a second opinion.

GE Sends A Jolt

As a huge and widely diversified cyclical company, GE is widely
regarded for its comparative stability and its ability to manage
earnings to a forecast. So, the eps shortfall, mild as it was, shocked
the large players who have big positions in the stock. It did not help
that CEO Immelt gave a lame explanation for the shortfall and its
failure to warn analysts ahead of time will cost them points.

But, come on, Bernanke and other economists have been warning
for months that growth was at risk. At any rate, I bring this up
because the GE announcement spooked investors who were
supposed to be looking through the first quarter to recovery later in
the year. With the bulk of Q1 earnings reports ahead, folks might start
wondering that if GE can have "unexpected" trouble, then how many
other disappointments lie lurking in the tall weeds. Shows you that
investor nervousness and concern may still be hovering.

Stock Market Fundamentals

The SP500 Market tracker continues to sit around the 1300 level.
So, with the "500" now trading 1350-1360, investors have been
endeavoring to look beyond the current situation to a brighter
future. Short rates are falling, monetary liquidity is expanding
more rapidly, the yield curve is positive, intermediate quality and
junk bond yields have been inching down, and all know the US is
in for a round of tax rebates designed to provide a mild spur to
consumption. Investors also likely expect that there will be some
degree of positive swing to earnings of the financials later in the
year.

But there are significant uncertainties. Earnings estimates are still
being cut, and the present quarterly earnings reporting period is
being carefully watched to gauge the breadth and depth of eps
shortfalls. Moreover, the commodities price boom , although
narrowing, is still intact, leaving the risk of further inflation
pressure going forward. The financial system in the US is widely
perceived as remaining under duress, and key indicators such as
short term yield quality spreads and the very slow improvement
in the growth of credit driven liquidity reflect the pressures within
the system.

For now, I am watching the inflation potential inherent in the
ongoing round of heavy speculation in commodities most closely,
as a continuing surge in fuels and other basics would damage the real
economy further. At this point I doubt I would mind much if the
Fed decided to take a pass on cutting short rates again for a while
to assess its handiwork to date. I think it is fair to wonder if that
might jolt the commodities speculators enough to allow underlying
supply / demand fundamentals to regain more focus and attention.

Stock Market -- Technical

The urgent oversold discussed in the mid-March posts on the market
did yield a strong and tradable rally. My six week selling pressure
gauge, which hit deep oversold levels during the middle of last month,
has since moved into neutral territory. The market is also moderately
overbought against its 25 day m/a at +3.3%. The 25 m/a has also
upticked, a positive indication.

Early in the day, the SP 500, which closed around 1373, did move up to
test resistance above 1380. The test failed. This triggered a mechanical
short term sell signal for some short term traders. As well, the market
has been unable to close decisively above a closing price only downtrend
line (1368 today). All perhaps minutiae in the long run, but not to short
term players.

Now the market is close to an intermediate term positive turn in my book,
so I think the action this week may be important.

From an inter-market perspective, the rapid recovery of the oil price
from its recent $100 bl. low back above $109 is something to keep in
sharp focus. Oil and gasoline prices remain in firm longer term uptrends
and that price action is inflationary, which is, in turn, a threat to the
stock market p/e ratio.

I link to an SP500 chart below and plan to comment on the technical
tea leaves later in the week. Click.

Economic Indicators

Weekly leading indicator sets made new cyclical lows. The peak to current
declines are large enough to signal a substantial downturn could be underway.

The monthly data for March show a continuing downturn. They suggest
ongoing pressure on US profit margins, but are not yet weak enough to signal
that a recession is underway. The employment picture is consistent with
development of a recession, but production and new order activity are not.

The monthly global indicators show the world economy slowing toward
modest expansion, with the US leading the way down. Since private sector
activity levels for production and services are below prior year levels, it
will be interesting to see how much profits earned abroad offset weaker US
profits among US multinationals.

As recently discussed, US longer term indicators have turned positive, but
remain subdued. Underlying purchasing power to support the US economy
continues at -0.5% measured yr/yr. This is comprised of -0.1% for total
employment and -0.4% for the real wage. Growth of current $ wages has started
to slow as is normal in a downturn. Fortunately, inflation pressure has
subsided as we move into April, although the longer run trend is still intact.
Since the end of WW2, steep economic declines have been associated with
yr/yr drops of underlying purchasing power of -3 to-4%.

Inflation Potential

The broad market for commodities has eased off in recent weeks
following a very powerful run. The weakness has taken momentum
out of my inflation thrust indicator. Now, as it turns out, a degree
of weakness in the broader market is not uncommon during the
spring months, and would not normally be worth much comment
except that it has come at a time of growing evidence of a global
economic slowdown, paced by a weakening US economy. Moreover,
an increasing number of market commentators have been pointing
out how frothy these major sub-components have become, not
the least of which is the oil price. I have pointed out several times
how overextended the major components are in recent months,
so I find it may be intriguing to see if there is more downside
follow-through ahead.

The oil price, a major driver of inflation, remains in an ominous
uptrend that threatens economic stability. At close to $101 bl.,
it is off roughly 10% from recent top prints, but really needs
to break and stay below $100 a bl. to provide a stronger case
that the speculative fever may have broken. At present levels
we are still in mania-land.

The wobbly picture for commodities has shaken the gold price
down from the $1000 oz. la-la land and has also helped the
stock market, which has had to contend with weaker earnings
and accelerating inflation.

Corporate Profits

US corporate profits rose by 2.5% yr/yr through Q4 '07 to $1.57
trillion. Domestic profits fell 6.5% to $1.17 tril. and earnings from
abroad surged 42.8% to $397 bil.

The major reason for down US profits was the large $85 bil. hit
to the financial sector reflecting the big loan losses and writeoffs
incurred. That left financial profits down at the$400 bil. level.
But, with a broadening economic slowdown underway, non-
financial profits began to slide over the second half of the year,
declining at a an 8.2% annual rate.

The surge in offshore earnings reflected stronger growth compared
to the US, and the beneficial effects of a significantly weaker US $
via translation gains.

Looking forward, the financial sector will experience additional
writedowns through mid-2008, but could bounce back sharply by
late in the year, since the bulk of the losses were absorbed in the
final months of 2007. With a broadening of the economic downturn,
non-finance profits seem set to weaken further, with a bottom
point not likely until well into the second half of this year.

Moreover, since the global economy is losing growth momentum,
it is difficult to step up and call for another big 40% up year from
foreign operations.

My figuring leaves the outlook for earnings this year more muted
than consensus. By the way, analysts have turned to cutting
estimates again as the year progresses.

Now, if you remember how the game works, if the economy begins
to regain some positive traction by Q3 of this year, The Street will
shift focus to 2009, and will likely put up some dazzling estimates.

For now though, earnings appear on course to lose more momentum.
I'll be particularly interested to see how well offshore profits come
in over the first two Qs of the current year.

Liquidity Factors

Recent data suggest the Fed has changed policy to a more full blooded
easing. It has been reducing the FFR% and now appears to be adding
some monetary liquidity to the system. The Fed has "sterilized" the vast
bulk of its term swap facilities to banks and primary dealers by having
the Open Market Desk sell Treasuries in amounts comparable to what
it has swapped out in exchange for the very much less liquid private
sector finance paper. Still, total Fed Bank Credit has been growing
more rapidly since last autumn. Specifically, total Fed Bank Credit has
grown at a 5.6% annual rate over the past six months. This compares to
a paltry 1.3% annualized rate of growth for the prior six months. This
development, coupled with falling short rates constitutes an important
positive for the economy down the road.

The much broader measure of credit driven liquidity has also begun to
accelerate in growth, rising at a 4.7% annual rate since mid-2006. The
improvement here has come far more slowly, mainly reflecting
continued weakness in the asset-backed commercial paper market.
The Fed has also been concerned about the large rate spreads that have
opened up for A2/P2 and lesser paper against prime paper. Moreover,
private sector paper continues to trade at yield levels well above short
Treasuries as investors continue to fly to quality. In short, there have
been improvements in liquidity, but the system remains far off kilter.

The liquidity improvements to date were far too tepid to stave off an
economic downturn and are still shy of what's needed to help put the
economy on a much stronger footing, but you need to be aware that the
system is repairing despite the gravity of so many comments in the
media. Ditto the banking system where loans are improving modestly
along with a decent recovery of primary capital.

US Economy

It is silly to compete with all the learned economic forecasts
out there. So, I will provide but a brief sketch of what my
indicators suggest:

Cyclical growth potential is now negative at -0.2% reflecting
weakening employment and a modest contraction of the real wage.

Shorter term leading economic indicators are weakening further,
but so far signal only a shallow downturn.

Performance of my longer term indicators over the past eighteen
months are consistent with development of a recession and very
sluggish period through mid-2009.

The longer term indicators are turning decidedly positive now.

My profits indicators require more than normal elucidation.
Financial service revenues and net revenue spreads before
chargeoffs have slowed, but are decent. The chargeoffs as all
know have been huge and will be a factor through mid-2008.
The "average" non-financial is experiencing mild margin pressure
in US ops. but offshore earnings have been strong and may
just be starting to show some wear and tear.

Analysts expect SP 500 net per share to jump to 100 in
sustainable earning power by the end of 2008. That looks too
high from today's perspective ( current 12 mos. eps of 81.25).

Inflation thrust, recently dominated by commodities action,
has hit a brick wall, at least for the short run. That's a positive
for the real wage, confidence and the stock market's p/e multiple.

Based on long term history, the cut in the Fed Funds rate to
2.25% is enough to help underwrite an eventual economic
recovery (Better than 50% off the cyclical peak of 5.25%).

Stock Market Quickie

The market powered ahead again today. I pointed out the
interesting oversold earlier in the week and have also
discussed how damaging the frothy run -up in commodities
was to the market p/e and real incomes. We have witnessed
a sharp break in oil and other key rotgut that sharply
demotes the shorter term inflation outlook and has triggered
a nice relief rally in stocks.

The break in the commodities composites, the mini - blowout in
gold and the bounce in the $USD are short term pluses for the
equities market. How long this sudden ugly turn for commods and
the metals will last is too hard to say right now. However,
with the US in a downturn and energy usage dropping, it should
come as no surprise that we are seeing corrections in hard
assets and commods. I have commented frequently on the froth
in these markets in past weeks.

It would be amusing if the primary dealers were now long the $USD
in the wake of the Fed's decision to fund their liquidity needs.
Almost as if the Fed was going long the US dollar to break the
bubbling in commods and hard assets. But we know nothing like
that ever happens, right?

I am going to swing away from the super shorter term commentary to
focus on the evolving environment in the months ahead. But I do
thank the boyz on the Street for the profitable bounce.

Stock Market

As posted on Sun. 3/16, the rally potential straight ahead
was decent enough. The market again plumbed the SP 500 low
test zone of 1260 - 1270 on Monday before pulling up on
basket trades, but today the action was far stronger and
broader. Yesterday's horrendous breadth put my selling
pressure gauge into very strong oversold territory.

The low test zone has been hit several times since mid -
January and today's action built around another 75 bp cut by
FOMC to cut the Fed Funds Rate (now 2.25%) was impressive
enough, but from a chart perspective it is still anyone's
guess whether the bears come in again and trash the rally.

There is obviously an economic downturn underway in the US,
and the hard asset/commodities crowd may have been looking
for a bigger cut in the FFR% to feed their bubbly markets.
Gold tanked this afternoon from the $1000 oz. level to $976.
I point this out, because disenchantment by the pro-inflation
crowd could help the stock market.

From my perspective,the Fed has done quite enough for awhile
in cutting rates and in liquifying the credit markets. Time
comes around once in a while to stop and survey the handiwork
to date. The Fed also needs to get nastier with Paulson and GWB.
The latter two have been functioning in this crisis like FEMA
did after Katrina. I have mentioned in prior posts that in a
crisis like this, the regulators need to allow lenders not
only to book only cash losses, but to spread them out over time
to maintain liquidity and capital. Paulson has simply not
grasped the bigger picture and has failed to use the regulatory
levers at hand properly. Sermon over.

Stock Market -- Technical Note

The week ahead will be a short one and it is likely to be
dominated by fundamental factors. The US markets are closed
for Good Friday, and Mon. - Thurs. are packed with financial
and economic news. Bear Stearns, Goldman, Lehman and Morgan
Stanley are set to report quarterly results, FOMC meets on
Tues., and there are reports coming on production and housing.

So, a minute out for a technical item. The stock market is
moderately oversold on price oscillators out through three
months, and interestingly, my buy and sell pressure gauges
(based on breadth) are in deep oversold territory. The latter
are six week measures and tend to revert to the mean more
rapidly than not. So, even though bear conditions prevail for
now, the chances for a countertrend rally are decent.

Stock Market / Fed's Expanding Role

As I write this, the market has rallied powerfully out of
the 1/08 low test zone. News this morning that the Fed is
expanding its role in liquifying the credit market triggered
a massive short squeeze and follow through by traders eager
to join the rally.

This bounce interrupts a breakaway downtrend and puts in a
short term double bottom. The rally has brought the SP 500
from a deep short term oversold to a modest one. The double
bottom is an encouraging sign in the short run, but since
powerful, brief rallies are a hallmark of a bear market, it
is too early to tell whether more extended positive action is
in order.

Today, the Fed announced expansion of its special term credit
facilities to $400 billion. It has increased these facilities
by $340 billion in less than a week. Banks and primary dealers
can offer less liquid, lower quality debt to the Fed for Treas-
uries after the private stuff has been given an appropriate
haircut. So far, the Fed has "sterilized" these acquisitions
by selling Treasuries in the open market, with the result that
the liquidity pool has improved in quality, but not in size. It
will proceed with this dual process going forward, but the new
larger scope of transactions will give them some "cover" to add
permanent reserves as needed.

Financial corp. commercial paper has contracted by roughly $550
billion since peaking in early August, 2007. Much of this
contraction is mortgage backed paper. This market has struggled
since the sub-prime crisis broke. With only a slight recovery in
outstandings and a recent new spike in quality spreads, the Fed
felt called upon to act. The $400 million in Treasuries offered
as an effective swap equals 24% of outstanding financial corp.
commercial paper. That does provide a more secure lifeline for
illiquid players in the market.

The broad measure of system liquidity I use is flat with August,
2007 levels. Without rapid improvement, the economy will remain
at considerable risk and this may eventually force the Fed to add
more permanent reserves, inflation risk notwithstanding. The new
line of term financing also allows the Fed more time to see if
the high flying commodities markets break.

Down In Flames...The Street Chuckles

Yes, the market was hammered today, but more about that in
a moment. Today, NY Gov. Eliot Spitzer (D), a stilted,
sanctimonious first termer, said he had been fingered via wire
tap for bringing a hooker down to DC for an evening of
salacious R&R. That's a felony violation of the Mann Act.
You may remember Spitzer's tireless prosecution of Street
baddies during the 2001 - 2003 market bust, when he was NY
state attorney general. Not beloved on The Street, he left
the guys laughing during an otherwise tough day.

Back to the stock market. The SP 500 made a new down cycle
closing low of 1275 today, and is now slightly above the
1260 -1270 low test zone carved out by the e-mini future back
in January. Be watchful here, as the SP500 is in breakaway
down mode again on the basis of closing prices, but is also
oversold enough to attract positive interest. Technicians are
going to watch tomorrow's action with considerable scrutiny and
so should you if you are a trader.

Stock Market Comment

Well, as it turns out, the SP500 could not hold nicely above
my Market Tracker, as discussed yesterday. Today's close of
1304, brings the "500" much closer to the 1280 - 1300 range of
the Tracker.

As discussed this past Friday, the week's end sell off set up
the bears for control this week. They got the upper hand today,
a move signaled by the poor action of the financials throughout.

An oversold condition is developing, and my selling pressure
gauge is rising quickly. Further weakness in the market over
the next 5-7 trading days would produce a deep and tradable
oversold on this important measure.

The new 2008 closing low on the SP500 will have a number of
technicians speculating about a decline to the important low
test zone of 1260 - 1270. I sure cannot discount the
possibility of another breakaway move. It would be scary
but would also spell opportunity.

My proxy for the "average stock" is the unweighted Value Line
Arithmetic index of 1700+ issues ($VLE). This index did not
make a new yearly low today and is trading above long term
support going back to last spring. It may only be that the
index is less heavily freighted by the financials than the
SP500, but it's better realtive performance is worth noting.

Stock Market -- Fundamentals

The SP500 Market Tracker has now dropped into a range of 1280-
1300. Accelerating inflation suppresses the p/e multiple and
analysts have resumed cutting estimates. Today's SP500 close of
1334 might indicate some willingness on the part of investors to
anticipate a better economic environment later in the year. The
market has held well above the intraday spike low in the 1260 -
1270 area since January even as the Market Tracker has continued
to move lower. Hardly conclusive, but worth noting.

The liquidity environment does not support a sustainable bull market.
Both monetary and credit driven liquidity are growing at subpar rates.
Importantly though, sideline and portfolio cash in aggregate are
running at high levels. Looking forward, monetary liquidity will
increase by more than 10% for a spell starting in late spring as $150
billion in IRS rebate checks are mailed out. The sideline cash and
rebates are positives, but are not indicative a stronger underlying
trend of system liquidity needed to sustain economic and profits
growth over time.

Credit quality spreads in the bond market are still widening, with
intermediate quality bond yields topping 8% and still rising. Concern
over the depth and duration of an economic downturn are still
evident. That's not a positive for stocks.

My long term dividend discount model has the SP500 fairly valued at
1410. The 5.4% discount of today's 1334 close to the DDM fair value
is also worthy of note and is a reflection of a modest degree of
investor concern for the long term.

I continue to watch the oil market and the broader commodities
composites. The powerful uptrends in evidence here are suppressing
stock prices. Rising oil / commodities have pushed up inflation,
punished real take home pay, eroded the market multiple and have
restricted the Fed in supplying liquidity to the economy. The
oil / commodities booms are in highly speculative stages, but
blow-offs of this sort can be very confounding when you are
looking for suggestions of tops.

Gold Price -- The Bubble Draweth Nigh

Gold printed slightly above $990 oz. today before an after-
noon close of $982. By my reckoning, if gold closes above
$1000 oz. any time over the next year or so, then it is in
a price bubble that could reach $1500. The $1500 price
would be a triple over the early 2006 price of $500.

If gold does cross the bubble threshold of $1000, there is
no compelling reason that it must advance to $1500 or any
price in between. Bubbles occur rarely in any market and a
double or triple over the breakout price ($500 oz. in this
case) is a reasonable range for an unreasonable price move.

If gold does enter the bubble range, it does, prima facie,
suggest substantial price upside. With the upside potential
comes large downside price risk, which I would now put at
$250 - 400 oz.

You can make good money in a bubble on the long side as long
as the fundamentals are positive. Danger comes especially
when fundamentals diverge from a rising price. But large
downside can also occur in moments of doubt which can trigger
panic even if the fundamentals do not head south. These are
facets of a high return / high risk market.

My gold price macroeconomic indicator remains in a pronounced
uptrend for now.

The near term technical situation is interesting. Gold is
strongly overbought, and is just completing a 13 month long
parabolic upmove. The situation suggests a range of short term
possibilities running from consolidation to sharp correction.

The macroeconomic indicator is available only weekly. If you are
playing the gold market and want some daily reference, I would
watch the oil price and a broad range of industrial commodities
prices.

Scroll down to the end of the 2/25/08 post on gold and you
will find a chart link that may be of interest. Good luck.

At Least It Closed Off The Lows...

Back in the turbulent 1970s when I commuted to and fro from
Wall St., I would catch the 5:39 home from Grand Central. I
would frequently stop in the bar car for a smoke and a Dewars
on-the-rocks. The bar car would be raucous after another of
the many down days for the stock market, and the joke was to
have one of the many brokers hop aboard and proclaim "At least
it closed off the lows!"

At last week's close, both bulls and bears seemed fatigued. I
was looking for a quiet week ahead. Instead we got a strong
rally up to important resistance, a day of top action, and then
a sharp sell off that broke the suspiciously mild uptrend
underway since the Jan. '08 low. What can one say but that it
was a typical bear market action. The field is open for the
bears in the week ahead. We'll see what they can muster.

A word about sentiment. My e-in box is cluttered with sentiment
charts showing there are many more bears than bulls. The
contrarian implication is that a buy point is near. But I
remember talking with fabled technician Joe Granville years ago
and Joe reiterated a favorite of his: "In a bear market, the
bears are right." That stuck with me over the years. I have always
taken it to mean that heavy bearish sentiment will ultimately
point to a rally, but that a hefty, tradable rally need not come
right as the bears get heavily bearish. It can take a couple of
months.

With obvious increased inflation pressure, my SP 500 Tracker has
dropped to 1300 fair value.

I am hoping for a more solid bottom for this market at some point
over the March - April interval. I think we are going to need
some help from a cool off in the mania for commodities to get it.

Inflation

The inflation thrust indicator is spiking to one of its
highest levels in over 25 years. This is consistent with a
continuation of inflation above 4% measured yr/yr. The
broader measures of inflation such as the CPI remain
highly sensitive to the indicator, signaling that commodities
continue to drive inflation. Non-commodity measures of retail
inflation have yet to incorporate costs and expectations that
are evident when retail inflation is more mature and less
sensitive to shorter term pressures in commodities prices.
The pass through of commodity price momentum has been moderate
so far. All of this is consistent with the early stage
development of deeper and more persistent inflation.

The Fed has been easing the FFR% aggressively despite the
upward pressure on commodities because it believes that a
deeper and more pervasive inflation psychology has yet to start
to blossom. The Fed has also so far opted not to provide the
monetary liquidity needed to support a materially stronger
economy. This is a "thread the needle" policy. The Fed cuts
rates in a weak short term credit environment but does not
liquify, thereby gambling that the commodities markets will
give way to deteriorating economic momentum before a broader
and more serious economic downturn develops. Old Fed hands
would be impressed with the cleverness of the scheme but would
also caution that it could well be folly to try such fancy
fine tuning.

So far the Fed's gambit has not worked, and without development
of a commodities downturn / correction real soon, the Fed could
face a more daunting time and get itself into hot water
politically.

Gold Price ($941 0z.)

My macroeconomic indicator supports an uptrend in the gold
price, primarily reflecting the powerful run up in the oil
price over the last 13 months. The strong price action in
the grain and edible oil pits is a supplemental plus.

The gold price was weak today as the US Treasury put its
support behind the IMF plan to sell 400 tons of gold this
April to raise capital. There have been some hints Congress
might go along with the proposal this time.

The gold price is at a critical juncture. There is a mania
developing, and I see gold just at the point where the action
could become increasingly raucous and more volatile if the
sharp uptrend continues. I think the same can be said for the
oil price, where speculative interest remains quite vibrant.

I have linked to a gold price chart below. Note that although
the MACD trend remains positive, it is very elevated. That
sort of MACD pattern signifies increasing downside price risk
as the price moves ahead.

Here is the link to the chart.

Stock Market -- Short Technical Note

The price triangles that show up on the charts of most of
the market composites were not decisively eradicated this
week as I thought they might be. The bears are tired and so
are the bulls. Now since the triangles are running out of
real estate on the charts, some directional would seem finally
at hand. Most discussions revolve around a positive breakout
vs. a breakdown (The breakdown argument looked to be set to
carry the day until Friday's last 30 minutes of trade, when
bigger players bid on baskets and creamed the shorts). The
other possibility is that the market simply remains in a
frustrating period of price compression that drags on. Folks
are so used to wrenching volatility that such an eventuality
seems remote to most. But, it could happen, and confirm the
old adage about the market following the path of maximal
frustration in the short run. We shall all see soon enough.

Stock Market -- Fundamental

My SP500 Market Tracker has dropped from the 1340-1350 area
down to 1325. This is entirely a reflection of the acceleration
of inflation, which now stands at 4.3% yr/yr. Short term
earnings expectations have steadied, and the consensus forecast
for '08 SP500 eps has been raised ever so slightly. That tiny bump
is the first positive one following months of cuts.

Economic data for January show a flattish economy and do not
confirm a recession is underway. The weekly leading economic
indicators have shown more stability as well. However, since the
indicators have fallen hard enough since last July to be
consistent with the development of a recession, the jury is still
out.

Last year's financial crisis blew a $600 billion hole in liquidity.
The yr/yr change in credit driven liquidity has dropped sharply to
5.2%. This compares to a yr/yr change of 6.7% for the $ cost of
production, which has been strongly influenced by a higher inflation
rate. Net, net, the real economy is draining liquidity via higher
inflation, leaving the capital markets primarily dependent on
portfolio and money fund cash for support.

At the current 1360 level, the SP500 is treading water relative to
recent earnings and inflation readings.

Commodities And..........

Trade in broad swaths of the commodities markets this week
is extending recent gains. Raw industrials have also re-
joined the party. As many an old hand in these markets can
tell you, trader discipline is starting to break down as
the folks chase after rising prices. Broad composites such
as the CRB were cheap in relative terms for many years
following the bust in the 1980s. Now, these composites are
getting expensive on a relative basis although they are not
yet at extremes. It is clear that the strong industrial
economies of Asia are playing a major role in fostering the
boom, but it is equally clear that there is a horde of
speculators on board as well.

Commodities booms carry the seeds of their own destruction,
not just because they coax out more supply, but because central
banks are eventually forced to contract liquidity to stem the
inevitable inflation surge. In full, such enforcement actions
have been tepid so far, leaving the field still open.

As discussed previously, in larger, more stable economies where
wage rates are more settled, a commodities driven acceleration of
inflation punishes real incomes and can result in deteriorating
economic growth. This corrective process is not fast moving,
but should not be ignored.

The yields on longer dated Treasuries are ratcheting up now as
markets adjust to faster inflation. The increased inflation
pressure also tends to suppress the market's p/e multiple even
as commodities producers may experience outsized earnings gains.

The global economy is slowing, and some economies such as China's
where inflation has topped 7%, may have to tighten more aggressively
at some point.

For now, There is not a strong fundamental case to say the broad
commodities market is headed for a fall. There may be seasonal
weakness in the spring, and there may also be greater volatility
reflecting the risks of inventory hoarding. The main factor to
watch short term may well be trader sentiment, especially given
the growing intensity of speculative activity, and the fact that
many of the sub-sectors are very overbought.

Strange Stuff, Sentiment

I have listened to the bearish and the downcast in the
final stages of major negative market/episodes such as 1974
and 1982. That's when the depression and collapse talk rises
to a feverish din. Perhaps it is all the negative vibe on the
web, but the fear stories are bordering on hysteria now, even
though the bottom has yet to fall out of the economy. Strange
stuff indeed. As all know, the economic situation has been
deteriorating here in the US, and uncertainty shrouds the
outlook. Yet sentiment seems either over the top negative or
grossly cynical. Not what you would expect until after the
spit has hit the fan big time. I am hoping that the black
cloud blows over during the next six weeks, since it would be
unfortunate if folks stampeded when it is not clear they should.

Comments on Commodities & The Stock Market

COMMODITIES

Difficult inflation periods are invariably initiated by surges
in commodities prices for such elementals as fuels, raw materials
and basic foodstuffs such as cereals and oils. Today, the CRB
commodities index made a new high near 385 on strength in
fuels and agriculturals. Commodities are up over 20% yr/yr,
and this continuing rise has fostered an acceleration of US
inflation as well as boosts in the price level for a number of
other economies. With US wages rising more slowly than the
general price level, take home pay is falling in real terms --
a clear recession threat.

The slowing of global economic activity has led to a mild
contraction of industrial materials prices since this past autumn
but the more general range of basic prices has continued to
surge. I have included a chart of the CRB. Have a look.

From a traders perspective, this is a bullish chart, but it shows
a powerful overbought on price momentum and relative to the
40 wk M/A. Now some seasonal weakness can be expected by spring,
but this index needs to lose substantial momentum if slower growing
economies like the US are to have a shot at a growth pick-up this
year and next.

STOCK MARKET

Today was a little wicked. It was set up yesterday when the broad
market could not break through the downtrend line in place since
12/07. In typical bear fashion, players came in to sell the rally of
recent days. There is still money on the table, so the directional
test I wrote about on Tuesday has not been resolved yet.

Notes On Liquidity & The Stock Market

Liquidity

As the Fed expands its TAF, the FOMC dumps Treasuries and
cuts REPOs. The net result is negligible growth in basic
monetary liquidity measures such as Fed Bank Credit and the
Adjusted Monetary Base. The broader measure of credit driven
liquidity (in which I include commercial paper) did expand
a bit more quickly in January. However, both monetary
and the broader measure of liquidity are not growing fast
enough to sustain economic expansion. Thus the Fed continues
to run a high risk policy regarding prospects for the real
economy.

Stock Market

For the SP500, there is shorter term trend resistance in the
1360 - 1370 area. Earlier in the day, as the market pushed over
1360, the sellers came in, driving the "500" back down near
yesterday's 1339 close. But, with a late afternoon rally, the
market managed to close up decently on the day, thus setting
up a prospective directional test for the final days of this week.

Uh Oh -- Liquid Gold (Alkylate)

The longer term trend has the retail price of gasoline in
the US going to $3.50 a gallon at some point in 2008. Some
industry experts speculate that such will happen this spring
during the seasonal bump in gasoline prices and reflecting the
need to add a costly additive called alkylate. The conversion from
MTBE to alkylate for summer driving was ordered in 2005, and
observers argue that the sharp spring spikes in the gasoline
price over the past three years relect the new additive which
spot trades 15 - 20% above gasoline. Refiners have added capacity
to crack out alkylate, but the spot market remains fairly large.

Industry gurus often are not any better than most in forecasting
fuels prices, so there's hardly any assurance this story will
hold up. But it is worth noting nonetheless, as another gasoline
price spike would be most unwelcome in an economy already being
suppressed by the rapid run-ups in petrol products over the past
year.

Stock Market & The Valley

The old adage is: "The market never looks across the valley."
The bear market underway is in the process of trying to
assess how deep the economic valley will be and also how wide.
Meanwhile, I am experiencing personal alarm bells. First, I
am spending a much larger than normal amount of time trying
to break down the uncertainty in the outlook. Secondly, I am
pushing numbers and find myself gilding the lillies, another
bad sign. All of this tells me that if I catch the bottom, it
will be a miraculous event.

My leading economic indicators have pitched downward, signaling
a downturn in the near term. My inflation thrust indicator is
still accelerating on a yr/yr basis. Liquidity measures are
tight. longer term economic indicators are improving but still
have a negative bias. My SP500 Market Tracker still stands at
1340 - 1360 fair value and implies that The Market's earnings
expectations for 2008 are quite subdued and that a quick and
positive turnaround in earnings is not expected now.

The monster oversold I discussed through much of January was
largely eradicated by last week's bumptious rally. This week's
downdraft is a bear market move -- sell the rally -- and it
leaves the market heading into moderate oversold territory.

Could the market slip down to the 1260 - 1270 low test zone
for a temperature check? Sure could. In the meantime, since I
remain comfortable that the market's fate may not clarify until
the end of March, I am going to try and not be too fidgety.

Economic & Profits Indicators

The broad economy has flattened out over the past 3-4
months as measured by consumer spending, production,
employment and real wages. Inventories have been tightly
managed, but even so, the US is vulnerable to a downturn.
Housing development activity remains in a steep downtrend
and starts are likely to drop below the 1 mill. mark on
an annual rate basis -- typical for a housing recession.
As I have discussed, inflation has sapped consumer spending
power and since companies have been too tightfisted in
adjusting pay levels, recovery of purchasing power likely
awaits an easing of inflation pressure. Individual company
managements may be prideful of maintaining wage discipline, but
collectively, the discipline is working to bring down the
economy.

Federal Reserve Bank Credit and the broader measure of credit
driven liquidity are not growing fast enough to support
sustainable growth. Fast falling short rates is a positive
for the future as is the recent weakening of the oil price. On
balance, however, the Fed is running a risky policy short term
when it comes to growth, and if the economy falls into a downturn
in this a national election year, there will be all hell to pay
at the Fed.

The proposed minimal $150 billion stimulus program to provide
rebates to household taxpayers is essentially a fuels subsidy, but
it will help folks with their budgets.

Profits, excluding the financial sector, are coming in better than
expected. The average US commercial or industrial enterprise is
struggling to maintain margins in a slow environment, but tech
companies have had a very strong year and oil producers are
experiencing dramatically higher crude lifting margins. Financials
are in the red collectively. Earnings for nonfinancials from
overseas operations remain fairly strong. Looking ahead, the first
half of '08 will reflect the weaker US economy and slower growth
abroad.