Oil Market

Oil rose to a record $75+ a barrel late last week. That is
close to 86% above its economic value in a balanced environment
with 3 million bd of capacity cushion. Cushion is negligible
reflecting contingency building of larger cover stocks by
processors, market participants seeking inventory profits and
non-oil market speculators.

The recent spurt in the price set off a political hullabaloo
in the US, and has set drivers again thinking of conservation,
as gasoline affordability has deteriorated rapidly. The crude
price has backed off to about $71.50.

In using industry fundamentals, I have not done badly at all on
guessing direction of the crude price, but the upswings have
been stronger than anticipated and the downswings have been weaker.

We are entering a brief seasonally weak period, and crude must
hold $64-65bl to keep the very sharp upturn underway since the
autumn of 2003 intact. The trend band for this May is $81-64bl
using late 2003 as a base and the longer term band is $70-38bl.

At my tender age, I am a conservative player and am effectively
priced out of this market on the long side above $45 a bl.,
just as I am priced out of gold above $450.

For a slightly different chart take on this market, click here.

Interesting Profits Picture

My top down corporate profits model indicates strong S&P
500 operating profits for Q1 '06. Yr/yr sales growth
accelerated significantly from late 2005, reflecting a
rebound in output in the wake of the storms plus a
continued broadening of pricing power. Sales were easily
strong enough relative to costs to allow a number of
companies to show higher pretax profit margins. In
addition, oil price realizations also accelerated,
likely producung strong inventory profits for the
integrated producers. About one third of the SP500
companies have reported quarterly results so far, and
surprise has been positive by far.

Varied sets of leading indicators point to a slower
economy in the current quarter. Moreover, profits in
last year's Q2 were strong. So, I'd be a little
reluctant to jack up the estimates for the current
quarter even though The Street may do so. The oil
price will remain difficult to project. Over the
past eighteen months the yr/yr price change has
varied from 15% to 60%.

Credit Driven Liquidity

The Federal Reserve has achieved some success in slowing the
growth of its prime focus monetary aggregates M-1 and M-2.
Part of the reason growth of these aggregates has slowed is
that banks have simply changed emphasis in how credit growth
is being funded.

Bank lending and leasing has been growing far faster than the
economy over the past eighteen months reflecting a sharp
acceleration of commercial and industrial loan growth as well
as a continued strong real estate loan book (mortgages and
development loans). Although growth of home equity loans has
slowed sharply, yr/yr growth of the real estate loan portfolio
tops 12.0% and has been trending higher so far this year.

Of interest now is that evidence of a slowdown in the housing
market has begun to accumulate. Should this continue as is
now widely expected, the real estate component of credit
demand at the banks will begin to slow, and this will reduce
the growth of bank funding, since the real estate portfolio
is by far the major component of the banking system's loan
book.

The Fed has to be on this like white on rice, because a slowing
of bank funding growth without a corresponding easing of
basic monetary liquidity can establish conditions that may well
lead to a liquidity squeeze and consequent damage to the
economy and the stock market.

Most real estate loans are still longer term, and it is the C&I
loan book that the Fed watches most closely in setting the Fed
Funds rate. The book of shorter term business loans is still
zipping along, and when momentum in this category rolls over,
the Fed normally stops tightening. Now, the Fed has to watch
both categories closely, because too rapid a slowing of the
growth of the real estate book could produce an unwanted
drag on liquidity. Time to watch all of this more closely.

A primary funding vehicle for banks is commercial paper issuance.
This category, which includes collateralized or asset backed
paper has grown rapidly over the past two years. The Fed
regularly releases data for the commercial paper markets on its
web site, and for a nice update from Haver Analytics click here.

Monetary Liquidity

The two precursors of basic monetary liquidity in the
US are the Adjusted Monetary base and Federal Reserve Credit.
As you know, they are both very close in content. Both have
flattened out since late January, 2006.

These series are fallible indicators of the markets. They work
best when interest in monetary policy is intense, as it has been
since mid-2004. It is not easy to trade this data, as the
primary dealers on the Street experience the data as order flow
and can act on it the fastest.

Interestingly, the big cap stock averages have returned to mid-
Jan. ' 06 levels. One plausible interpretation is that players
are getting a little edgy about monetary policy following the
major liquidity infusion which ran from late Oct. '05 through
early Jan. '06. In short, some players are now less enthused
the Fed will stop raising short rates right ahead.

The US Dollar has also fared a little better since the Fed took
its foot off the gas in Jan. In fact, $USD fundamentals are
currently nicely positive although there is concern that
the dollar will prove vulnerable once the Fed stops raising
rates.

The gold market normally gets jittery when the Fed steps back
and lets its own portfolio flatten out in $ terms. Both gold
and oil did sell off sharply after then chairman Uncle Al
pared back Fed Credit as January unwound. But both have
been on a tear recently, with the Iran - US trash talking
contest in full swing ( Note that Iran likes high oil
prices as does GWB's and The Shooter's Texas oil buddies).

Next couple of weeks will be interesting regarding these
liquidity forerunners as this data will further clarify
Fed intent.

Stock Market Technical

S&P 500:1288

Well, it's spring break for school kids this week and it is
quiet.My work shows another extended period of compression in
the market based on my momentum and A/D indicators, with the
latter adjusted daily for TRIN. The compression period extends
back to mid - December, '05. This suggests to me that the market
is setting up for another significant move, although the current
period of frustration could last until the end of this month.

It is so tempting to say that we'll see a sharp break to the
downside this time, especially since a traditionally weak seasonal
period lies ahead. Moreover, the broader market still looks
overbought to me. One measure I like is the Value Line Arithmetic
Index ($VLE). It is not capitalization weighted
and besides the SP500 stocks includes the majority of popular
midcaps as well as top smaller caps. The weekly is here.
The trend is strong (ADX black line) but the MACD below is starting
to weaken. You will note the index has made a big move since last
spring.

But, happily, I find it easier to avoid certain temptations at my
tender age. So, I merely note that we seem due for some tradable action
up or down soon.

Bond Market -- Again

In the immediate prior post, I mentioned that the bond market
is in a cyclical bear phase but that the long Treasury was
oversold short term (April 4).

As I study it, I realize that the market is proving capable of
considerable volatility. I am thinking about the very sharp
and temporary run-ups in the $TYX yield that happened in the spring
seasons of both 2004 and 2005. So, the $TYX which crossed over and
closed above 5.00% today, could easily rise another 30-50 basis
points in a hurry if the players are in panic mode as they now
appear to be.

There's a long side trade coming on the Treasury price ($USB)
but I think I will make no attempt to catch the falling knife but will
wait instead for the makings of a positive turn in MACD and the stochastic.

I have been playing in the bond market as trader and investor since
early 1970. The behavoir of the market over the last two - three
years is a bit ditzy or dotty in my view, almost as if there's a new
generation of bulls coming in just as a major sea change is forming.

Bond Market

1. The bond market remains in a cyclical bear phase.

2. Note, however, that the long Treasury is now significantly
oversold. The chart of the $USB shows o/s on RSI and the stochastic, but observe as well how far the price is below its 200 day m/a.

3. To view the long Treasury yield in longer term perspective, click here.
The bond yield is moving up to test long term downtrend lines. Over the
past two decades, the tests have provided excellent buying opportunities.

4. The market is approaching an important crossroads. If the current
cyclical bear phase in the yield remains intact, the downtrend lines
may well be violated and this would be a prima facie warning that the
long term bull market in bonds could be coming to an end.

5. Since the current economic expansion began, the bond market has been
sensitive to the trend of commodity industrial raw materials prices and
less so to the CPI and energy feedstock prices. Spot industrials
remain in an uptrend, but have moderated recently. Even so, the bond
market has been weakening, suggesting a broadening out of focus,
perhaps to include the oil price as well as ongoing moderate economic
expansion in the face of rising short rates.

6. One continuing concern I have regarding the bond market is the
possibility that once the Fed is done raising rates, the FFR%
could be kept at a plateau level, as the economy might well
continue to expand with growth of economic demand and supply rounding
into decent balance. I suspect that in such an environment, players
might opt to put some risk premium back into bond yields.

7. I have stayed away from the bond market for the past year, primarily
because I think it is overvalued, with too little premium in Treasury
yields to reflect interest rate risk, supply risk and future long
term inflation potential.

8. If the market does show signs of bouncing from the current oversold
condition, I might go long for a fast trade, but that would be it.

Inflation Picture

For me, the primary stimulants of inflation are commodities
prices and a range of key cyclical sector operating rates.
My inflation stimulus pressure gauge is essentially flat
for the past six months, suggesting little forward momentum
for inflation. As I have argued, the "core" inflation rate,
or inflation excluding volatile commodities such as energy
and foodstuffs, is overdue to show some acceleration following
the dramatic run-up in fuels prices in recent years. Nevertheless,
the inflation vanguard has slowed. Moreover, productive capacity
overall is beginning to grow a little faster.

The inflation pressure gauge remains on a high plateau, and
the recent positive bounce in oil and refined products is
putting a little stress on the financial markets. Iran, with
help from an equally belligerent Bush admin. is doing a swell
job of kiting the oil price and keeping traders in the game.
There is plenty of supply, but an abundance of fear as well,
and traders are thankful as it is keeping the oil price
up ahead of the forthcoming US hurricane season. After the
last two years, you can bet that weather.com will get a big
play as the air warms in July and August.

There is even a growing buzz on the web that the US is planning
to try and take out Iran's nuclear capacity. Understandable
given the Bush Doctrine of pre-emptive strikes when He spots
peril. And there's the low approval rating, too. Patriotism
as the last refuge of a scoundrel and all that.

Interesting stuff all, but at quite an advance to the economics
on the ground. There is a message here too for the Fed as well,
which is not to overreact to the powerful scarcity fear psychology
gripping the petrol sector.

The FOMC Decision on Short Rates

The first FOMC policy meeting under new chair Bernanke is
winding up over lunch, and their decision on rates etc. will
be announced in a couple of hours.

Most everyone out there is looking for business as usual --
a 25 basis point hike in the FFR%. Since the Fed also has a
God given right not to be psychoanalyzed, I would not presume
to say what the gang will come up with.

The customary cyclical fundamentals that are usually front
and center for the Fed are vibrant enough -- broad cyclical
expansion, rising operating rates and strong and rising
short term credit demand. there's enough rolling out there
to support a FFR% of 5.00 - 5.25% in my view, and we should
have been there already, save for Uncle Al's baby step policy
inclination.

The Fed has eased on the liquidity front since this past
autumn, but not enough to signal a policy change.

The one item in the usual mix that is of interest to me is
the mild acceleration underway in the growth of production
capacity. Over the past several months, yr/yr capacity
growth has moved up from a paltry 1.1% to near 2.0%.
The longer term trend seems to be turning up and this is
very important because, should it continue, production
supply / demand growth will come into much better balance,
and this will undercut inflation stimulus within the system.

I am hoping that Benny The Banker will step right up and
put his fingerprints all over the FOMC decision and
consequent statement rather than toodle along like a Greenspan
acolyte. We'll all see shortly.

Gold -- Not For A Cheapskate Like Me

Well, there it is, trading in a range of $550-560 oz.
Some of the pundits tell me $600 is the next stop on
a glorious upward ride. Wow, and here I am thinking
that I could eke out a decent case for gold at $450
oz. based on commercial demand / supply/ extraction
costs. I even thought it would sell off sharply over
the first four or five months of 2006. I know there
are concerns that oil supplies could be disrupted, but
when I look at that market, I can make out a good case
for oil at $40-50 bl., not $60+. No comfort there either.
looks like the same guys are in that market, too.

When I look at the gold charts, I see a sitting duck,
with intermediate term weekly MACD rolling over from very
high levels, yr/yr price momentum very high, Wilder
ADX closing in favor of internal supply. But, a
big drop has not come.

So, for now, I am consigning gold to the "out of my
league" category, to be dusted off periodically.

I do get a kick out of the gold bug websites. Not
even the more voracious Wall Street Bankers can touch
these guys for hucksterism.

A Little Trouble In Big China

China is averaging about 200 protests / riots a day.
This is not spontaneous. China's political left is
recovering after years of quiet.

Well paid workers in the eastern part of China are
leaving their country cousins in the dust. Plus,
the new running dogs of capitalism are turning the
country into an environmental cesspool and are
swiping turf the peasants once claimed.

Leader Hu has spoken of developing a "golden harmony"
that brings the 800 million Chinese who are not
sharing in China's economic development into the tent.
A very tall order.

As the NY Times reported today, the Chinese left is
starting to get its voice back, sounding strong
criticism of the country's growing imbalances in
the wake of its economic development.

Hu now has to straddle the fatcats and the peasants'
slow burn which is heating up steadily. This guy is
going to be tested right down to his new Ferragamo's.

Beijing hosts the 2008 summer Olympiad. This is planned
as Beijing's coming out party as a world capital. Losing
face in China is bad business, so 2008 should be a quiet year.
But the left will be pressuring hard for goodies through
2007.

The Chinese excel in traumatic political upheaval, and now
that the old commies are hooking up with the peasants, the
small trouble in China may well become very big trouble in the
years ahead if China fails to rapidly shift its focus from
the fatcats ball to the downtrodden.

Just one more thing that's going to heat up in the years ahead.

The US Trade Account

The LDCs and the weaker OPEC countries experienced economic
depression in the early 1980s as oil and other commodity
prices collapsed. It was a stock Kondratieff downwave that
was eclipsed from going fully global by timely major
central bank intervention, large US income tax cuts and a
relaxing of regulations regarding the writeoffs of non-
performing LDC/OPEC credits.

The US had been the lender of last resort. Now it had to
become the buyer of last resort to stave off spreading depression.
The original global rescue plan called for three locomotives to
pull the world back from the abyss: The US, Germany and Japan.
Between 1983-87, Germany and Japan welched on the deal, leaving
the US to carry the load. The strong US $ policy of 1980-85
did the trick, but the US began to run a deep trade deficit.
A weak US $ from 1985-95 reversed this situation, and by 1991-
92, the US was running a modest surplus on current account.

Powerful US economic fundamentals over 1995-2000 produced a
dramatic rally in the dollar which actually ran until 2002.
At first, both imports and US exports were strong, but export
growth faded and the trade gap again accelerated. Moreover,
it continued to grow rapidly even as the dollar tumbled from
2002-2005. The elixir to eliminate the current account deficit,
namely a weak US $, failed. Many exporters, China notably and
much of the rest of East Asia tied their currencies to the dollar,
while Europe and Canada gave up profit margin to maintain market
share.

Strong US interest in "free" trade has a long term objective.
We know as the massive baby boomer cohort passes into the
retirement years, US consumer purchasing power will moderate
very substantially. The hope is that exports will pick up
a fair portion of that slack and that countries like China
and India will eventually focus on growing their own
consumer economies.

All the countries who export to the US know that the consumer
will soon be past his prime, spending wise, and it is
Katy bar the door to sell as much into the US as they can
before demand slackens.

Only time will tell whether our policy aim will prove effective.
However, it seems to me that the next 5-7 years are going to be
difficult and risky on the trade front. Big US companies like
Dell and The Gap have large offshore production which they
distribute here. So the open market concept benefits many major
US companies. But smaller companies -- the backbone of US job
creation -- will be at increased risk as more niche markets
come under attack from abroad. On the flip side, the US is
exporting $ liquidity to the tune of nearly $800 billion a year.
Foreign currency reserves are ballooning, and the risk of
all manner of speculative excess abroad is rising rapidly.
Japan went bananas with this liquidity in its real estate and
stock markets in the 1980s and it has only been recently that
it has regained a comfortable degree of equilibrium.

When an exporter to the US locks its currency to the dollar,
it is engaging in a form of mercantilism. The US should
hammer China and the other bandits that are keeping
currencies artificially low. But it has chosen to let it all
happen so large US corporate and banking interests can prosper
abroad. This is a dumb policy that will hurt smaller
domestic interests as well as the overconfident foreign
treasurers who think they can manage mushrooming liquidity
with ease.

So we have to keep eyes on the trade sector, particularly
throughout developing Asia as the central banks out there
have yet to show their mettle.

The more one watches major US business interests, the more one
is reminded of Ike's admonition to watch that military / industrial
complex.

Stock Market -- Fundamental

S&P 500: 1274

I use three different fundamentals - based models to track
the SP500. All imply that from an empirical perspective the
S&P is reasonably valued in the range of 1280 - 1300. I
do not put too much stock in the predictive value of any
of these approaches, but use them more as a diagnostic
reference. Even then, I would not make too much out of
divergences until they exceeded 6% or so. For me, the market
looks reasonable enough now.

To summarize the output of the models, the market's rally since
this past autumn reflects a continuation of above average
earnings growth and an expanding p/e ratio to reflect a moderation
of inflation pressure which in turn has been supported by a
moderate easing of liquidity policy by the Fed as well as
continued good growth of the SP500 dividend. The key changes in
the mix since last October or so have been a step up in the
growth of the monetary base and a reduction of inflation pressure
stemming from lower fuels prices.

The risk premium of the market (earnings/price yield - 91 day T-Bill
yield) is continuing to shrink from once very high levels. Thus,
risk continues to rise, and it will be interesting to see how
the market holds up if the Fed tacks on another 50 basis points
to the FFR% over the next few months. Could be a character builder
for investors.

Yield Curve Inversion

The yield curve inverts when short maturities sport yields
above those of longer dated maturities. We have seen yield
curve inversion in the US Treasury market on a day to day
basis since late in 2005.

Historically, an inverted yield curve has been a good
indicator of an impending sharp economic slowdown or
even recession. That's because yield curve inversion is
normally a symptom of either a liquidity squeeze or a
developing credit crunch wherein banks severely restrict
shorter term lending.

We have no squeeze or crunch now. Far from it. The
broad money aggregate M-3 is up 8.4% yr/yr, commercial
and industrial loans are up 15.5% yr/yr and trending higher,
and real estate loans continue to grow. In fact, the
financial sector is generating excess liquidity
now, or more liquidity than the economy actually needs.

Now, if the Fed Funds rate gets put up above 5.25% I'd wager
that banks will begin to take notice, and may well begin to start
to ration credit modestly. M-3 growth would slow because
funding requirements would slow, and the economy would
enter the very early stage of a liquidity squeeze. Bond
yields could even go lower in such an environment because
bond players would begin to anticipate eventual recession,
lower inflation and a flight to quality.

I'm strictly guessing the Fed may cut off the push on the
FFR at 5.0-5.25% in the months ahead, up from the current
4.5% posting. I doubt the Fed wants to become a centerpiece
political issue in a critical off-election year such as is
2006.

What might be of interest is how the bond market behaves
if the Fed goes to a FFR 5.0% and signals it may well
stay there for a while. That might send bond yields
sharply higher since some players would likely conclude
they may as well shorten maturities.

Note as well that following Uncle Al's silly roller coaster
ride with Fed credit post-Katrina, the FOMC is again adding
to holdongs, thereby signalling another bit of easing.

Inflation Situation

Advance inflation indicators have dropped off during
February, notwithstanding today's short squeeze on the
price of crude following reports of an aborted attack on
the Saudis' largest production facility. With crude
supplies on an upswing, pricing may ease further in the days
ahead. Crude producers and pit traders are doing their best
to try and kite the price, particularly Iran and the world's
newest tin horn dictator, Venezuela's Chavez.

The longer term advance inflation indicators remain in an
uptrend and this is a continued concern. I do not for one
minute buy into the differentiation between "headline"
inflation and the popular "core" rate. No one who shops
for all the goodies we need can help but notice that the
"core" rate is going up, too. But, you cannot ignore it
since the bond and currency traders are among the official
"core" rate "believers."

Stock Market And Monetary Liquidity

The stock market has been sensitive to changes in the
levels of Fed Credit and the Adjusted Monetary Base (AMB)
since mid-2003. This has been so because traders have
taken to monitoring The Federal Open Market Commitee's
doings carefully as the economy has expanded to glean
changes in monetary policy. The Fed has tightened up
gradually on liquidity since late 2003, and took a
tough line in 2005, until Katrina etc. forced it to
ease up some. The periodic increases to Fed Credit
via reserve injection have led stock and gold traders
particularly to celebrate. Each stock market rally
since Half 2 '04 has been triggered off by FOMC
Treasuries purchases which have quickly showed up in
the AMB.

It is too early to tell yet whether the Fed will extend
the moderate net easing of recent months, although
seasonal factors mitigate against it. Moreover, traders
should note that the stock market is about as extended
as it has been against the trend of the AMB since traders
jumped on the monitoring program after late 2003. Fed
Credit and the AMB do go out of favor as key variables
from time to time, but traders should keep them in mind
now, since the inclination to determine an interim top
in market short rates is running strong at present.

Well, with this piece, I am content to leave the monetary
data alone for a few weeks to look over some other stuff.

Monetary Policy Issues

The rapid drop in commodities price composites since
the end of 1/06 almost broke the longer term uptrend
in place. But, as this week wanders to a close, the
basic fuels group has been able to stabilize, thus
holding the positive edge for the broader composites.

Now since the acceleration of inflation in recent years
has been driven by commodities and oil and gas in
particular, new Fed chair Bernanke will be watching the
action here with special attention. For example, if
fuels remain stable, the threat of accelerating
inflation will begin to wither as there is still goodly
excess productive capacity in the entire US system.
Such a development would leave the Fed room to stop
raising short rates after another couple of boosts.

So it is heads up time for investors and traders, since
for example, the KR-CRB Commodities Index ($CRB) is
once again right down on trend support. Just keep in
mind what a devilish issue this is, since the CRB has
continually held and rebounded off trend support in
each of the past five years. So, a break and hold below
support would be a big deal for macro policy.

As all know, the US economy absorbed some heavy shocks
over the last four months of 2005, with real GDP dropping
to a puny 1.1% AR in the final quarter of the year. In
response Uncle Al had the FOMC spike the punch bowl with
a full quart of 100 proof rum late in the year. That
plus milder winter weather produced a strong January,
leading FOMC to quickly dilute the bowl by blowing out
about $20 billion in Treasuries from its portfolio.
On balance, the advance liquidity measures such as
Fed Credit and the Adjusted Monetary Base now have a
slightly positive bias, with the leader -- Fed Credit --
now stabilizing after a patented Greenspan roller
coaster ride. Bottom line, if the CRB et al take
a stable path, the Fed may slowly ladle more punch
into the bowl even as it raises short rates and talks
tough.

As discussed a week or two back, the cyclical case
for raising rates somewhat higher remains in place for
now. With Katrina relief and more defense spending
expected to produce a larger budget deficit this year,
It is doubtful the Fed will unrelievedly raise rates.
At some point, revenues would slow or crack, and then
there would be a fine mess. A politically astute Fed
chief would likely cut off pushing up rates well
enough ahead of this very important off-year election
to keep the Fed out of the headlines and the line of
fire. Again, a more gentle movement in commodities
prices would be a boon to Bernanke.

BB did field inquiries at the HH hearings about the
Fed's decision to stop reporting M-3 data. He
politely gave the lame excuse about bankers' complaints
regarding costs they must absorb to gather and submit
the data. By this subtrefuge, Bernanke buys time to
study over what should be done about Greenspan's
foolhardy decision to cede so much of Fed control over
reserves back in 1992 in exchange for having commercial
banks take on much of the burden of the splintered S&L
industry.

M-3 has been zipping along at a 10.8% AR over the past
six months. The liquidity cycle is credit driven and
not monetary driven. In fact, there has been enough
excess liquidity not only to fuel housing prices, but
fuels prices as well! (Glad you are gone Al.) The M-3
phenom keeps the economy and profits rolling, but it
has impaired the Fed's ability to slow inflation. This
issue can play hob with policy, and it will be a good
test of Bernanke's courage and ingenuity as well.

Stock Market -- Technical

S&P500: 1275

Well, the market has rallied a little off the 1260 level
of the recent post, as anticipated. As well, I have not
tried to play it, either.

When trading a bull market, I like to go long on deep
oversolds with a significant $ commitment. No such
event occured this time. In fact, when I look at the
broader market viewed weekly, to include small and mid
caps, I see a market that's still overbought when put on
an equal $ dollar weighted basis. The same holds true for the
cumulative NYSE A/D line. So, I am on the sideline for
now.

I keep a proprietary index of the cumulative NYSE A/D line
which I adjust econometrically for the daily TRIN. I feel
it gives me a good picture of internal supply and demand.
Like most of the indices, the proprietary one also features
an ascending triangle, with the base extending back to the
July, 2004 lows. Advancing this triangle gives me an apex
in April, 2006, which will automatically close this chapter
of the market's more recent history. I see that as an
important heads up for all as it may well be make or break time
for 2006.

Stock Market -- Brief Technical Note

S&P500:1260

The S&P caught bids today off a mild oversold and at short term support.
I have passed on it. Looking at the broad market, there are still
too many stocks that are extended on the upside. The S&P fell a
little short of my Jan. 2006 target of 1310, but the broader market was
lit up pretty well in the latter part of the past month, and the
consequent pullback leaves too many stocks still hanging high. So
as a guess and as a conservative gesture, I am not putting on any
long trades just yet.

Economic Indicators

Leading indicator sets are pointing to an acceleration of
economic growth a little down the road.

Dollar order rates have been bouyant in recent months, but
there is upward bias there reflecting sharp increases for
commercial aircraft.

Breadth of new orders for businesses remains in a downtrend,
but the readings are still nicely positive nonetheless.
Although housing has been the media headliner, manufacturing
and service sector order rates were tremendously strong in
late 2003 - early 2004. Understandably, these sectors have
lost zip, but continue to signal moderate growth ahead.

Sensitive materials prices are trending up and unemployment
insurance claims are low and trending down.

One worrisome element remains the real or inflation adjusted
wage. It is not growing. Business is pocketing the income
gains from productivity and not sharing with the labor force.
Continuation of this trend for an extended period will backfire,
leading to lower returns on capital.