The Teflon-Don

by Larry Levin

The market was hit - again - with more bad news today in the form of new record high oil prices and a surprisingly bad consumer confidence report. After an early dip in the market, it recovered posting a +1.20-point gain in the June S&P futures. Much like John Gotti was able to avoid prosecution for so long, garnering the nickname "The Teflon-Don", no matter how bad the news is - the stock market advances. It is very impressive indeed, but Gotti was caught in the end.

One of this morning's reports gave us another look into the home sector of the economy. Shockingly, housing starts jumped 8.2% last month. Good right? Well, only sort of. In the report we read that this huge jump in building activity was led by apartment building, which exploded at a 36% clip. I suppose builders want to take advantage of the foreclosure crisis the best way they can: offer those caught up in it a new apartment to rent.

If we use the government's trick of pulling this & that out (apartment building) to get a more palatable number, the "core" rate of building was nowhere near +8.2%. In fact, single family home construction fell 1.7% last month.

"For the market to reach anything that looks relatively stable, we would need to see several more months of contraction" in single-family starts, said Joseph Brusuelas, chief economist for Merk Investments, who said the decline in single-family starts was the best news in the report.

"One good month is not a recovery," wrote Ian Shepherdson, chief economist for High Frequency Economics. "Listen to the builders; NAHB survey yesterday was hideous." Yesterday the National Association of Home Builders reported builder sentiment plummeted in May, with builders' assessment of current sales conditions ranking as the worst in the 23-year history of the survey.

More details of the report show that the number of housing units completed dropped 16% in April to an annual rate of 1 million, the lowest in 26 years. Single-family completions fell 13% to 792,000 units, the fewest in 25 years, and the number of single-family homes under construction fell 2.5% to 549,000, the lowest in 13 years.

Thank goodness the USA no longer needs a strong home building sector of the economy; otherwise this might be bad for the market.

The next report was astonishingly bad, showing that consumer confidence fell to a 28-year low! The reading of 59.5 for May was not only down from 62.6 in April, but even worse than analyst's expectations. Here's the funny part: the drop was blamed on rising concerns about higher gas and food prices.

What a minute there fella! Why would anyone be concerned about higher gas and food prices? There is no inflation. Rising gasoline, food, and natural gas prices (just in time for air-conditioning season) are mirages...myths...urban legends. Didn't you hear? Gasoline prices fell 2.0% last month. So, I don't understand the angst.

Of course, we know that's baloney. Prices are rising faster than one of Gotti's "hits" that lost its "cement boots." Consumer sentiment, I believe, is a much more reliable indicator of inflation than the CPI. Consumers are in touch with reality, not abstract heuristics, substitutions, algorithms, and formulas. To consumers, the less purchasing power they have with their dollars the worse shape the economy must be in. I trust consumers more than CPI data because consumers do not have a hidden agenda.

Thank goodness the USA economy no longer needs a confident consumer; otherwise this might be bad for the market.

Not much needs to be said about today's last jaw dropping piece of news: oil made another never-before-seen-in-human-history high this morning. Goldman Sachs released a report this morning where it forecast a likely rise to an average $141 a barrel in the second half of this year. Saudi Arabia also declined to raise its output today.

Thank goodness the USA no longer needs cheap oil; otherwise this might be bad for the market.

Teflon-Don market, indeed!

Real Time Trading Signals*for

Trade Date: 5/16/08

E-Mini S&P Trades*
(before fees and commissions):

1) 80% sell @ 10:00am at 1417.25 = +1.00 (1 lot)

2) FT sell @ 10:50am at 1418.50 = +1.25 & -1.25

3) OTF buy @ 12:20pm at 1419.75 = -.75 (1 lot)

4) Engf buy @ 1:30pm at 1422.00 = -.50 (1 lot) – Jumped it, but wasn’t valid.

5) Algorithm trades (4)...combined total...+5.00

E-Mini Russell Trades*
(before fees and commissions):

1) No ER trades today.


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