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D Fry Market Outlook 20 06 2007

The above may be as good an energy plan as will emerge from congress this year.

Things remain fairly quiet, which for bulls is probably a good thing since markets got quickly overbought by the end of last week.

The push/pull is really about commodity prices [energy in particular], bond markets and liquidity. After all, this doesn't seem a stock market driven by earnings as much as from liquidity generated deals. That said, let's look at things in order.

Quiet is the light level of trading with a slightly positive bias:

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Energy markets should be more interesting Wednesday as inventory data is released. Volatility could be severe as prices have been surging. The litany of woes from energy markets ranges from geopolitical tensions to hurricanes and refinery issues.

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Liquidity has been given a shot in the arm from a Treasury that's back pumping money in a big way to primary dealers, "Da Boyz." Let's see, that's $16 + 12 + 5 + 4 = $37 billion for our Wall Street friends to play with for the next week or two. Now that's what I call liquidity!

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Someone sent me an email the other day saying I was "angry" about these liquidity injections from the government to Wall Street. No. Aside from jealousy [I mean, who wouldn't want to be a primary dealer?], average folks should just know how things are being done nowadays.

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Overseas the message remains the same... buy, buy, buy! This especially applies to the BRIC [Brazil, Russia, India and China] theme, which remains all the rage.

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Just what's the Treasury's game? What they’re doing is quite shrewd. They’re taking excess tax receipts and lending them to the primary dealer network for short periods of time and earning interest on the money until it's needed. Treasury Secretary Paulson is no dummy, and knows there’s an intended side benefit. The primary dealers will support the markets, since it's in their financial interest to do so (to support fee income from the public and their own trading profits). In an interview a few months ago, Paulson essentially said that he hoped that rising stock prices had offset lower home prices boosting consumer confidence. It all makes sense.

As to energy policy -- don’t get me started.

Disclaimer: Among other issues the ETF Digest maintains long or short positions in: United States Oil Fund ETF (NYSEARCA:USO), PowerShares DB Commodity Index Tracking Fund (NYSEARCA:DBC), streetTRACKS Gold Trust ETF (NYSEARCA:GLD), PowerShares DB US Dollar Index Bearish (NYSEARCA:UDN), S&P 500 Index (NYSEARCA:SPY), MidCap SPDRs ETF (NYSEARCA:MDY), iShares Russell 2000 Index ETF (NYSEARCA:IWM), iShares Goldman Sachs Technology Index Fund (NYSEARCA:IGM), iShares MSCI Brazil Index ETF (NYSEARCA:EWZ), iPath MSCI India ETN (NYSEARCA:INP) iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI) iShares MSCI South Korea Index Fund ETF (NYSEARCA:EWY).

Source: David Fry's Market Outlook for Wednesday