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Random Thoughts: Have We Turned the Deflation Corner?


The consumer is 70 percent of GDP for better or for worse...

  • Inconceivable! Merrill Lynch (MER) and Citigroup (C) are off 50% from last summer's levels--and Intel (INTC) is down 30% this year (er, in the last 16 days?) As Mr. Practical and I discussed last night, our long-held view isn't coming down the pipe, it's here.

  • Hey, you know all this stock that's being issued? The convertible preferred issues (with ratchet down provisions to boot)? That is, by definition, deflationary and supports Pep's view that, as stagflation finally enters the mainstream lexicon, we may already have turned the corner to the Big D.

  • Could we see a rally? You betcha. Will it put in the low? Not on a bet. We've still got credit card delinquencies, auto loans--you know, the other side of zero percent finance--waiting in the wings. The consumer is 70% of GDP for better or for worse.

  • Nestled within Citigroup's report yesterday was $5 billion in credit write-downs in the U.S. consumer business. Bank America (BAC) alluded to this a few weeks ago and my sense is that we'll hear much more of this in the year ahead.

  • Hey you, the one trading Intel back and forth. Get over it, go out with someone else. This puppy will likely pin $20 into Friday's expiration and all the effort and energy you're expending will likely be put to better use in other issues.

  • Mind the gap! No, not you Michael Strahan, I'm talking about the tape. With DJIA 12,800 overhead on a closing basis, DJIA 12,000 is the next technical stop. That doesn't mean we slip in a straight clip-technicals provide a context, not a catalyst--it's just something to watch as we collectively find our way.

  • Expiration is this Friday and you know what that means. Yep, two-sided volatility in the days prior. Happy happy, joy joy.

  • I've got more meetings than E-Harmony today so please bear with me as we head on over the Hump.

  • Other gleanings from Mr. Practical? Gold and Crude won't be immune to deflation but they'll relatively out-perform. I agree over the long-term but continue to feel that there's near-term risk in these seemingly safe havens.

  • As I said to him--as he nodded in agreement--the grind to crude $100 was a drag on the consumer, not a downside catalyst. If and when crude precipitously slips, as it did yesterday, asset class investors need to be uber-careful.

  • Keep an eye on Baidu (BIDU) as it probes the all-important $300 level. We noted the other important technical toggle ($350), which is past support and current resistance, but that was like, what, two days ago? Really? Yes. Wow. Anyways... if BIDU breaks $300, Mr. Valentine will have to reset resistance anew.

  • Think it's time we stop, children, what's that sound? The upper left section of my third screen--you know, the area dedicated to the banks and homies--are trying to put the brakes the downside scrape.

  • There are flies--Citi (hey, what's another 3%), Blackstone (BX) and Fortress (FIG) (speaking of organic two for one splits)--but we should keep close tabs on those piggies lest the bacon gets shakin'.

  • Other noodable notes include the energy patch (note the OSX, which broke the uptrend yesterday) and the semis, which are trying to shrug off a double-digit loss by their mother ship.

  • Good luck and deep breath, Minyans, this juncture is no joke.


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