Uncertainty is the Only Certainty

by Larry Levin

Until late in the day, the market was once again directionless. Uncertainty is the only certainty. With all of the news, you might think investors would find a catalyst somewhere, but the hope for economic expansion is in perfect balance with the fear of economic collapse. Given this, it is hard to believe the market is comatose and trading on such light volume. Today's news wasn't much different from yesterdays; most of it not-so-bullish while the market moves higher.

"Crude oil slides lower boosting stocks," was the headline of many financial websites this morning. Oil was lower by nearly $2.00, yet exploded higher to finish +$2.18 up on the day. However, stocks still rallied. As I have said many times, and this is the daily proof, oil only matters when it falls.

Before the open the Commerce Department released the latest durable goods order data. New orders for U.S.-made durable goods fell 0.5%, which was better than expected. Although this is the second month in a row that durables have declined, since the drop wasn't as bad as expected it was immediately called bullish by every analyst I could find.

Durable goods increases mainly reflect the demand for exports by foreign consumers. Said another way, 'the US dollar has fallen so much, the durable goods data hasn't fallen off a cliff yet." In the mean time, the dollar drop is costing you all big time at the supermarket and gas stations. Umm, but the report is bullish...even though it's negative...yada, yada, yada.

The financials were rife with more bad news today. A Citigroup analyst said that the insurance giant AIG may have to raise more capital in addition to the $20 billion it just lifted from patsies last week. This may have caused AIG, along with its $20-billion of new capital from last week, to fall 4.7% today. Maybe AIG will "swear" they won't need more cash tomorrow and AIG's new investors can recoup the $940,000,000.00 they lost today.

Shares of KeyCorp Bank fell more than 10% today after the firm virtually doubled its estimate for loan charge-offs and loss provisions as a result of ongoing credit turmoil and housing-market weakness. Umm, I could swear Wall Street said this sort of thing wouldn't happen any more. Or did the Street just say they wouldn't pay attention to it anymore? I guess it's the latter.

KeyCorp said that it plans to deal "aggressively" with reducing exposure in its residential-builder portfolio and that it sees "elevated" net loan charge-offs in its education and home-improvement loan portfolios.

"While management had previously stated that these portfolios would drive higher loan losses, the major surprise is the degree to which management is increasing its guidance only a month after earnings, reflecting either misjudgment before or a significant deterioration in asset quality," wrote Deutsche Bank analyst Mike Mayo in an investor note. C'mon Mike, is it really surprising...really?

Credit trends in the second quarter are "getting incrementally worse and hopes for a second-half recovery/stabilization in credit trends will prove to be optimistic as loss rates appear to be rising," added analysts at Robert W. Baird & Co.

And even that last statement will be viewed as quite optimistic if the current trend in bond futures continues. Bond futures have been crushed over the last several days, which is raising eyebrows, as well as yields. Those looking for a "safe" 30-YR loan to buy a house will be in for a rude awakening in no time, when their local banker tells them the going rate is 7.5%.

Finally, the CEO of Dow Chemical made some interesting comments today, as well as expensive. Dow Chemical Co. said today that it will raise the prices for its plastic and other synthetic materials by up to 20% starting this weekend because of higher raw material costs. Surely the BLS and the Fed will just add these price hikes to the "costs that rise we never include in inflation measures" thereby further weighing down Americans already pinched from rising gasoline and food prices.

For 2008, Dow said it expects to spend about $32 billion on energy and hydrocarbon-based chemical feedstocks, up from $8 billion in 2002. In the first quarter, the company's feedstock and energy costs increased fully 42% from a year ago. I'm guessing the CEO is an engineer and believes the correction equation to express this non-inflation silliness is (BLS-L) + C = BS...whereby C is the "constant" of sarcasm.

Dow Chemical's synthetic products can be found in everything from consumer and food packaging, auto parts, pharmaceuticals, and textiles, and have worked their way into many parts of the total economy. We can all expect to be paying more soon, because many of Dow's customers have expected this price hike and are already prepared to pass on the higher costs to consumers.

"The government's failure to develop a comprehensive energy policy is causing U.S. industry to lose ground when it comes to global competitiveness, and our own domestic markets are now starting to see demand destruction throughout the U.S.," said Chairman and Chief Executive Andrew Liveris in a statement.

Real Time Trading Signals*for

Trade Date: 5/28/08

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

1) VA buy @ 8:45am at 1385.75 = +.25 & b/e

2) PP buy @ 9:20am at 1381.25 = b/e (1 lot)

3) VA sell @ 9:50am at 1386.00 = +1.00 & +2.00

4) FT sell @ 11:10am at 1380.50 = -1.75 & -1.75

5) OTF sell @ 12:00pm at 1383.00 = -1.00 & b/e

6) Engf sell @ 1:10pm at 1382.25 = b/e (1 lot)

7) TP sell @ 1:50pm at 1383.50 = -1.00 & -2.00

8) Algorithm trades (7)...combined total...-0.50

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

1) Buy @ 9:52am at 732.4 = +1.4 (1 lot)

2) Sell @ 10:34am at 731.7 = +.3 (1 lot)

3) Buy @ 11:00am at 731.0 = b/e (1 lot)

4) Buy @ 12:33pm at 733.7 = -.3 (1 lot)

5) Sell @ 1:45pm at 733.8 = +.5 (1 lot) ...+$190


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