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Minyan Mailbag



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I'm not an active trader so my thoughts tend to gravitate towards the longer term macro views vs. technicals and trading ideas. With that said...

During the first part of the year, we heard that things were improving with the exception of jobs. Earnings were better than the low expectations that had been set, the economic data improved sequentially through 2003 and year to date. The employment numbers have become robust, as much as I dislike the government numbers, it is a baseline.

I'm concerned about a few things though, so bear with me as I write this off the cuff. Industrial production falls this morning, inventories have been rising, and consumers continue to spend as evidenced by retail sales. Yet, employment isn't sufficient, inflation is rising (i.e. I paid $1.87 per gallon of gas yesterday. If prices were to remain constant, based on my driving pattern to and from work, gasoline expenses would equal 8% of gross income, plus I have three kids so my wife drives as well, so estimates would be closer to 10-12% of gross income. As you know, I can't spend gross income (so that number is higher yet as part of disposable income). With the stimulus gone and none on the horizon, where and how will consumer spending be supported? That is concern number one.

If industrial production is falling as evidenced this morning, and consumer and corporate spending decline, then there is no need for production to rise and it will become equalized between the two. Less jobs are needed to produce less goods. Auto sales, while good, have to abate, which means those suppliers to the auto markets will begin to get squeezed as well, likely resulting in fewer jobs. 0% financing and remarkably low mortgage rates are stolen sales from the future.

Macro risks: If Kerry gains any momentum and eliminates the Bush tax plan, economic growth will fall off of a cliff as government spending in all likelihood will not replace discretionary income spending. Certainly there will be significantly more noise surrounding Iraq as we approach June 30. My brother, 347th Moody AFB, will be leaving for overseas very very soon to "a not so nice place" in his words. (God bless him, I am so very proud of my big brother).

If the market is lead by earnings and perceptions: Are earnings going to be "good enough" in the second half: doesn't sound like it. I'm tired of hearing about the second half. I am in the stagflation camp as well and have been arguing as such with my former econ professors for 6 months or so. At some point the piper has to be paid.

All the best,

A faithful Minyan

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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