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D Fry Market Outlook 31 01 2007

January 30, 2007

Special message: Yesterday we conducted a lengthy podcast interview with Kevin Rich of Deutsche Bank regarding the spate of commodity ETFs issued by them in concert with PowerShares. It is available free to the public without registration. Given today's action in commodity markets, you may find it enlightening.

Did Saudi officials read the Sunday NY Times article featured here just yesterday? The article suggested that they were behind a move to push crude oil prices lower and to stabilize them at around $50. Well, they reacted quickly today by announcing a further cut in production by 156K barrels per day, after no doubt feeling some pressure from their OPEC peers. Crude oil prices shot up nearly 6% on that news causing a short squeeze. Natural Gas prices rocketed 12%.

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Are high oil prices good for stocks? They were for the S&P 500, which is heavily weighted by energy sectors and out-performed other major market indexes, with the natural exception of energy sectors themselves.

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I can't imagine rapidly rising energy prices being a good thing for investors generally however.

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We discussed what I described as the "ephemeral link between gold and oil prices," which rang true today as gold was only up slightly while we know what energy markets did.

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Today, Carl "on cue" Icahn noted that he had taken a large position in Motorola Inc. (MOT) and wanted a seat on the board. Only yesterday we noted his Bloomberg interview two days earlier where he was quoted as saying that 20% of the S&P 500 or 100 companies were exposed to either LBOs or private equity deals.

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Curiously, JPMorgan & Chase Co. (NYSE:JPM) Chief Jamie Dimon stated, "home equity is subject to a deterioration," noting that 2% of their mortgages were at risk. This doesn't seem a lot, but he went on to say that this "might signal a recession ahead." Naturally, in true Alice in Wonderland fashion, this bought out "some" buyers in streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB).

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What the Fed does or doesn't do may impact real estate more than any other thing.

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While energy gushed higher, airlines were hurt, but the overall transportation index as reflected by iShares Dow Jones Transportation Index ETF (NYSEARCA:IYT) barely budged. Why? Stronger overseas shippers pushing fuel surcharges and some truckers. Elsewhere, airlines and air cargo companies took a hit.

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Emerging Markets, which were hit yesterday by some profit-taking, were all higher along with commodity markets.

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Is water a commodity play? Why not!

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Unlike yesterday it was an exciting day today. I hope everyone was on the right side of things -- especially in energy markets. Tomorrow is Fed Day, and we'll see if they do or say anything unexpected. From our perch everything in the economy looks okay, but then what do we know? One thing is true, the Fed and other central banks don't like high gold and commodity prices, since the former challenges their policies in the truest way.

We also have the PMI and GDP numbers tomorrow, and it's also the last day of January. Good riddance I say! By the way, Friday is employment data.

I guess the NY Times article was either right on causing the Saudi's to respond, or was just totally off the mark. We'll have to wait and see.

Disclaimer: Among other issues, the ETF Digest maintains positions in: PowerShares DB Base Metals Fund (NYSEARCA:DBB), PowerShares DB Agriculture Fund (NYSEARCA:DBA), PowerShares DB Precious Metals Fund (NYSEARCA:DBP), PowerShares DB G10 Currency Harvest Fund (NYSEARCA:DBV), S&P 500 Index (NYSEARCA:SPY), NASDAQ 100 Trust Shares ETF (QQQQ), First Trust DJ Internet Index ETF (NYSEARCA:FDN), iShares Russell 2000 Index ETF (NYSEARCA:IWM), MidCap SPDRs ETF (NYSEARCA:MDY), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), Rydex S&P Equal Weight Consumer Discretionary ETF (NYSEARCA:RCD), iShares MSCI Emerging Markets ETF (NYSEARCA:EEM), iShares S&P Latin America 40 Index Fund (NYSEARCA:ILF), iShares MSCI Mexico Index ETF (NYSEARCA:EWW), iShares MSCI Brazil Index ETF (NYSEARCA:EWZ), iShares MSCI Australia Index Fund (NYSEARCA:EWA), iShares MSCI Malaysia (NYSEARCA:EWM), iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), iPath MSCI India ETN (NYSEARCA:INP) and PowerShares Water Resources ETF (NYSEARCA:PHO).

Source: David Fry's Daily Market Outlook