Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers up 0.3% versus the prior week and up 1.0% versus the comparable period last year; Redbook Research reported month to date retail chain store sales up 0.4% but a decline of 1.9% on a year over year basis.

    Weekly mortgage applications jumped 13.2%.

    August consumer credit shrank $12 billion versus forecasts of being down $8.5 billion.  Consumer credit has shrunk $27 billion in the last six months.
    http://www.calculatedriskblog.com/2009/10/consumer-credit-declines-sharply-in.html

    Here is an interesting analysis of the relationship between household debt and the equity market (short):
    http://www.nakedcapitalism.com/2009/10/household-debt-as-an-indicator-of-secular-bull-and-bear-markets.html

    Weekly jobless claims fell 33,000 versus expectations of a 12,000 decline.  This should help the market.
    http://www.calculatedriskblog.com/2009/10/weekly-unemployment-claims-lowest-since.html

   Other

    Our Madame Speaker wants more taxes (short):
    http://thehill.com/blogs/blog-briefing-room/news/61783-pelosi-says-new-tax-is-on-the-table

    The stimulus plan.  How’s it working so far (medium)?
    http://www.american.com/archive/2009/october/so-how-is-the-stimulus-working-out
   
    All evidence is not pointing to deflation (short):
    http://mjperry.blogspot.com/2009/10/9th-monthly-increase-in-used-vehicle.html

    Bad news from the UK (short):
    http://econompicdata.blogspot.com/2009/10/uk-production-slumps-to-1992-levels.html

Politics

  Domestic

More ‘nanny’ state interference by our elected representatives (short):
http://cafehayek.com/2009/10/offensive-interference.html

    An interesting idea for improving the House (medium):
    http://article.nationalreview.com/?q=YTE2ZjNhOTA1N2UyNDZhMDcwNDU0NDk0ZTJhNzYwZjI=

    Here is an analysis of insurance claims and denials.  Guess who denies the most (short)?:
    http://mjperry.blogspot.com/2009/10/how-do-we-keep-medicare-honest-it.html

    The need to improve the regulation derivatives (short):
    http://www.ritholtz.com/blog/2009/10/regulating-derivatives/

    An interesting perspective on taxes from a conservative (short):
    http://www.ritholtz.com/blog/2009/10/partisan-economics/
   
  International War Against Radical Islam

The Market
    
    Technical

    The Averages (DJIA 9725, S&P 1057) closed within their March to present up trend (9474-11311, 1056-1295).  However, as I noted in the Subscriber Alert yesterday morning, the S&P’s rebound has pushed it only marginally back into the up trend.  My inclination is to await a more authoritative move above the lower boundary before getting jiggy with the notion of the re-establishment of a solid up trend. 

    The VIX has been treated badly the last two days; it is now at 24.68 versus the recent support level of 22.0.  A successful challenge of the 22.0 level would be a good sign for stocks.

    Thoughts from Trader Mike (short):
    http://tradermike.net/2009/10/october_7_2009_stock_market_recap

   Fundamental
   
    The latest from Dougie Kass:
    http://www.thestreet.com/story/10608278/1/kass-staying-practical.html

    2009 has been a very good year so far, can it continue?  Likely not (medium):
    http://www.capitalspectator.com/archives/2009/10/the_allornothin.html#more

    Analysts are the most bullish in two years--which may not be a great sign (short):
    http://bespokeinvest.typepad.com/bespoke/2009/10/analysts-at-most-bullish-level-in-two-years.html

    The inflation versus deflation argument raged all day on CNBC.  I remain in the camp of those that see inflation as our next big problem although the stats over the last three weeks are making it hard to not adjust the probabilities of either occurring (i.e. raise the odds of deflation, lower the odds of inflation). Clearly in the last two days, investors have placed their bets overwhelmingly on the inflation scenario.  At the moment our Portfolios have 12-13% of their assets in direct inflation, weak dollar investments (gold and foreign ETF’s).  In addition, they have 70% of the cash equivalents (15%) in inflation hedges (TIPS and short term bonds).  Finally, the commodity based stocks (oil, steel, coal) and the large international firms in which a major percentage of their sales are non-dollar denominated comprise a significant portion of their US equity holdings.

    Which means our Portfolios are structured against the inflation risk; but notwithstanding yesterday’s technical breakout in gold, because the fundamentals are suggesting that deflation may be a bigger risk than I thought three weeks, I worry.  However for the moment, our Portfolios are doing nothing.
   
    The case for investing in emerging markets (short):
    http://paul.kedrosky.com/archives/2009/10/the_global_mone.html

       Headlines

    There were the first two major third quarter earnings reports: Alcoa which beat expectations for profits as well as revenues and Monsanto which had better earnings but lower revenues (see below).  So after day one of testing the revenues-are-key thesis, we are 1 for 2.

    The congressional budget office scored the Baucus healthcare bill as costing $829 billion over the next ten years and as covering 94% of the US population.  These meet two of Obama’s objectives: a cost objective of $900 billion over ten years  and covering most of US population.  This will give some momentum for passage of this bill; however, I note that the Baucus includes a number of mathematical gimmicks not the least of which is an assumed $400 billion cut in Medicare payments which is most likely not going to occur once seniors realize what is happening.
    http://gregmankiw.blogspot.com/2009/10/70-percent-marginal-tax-rate.html