Market Pulse: trade deficit, import prices, Siebel and Kirkland

by: Tony Sagami

True to form, the bulls followed the principles of the Evelyn Wood Speed Reading when they looked at today’s new events, writes Tony Sagami, owner and founder of Harvest Advisors. After reading the headlines of a seemingly positive report on the trade deficit, (more below) the bulls pushed stocks higher.

Later in the morning, the White House cut its estimate for the 2005 budget deficit from $427 billion forecast in February to $333 billion and gave the bulls even more reason to celebrate. Only the Jack-and-the-beanstalk bulls are dumb enough to give more than one second of credence to any government budget numbers.

Again as usual, the bulls paid zero attention to oil prices, which remain over $60 a barrel, on worse-than-expected inventory news. The Energy Information Agency reported that crude inventories dropped by 3.9 million barrels versus estimates of a 2.8 million decline and gasoline inventories fell by 2.6 million barrels instead of the 1 million barrel forecast.

Despite the 43-point rally, the S&P 500 was unable to bust through and set a new four-year high. The inability of the bulls to push through that critical resistance level could very well signal a market top.

The S&P 500 is sitting two points below the March 25 high of 1,225. Unless the price of oil makes a significant move downward, I believe the next 200 to 400 Dow Jones points will be to the downside.

Also, I was pleased to see Bernie Ebbers of WorldCom get slapped with a 25-year prison sentence. Frankly, I think he deserved a life sentence but jail is too kind for someone that ruined the financial lives of thousands and thousands of WorldCom employees and investors.

First Al Colin Powell. The list of ex-politicians entering the investment business is getting longer. Even Colin Powell is joining Kleiner Perkins Caufield, the Silicon Valley venture capital firm, and could soon be lighting his cigars with $100 bills in the near future.

Trade deficit report filled with worrisome numbers

Our trade deficit dropped by 2.8% in May to $55.3 billion, which was below the $57 billion Wall Street forecast and the record $60.1 billion in February.

The bulls were impressed with the headline number, but as usual, the details were largely overlooked.

  • The drop in the trade deficit was a combination of falling imports and rising exports. In a very healthy economy, both imports and exports should both be rising. When I hear that imports fell by 0.9% to $162.2 billion, the warning bells about weaker domestic demand start going off in my head.
  • The biggest contribution was the record rise in exports to $106.9 billion in May. The rise is exports are indeed positive, but what the knuckleheads on Wall Street don’t remember is the gargantuan May that Boeing had. Here is what I said on July 5.

“The biggest boost came from transportation -- mainly thanks to the 200 aircraft orders Boeing received in May -- which increased by 21.2%. If you backed out those jumbo airline orders, May factory output actually declined by 0.1%.