Mine Field

With Q1 earnings season now upon, the stock market has now turned into a mine field and will reward those that deliver such as BBBY (survival of the fittest as their biggest competitor liquidated, similar to BBY) and punish those that don’t.

The buying on the dip or lack thereof after an earnings miss will be the key test of what this market has and what’s been priced in. ABC confidence did not confirm the improvement in the IBD # as it fell by 1 pt to -50, the lowest since mid Feb. Low mortgage rates finally had an impact on purchases as the MBA said they rose 11.1% to the highest since mid Jan. Refi’s rose again by 3.2%.

The 2nd round of TALF interest was tepid as demand totaled only $1.7b down from $4.7b initially. So far the program is a BUST as the Govt is the kid in the sandbox that no one wants to play with and who wants to buy unsecured credit card loans in a bad economy. The PHM/CTX deal and bounce in insurers are the positive today.

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Feb Wholesale Inventories, which make up about 25% of Business Inventories, fell by a greater than expected 1.5%. Estimates were for a drop of .7% and Jan was revised lower by .2%. Because sales rose by .6%, the inventory to sales ratio fell to 1.31 from a revised 1.34 in Jan. While the drop in inventories will be a drag on Q1 GDP, it is the set up for those that believe we will see a 2nd half recovery as inventories will eventually need to be replenished. It may happen but an inventory led recovery is not sustainable UNLESS end demand picks up on a sustainable basis and when that will occur is much more unclear.

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