TIB Weekly Newsletter “The stock market pulse”

$49.95/month Value

June 09th 2008 Edition

Weekly review of the markets

LAST WEEK

Last week the price of oil saw its biggest ever one day gain ie 10$ but even wiorst was the fact that it saw a 16$ gain in two days which brought the record high to 139$!

This craziness erased all previuos gains over the week and left the markets in poor shape…

THIS WEEK

Look out for the beige book report, reatil sales and finally the CPI

See below ofr more infomrstion about these important reports and their impact

Economic calendar

(Main reports with definitions and expectations)

Monday

Pending Home Sales Index
10:00 ET

Consensus is 0.6%

Definition

The National Association of Realtors developed the pending home sales index as a leading indicator of housing activity. As such, it is a leading indicator of existing home sales, not new home sales. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale.

Why Do Investors Care?
This provides a gauge of not only the demand for housing, but the economic momentum. People have to be feeling pretty comfortable and confident in their own financial position to buy a house. Furthermore, this narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as the pending home sales index which measures home resales, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Even though home resales don't always create new output, once the home is sold, it generates revenues for the realtor. It brings a myriad of consumption opportunities for the buyer. Refrigerators, washers, dryers and furniture are just a few items home buyers might purchase. The economic "ripple effect" can be substantial especially when you think a hundred thousand new households around the country are doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, home resales have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the existing home sales data carry valuable clues for the stocks of home builders, mortgage lenders and home furnishings companies.

Tuesday

International Trade
 8:30 ET 
Consensus is

Definition
The international trade balance measures the difference between imports and exports of both tangible goods and services. Imports may act as a drag on domestic growth and they may also increase competitive pressures on domestic producers. Exports boost domestic production.

Why Do Investors Care?

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect the value of the dollar in the foreign exchange market.

Imports indicate demand for foreign goods and services here in the U.S. Exports show the demand for U.S. goods in countries overseas. The dollar can be particularly sensitive to changes in the chronic trade deficit run by the United States, since this trade imbalance creates greater demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. This report gives a breakdown of U.S. trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.

Bank of Canada Announcement
 9:00 ET 

Definition

The Bank of Canada Governing Council meets and makes an announcement about every six weeks to indicate the near-term direction of monetary policy. The announcement conveys to the financial markets and investors if and what change in policy might be.

Why Do Investors Care?

The Bank of Canada Governing Council determines interest rate policy for Canada. The Council is composed of the Governor, Senior Deputy Governor, and four Deputy Governors. The Council meets about every six weeks on a predetermined schedule. The announcement of any change in monetary policy follows, usually on a Tuesday morning. Decisions are derived by means of a consensus, the same as they are for the European Central Bank. Unlike the Federal Reserve, Bank of Japan, the Bank of England or the European Central Bank, the Bank of Canada has an established inflation target range of between one and three percent but is focused on the mid-point of two percent. Because interest rate decisions affect market interest rates to varying degrees, the Bank has created its own core consumer price index, which eliminates eight volatile products.

As in the United States, market participants speculate about the possibility of an interest rate changes. If the outcome is different from expectations, the impact on Canadian markets can be dramatic and far-reaching. The interest rate set by the Bank of Canada, serves as a benchmark for all other rates. A change in the rate translates directly through to all other interest rates. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the stock market, while lower interest rates are bullish.

Wednesday

Beige Book
 2:00 ET 

Consensus is

Definition
This book is produced roughly two weeks before the monetary policy meetings of the Federal Open Market Committee. On each occasion, a different Fed district bank compiles anecdotal evidence on economic conditions from each of the 12 Federal Reserve districts.

Why Do Investors Care?

This report on economic conditions is used at FOMC meetings, where the Fed sets interest rate policy. These meetings occur roughly every six weeks and are the single most influential event for the markets. Market participants speculate for weeks in advance about the possibility of an interest rate change that could be announced upon the end of these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.

If the Beige Book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the Beige Book portrays economic difficulties or recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity.

Since the Beige Book is released two weeks before each FOMC meeting, investors can see for themselves at least one of the many indicators which Fed officials will use to determine interest rate policy, and can position their portfolios accordingly.

Thursday

Retail Sales
8:30 ET

Consensus is

Definition
Retail sales measure the total receipts at stores that sell durable and nondurable goods. Consumer spending accounts for two-thirds of GDP and is therefore a key element in economic growth.

Why Do Investors Care?

Consumer spending accounts for more than two-thirds of the economy, so if you know what consumers are up to, you'll have a pretty good handle on where the economy is headed. Needless to say, that's a big advantage for investors.

The pattern in consumer spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth. This balance was achieved through much of the nineties. For this reason alone, investors in the stock and bond markets enjoyed huge gains during the bull market of the 1990s. Retail sales growth did slow down in tandem with the equity market in 2000 and 2001, but then rebounded at a healthy pace between 2003 and 2005.

Retail sales not only give you a sense of the big picture, but also the trends among different types of retailers. Perhaps auto sales are especially strong or apparel sales are showing exceptional weakness. These trends from the retail sales data can help you spot specific investment opportunities, without having to wait for a company's quarterly or annual report.

Friday

Consumer Price Index
 8:30 ET

Definition
The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation.

Why Do Investors Care?

The consumer price index is the most widely followed indicator of inflation in the United States. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets- and your investments.

If someone borrows $100 dollars from you today and promises to repay it in one year with interest, how much interest should you charge? The answer depends largely on inflation as you know the $100 won't be able to buy the same amount of goods and services a year from now. The CPI tells us that prices rose about 4.7 percent a year in the U.S. during the first half of 2006. To recoup your purchasing power, you would have to charge 4.7 percent interest. You might want to add one or two percentage points to cover default and other risks, but inflation remains the key factor behind the interest rate you charge.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

For monetary policy, the Federal Reserve generally follows "core" inflation-inflation excluding volatile food and energy components. The Fed's preferred inflation measure is the core personal consumption deflator but core CPI data largely make up the core PCE deflator and CPI numbers come out sooner each month. In the long run, the overall CPI and core CPI track each other.

That’s it for the economic calendar this week.

There are obviously other reports but thise three are the ones that are most susceptible of creating an impact on your portfolio so act accordingly.

Yours truly,

Eric LeRiche

www.trading-and-investing-for-beginners.com

Legal Notice

The Publisher has strived to be as accurate and complete as possible in the creation of this report, notwithstanding the fact that he does not warrant or represent at any time that the contents within are accurate due to the rapidly changing nature of the Internet.

The Publisher will not be responsible for any losses or damages of any kind incurred by the reader whether directly or indirectly arising from the use of the information found in this report.

This report is not intended for use as a source of legal, business, accounting or financial advice. All readers are advised to seek services of competent professionals in legal, business, accounting, and finance field.

No guarantees of income are made. Reader assumes responsibility for use of information contained herein. The author reserves the right to make changes without notice. The Publisher assumes no responsibility or liability whatsoever on the behalf of the reader of this report.