Chicago, IL – November 19, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Ford (F), CarMax (KMX), AutoNation (AN), Apartment Investors (AIV) and Equity Residential (EQR).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Wednesday’s Analyst Blog:

CPI Up on Cars, Energy

The Consumer Price Index (CPI) for October rose by 0.3%, a little bit hotter than the 0.2% that was expected. If one strips out volatile food and energy prices to get the core consumer price index, prices were up 0.2%, also one tick higher than the 0.1% expected.

A rise in energy prices was not unexpected. Heck, one only has to see what the price of crude oil and natural gas have done over the last month or so. For the month, the price of energy rose 1.5% overall. The rise was sharpest among energy commodities, like gasoline and heating oil, which rose by 1.9%. Energy services, like electricity rose a more moderate -- but still steep -- 0.9%.

The rise in core consumer prices was a bit more of a surprise. However, the rising prices were very narrow, with almost all of the increases due to higher prices for cars and trucks, both new and used. For the month, the prices of new cars were up 1.6% while the prices for used cars jumped by 3.4%. That is very good news for Ford (F) as well as indirectly for the U.S. taxpayer, since we are now major stockholders at both General Motors and Chrysler.

The increase for used cars is also beneficial for the car dealers like CarMax (KMX) and AutoNation (AN). The Cash for Clunkers program continues to reverberate through the economy, even though it ended over two months ago. Every car that was turned in under the program was destroyed (at least the engine was, other parts could be stripped and reused). This reduction in supply helped support prices of the remaining used cars. This is the third month in a row of sharply higher prices for used cars, coming on top of a 1.6% increase in September and a 1.9% increase in August. I suspect that this effect is likely to wear off in the near future.

On a year-over-year basis, the overall consumer price index is down 0.2%, while the core consumer price index is up 1.7%, both of which are historically very low. The huge decline in energy prices happened a year ago and is in the process of rolling off. Thus look for the headline consumer price index to start to outpace the core consumer price index in the months to come on a year-over-year basis.

The divergence could become very large. The reason is that a very large part of the index is for Shelter, and the biggest part of that is rent -- both the normal rent that is paid by people who do not own their own houses, and "owners equivalent rent" (OER) or what it would cost you to rent an identical house next door to where you are living now. OER is how the government measures housing prices for inflation; what happens to the actual price of houses is totally irrelevant when it comes to measuring inflation. Thus, measured inflation was very much under control, even as the price of houses were soaring during the housing bubble, and the CPI did not decline as the bubble was bursting.

Together, regular rent paid to landlords and OER make up over 30% of the total consumer price index, and almost 40% of the core consumer price index. The overall price of shelter was unchanged in October, the second month in a row it was unchanged. Regular rent fell by 0.1%, over the last three months it is down at a seasonally adjusted annual rate of 0.7%, and it is unchanged over the last six months.

Since most people own rather than rent where they live, OER has a much higher weight in the index (24.4% of the total index vs. 6.0%). It was unchanged on the month, is off by 0.3% over the last three months and up by just 0.2% over the last six months. However, if the reports from the big housing-oriented REIT’s like Apartment Investors (AIV) and Equity Residential (EQR) are to be believed, then the decline in regular rents is significantly understated.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Housing Starts in October decreased by 10.6% to an annual pace of 529,000, less than the expected 599,000 pace, from the revised 592,000 in September (originally reported at 590,000). Over the year the figure has declined by 30.7% from the October 2008 rate of 763,000. Building Permits declined by 4.0%, over the month to 552,000, less than the expected 598,000 level, following 575,000 permits annualized in September. Over the year, Building Permits fell by 24.3% from the 729,000 pace in October 2008.

Upcoming Releases
Initial Claims (11/19 at 8:30 AM EST)
Leading Indicators (11/19 at 10:00 AM EST)
Existing Home Sales (11/23 at 10:00 AM EST)

Industrial Production increased by 0.1 percent in October to an index value of 98.6 (2002=100), lower than the expected increase of 0.4%. This follows a 0.6% increase in September, revised downward from an originally reported increase of 0.7%. Over the year, the industrial production index is down by 7.1%. Capacity Utilization was reported at 70.7%, an increase from the 70.5% level in September. In October 2008, Capacity Utilization was measured at 75.4%.

Upcoming Releases
CPI (11/18 at 8:30 AM EST)
Crude Inventories (11/18 at 10:30 AM EST)
Initial Claims (11/19 at 8:30 AM EST)

In a paper presented at the Brookings Institution last spring, I examined the post-sample forecasting performance of an equation originally published in 2003, which relates real GDP to past values of GDP and oil prices. I noted in April that if you had known in October 2007 the values of GDP through 2007:Q3 and what was about to happen to oil prices through 2008:Q2, you could have used that historical relation to predict the value of U.S. real GDP for 2008:Q3 with an accuracy better than 99.5%.

Solid line: 100 times the natural log of real GDP. Dotted line: dynamic forecast (1- to 9-quarters ahead) based on coefficients of univariate AR(4) estimated 1949:Q2 to 2001:Q3 and applied to GDP data through 2007:Q3. Dashed line: dynamic conditional forecast (1- to 9-quarters ahead) based on coefficients reported in equation (3.8) in Hamilton (2003) (which was estimated over 1949:Q2 to 2001:Q3) applied to GDP data through 2007:Q3 and conditioning on the ex-post realizations of the net oil price increase measure.

In the figure above I extend the earlier-reported forecast an additional four quarters and compare the projection with what actually happened to GDP through 2009:Q3. The dotted green line is a forecast formed in October 2007 of what would happen to U.S. GDP if you used nothing more than the values of GDP observed through 2007:Q3. Basically that forecast simply extrapolates the recent prior trend. The dashed red line is the forecast that uses GDP values only through 2007:Q3 but also uses knowledge of what was going to happen to oil prices between 2007:Q4 and 2009:Q3. If you treated oil prices as the only thing that matters for the economy, you would have predicted the bottom would be reached in 2009:Q1, flat growth between 2009:Q1 and 2009:Q2, and normal growth resuming in 2009:Q3. That's exactly the trajectory that GDP has taken so far, although the bottom in 2009:Q2 was 2-1/2 percent lower than would be predicted on the basis of oil prices alone.

I have no doubt that the problems with financial markets were a bigger factor than oil prices in the striking collapse in output in 2008:Q4 and 2009:Q1. The other approaches to measuring the contribution of oil to the downturn surveyed in my Brookings paper would estimate a smaller contribution of oil to the downturn than suggested by the figure above. On the other hand, all of the approaches surveyed in that paper suggest that oil made a material contribution to the initial downturn, and it seems hard to deny that that the severity of the financial crisis was exacerbated by the fact that the U.S. had spent three quarters in recession prior to the failure of Lehman in September 2008.

What do these estimates imply looking forward, with oil prices now back up to $80 a barrel? The relation used to produce the figure above assumes that there is a threshold effect before the next oil price shock would begin to do its damage. According to that relation, oil has to get back above $130 before it would matter again for GDP growth. On the other hand, the original research on which that relation is based acknowledged that there's really not a very compelling basis in the data for choosing among various plausible nonlinear possibilities. The other approaches surveyed in my Brookings study assume a simple linear relation, according to which the recent resurgence in oil prices would already begin to exert a drag on spending.

Another magnitude that I think is important to watch is the share of the budget of an average U.S. consumer that is devoted to energy purchases. This had fallen considerably in the 1990s, making it easier for many consumers to largely ignore modest energy price fluctuations. When this share rises above 6%, it seems to become a more significant factor. The consumer energy expenditure share peaked last summer at 6.8%, but collapsing energy prices subsequently brought it back down to 4.7%. The resurgence in oil prices this summer had pushed that share back up to 5.4% in September.

Energy expenditures as a fraction of consumer spending. Calculated as 100 times nominal monthly consumption expenditures on energy goods and services divided by total personal consumption expenditures. Data source: BEA Table 2.3.5U, "Personal Consumption Expenditures by Major Type of Product and Expenditure," obtained from Econstats. Dashed line is drawn at 6.0%.

And the price of oil is up another 15% since September.

Chicago, IL – November 6, 2009 – Zacks.com announces the latest Industry Outlook. Today, Zacks Equity Research discusses the Oil & Gas sector, including CNOOC Ltd. (CEO), China Petroleum and Chemical Corporation, or Sinopec (SNP), Cameron International (CAM), Nabors (NBR) and Patterson-UTI (PTEN).

The strengthening oil price environment should benefit producers, particularly those international players having attractive growth opportunities in their home markets. Two such standout names are China’s CNOOC Ltd. (CEO) and China Petroleum and Chemical Corporation, or Sinopec (SNP), both of which remain well-placed to benefit from the country’s growing appetite for energy.

CNOOC enjoys a monopoly on exploration activities in China’s very prospective offshore region in addition to having a growing presence in the country’s natural gas and LNG infrastructure. On the other hand, Sinopec is the second largest crude oil and natural gas producer, and the largest refiner and marketer of refined petroleum products in China. Sinopec’s leverage to the lucrative Chinese market and the recent $7.5 billion Addax acquisition is expected to help sustain its growth momentum.

Within the oilfield services group, we prefer to own companies such as Cameron International (CAM), that derives about two-thirds of its revenue from outside North America, thereby playing an offsetting role to the relatively soft U.S. drilling scene. Cameron recently posted better-than-expected third quarter results and raised its 2009 forecast, as a revival in energy prices led to improved drilling activities.

WEAKNESSES

We continue to feel strongly that industry players in the servicing and drilling ends of the business with substantial natural gas-focused and North America-centric operations should be avoided. A major sub-sector that fits that description is the onshore drillers. While we currently don't have any Underperform rated stocks in this group, we remain skeptical of land drillers like Nabors (NBR) and Patterson-UTI (PTEN), given the extent of excess capacity in the sector that is expected to weigh on dayrates and margins well into next year.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5510.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5511.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Follow us on Twitter: http://twitter.com/zacksresearch

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Housing Starts in September grew by 0.5% to an annual pace of 590,000, less than the expected 608,000 pace, from the downwardly revised 587,000 in August (originally reported at 598,000).  Over the year the figure has declined by 28.2% from the September 2008 rate of 822,000.  Building Permits declined by 1.2%, over the month to 573,000, less than the expected 597,000 level, following 580,000 permits annualized in August.  Over the year, Building Permits fell by 28.9% from the 806,000 pace in September 2008. 

Upcoming Releases
Fed’s Beige Book (10/21 at 2:00 PM EST)
Initial Claims (10/22 at 8:30 AM EST)
Leading Indicators (10/22 at 10:00 AM EST)
Existing Home Sales (10/23 at 10:00 AM EST)

The Consumer Price Index increased by 0.2% in September, as expected, to an index value of 215.969 (1982-84=100), more than the expected 0.3% increase, after increasing by 0.4% in August and remaining unchanged in July.  Over the year the CPI is down by 1.3%.  The food index decreased by 0.1% over the month, bringing down the food index by 0.2% which is the first decline in the index in 40 years.  The energy index increased by 0.2% and is down by 21.3% over the year.  Excluding food and energy prices, which tend to be most volatile in terms of expenditure categories in a typical consumption bundle, the Core CPI is up by 0.2% over the month, and has advanced by 1.5% since September 2008.

Upcoming Releases
Net Foreign Purchases (10/16 at 9:00 AM EST)
Industrial Production (10/16 at 9:15 AM EST)
Capacity Utilization (10/16 at 9:15 AM EST)
PPI (10/20 at 8:30 AM EST)

Company Description

TransMontaigne Partners provides storage and transportation services for companies producing refined petroleum products in the United States. The company was founded in 2005 and has a market cap of $345 million.

Shares of TLP are up huge over the last 6 months as energy prices have rallied with the overall market. The company also helped its cause with better than expected second-quarter results, reported on August 6.

Second-Quarter Results

Revenue was up $700,000 from last year to $35.8 million. Earnings came in at 59 cents per share, 14 cents ahead of the Zacks Consensus Estimate. The company has beat in each of the last 4 quarters by an average of 11 cents, or 24%.

Estimates Up

Estimates have been trending higher of the last few months, with the current year adding 18 cents and climbing to $2.09. The next-year estimate is also up 18 cents to $2.20, a modest 5%.

Valuation

Based on the current-year estimate, this stock has a P/E multiple of 13X, a discount to the overall market.

The Chart

Shares of TLP have been rallying big for the last 6 months, jumping from just above $14 in early March to a recent high above $28, where some short-term resistance has developed. Take a look below.

Zacks Investment Research

Company Description

Global Partners LP, through its subsidiaries, engages in the wholesale and commercial distribution of refined petroleum products and natural gas in the United States and internationally. The company has a market cap of $338 million.

Shares of SWM are up big over the last 6 months as energy prices have shot higher with the market. The company's better than expected second-quarter results, reported on August 6, also provided an extra boost.

Second-Quarter Results

Earnings came in at 7 cents per share, 5 cents ahead of the Zacks Consensus Estimate. The company has beat in each of the last 3 quarters. Earnings before interest, taxes, depreciation and amortization were up 26% to $8.6 million while distributable cash flows up 46% to $3.3 million.

Estimates Are Up

Estimates have been trending higher for the last few months, with the current year up 14 cents to $2.56 per share. The next-year estimate is a bit anemic, projecting 4% earnings growth, but the energy sector continues to be volatile, so that number could fluctuate.

Valuation

In spite of the big gains, shares of GLP still have value, trading at 10X projected current-year earnings.

The Chart

Shares of GLP have been rallying since bottoming out just above $8 in early March. More recently, shares hit a new 52-week high after breaking above some short-term resistance at $26. Take a look below.

Zacks Investment Research

Company Description

Cimarex Energy Co. is an independent oil and gas exploration and production company. The company has interests in oil fields primarily in Oklahoma, the Texas panhandle and southwest Kansas. Cimarex was founded in 2002 and has a market cap of $3.52 billion.

Shares of XEC have been trending higher since early March on the heels of an economic recovery and higher energy prices. The company's Q2 results, reported on August 6, were down from last year but still ahead of expectations.

Second-Quarter Results

Revenue was down 64% from last year to $213.4 million. But earnings came in 7 cents ahead of the Zacks Consensus Estimate at 46 cents per share. The company said that the sharp decline in its sales was almost exclusively due to lower gas and oil prices.

Estimates Rising

With energy prices on the upswing, estimates have followed suit. The current-year estimate is up 57 cents in the last 90 days to $1.96 per share. The next-year estimate is very bullish, pegged at $4.32, a 120% growth projection.

The Chart

Shares of XEC have been posting big gains over the last 6 months after bottoming out just above $15 in early March. Shares are currently trading above $44 and in position to challenge the 52-week high $49.16. Take a look at the chart below.

Zacks Investment Research

Industrial Production increased by 0.8% to an index value of 97.4 (2002=100) in August, expected to increase by 0.6% following a 1% increase in July, revised upwards from an originally reported 0.5% increase.  Over the year, the industrial production index is down by 10.7%.  Capacity Utilization was reported at 69.6%, an increase from the 69% level in July.  Currently, capacity utilization stands at a level 11.3% below its average for the period 1972 through 2008.

Upcoming Releases
Housing Starts (09/16 at 8:30 AM EST)
Building Permits (09/16 at 8:30 AM EST)
Initial Claims (09/16 at 8:30 AM EST)
Leading Indicators (09/21 at 10:00 AM EST)

However, it was almost all because of higher energy costs. Core (ex food and energy) inflation was just 0.2% (just a notch higher than the 0.1% expected), following a 0.1% decline in July and a 0.5% increase in June. Energy prices rose 8.0% following a 2.4% decline in July and a 6.6% increase in June.

On a year-over-year basis, producer prices were 4.3% lower, but in July they were 6.8% lower. Core producer prices are up 2.8% on a year-over-year basis. The year-over-year numbers are going to start looking much hotter in the future, as most of the really big declines were in the fall of last year, especially in the fourth quarter.

Looking further up the pipeline at the earlier stages of production, the monthly numbers are starting to have a distinctly warm feeling to them. Intermediate goods saw a 1.8% increase in August, following a 0.2% decline in July and a 1.9% rise in June. On a year-over-year basis, they are still ice cold, with a decline of 12.3% in August vs. a 15.1% decline in July. However, that is a reflection of massive declines in the fourth quarter of last year, when each month saw a decline of more than 4%, for a cumulated quarterly decline of 12.5%. As those numbers roll off, the year-over-year numbers are going to start looking much hotter.

Things are even more extreme at the crude stage. Crude goods are essentially commodities, and thus tend to have much larger price swings than do intermediate or finished goods. Crude goods prices have been seesawing, with a 3.8% monthly gain in August after a 4.5% decline in July and a 4.6% increase in June. On a year-over-year basis, prices on crude goods are still down 35.2%, but just last month they were down 44.8%. The collapse in crude goods prices last fall was absolutely spectacular. In October of last year, crude goods prices crashed by 16.1% and then in November the carnage continued with a 13.1% decline. As those roll off the year-over-year numbers, it could start to look on the hot side.

Looking with a finer-toothed comb at where finished goods prices are rising and falling the most on a year-over-year basis, we see that pharmaceuticals are once again rising in price far in excess of other prices, up 7.2%. Those numbers include both prescription and over-the-counter medications.

Firms like Johnson & Johnson (JNJ) and Bristol Myers (BMY) are going to have an easier time maintaining their margins than are most companies.

Prices for many other non-durable items have also been increasing. For example, the cost of detergents is up 6.0% year over year while sanitary paper products (toilet paper, paper towels) is up 3.7% year over year. That is good news for the likes of Proctor and Gamble (PG) and Colgate Palmolive (CL).

On the downside, the biggest declines by far come from the energy area. This will be very helpful to consumers this winter, as the cost of heating your home is going to be much lower than last year. The price of residential natural gas is down 27.5% from a year ago. If you heat your house with oil instead of gas, you are even luckier; the price of home heating oil is down 47.6%. That should free up some cash for people to either restore their personal balance sheets or purchase other stuff.

(Editor’s Note: The following is an excerpt from an article in the Exchange-Traded Funds Report in July. Subscribers to ETFR can read the complete piece here.)

Specialty-sector ETFs—also called “thematic” ETFs—have emerged as a major force in the ETF industry.

These ETFs run the gamut of investment possibilities, but have one thing in common: They look past traditional size and sector designations to carve out new investment areas, often driven by a single investment thesis.

Clean energy, infrastructure, nuclear power—by our count, there are now more than 40 of these unique ETFs on the market, with more than $10 billion in assets under management.

Investment manager Van Eck Global has been one of the most successful companies in carving out a foothold among specialty ETFs. Its Market Vectors Gold Miners ETF (NYSE Arca: GDX) is the largest specialty ETF of all, with almost $5 billion in assets.

“We’re looking for compelling investment themes that we believe in for the long term, where the ETF basket approach can be a great tool for market participants,” said Adam Phillips, managing director of Market Vectors, “whether that be for the buy-and-hold investors or the trading community.”

Of course, some investors see things differently.

Rick Ferri, founder of the advisory firm Portfolio Solutions and author of “The ETF Book,” calls thematic ETFs “gimmicky.”

“We don’t use any thematic funds in our management here,” said Ferri. Ferri, a former broker himself, believes thematic ETFs are less popular with independent advisers than they are with brokers for a simple reason: story. He says they are an easy sale to clients who can relate to specific areas like clean water or other environmentally motivated ETFs.

“They come out when they happen to be popular in the news,” Ferri said. He believes they do well as brokers buy them up (sometimes driving the actual price of the ETF up) but that they tend to fall off six to 18 months later.

Roger Nusbaum, portfolio manager and chief investment officer for financial planner Your Source Financial, disagrees.

“In terms of long-term investing and the context of diversified portfolios, I absolutely think there’s utility [in them],” he said. Nusbaum uses them, as well as individual stocks, in his sector-based approach to portfolio construction. He has used the PowerShares Water Resources Portfolio (NYSE Arca: PHO) in client accounts since its launch, for instance, saying he tends to incorporate it as part of the allocation to industrials.

With regard to price run-ups, Nusbaum says some specialty sectors can be “faddish” in their behavior. If a fund covering solar energy jumps by 50%, and you know the industry is not going to fully develop for years to come, he suggests it might be time to reduce your exposure until the price becomes more reasonable.

Slicing & Dicing Themes

One of the most common questions asked by investors is, “Which ETF covers this?” Indeed, it’s often hard to even know what specialty-sector ETFs are available, as by definition they fall into narrow categories unlikely to be highlighted as an “asset class” in the pages of the Wall Street Journal. With so many fund launches, it can be a challenge to simply keep up with what products are on the market.

With that in mind, we have compiled an overview.

Alternative Energy

Last year’s run-up in energy prices and rising concerns about peak oil have combined to dramatically increase investor interest in energy alternatives. From relatively diversified funds to those targeting just solar or wind, investors can now use ETFs to access energy alternatives in practically any flavor they like.

Largest ETF: The PowerShares WilderHill Clean Energy Portfolio (NYSE Arca: PBW) was the first and is still the largest of these ETFs, with $743 million in assets under management. Some consider its exclusive focus on U.S.-listed names limiting, as much of the alternative energy industry is focused abroad. But the fund gains some exposure to these markets via ADRs.

Coal

Coal is the cheapest source of BTUs on the planet, easily beating oil, gas, wind, solar, hydro and nuclear. In addition, both China and the U.S. have huge domestic supplies of coal, and spiking oil prices are encouraging further development of the resource.

Largest ETF: The largest coal ETF by far is the Market Vectors Coal ETF (NYSE Arca: KOL), with $277 million in assets under management. The ETF holds a global portfolio of coal companies, primarily focused on the mid-cap miner space. It is 49% exposed to U.S. companies, with other significant positions in China (23%) and Indonesia (15%).

Nuclear

The long-term case for nuclear energy is clear and clean: The underlying fuel is so plentiful that we will never run out of it, and, when operating safely, nuclear power plants produce zero emissions. Once built, nuclear power is also the cheapest kind of energy on the planet.

Largest ETF: Three ETF companies offer nuclear energy ETFs. The largest is the Market Vectors Nuclear Energy ETF (NYSE Arca: NLR), with $166 million in assets. The fund has a large position in uranium miners (40% of the portfolio), with other concentrations in power generators and plant construction companies.

Commodities

The commodities boom raised the profile of “stuff” as an investment, and ETFs have made the area more accessible. Specialty-sector funds often focus on companies that produce commodities, like water or steel, that do not have liquid futures contracts.

Largest ETF: The largest hard assets ETF is the Market Vectors Agribusiness ETF (MOO), with nearly $1.5 billion in assets under management. Close behind is the PowerShares Water Resources ETF (NYSE Arca: PHO), with $1.2 billion in assets. Other areas of the market include steel, timber and broad-based commodity stocks.

Infrastructure

The term infrastructure is nearly as sweeping as commodities; it covers everything from companies involved in the construction and repair of roads and bridges to those that build and maintain power grids, telecommunications networks, and sewage systems. There’s no denying that infrastructure is a big deal these days: Developed countries desperately need to restore aging systems, and emerging markets need to actually build theirs. As with alternative energy, government stimulus funds can only add to the attraction of this sector.

Largest ETF: The iShares S&P Global Infrastructure Index Fund (NYSE Arca: IGF) is the largest infrastructure ETF available today, with $267 million in assets. See Murray Coleman’s feature on page 6 of this issue for a complete review of the infrastructure ETFs.

Transportation

If oil is the lifeblood of the industrialized world, transportation is the circulatory system. It’s no accident that the world’s (arguably) first stock index was the Dow Jones Transportation Average. And it’s also no surprise that there are a few ETFs focused on transportation.

Largest ETF: The Claymore/Delta Global Shipping ETF (NYSE Arca: SEA) is the largest transportation ETF, with more than $70 million in assets. SEA is sometimes seen as a leading indicator both of economic activity and commodities demand, since rising rates for ships mean incipient increases in industrial production on the receiving end of those shipments.

Green

Not only are there clean energy ETFs, but there are also ETFs that take environmentally friendly approaches in other ways. Two funds and an ETN—the only one in this survey—focus on ecological innovation, such as combating global warming.

Largest ETF: The largest ETF of the bunch is the PowerShares Cleantech Portfolio (NYSE Arca: PZD), which invests in a variety of companies whose products help improve productivity while minimizing the consumption of natural resources. PZD has $123 million in assets.

Miscellaneous

And finally, there’s the “miscellaneous” catch-all category. The funds falling into this category include the only available gaming ETF, a fund covering luxury items and another tracking the Chinese real estate market.

Largest ETF: The largest ETF of the bunch is the Market Vectors Gaming ETF (NYSE Arca: BJK), which invests in gaming (read: gambling) companies around the world. It has roughly $108 million in assets.

Company Description

Arena Resources acquires, explores, develops, and produces oil and natural gas in the south-central states of the U.S. The company's current reserve is estimated to be nearly 66 million barrels of oil equivalents.

Hit By Energy Prices

Arena released second-quarter results on Aug 7 that included revenues of nearly $28 million, down sharply from last year. While production was down just 2%, net income was well below last year's levels of $24.8 million, 67 cents. Earnings for this quarter came in at $14.4 million, or 20 cents per share, for the company's sixth consecutive earnings surprise as the consensuses was 19 cents.

This is not quite a shock considering the average price per barrel received was just over $55, relative to last year's more than $119.

But Still Strong

Following the report, 7 of 9 analysts polled by Zacks have raised full-year estimates. The average for next year is now $1.02, up from 76 cents. Next year's estimates average $1.55, up from $1.09 in the same time frame.

While over all this is a decrease of more than 50% the growth here is in the earnings momentum, rather than typical year-over-year growth rates. Earnings are expected to grow more than 50% in 2010, but still fall short of 2008 figures.

Industry Comparison

Arena is currently carrying no debt, while the average debt to equity ratio for the industry is nearly 35 times. The company also has a 41% profit margin while its peers are typically that much in the red. Arena's ROE is a solid 10.7% compared to the industry norm of 5.5%.

The Chart

Share continue to consolidate as energy prices remain relatively stable. We could see a strong upward movement after the pattern continues further. Take a look at the chart below.

Zacks Investment Research

Industrial Production increased by 0.5% to an index value of 96 (2002=100) in July.  This is the first monthly increase in the index since December 2007, excluding a hurricane related correction in October of 2008.  Over the year, the industrial production index is down by 13.1%.  Capacity Utilization was reported at 68.5%, rebounding from the 68.1% level in June, revised from 68.0%, which is the lowest level since the series was instated in 1967  In May 2008, capacity utilization was as high as 78.6%.

Upcoming Releases
PPI (08/18 at 8:30 AM EST)
Housing Starts (08/18 at 8:30 AM EST)
Building Permits (08/18 at 8:30 AM EST)
Leading Indicators (08/20 at 10:00 AM EST)

Company Description

Spectra Energy Corp., through its subsidiaries, engages in the transportation and storage of natural gas in Canada and the United States. The company has 18,300 miles of pipelines and 272 billion cubic feet of storage capacity and has a market cap of $12 billion.

Spectra's share price has been logging steady gains over the last 3 months as the equity rally sent energy prices higher. Even though the company's first-quarter results were down from last year, earnings were in line with expectations.

First-Quarter Results

Sales were down 14% to $1.38 billion, but earnings came in at 33 cents per share, in line with the consensus estimate. Spectra has either matched or beat in each of the last four quarters by an average of 4 cents, or 9%.

CEO Greg Ebel added some flavor to the results, commenting how volatility in the energy markets effects the company's business. "Despite weaker than expected commodity prices and the Canadian exchange rate, there is good reason for optimism. Our core, fee-based businesses - which we expect will provide us with more than 80 percent of our earnings this year - all performed very well during the quarter."

Estimates

Estimates are up over the last few months, with the current year adding 6 cents and climbing to $1.11 per share. The next-year estimate is bullish, pegged at $1.38, a 24% growth projection.

Valuation

Based on the current-year estimate, this stock has a P/E multiple of 16X, a slight premium to the overall market with the very nice growth projection in hand.

The Chart

As previously mentioned, shares of SE have been rallying since early March, bottoming out just above $11 before recently topping off above $18. Take a look below.

Zacks Investment Research

First-Quarter Results

Sales were up 15% from last year to $462.1 million. Earnings came in at 86 cents, 13 cents ahead of the consensus. It was the third consecutive surprise for the company.

Priceline was well positioned to partially benefit from the weak economy as bargain-hungry consumers hunted for travel savings. Analysts continue to be bullish on the company, with earnings projections heading higher.

Estimates Rising

The current year is up 32 cents in the last 2 months to $5.87 per share.

Valuation

Based upon this earnings projection, this stock has a P/E multiple of almost 20X, a premium to the overall market. The next-year estimate is projecting 12% earnings growth.

The Chart

Shares of PCLN have made an impressive rebound from last year's low, rallying from just above $44 in October to a recent high above $118. Take a look below.

Last Week's Momentum Stock Articles

TC Pipelines LP's (TCLP) share price has more than doubled over the last 7 months as energy prices have been on the upswing. Valuations, however, are still in check, trading in line with the overall market. Read Full Article.

RINO International Corp. (RINO) has more than doubled in the last 2 months, fueled by strong demand for the company's products and services as China turns its attention to pollution control. Read Full Article.

Lifeway Foods, Inc. (LWAY) has more than doubled in the last 4 month as the company benefits from strong sales and lower expenses. Read Full Article.

Herbalife Ltd. (HLF) recently announced it had received licenses to sell its products in a number of Chinese provinces, creating a sales channel directed towards millions of potential customers. Read Full Article. Zacks Investment Research

Chicago, IL – July 17, 2009 – Four free stock picks are being made available today on Zacks.com. The industry’s leading independent research firm highlights one Zacks #1 Rank Strong Buy or a Zacks #2 Rank Buy stock for each of the four main styles of investing: Aggressive Growth, Growth & Income, Momentum, and Value.

The four highlighted picks are: Jo-Ann Stores, Inc. (JAS), The Estee Lauder Companies Inc. (EL), TC Pipelines LP (TCLP) and Natural Gas Services Group, Inc. (NGS).
    
Today, Zacks is promoting its ''Buy'' stock recommendations. Four daily picks are offered free at http://at.zacks.com/?id=5607

Zacks #1 Rank Stocks have nearly tripled the S&P 500 since 1988, producing an average annual return of +26%. Performance has been notable even during volatile and down times. For example, during the last bear market, 2000-2002, the market tumbled -37.6% – but Zacks #1 Rank stocks gained +43.8%.

Here is a summary of today's selected stocks that are now highly rated by Zacks:          
       
Aggressive Growth – Jo-Ann Stores, Inc. (JAS)
Jo-Ann Stores, Inc. is expected to grow 30% over each of the next two years and recently topped analyst estimates.

Zacks Guide to Aggressive Growth Investing (free!): http://at.zacks.com/?id=4309

Growth & Income – The Estee Lauder Companies Inc. (EL)
The Estee Lauder Companies Inc. is seeing solid forecasts from analysts ahead of reporting next month for the fiscal fourth quarter and full year. For the year, the average earnings estimate of $1.43 per share is 4% above the 3 months-ago level.

Zacks Guide to Growth & Income Investing (free!): http://at.zacks.com/?id=4310
  
Momentum – TC Pipelines LP (TCLP)
TC Pipelines LP's share price has more than doubled over the last 7 months as energy prices have been on the upswing. Valuations, however, are still in check, trading in line with the overall market.

Zacks Guide to Momentum Investing (free!): http://at.zacks.com/?id=4311

Value – Natural Gas Services Group, Inc. (NGS)
Natural Gas Services Group, Inc., a provider of compressors to the natural gas industry, has surprised on estimates 4 quarters in a row by an average of 18.70% despite difficult economic conditions as natural gas prices have plunged. The company is trading with a forward P/E of 12.66.

Zacks Guide to Value Investing (free!): http://at.zacks.com/?id=4312

How to Regularly Access Picks from the Zacks Rank Discovery for Free:  http://at.zacks.com/?id=5607
 
Underlying the four free stock picks is a simple truth that first appeared in a Financial Analysts Journal article published in 1979. Leonard Zacks, a Ph.D. in Mathematics from M.I.T. found that "earnings estimate revisions are the most powerful force impacting stock prices."  Zacks #1 Rank is awarded to a stock when analysts sharply upgrade their estimates of what the company will earn.

Today, Zacks is promoting its stock recommendations by offering four daily picks free to those who register at http://at.zacks.com/?id=5607 

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Len Zacks. The company continually processes stock reports issued by 3,000 analysts from 150 brokerage firms.  It monitors more than 200,000 earnings estimates, looking for changes.

Then, when changes are discovered, they’re applied to help assign more than 4,400 stocks into five Zacks Rank categories: #1 Strong Buy, #2 Buy, #3 Hold, #4 Sell, and #5 Strong Sell. This proprietary stock-picking system continues to outperform the market by a nearly 3-to-1 margin. 
  
More Free Stock Picks

Each weekday, new Zacks #1 Rank or Zacks #2 Rank stock picks are released on the free email newsletter, Profit from the Pros. Investors are invited to register for their free subscription at http://at.zacks.com/?id=5642

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Zacks.com

Aggressive Growth Stocks:
Contact: Bill Wilton
Phone: 312-265-9277

or

Growth & Income Stocks:
Contact: Alex Kolb
Phone: 312-265-9149

or

Momentum Stocks:
Contact: Michael Vodicka
Phone: 312-265-9226

or

Value Stocks:
Contact: Tracey Ryniec
Phone: 312-265-9232

Email: pr@zacks.com
Visit: www.zacks.com

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Retail Sales increased by 0.6% in June to$342.1 billion, more than the 0.4% growth analysts had expected , after advancing 0.5% in May and falling 0.2% in April.  Over the past year, retail sales volume has decreased by 9.0%.  Sales in gasoline stations showed to be strongest in May, increasing by 5.0% over the month, although since June of 2008 sales at gasoline stations have declined by 31.6%.  Retail sales excluding autos, which is another followed indicator as consumption of automobiles historically tends to be a more volatile component of spending, also showed an increase by 0.3%.  Over the past year, retail sales excluding autos have declined by 7.9%.  Sales in motor vehicle parts and dealers are up 2.3% over the month, but are down 14.1% over the year.

Business Inventories are down 1% in May to $1,368.1 billion after declining 1.3% in April, revised from 1.1%, and are down 8% from May 2008 levels. 

Upcoming Releases
CPI (07/15 at 8:30 AM EST)
FOMC Minutes (07/15 at 2:00 PM EST
Initial Claims (07/16 at 8:30 AM EST)
Housing Starts (07/17 at 8:30 AM EST)

According to the data released by the Bureau of Labor Statistics, the U.S. economy has lost around 7.2 million jobs since the start of the recession in December 2007. The national unemployment rate rose to 9.5% in June 2009, the highest in more than 25 years.

Increasing job losses are adversely impacting Cintas Corporation’s (CTAS) revenue growth. Cintas is predominantly a corporate identity uniform company that also provides ancillary services. The company has stated that many of its customers have been forced to reduce employment levels and consolidate facilities due to the challenging business environment.

These reductions and consolidations have negatively impacted the company’s top line growth. The company estimates that the fourth quarter revenue for fiscal 2009 will come in 12–14% lower compared to the prior-year level. We believe the demand weakness will persist in fiscal 2010 also as we expect additional workforce reductions and plant closures by companies across sectors.

Cintas is actively managing its cost structure to adjust to the weak demand conditions. The company is focused on eliminating all non-value added work throughout the organization. In addition, Cintas is reviewing its route structures.

The company intends to consolidate routes and eliminate those that are redundant. The company is also analyzing better production processes and equipment which it believes will have a positive impact on its operational cost structure in the future.

These cost reduction initiatives along with declining energy prices are expected to partially offset the impact of weak demand. Management forecasts diluted EPS in the range of $0.34–$0.37 for the fourth quarter of fiscal 2009, compared to $0.58 in the prior-year quarter.

Grupo Aeroportuario del Centro Norte S.A. de C.V. (OMA) (OMAB), a Mexican airline company, has reported a 17.7% and 39.7% decrease in total passenger traffic in April and May 2009 respectively. Decrease in passenger traffic was mainly attributable to the recent outbreak of swine flu in Mexico. It has not only affected business travelers, but also local travelers.

The airline industry faced its worst downturn in 2008, as oil prices shot up in the first half of the year and the global credit crisis deepened in the second half. The Mexican airline industry is still reeling from the effects of swine flu. The flu has forced major airlines to cancel and reduce flight frequencies to Mexico. The Mexican tourist industry has also suffered as hotel-occupancy rates have fallen.

At this point, it is not certain how long it will take for the situation to improve. However, the damage has already been done and second quarter of 2009 will certainly be very difficult for the Mexican airport operators. However, we are encouraged by the fact that the Mexican Government decreased energy prices on average by 17% last January, which will decrease oil prices in Mexico.

Furthermore, it is important to remember that the company offers high dividend yield and a strong balance sheet, key strengths in a financial crisis. Recently, the company approved the dividend payment of MXN$400 million for the full year 2008. In the medium term, we expect international tourism in Mexico to expand as a result of a weak peso.

Thus, we continue to rate the shares of OMA, Grupo Aeroportuario del Pacifico (PAC), and Grupo Aeroportuario del Sureste S.A. de C.V. (ASR) a Hold.

Japan’s consumer prices fell at a record pace in May, adding to the risk that deflation will become entrenched and hamper a rebound from the nation’s worst postwar recession. Prices excluding fresh food slid 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since comparable figures were first compiled in 1971.

Bank of Japan Governor Masaaki Shirakawa said last week that price declines will accelerate through the middle of the fiscal year as demand slackens and crude oil continues to trade lower than last year’s record. Retailers including Aeon Co. are cutting prices to attract customers as falling wages and the worsening job outlook damp spending. “Profits fall, then wages come down, then consumers stop shopping,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “And because people aren’t shopping, companies lower prices. That’s the process that we’re starting to see. It isn’t easy to break out of.”

Now, you might think that this sharp decline has fuel/energy prices written all over it. In some sense this is true. In May, fuel prices registered its first annual drop in several months (-3.0% yoy) which clearly adds to the headline grapping number. Yet, the decline in prices in Japan is broadbased and although the -1.1% is clearly pushed down by a high base effect as we enter a period in which 2008 energy prices were comparatively large, the core of core index slid -0.5% which marks a change of -0.4% from the previous month. In short; the recession in Japan is beginning to push the economy into the dark hole it has spent nearly two decades trying to escape (and never really managed). The point here is not to harp about headline inflation and whether it will go up or down since we are clearly going to be in situation over the next couple of months in which headline deflation on an annual basis will skew the overall index downwards. But this is hardly the point since, as we can see, the core or core index is declining fast too which tells us that domestic demand pressures in Japan are clearly negative at this point in time and may remain so for as far as the eye of a trained economist should be willing to see.

Japan may be sinking into deflation that will undermine the nation’s rebound from its worst postwar recession, the Cabinet Office’s chief economist said. Deflation “will exert a significant amount of downward pressure on the recovery,” Jun Saito, an adviser to Economic and Fiscal Policy Minister Kaoru Yosano, said in an interview yesterday in Tokyo. “An increase in deflationary expectations will raise real interest rates and that will restrain business investment.”

Consumer prices excluding fresh food dropped a record 1.1 percent in May from a year earlier, the statistics bureau said today, spurring concern that the economy is slipping back into the deflation that plagued the nation for a decade until 2005. “Declining prices will mean lower profits, less investment and wage cuts that will weaken consumer spending further,” said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co.

So, where do we go from here you might ask. Well, this is exactly the issue; there isn't a whole Japan can do at this point but to try to position itself in the best possible ways for exploiting the global green shoots through exports. However, when it comes to the domestic economy deflation is an inbuilt part of the edifice.

U.S. average retail gasoline price, in dollars per gallon, plotted monthly using the data from the middle week of the month, January 2004 to June 2009. Data source: EIA.

Up until the fall of 2008, consumer sentiment had been closely following that roller coaster, with a sharp plunge in consumer sentiment accompanying the spiking gas prices associated with Hurricane Katrina in 2005, a second, broader drop in sentiment accompanying the second, broader bump in gasoline prices in 2006, and then a significant sustained decline in consumer sentiment as gasoline prices began their remarkable rise over 2007-08. The burden on consumers from that last run-up was in my opinion a key factor that precipitated the initial economic downturn over 2007:Q4 to 2008:Q3. The path of consumer sentiment is plotted as the solid line in the figure below. I've also plotted gas prices on an inverse scale (the dashed line in the picture below) in order to highlight visually the negative relation between sentiment and gas prices. The dashed line was calculated as 22/P for P the gasoline price in dollars per gallon, which you could interpret as how many miles you could drive for every dollar you spent on gasoline if you get 22 miles to the gallon.

Consumer sentiment versus miles per dollar. Solid line (left scale): Reuters/Michigan index of consumer sentiment, from FRED and MarketWatch. Dashed line (right scale): miles per dollar spent on gasoline, calculated as 22 divided by the price from the previous figure.

That strong relation between gas prices and consumer sentiment continued as the falling gasoline prices (or rising miles per dollar) between June and September 2008 lifted consumer sentiment back up. However, the subsequent financial scares and credit problems in the fall introduced a very dramatic new dynamic, causing consumer sentiment to drop back down to the June 2008 lows by November despite plummeting gas prices.

So how should we assess the likely consequences of the fact that gas prices have now come back up significantly from their lows of December? The Edelstein-Kilian regressions employed in my paper from a recent conference at the Brookings Institution imply that a 20% increase in energy prices would historically be followed within 2 months by a 15-point drop in consumer sentiment and a 1.4% decline (relative to trend) in real consumption spending. From that perspective, the 46% (logarithmic) increase in (seasonally unadjusted) gasoline prices since December is quite worrisome.

On the other hand, since those December prices were 88% (logarithmically) below the July 2008 peak, consumers should have been giddy in December and still be significantly more sanguine now than they had been last summer, if the only thing on their mind was the price of gasoline.

Only problem is, consumers were anything but giddy in December. Credit and employment challenges have weighed far more heavily than gas prices over the last 9 months, and are presumably far more important than gas prices for determining what happens over the next few months as well.

But whatever may come next on the credit front or for unemployment, the impressive spring spike in energy prices can not be a welcome development for American consumers.

Technorati Tags: macroeconomics, gasoline prices, consumer sentiment, economics

Although financials have been a drag this week, Thursday saw the sector recording gains after a three-day losing streak and leading the list of gainers among the 10 S&P 500 industry groups with an advance of 2.5%.  Discover Financial Services (NYSE:DFS) rose 4% after reporting a less-than-anticipated growth in bad loans.  Lincoln National (NYSE:LNC) jumped almost 7% after it was upgraded by Credit Suisse (NYSE:CS).  Bank of America (NYSE:BAC) surged 4.9% and JP Morgan (NYSE:JPM) added 4.4%.  However, a WSJ report said there was a possibility that General Electric (NYSE:GE) may choose to spin off its financial unit rather than accept the burden of government oversight of its non-financial operations, sending its shares down 1.5%.  However, volume remained light at 1.1 billion. 

The Department of Labor's report yesterday showed number of people collecting unemployment benefits after the initial week recorded its biggest decline since November 2001.  New jobless claims, however, were up slightly as expected. 

With massive treasury auctions due next week, Treasury prices declined, sending yields higher. The Treasury has announced plans to sell a record $165 billion debt next week, including $31 billion 13-week, $30 billion 26-week, $40 billion 2-year notes, $37 billion 5-years and $27 billion 7-years, to help fund stimulus spending. However, traders are increasingly getting worried that massive government spending could push food and energy prices higher, and eventually lead to inflation.  As protection against a possible inflationary spiral and US dollar weakness, traders have bid up crude and other commodity prices, even as demand remains weak. Goldman Sachs (NYSE:GS), however, recently advised oil prices could hit $95/barrel by late 2010.  Further pressuring the outlook for inflation, No one expects the supply train to dwindle soon.
 
Utilities gained 2.2% yesterday as investors sought higher-yielding investments.  Healthcare stocks rose 2.2% as traders picked up defensive plays.  Technology stocks declined after Needham & Co. downgraded SanDisk (NASDAQ:SNDK) to "underperform," citing weakness in the NAND flash sector. SanDisk (NASDAQ:SNDK) shares plunged 6.1%, and Advanced Micro Devices (NYSE:AMD) fell 5.6%; Broadcom (NASDAQ:BRCM) was off 3.2%.  After the market close, Research in Motion (NASDAQ:RIMM) reported better-than-expected results, but gave an outlook at the low end of Street targets. 

Today being the end of the two day "quadruple witching" period, which marks the June expirations of stock futures and options with positions rolled into September contracts, trading is expected to remain volatile. CarMax (NYSE:KMX) is due to report quarterly earnings.

The Current Account deficit fell to $101.5 billion for the 1st quarter, the lowest deficit since the 4th quarter of 2001, albeit the deficit was larger than expected, with the consensus estimate at $83.9 billion.  This follows a revised Q4 deficit of $154.9 billion, revised from $132.8 billion.  The decrease was more than accounted for by a decrease in the deficit on goods to a deficit of $124 billion in the 1st quarter, from $178.8 billion in the 4th, and also reduced net unilateral current transfers to foreigners contributed to the decrease in the current-account deficit.  Decreases in the surpluses on income and on services were partly offsetting.

Upcoming Releases
Initial Claims (06/18 at 8:30 AM EST)
Leading Indicators (06/18 at 10:00 AM EST)
Existing Home Sales (06/23 at 10:00 AM EST)
FOMC Policy Statement (06/24 at 2:15 PM EST)

Housing Starts in May increased to an annual pace of 532,000, after having fallen in April to an annual pace of 454,000 which was an all time low.  Over the year the figure has declined by 42.2% from the May 2008 rate of 971,000.  Building Permits also increased May, to a rate of 518,000, which fell in April to 498,000 from the 511,000 pace in March.  Over the year, Building Permits fell by 57% from the 978,000 pace in May 2008. 

Capacity Utilization was reported at 68.3% in May, the lowest level since the series was instated in 1967, with the record previously held by last month's measure of 69%.  In May 2008, capacity utilization was as high as 78.9%.

Upcoming Releases
Consumer Price Index (06/17 at 8:30 AM EST)
Current Account (06/17 at 8:30 AM EST)
Initial Claims (06/18 at 8:30 AM EST)
Leading Indicators (06/18 at 10:00 AM EST)

Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

This Week: Commodities Rally; Profit Forecasts Don't

Commodity prices have been soaring. Oil, gold, copper, wheat and corn all recently hit multi-month highs. Even the Duke Brothers are making a mint on orange juice futures.

A steady stream of economic data showing a slower pace of deterioration in the U.S. has been the primary driver behind the recent surge. Also playing a role is the combination of a higher tolerance for risk, weekly fluctuations in inventories, the spring planting season, the dollar and sustained growth in China.

What's interesting about the rally is that it has yet to translate into higher earnings estimates for commodity-related companies.

Agriculture Companies

Wheat and corn futures recently set 8-month highs. Other agricultural-related futures have also soared, such as coffee. Profit forecasts for agricultural companies, however, have been trending lower.

There are 2 reasons for the disconnect.

The first is the credit crisis. Though the Treasury Department has deemed some banks too big to fail, many smaller banks have been seized. This has created big problems for some rural communities that depend on just 1 or 2 banks. Furthermore, tighter credit conditions have made it harder for farmers to get the financing they need for planting season.

The second is the weather. Cool and wet weather systems delayed the planting of crops such as corn and soybeans. Monsanto (MON) recently blamed the weather for hurting herbicide sales and causing it to lower full-year guidance. Obviously, the late planting season also has implications for fertilizer companies.

One glimmer of light, however, is Potash of Saskatchewan (POT). Two analysts recently raised their full-year forecasts. The changes were not enough to move the consensus earnings estimate, but they were a step in the right direction.

MON is a Zacks #4 Rank ("sell") stock and is classified in Agricultural Operations. POT is a Zacks #3 Rank ("hold") stocks and is classified in Fertilizers.

Metal Stocks

Since January, gold has consistently stayed above $860 per ounce. After pulling back in April, the precious metal is once again nearing the $1,000 mark.

Gold mining stocks have also rallied lately, though profit forecasts remain unchanged. In fact, the number of positive and negative revisions is about even for Mining-Gold. This was essentially the same scenario we saw in February.

The lack of changes reflect a combination of uncertainty about where gold prices are headed, the impact of other metals on mining company profits (e.g. zinc) and lower production levels.

For other metals, the economy is the big issue. The worldwide recession has led to lower demand. Though optimism about a forthcoming recovery has helped send copper prices and other metals higher, the rise has not translated into better profit forecasts. Rather, the consensus estimates for AK Steel (AKS) and other metal producers are holding steady or declining.

One notable exception is Freeport McMoRan (FCX). Within the past month, positive revisions have pushed the full-year consensus earnings estimate 2 cents higher to $1.02 per share.

AKS and FCX are Zacks #3 Rank stocks. AKS is classified in Steel-Producers. FCX is classified in Mining-Non Ferrous.

Oil & Gas Companies

Most of the profit forecast changes occurring among energy stock prices are in reaction to better-than-feared first-quarter earnings, not an improved outlook for commodity prices.

Natural gas is a big reason why. Even with the recent rally, natural gas prices are down considerably for the year. As a result, many companies are focused on controlling costs. Furthermore, they are only expanding to the extent that cash flows allow them to. Though this helps the bottom line, we have yet to see analysts truly adjust their forecasts to account for the higher commodity prices.

After last year, it's not hard to blame brokerage analysts for being a bit cautious. During the first-half of 2008, they underestimated how high crude would climb. After the bubble peaked in July, many brokerage analysts incorrectly judged how quickly energy prices would plunge.

Our energy analyst, Sheraz Mian, advocates looking at oilfield service companies as a way to play the rise in energy prices. Among the stocks he has long-term buy ratings on is Weatherford (WFT).

WFT is a Zacks #3 Rank stock classified in Oil Field Machine & Equipment.

Commodity-Related Stocks Now Riskier

The lack of positive revisions implies that the risk of owning commodity-related stocks is high.

Valuations have increased notably as the higher stock prices have not been matched by a better earnings outlook. At the same time, commodities have staged a strong rally and it's hard to say how much upside is left. Though agriculture commodities may be influenced by the late planting season, energy and metal futures may need actual signs of higher demand to extend their rally.

Zacks "Profit from the Pros" e-mail newsletter offers continuous coverage of the industries and the stocks poised to outperform the market. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=2564.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3:1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit From the Pros by going to http://www.zacks.com/performance.

Visit http://www.zacks.com/performance) for information about the performance numbers displayed in this press release.

Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact: Charles Rotblut, CFA
Company: Zacks.com
Phone: 312-265-9352
Email: pr@zacks.com
Visit: www.Zacks.com

What's interesting about the rally is that it has yet to translate into higher earnings estimates for commodity-related companies.

Agriculture Companies

Wheat and corn futures recently set 8-month highs. Other agricultural-related futures have also soared, such as coffee. Profit forecasts for agricultural companies, however, have been trending lower.

There are 2 reasons for the disconnect.

The first is the credit crisis. Though the Treasury Department has deemed some banks too big to fail, many smaller banks have been seized. This has created big problems for some rural communities that depend on just 1 or 2 banks. Furthermore, tighter credit conditions have made it harder for farmers to get the financing they need for planting season.

The second is the weather. Cool and wet weather systems delayed the planting of crops such as corn and soybeans. Monsanto (MON) recently blamed the weather for hurting herbicide sales and causing it to lower full-year guidance. Obviously, the late planting season also has implications for fertilizer companies such as Agrium (AGU).

One glimmer of light, however, is Potash of Saskatchewan (POT). Two analysts recently raised their full-year forecasts. The changes were not enough to move the consensus earnings estimate, but they were a step in the right direction.

MON is a Zacks #4 Rank ("sell") stock and is classified in Agricultural Operations. AGU and POT are Zacks #3 Rank ("hold") stocks and are classified in Fertilizers.

Metal Stocks

Since January, gold has consistently stayed above $860 per ounce. After pulling back in April, the precious metal is once again nearing the $1,000 mark.

Gold mining stocks have also rallied lately, though profit forecasts remain unchanged. In fact, the number of positive and negative revisions is about even for Mining-Gold. This was essentially the same scenario we saw in February.

The lack of changes reflect a combination of uncertainty about where gold prices are headed, the impact of other metals on mining company profits (e.g. zinc has hurt profits for Agnico-Eagle Mines (AEM)) and lower production levels.

For other metals, the economy is the big issue. The worldwide recession has led to lower demand. Though optimism about a forthcoming recovery has helped send copper prices and other metals higher, the rise has not translated into better profit forecasts. Rather, the consensus estimates for AK Steel (AKS), Alcoa (AA) and other metal producers are holding steady or declining.

One notable exception is Freeport McMoRan (FCX). Within the past month, positive revisions have pushed the full-year consensus earnings estimate 2 cents higher to $1.02 per share.

AEM, AKS, AA and FCX are Zacks #3 Rank stocks. AEM is classified in Mining-Gold. AKS is classified in Steel-Producers. AA and FCX are classified in Mining-Non Ferrous.

Oil & Gas Companies

Most of the profit forecast changes occurring among energy stock prices are in reaction to better-than-feared first-quarter earnings, not an improved outlook for commodity prices.

Natural gas is a big reason why. Even with the recent rally, natural gas prices are down considerably for the year. As a result, companies like Apache (APA) are focused on controlling costs. Furthermore, they are only expanding to the extent that cash flows allow them to. Though this helps the bottom line, we have yet to see analysts truly adjust their forecasts to account for the higher commodity prices.

After last year, it's not hard to blame brokerage analysts for being a bit cautious. During the first-half of 2008, they underestimated how high crude would climb. After the bubble peaked in July, many brokerage analysts incorrectly judged how quickly energy prices would plunge.

Our energy analyst, Sheraz Mian, advocates looking at oilfield service companies as a way to play the rise in energy prices. Among the stocks he has long-term buy ratings on are Weatherford (WFT) and Ensco (ESV).

APA, WFT and ESV are Zacks #3 Rank stocks. APA is classified in Oil-U.S. Exploration & Production. WFT is classified in Oil Field Machine & Equipment. ESV is classified in Oil & Gas Drilling.

Commodity-Related Stocks Now Riskier

The lack of positive revisions implies that the risk of owning commodity-related stocks is high.

Valuations have increased notably as the higher stock prices have not been matched by a better earnings outlook. At the same time, commodities have staged a strong rally and it's hard to say how much upside is left. Though agriculture commodities may be influenced by the late planting season, energy and metal futures may need actual signs of higher demand to extend their rally.

Zacks Premium and Zacks Elite subscribers can view the Zacks Industry Rank List at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Sector Rank as of Jun 3
Sector	This Week's Zacks Rank	Last Week's Zacks Rank	FY09 Revisions Ratio	FY09 Estimates Revised Up	FY09 Estimates Revised Down
Retail-Wholesale	2.51	2.56	3.24	762	235
Consumer Staples	2.81	2.82	1.76	274	156
Conglomerates	2.86	2.93	1.10	22	20
Consumer Discretionary	2.88	2.83	1.08	302	279
Medical	2.89	2.86	1.33	716	537
Computer and Technology	2.95	2.92	1.14	873	764
Auto-Tires-Trucks	2.96	2.94	1.00	59	59
Utilities	3.01	3.02	0.91	173	191
Business Services	3.05	2.93	0.82	102	124
Oils-Energy	3.07	3.09	0.91	616	679
Basic Materials	3.09	3.08	0.62	174	280
Construction	3.14	3.20	0.55	83	150
Aerospace	3.15	3.25	0.80	41	51
Finance	3.18	3.20	0.77	698	902
Industrial Products	3.23	3.22	0.70	167	237
Transportation	3.26	3.33	0.44	99	224

Charles Rotblut, CFA, is the senior market analyst for Zacks.com. He can be reached at crotblut@zacks.com.

Zacks Investment Research

Ron Pernick is co-founder and managing director of Clean Edge Inc. The San Francisco area-based consultant and researcher creates indexes to track various segments of the clean energy industry. One of its benchmarks serves as the basis for the PowerShares Global Wind Energy Portfolio (NASDAQ: PWND).  

IndexUniverse.com's Murray Coleman caught up with Pernick recently at Clean Edge's offices in Portland, Ore., working on development of a new index series expected to be unveiled by year's end.

IU.com: What do the correlations between conventional energy pricing trends and alternative energy trends show now?

Pernick: Conventional energy prices are extremely volatile. Over time, you can make the case that those will continue to increase, especially oil. On the other hand, clean energy prices in general have been going down. Solar power is a very striking example. For every doubling of solar PV modules [the technology used to convert sunlight into electricity], there's about an 18% decline in pricing.

IU.com: Is that a big change from past years?

Pernick: In 2007, for the first time, the solar industry started using more silicon than the high-tech semiconductor industry. From 2006 through 2008, we saw a significant shortage of silicon. But that three-year period is ending, which will further help to reduce costs of solar energy going forward. Some of the large manufacturers such as Suntech Power (NYSE: STP) last year started initiating price reductions of around 25% on solar cells and panels. And we're seeing more price reductions this year. That bodes well for the solar industry and solar PV modules in the future. We're also seeing companies like First Solar (Nasdaq: FSLR) delivering thin-film solar technologies now that are cheaper. That's a neat twist in the non-silicon, new chemistries market.

IU.com: How about wind energy?

Pernick: Over the past 30 years, we've seen a reduction in pricing in wind power. But now it's stabilizing. We probably won't see significant ongoing wind reductions in terms of costs. It could decrease slightly or remain stable. The key is that wind power has taken a maturation path where there are large players who've been working on large projects for years. Those include companies such as GE (NYSE: GE) and Siemens AG (NYSE: SI).

IU.com: As clean energy costs go down, how much will its usage escalate?

Pernick: My crystal ball is no better than anyone else's might be at making predictions. But many drivers are in place to increase usage in the United States. More than two dozen states already have renewable portfolio standards, which require states to produce clean electricity at certain levels. For example, California is requiring 33% of all electricity produced in the state to come from renewable sources by 2020. And a number of states are pegging that rate at 20-25% by 2025. Today, between 8-10% of our electricity generation in the U.S. comes from renewable energy. That figure includes hydropower. It's important to remember that most of these state mandates don't include hydro.

IU.com: What do you see as the biggest gainers from such a development?

Pernick: There's no doubt wind is going to be a big benefactor of this push on a statewide level. There are 12 states, in particular, that appear to be well-positioned. Those include Texas and Iowa, of course, along with almost anywhere across the Great Plains. Also, the three Western states stand to gain along with those in the Eastern coastal parts of the country. Wind prices are relatively stable now, which is a plus for states looking to plan projects on a larger scale.

IU.com: What about solar power?

Pernick: Considering that solar costs are positioned to drop dramatically in the next several years, we could easily get to a point where solar might represent 10% of the country's electricity generation by 2025. But that can only happen with utilities actively involved in the process. Other industries also must take the right steps in terms of gaining proper access and receiving enough incentives to fully take advantage of new solar technologies. It's important to note that in the past five years, the most activity we've seen in the U.S. in terms of solar adoption has been from commercial and industrial buildings putting systems on roof tops.

IU.com: How is new legislation impacting new projects?

Pernick: The last two quarters of 2008 and the first quarter of 2009 were pretty dismal. The decimated credit markets didn't help alternative energy sectors. But we're starting to see the impact of stimulus dollars and more liquidity in credit markets show up in a number of different ways. For example, the stimulus package includes over $9.3 billion to improve high-speed rail. To build a smarter grid system, another $11 billion is targeted in the stimulus bill. In total, we've identified more than $70 billion from this stimulus package for clean energy projects alone. If you add clean water spending into the mix, that goes up to close to $90 billion.

We also should see some stimulus coming as the result of an eight-year extension for solar tax credits. The most we've seen in terms of extensions in the past have been two years. And it often takes a long time to actually receive an extension. So this eight-year period should provide a lot more clarity in lowering costs for people to install solar power.

But we don't expect any of these drivers to make a big impact on clean energy industries until early 2010. So while we're starting to see some increased activity, it's going to take some time to recover from the ravages of the recent bear market.  

IU.com: What is the most attractive subsegment of renewable energy market?

Pernick: Some other areas of interest are conservation and efficiency. By deploying these measures, you reduce the amount of electricity needed. Weatherizing a house, for example, is a great idea. How many people use a digital thermostat to automatically turn off their heat when they don't need it? And there are a lot of new energy efficient technologies coming down the road—including windows that can reduce cold or heat outflows by three-to-five times. Retrofits are great and a lot of programs are being developed to help people fund these types of projects.

But the really dramatic changes are coming in the green building arena with brand new structures. Anything embedding more intelligent and efficient systems in our power grid is going to make a huge difference. When there's a power outage today, utilities find out today by phone calls. In the future, utilities are going to use technologies that talk to each other. It's the next big networking project in high-tech.

Net Foreign Purchases for March increased to $55.8 billion in March, up by $33.8 billion from $22 billion in February.  Net foreign purchases of long-term U.S. securities were $56.4 billion, $30.0 billion of which were from private foreign investors purchasing more U.S equities, and $26.4 billion purchased by foreign official institutions which have purchased larger volumes of Treasury Bonds and Notes.  U.S. residents purchased a net $0.6 billion of long-term foreign securities.

Industrial Production fell by 0.5% in April to an index value of 97.1 (2002=100), the lowest level since December of 1998 following a 1.7% decline in March, revised downward by 0.2%, and was expected to fall by 0.6% this month.  Having fallen for 6 consecutive months, the index is down 12.5% from April 200 and has fallen by 16% since the start of the current U.S. recession dated at December 2007. Production in the Mining Sector fell by 3.2% in March, production in Manufacturing fell by 0.3%, and production in Utilities increased by 0.4%. Capacity Utilization was reported at 69.1%, the lowest level since the series was instated in 1967, estimated by analysts at 68.8%, following a 69.4% level in March, revised from 69.3% originally reported. In April 2008, capacity utilization was as high as 79.2%.

Upcoming Releases

Housing Starts (05/19 at 8:30 AM EST)
Building Permits (05/19 at 8:30 AM EST)
FOMC Minutes (05/20 at 2:00 PM EST)
Initial Claims (05/21 at 8:30 AM EST)
Leading Indicators (05/21 at 10:00 AM EST)

The Producer Price Index increased by 0.3% in April to 169.9 (1982=100), expected to increase by 0.1%, following a 1.2% reduction in March and a 0.1% increase in February. Over the year, the index has decreased by 3.7%.  Wholesale prices fell largely due to fallen energy prices.  Excluding food and energy prices, Core PPI increased by 0.1%, was unchanged in March, and increased 0.2% in February.  Prices for energy goods are up 0.1% after falling 5.5% in March.  The index for consumer foods increased by 1.5% after falling 0.7% last month.  The PPI for Intermediate Materials, Supplies, and Components moved down 0.5% in April following a 1.5%decline in March. Excluding foods and energy, the index for intermediate goods decreased 0.9% after declining 0.3%a month earlier.

Upcoming Releases
CPI (05/15 at 8:30 AM EST)
Industrial Production (05/15 at 9:15 AM EST)
Capacity Utilization (05/15 at 9:15 AM EST)
Housing Starts (05/19 at 8:30 AM EST)
Building Permits (05/19 at 8:30 AM EST)

Goldman Sachs Group Inc. (NYSE:GS), which passed the government's stress test, said it plans to soon repay the $10 billion of bailout money. Nevertheless, banking analyst Meredith Whitney warned, "the recessionary environment is very difficult," due to problems looming with credit cards and mortgage originations.

Oil and gas shares rose 8.7% and basic materials were up 6.5% as investors began to bet on the early stages of improved spending by businesses.

Exxon Mobil Corp. (NYSE:XOM) and Schlumberger Ltd. (NYSE:SLB) led energy companies in the S&P 500 to an 8.5% advance. Exxon added 4.1% to $70.80 and Schlumberger gained 12% to $56.53.  El Paso Corp. (NYSE:EP) was the leading gainer in the group, rising 27% to $9.03, after the company reported better-than-expected profit on expanding lines and hedging correctly on energy prices.  General Motor (NYSE:GM) led the declining issues on the DJIA after reporting a huge first-quarter loss that pushed it closer towards bankruptcy.  McDonald's Corp. (NYSE:MCD) reported another month of impressive comparable sales with April recording a 6.9% jump in same-store sales.

A U.S. Labor Department report Friday said non-farm payrolls declined 539,000 in April, beating economists' projections for a decline of 600,000. Figures for March were revised to show a steeper decline of 699,000.  Unemployment rate rose to 8.9% from 8.5% in March.    

Fed Chairman Bernanke speaks tonight on the stress tests. On Wednesday, April retail sales are due for release, and are expected to have declined 0.1% following March's 0.2% drop. Although economists doubt the ongoing strength of the consumer, Friedman Billings, Ramsey on Friday lifted the price targets on several retailers including Abercrombie and Fitch (NYSE:ANF), Ann Taylor (NYSE:ANN), and Pacific Sunwear (NASDAQ:PSUN). On Friday consumer price numbers are expected to show annual headline numbers at their lowest since January 1955, off 0.6%, with core CPI up 1.8% on an annualized basis. Among key companies slated to release earnings are JC Penney (NYSE:JCP), Macy's (NYSE:M), Nordstrom (NYSE:JWN) and Wal-Mart (NYSE:WMT).

When academic economists talk about inflation, we often think in terms of a single-good economy in which the concept refers unambiguously to an increase in the dollar price of that good. But in the real world, in any given month some prices rise and others fall, and we can only measure inflation in terms of the broad central tendency behind those individual price changes.

A recent research paper by Columbia Professor Ricardo Reis and Princeton Professor Mark Watson suggests that real-world measured inflation may behave very little like the textbook ideal. Reis and Watson introduce the hypothetical concept of a pure inflation shock as something that changes every price by x(t) percent, where in any given quarter t the magnitude x(t) is the same number for every item in the economy. Reis and Watson show how such a shock can be measured for any given quarter by observing the behavior of separate components of the PCE deflator. Their principal finding is that this concept of pure inflation in fact plays very little role in quarterly changes in broad price indexes such as the GDP deflator or the consumer price index, accounting for only 15-20% of measured inflation. The authors instead find that changes in relative prices are much more important than pure inflation for determining what happens to the broad CPI. For example, the measured deflation over the last 6 months is heavily influenced by falling energy prices.

If you think that the Federal Reserve is responsible for more than 15-20% of the variation in the CPI, the implication is that part of its influence comes from changes it causes in relative prices. But changes in relative prices-- such as the huge run-up in energy prices in the first half of 2008-- can be much more destabilizing than the textbook pure inflation.

I would therefore think that the Fed might be somewhat concerned by the surge in commodity prices over the last few weeks. The graph below plots the prices of 11 commodities since the Fed's announcement of quantitative targets on March 18. Gold is the only one of these commodities that hasn't gone up in price, with the average of these commodities up 13% over the last two months.

Prices of assorted commodities normalized at March 17, 2009 = 100. Data source: WSJ commodity cash prices, via Webstract.

Some increase in relative commodity prices is certainly to be expected if we are indeed about to see a recovery in real economic activity. But this is a trend the Fed needs to watch closely from here, and could prove to be a significant limiting factor on how much the Fed can hope to achieve from monetary stimulus.

Because I for one do not think it's a good idea to call for a replay of the 2008:H1 commodity market show.

Technorati Tags: macroeconomics, commodity prices, economics, Federal Reserve, deflation, inflation

The almost trivial outcome of today's council meeting in Frankfurt was actually the decision to push the main nominal interest rates down 25 basis points to 1%. If anything, risks to this decision seemed to come from the upside in the sense that all the talk of impending green shoots and second derivatives would make the ECB pause. What was always going to be much more interesting at this meeting would be whether the ECB would announce a series of those famous unconventional monetary measures, and if so; what they would be. In their comment leading up to today's decision, Danske Bank economist Frank Øland pointed out that he expected some form or measure of buying paper or assets. For my own part, I mused a bit on what the heck the ECB was saying in the first place conceding that talks about unconventional measures were indeed popping up in the statements of council members.

Consequently, the ECB brought three things to the table today in the form of longer term refinancing operations, the decision to let the European Investment Bank become eligible counterparty to the Eurosystem's monetary policy operations and most importantly a decision to, in principle, start buying covered bonds of which 60 billion euros was mentioned as the headline figure.

Now, all this about principles of course is open to a wide range of interpretations and Trichet certainly had to dodge a lot bullets at the press conference regarding whether this constituted quantitative easing or not. In the dying minutes of the conference Trichet himself used the words credit easing, and I will let be up to my readers to decide what this means. The president also snubbed FT reporter Ralph Atkins in his question of whether he was allowed to write that the ECB is printing money or, as it were, sterilizing the purchases. The more interesting bit here of course is why exactly the ECB would be buying covered bonds, of all assets. In order to understand this, you basically need to go to Spain and recount the story about cedulas hipotecarias, what they mean for the Spanish financial system and the stress her banks are currently suffering. Start with this one by Edward and then this, this, and this. And if that is not enough, you can go chew on the role of the German Phandbrief. Basically, I think there is a sound economic rational behind the ECB's decision to begins its asset purchase program on this front and whether we call it quantitative easing or not is of little matter I think. It will be most interesting next meeting to see what exactly the ECB is planning in the detail.

With respect to the economic outlook and the level of interest rates and its future change, we were served the regular bout of newspeak from the council which essentially is a reflection of the fact that the journalists were trying to get Trichet to pre-commit to an interest rate floor. Their endeavors were unsuccessful and in stead we got a rather conflicting message in the sense that while Trichet pointed out how 1% constituted no such thing as a floor, he also highlighted the idea that the current stance was appropriate and had also taken into account future weaker signals on the economy. In this light, we can only guess as to how forward looking the council believes the 1% nominal interest rate really is. Personally, I think that the extent to which the green shoots/second derivative punt continues the ECB will stand pat at its next meeting.

Economic Outlook

(click on graphs for better viewing)

Turning to the specifics of the economic situation the ECB rightfully recognised the severity of the situation in the introductory statement and pointed out that risks are still skewed to the downside even amidst green shoots.  It is rather obvious that the downturn is in full force and the recession is now also biting, as it were, on the real economy. This is most obvious from the quick deterioration on the labour market as well as the general slowdown in the real sector.

In terms of inflation, the message was a bit unclear in so far as I think the fundamental discourse is counter intuitive. There is a natural reason as to why this is though in the sense that the ECB would like to be worried about deflation at the same time as it wants to be adamant about anchoring inflation expectations and ever so pointing out that whatever unconventional measures taking are temporary.

There can be no doubt that the Eurozone is teetering on the brink of deflation but since this is also primarily a base effect from a very sharp reduction in commodity prices, the ECB is happy to stick with the standard argument that although inflation should turn negative in mid year it will rebound in subsequent quarters. The fact that headline inflation is adding negatively to the overall HICP can be seen from the negative sign of the graph plotting the spread between core and the main HICP index. it is interesting to observe how the ECB is now confident that energy prices won't lead to an entrenchment towards deflation when we all remember how the bank was terrified of second round effects from higher energy prices a year ago. Perhaps this asymmetry in the famed argument of nominal rigidities and how this may prevent the Eurozone from deflation is what disturbs me the most. Add to this of course that Trichet still maintains that the council is represent 329 million European citizens which apparently means that he does not see, or wants to mention, the fact that places such as Ireland and Spain are already well and truly bogged down in deflation. On the other hand of course, and given recent signs  that commodity prices are beginning to sneak back up, we should expect the ghost of second round effects to emerge once more.

Finally, it is interesting to look briefly at financing and credit conditions where it was noted by Trichet how lending to households and non-financial corporations are still falling. Also, if we look at the annual rate of growth in the much allured M3 measure it has also fallen back steadily. Now, just as I don't care much about the M3 when it running at 10+% I am not sure I care much now since the creation of money/deleveraging may have a life of its own beyond the M3.  Of course, as Danske Bank points out basing their analysis on the lending survey there may also be a second derivative here too, but this would only echo the general sentiment expressed by Trichet in the sense that whatever stabilization we are observing it is situated at very low if not negative levels.

Turning to the evolution of credit the picture is similar. The figure which is actually underestimating the trend because of the one year moving average clearly shows though how the flow as derived by the total stock is on a clear downtrend. In both Q4-08 and Q1-09, the evolution of the stock of household loans was negative. Moreover, Danske Bank's fine analysis of the lending survey suggests that a lot credit tightening is still clogged up in the pipeline even if the trough may have been reached. The interesing thing here will the extent to which the second quarter will see some improvement over a Q4-08 and Q1-09 which were clearly utterly abysmal. Note also that the chart to the right is an average which is of course ripe with generalizations. Basically, some economies such as Spain and Ireland are experiencing a much faster rate of contraction in credit than can be derived from this chart. Also and given the fact that this is after all a unique crisis, we really don't know much the overall stock needs to be capped before we are "done".

In summary, today was a quite significant meeting if there ever was one and the thing to watch is how the ECB will conduct itself in the covered bond market. As noted above, I am thinking cedulas and Spanish cajas as the main key words.

Will Berkshire Hathaway (BRK.A) devotees hear words of hope and promise from Warren Buffet at the annual meeting in Omaha, Nebraska this weekend? It seems unlikely. Yet, America's most respected investor is expected to draw an estimated 35,000 investors to the Midwest city for the event.

Shares of Berkshire Hathaway have slumped 40% to their lowest level since Buffet assumed office, and the net worth of the company shrank by 9.6% in 2008. As the world sank deeper into the worst downturn since the Great Depression, Buffet had warned investors that the economy would be in "shambles throughout 2009."

"Most of the Berkshire businesses whose results are significantly affected by the economy earned below their potential last year, and that will be true in 2009 as well," Buffett wrote in his annual letter to shareholders on Feb. 28.

Buffet has admitted to making some investment blunders of late. Of the more notable ones would be the move to buy into ConocoPhillips (COP) at a time when gas prices were near their peak, just before energy prices slumped. Such moves not only cost his business empire several billion dollars, but also stripped Berkshire of its triple-A credit rating.

However, Berkshire still has strong credit and plenty of cash. Moreover, with two-thirds of its businesses in utilities and insurance, Berkshire is expected to be more resilient in volatile times. The 78 year-old top boss of the group also played a key role in steadying the economy by injecting $8 billion into Goldman Sachs (GS) and General Electric (GE), calling them "the symbol of American business to the world."

While everyone has been wondering about who will eventually succeed Buffet, as long as the Oracle of Omaha is still around, investors would value his insight more than ever during these troubled times.

Will Berkshire Hathaway (BRK.A) devotees hear words of hope and promise from Warren Buffett at the annual meeting in Omaha, Nebraska this weekend? It seems unlikely. Yet, America's most respected investor is expected to draw an estimated 35,000 investors to the Midwest city for the event.

Shares in Berkshire Hathaway have slumped 40% to their lowest level since Buffett assumed office and the net worth of the company shrank by 9.6% in 2008. As the world sank deeper into the worst downturn since the Great Depression, Buffett had warned investors that the economy would be in "shambles throughout 2009."

"Most of the Berkshire businesses, whose results are significantly affected by the economy, earned below their potential last year and that will be true in 2009 as well," Buffett wrote in his annual letter to shareholders on Feb. 28.

Buffett has admitted to making some investment blunders as of late. Of the more notable ones would be the move to buy into ConocoPhillips (COP) at a time when gas prices were near their peak, just before energy prices slumped. Such moves not only cost his business empire several billion dollars, but also stripped Berkshire of its triple-A credit rating.

However, Berkshire still has strong credit and plenty of cash. Moreover, with two-thirds of its businesses in utilities and insurance, Berkshire is expected to be more resilient in the recession. The 78 year-old top boss of the group also played a key role in steadying the economy by injecting $8 billion into Goldman Sachs (GS) and General Electric (GE), calling them "the symbol of American business to the world."

While everyone has been wondering about who will eventually succeed Buffett, as long as the Oracle of Omaha is still around investors will value his insight more than ever during these troubled times.

Zacks Investment Research
]]> http://www.straightstocks.com/stock-watch/buffett-calling-troubled-investors-zacks-tale-of-the-tape/feed/ 0 http://www.straightstocks.com/market-commentary/superlattice-power-inc-slatob-regains-attention-of-investors-up-5417-this-week-on-strong-volume/ http://www.straightstocks.com/market-commentary/superlattice-power-inc-slatob-regains-attention-of-investors-up-5417-this-week-on-strong-volume/#comments Tue, 28 Apr 2009 14:37:07 +0000 QualityStocks http://Blog.QualityStocks.net/?p=15183 http://www.straightstocks.com/market-commentary/superlattice-power-inc-slatob-regains-attention-of-investors-up-5417-this-week-on-strong-volume/feed/ 0 http://www.straightstocks.com/investing-in-russia-stocks/trouble-ahead-for-the-tandemocracy/ http://www.straightstocks.com/investing-in-russia-stocks/trouble-ahead-for-the-tandemocracy/#comments Mon, 27 Apr 2009 22:05:04 +0000 Robert Amsterdam tag:www.robertamsterdam.com,2009://1.18527 http://www.straightstocks.com/investing-in-russia-stocks/trouble-ahead-for-the-tandemocracy/feed/ 0 http://www.straightstocks.com/market-commentary/fitch-dour-on-gcc-banks%e2%80%99-retail-lending/ http://www.straightstocks.com/market-commentary/fitch-dour-on-gcc-banks%e2%80%99-retail-lending/#comments Sat, 25 Apr 2009 21:10:57 +0000 Jason G. Wulterkens http://frontiermarkets.wordpress.com/?p=618 ]]> http://www.straightstocks.com/market-commentary/fitch-dour-on-gcc-banks%e2%80%99-retail-lending/feed/ 0 http://www.straightstocks.com/financial/re-building-from-the-ground-up/ http://www.straightstocks.com/financial/re-building-from-the-ground-up/#comments Sun, 19 Apr 2009 10:00:42 +0000 Bullish Bankers http://www.bullishbankers.com/?p=11999 http://www.straightstocks.com/financial/re-building-from-the-ground-up/feed/ 0 http://www.straightstocks.com/stock-watch/is-deflation-still-a-problem-analyst-blog/ http://www.straightstocks.com/stock-watch/is-deflation-still-a-problem-analyst-blog/#comments Tue, 14 Apr 2009 16:57:42 +0000 Dirk Van Dijk http://www.zacks.com/stock/news/19094/Is+Deflation+Still+a+Problem%3F+-+Analyst+Blog Highlights include Freeport McMoran Copper & Gold, Inc. (FCX) and Southern Copper Corp. (PCU).

A specter is stalking the continent -- the specter of deflation. OK, maybe that's a little melodramatic, but today's PPI report does raise concerns that deflation could still prove to be a serious problem.

Total producer prices at the finished goods level declined 1.2% in March. This reverses the increases in January (0.8%) and February (0.1%). Those increases had followed five straight months where the headline PPI fell.

On a year-over-year basis, the headline PPI was down 3.5%, its steepest fall since 1950. This is a dramatic turnaround from what we were seeing last year, when the year-over-year change in PPI peaked at up 9.9% in July.

However, like the five declines from August through December, the cause was mostly falling energy prices. Stripping out food and energy prices to get core PPI, prices were unchanged in March. Energy prices fell 5.5% on the month and food prices were down 0.7%.

When we look farther up the food chain at the prices of intermediate goods, they fell 1.5% for the month and are down for the eighth month in a row on a headline basis and are down 0.3% on a core basis (six straight negative readings, but four straight months of smaller monthly declines).

Year over year, headline deflation at the intermediate goods level was 8.9%, also a dramatic reversal from its peak inflationary reading in July of 17.0%. Looking further back at crude goods, which are mostly just commodities, prices were still down, but at a much lower rate than we have seen recently.

On a headline basis, prices were down 0.3%, the eighth straight decline, but much closer to unchanged than the 4.5% decline registered in February, and far closer to unchanged than what we were seeing late last year, when the declines were in the double digits in three of the final five months of the year.

The year-over-year swing in prices at the crude goods level has been very dramatic. It currently stands at -39.0, in July it peaked at up 49.0%.

However, recently many key commodities prices have started to rebound. This suggests that the decline in crude goods prices is most likely coming to an end. One of the most important of these is copper, which is now over $2.10 a pound, well off its lows of under $1.50 just a few months ago (but nowhere near its highs of over $4.00 during the commodity boom of a year ago).

Not only is that good news for copper firms like Freeport McMoran (FCX) and Southern Copper (PCU), but it is good news for the world economy. Copper is often referred to as the metal with a PhD in economics, since it is used in everything that eventually uses electricity.

We will see tomorrow if the return of deflation at the producer level has been matched by consumer prices. While falling prices may sound like a good thing, they are really not. They put additional pressure on debtors, who are stressed enough as it is, and raise the likelihood of defaults.

That, in turn, is not good for creditors like banks. They hurt debtors since they have to repay with dollars that are worth more. Real interest rates go up, but there is not much that can be done to lower short-term interest rates since they are already near zero.

Overall, it still looks like deflation is a more serious near-term problem than inflation, despite the Fed throwing great gobs of money at the economy. Inflation may turn out to be a problem down the road, but probably not until the economy is back on track and expanding at a good clip.

Don't worry about inflation until probably late 2010 or 2011.
Read the full analyst report on "FCX"
Read the full analyst report on "PCU"
Zacks Investment Research
]]> http://www.straightstocks.com/stock-watch/is-deflation-still-a-problem-analyst-blog/feed/ 0 http://www.straightstocks.com/stock-watch/apr-14-retail-sales-fall-unexpectedly-economic-highlights/ http://www.straightstocks.com/stock-watch/apr-14-retail-sales-fall-unexpectedly-economic-highlights/#comments Tue, 14 Apr 2009 15:22:37 +0000 Zacks Market Commentaries http://www.zacks.com/stock/news/19088/Apr+14%3A+Retail+Sales+Fall+Unexpectedly+-+Economic+Highlights
The Producer Price Index decreased by 1.2% in March to 168.9 (1982=100), following a 0.1% increase in February and by 0.8% in January which broke the 5 consecutive months of decline in the index. Expectations were that the PPI would decrease by 0.1%, generating a negative surprise. Over the year, the index has decreased by 3.5%.  Wholesale prices fell largely due to fallen energy prices.  Excluding food and energy prices, Core PPI was unchanged following a 0.2% increase last month.  Prices for energy goods are down 5.5% after rising by 1.3% in February, while the index for consumer foods fell by 0.7% after falling 1.6% last month.

Retail Sales fell by 1.1% in March to an annual pace of $344.4 billion, as consumers continue to hold back spending, much less than the expected 0.3% increase.  Over the past year, retail sales volume has decreased by 10.1%.  Retail sales excluding autos, which tends to be a more volatile component of spending, fell slightly less, by 0.9%, although also fell more than expected while analysts anticipated a 0.1% increase.  Over the past year, retail sales excluding autos have declined by 6.8%.  Sales in motor vehicle parts and dealers are down 2.3% over the month and are down 23.2% over the year.  Electronics and appliances experienced a 5.9% drop in sales volumes in March, and a 9.5% decline over the year.  Miscellaneous store retailers, clothing and clothing accessories stores, and gasoline stations also contributed to weak retail sales having fallen 2.2%, 1.8% and 1.6% respectively over the month.  Partially offsetting were sales from food and beverage stores and health and personal stores which grew by 0.5% and 0.4% over the month.

Business Inventories for February are down 1.3% to $1,421.3 billion, as expected after decreasing a revised 1.3% in January (originally reported as a 1.1% drop) and are down 3.5% over the year.  Manufacturing and trading sales are up 0.2% to $994.9 billion, but down 13% over the year.  The inventory/sales ratio is at 1.43 in February, up from 1.29 in February 2008 as denominator effects from the drop in sales decreased the ratio. 

Upcoming Releases
CPI (04/15 at 8:30 AM EST)
Industrial Production (04/15 at 9:15 AM EST)
Capacity Utilization (04/15 at 9:15 AM EST)
Fed's Beige Book (04/16 at 2:00 PM EST)

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579.

Here are highlights from Monday's Analyst Blog:

U.S. Steel Bending to Pressure

United States Steel Corporation (X) is a leading steel manufacturer in the U.S. Rising supply from China, low demand from the automotive and residential sectors and rising labor costs are affecting the company's operations. In order to consolidate operations, the company has closed several facilities and plans more shutdowns in the near term.

Going forward, U.S. Steel's tubular business will be unsustainable, given the sharp deterioration in energy prices and drilling activity, coupled with the continued onslaught of imports. These lead us to rate the stock a Hold.

MIPS Tech Attractively Priced

MIPS Technologies, Inc. (MIPS) develops embedded processors and intellectual property for use in performance-oriented markets, such as digital entertainment, wired and wireless communications (including broadband access), office automation, security and automotive markets. The firm continues to drive bottom-line margins higher in a very difficult environment.

The valuation on MIPS has become very compelling as the stock has shed 74% from its 52-week high and the new acquisition has the potential to drive margin expansion. We would be buyers of the stock at these levels. We feel the valuation is compelling given the recent pullback in the shares.

Chevron's Mixed Guidance

After the market close on Thursday, Chevron Corp. (CVX) released its first-quarter interim update, covering the first two months of the quarter. On the whole, the update is mixed, with excellent operational performance and production growth offset by weak commodity-price realizations.

The best part of the update pertained to upstream volumes, highlighting Chevron's "growthy" profile among the super-majors. The company reported that oil and natural gas production average 2.645 million oil-equivalent barrels per day -- better than our estimate and 1.8% above the first-quarter 2008 level. Compared to the fourth quarter of 2008, production would be up an impressive 4%. We remain comfortable that the company can sustain this operational momentum, which puts it on track to meet its production target for the year.

Hold Montpelier Re Pre-Earnings

Prior to the expected release of Montpelier Re Holdings Ltd's ( MRH)1Q09 results after market close on April 27, 2009, we maintain our Hold recommendation. 4Q08 operating earnings were just two pennies short of our expectations. 4Q08 results were impacted by lower levels of premium writings and investment income than expected.

However, the company has begun to benefit from its new operating platforms. The company is also witnessing positive pricing trends in the majority of its business lines, ending 22 consecutive months of price reductions. Though increased demand for reinsurance is expected in 2009 due to weaker capital adequacy positions and shrinking risk tolerances following the recent widespread investment and catastrophe losses, we suspect such benefits to be somewhat restricted due to the economic slowdown.

Taiwan Semi Fairly Priced at $10

Taiwan Semiconductor Manufacturing Co. (TSM) is the world's largest pure-play foundries. December top and bottom-line results met consensus estimates. Despite the firm being an industry leader, macro conditions and inventory issues will be tremendous headwinds in the coming quarters.

Management has developed a six step plan to combat the industry conditions. We look for spending to pick up in 2009 for 45-nanometer products, but much of this will be dependent on macro conditions. We are reiterating our Hold rating with a target price of $10.00.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=2677

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com