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Thursday, August 14, 2008

Market Insider: Thursday Look Ahead

By:Patti Domm

Stocks will be on inflation watch Thursday. Volatile trading in oil and commodities promises to spill into the stock market again. On Wednesday, energy and other commodities rose, reversing a selling trend and worrying investors, who have been hoping for a reprieve from inflation.

Some hard data on inflation is also expected when the consumer price index is reported at 8:30 a.m. July CPI is expected to rise 0.4 percent.

Wednesday's stock market was again skittish about the financial sector. The trigger was, in part, a Merrill Lynch downgrade of several firms. Stocks also took a hit as oil prices

"This is not a trading tape. This is a Rorschach test. Anybody who looks at it can see whatever they want to see," said UBS' Art Cashin of Wednesday's stock market action.

The Dow fell 109.51 points, or 0.9 percent to 11,532, and the S&P 500 tumbled 3.76 points, or 0.3 percent to 1285.83.

Cashin, director of floor operations, said the "cocktail napkin" technicians thought the area where oil would find support was $110 to $113 per barrel. If it had broken down through that level, it could dip to $80. Or if not, it could bounce. Bounce it did, rising $2.99 per barrel Wednesday, or 2.7 percent to $116.

"The big deal is if it holds and closed over $115.60, it might have set the chart up for a real short squeeze. If it gets to $117, it will trap those shorts," he said. Energy stocks were Wednesday's winners, gaining 3.4 percent.

Also critical Thursday will be what happens in the financial sector, which was down nearly 3 percent Wednesday after a more than 5 percent decline Tuesday. Merrill Lynch downgraded Citigroup, Goldman Sachs and Lehman to underperform Wednesday. Merrill's chief investment strategist Richard Bernstein also said the credit crises is broad and deep and not likely to end soon, a comment that also sent a chill through the sector

CNBC's Charlie Gasparino reported Wednesday that J.P. Morgan, Morgan Stanley and Wachovia are close to settling with regulators on allegations they misled investors on the sale of auction rate securities. "Mr. Gasparino has had an influence," said Cashin of Gasparino's reports on CNBC. "Whenever he comes on, the financials lift their heads." He said they also dipped down as the market awaited the official word of the settlements.

Another factor that may be affecting financials is the expiration of the SEC's temporary naked short rule. The rule was enforced on 19 financial stocks and required brokers to locate the stock they need before shorting it. Richard Bove of Ladenburg Thalmann thinks the end of the rule Tuesday night already has had an impact. "The anecdotal data I am receiving suggests that shorting these companies was resumed with a vengeance," he wrote.

"The theory is that the paired transaction which was in place, had investors buying utilities and shorting financials. When the SEC controls were put in place, the positions were reversed allowing the financials to recover in price and forcing the utilities to fall back."

Bove said in the past two sessions, the positions may have reversed again with "devastating impacts on the financials and positive impacts on the utilities." Utilities Wednesday were up 0.8 percent.

Bottom Dollar

The big story in the foreign exchange market was the British pound which took its biggest tumble since October 2006. The Bank of England cut its growth forecast in the quarterly inflation report, which also showed continuing signs of economic deterioration.

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The dollar fell 0.04 percent against the euro and 0.20 percent against the yen. Commodities rallied. Gold climbed $16.80, its first gain in nine days and its biggest up move in a month. It finished at $825 per troy ounce. Silver was up 2.5 percent, and copper was up 4.1 percent.

In the grains market, corn, wheat and soy beans all shot higher. "I think in particular to corn, the market has now had the most bearish (crop) report for the next 18 months and it rejected it soundly yesterday. It was down 10, closed higher and closed limit up today," said Emily French, senior vice president at Macquarie Bank Ltd. "It's like we're setting ourselves up for the same run we saw last year."

French, who specializes in grains, said the liquidation in those markets in the last couple weeks was not "fundamental" and the market overshot in its move down. She also said the grain market was not impacted by the rising dollar, like other commodities markets have been, and that investors are underestimating the price inelasticity of food.

"What you're seeing now is daily trading ranges that are what we used to trade three years ago, for the entire year. That really puts today's market in perspective. If you look at November (soy) beans, we had a 72 cent trading range. Three, four years ago, that was the range for the whole year," she said. "... This is a structural change. We're not in a bull market, we're in a structural change. We're remaking history."

For Thursday, "I think everyone's going to stay very small. People are on holiday. Europe's on holiday. I don't see people saying, 'we've got to start this bull market today.' I think we're going to chop around."

Questions? Comments? marketinsider@cnbc.com
© 2008 CNBC.com

An Ohio man with a hatred of paper money slapped down $8,000 in coins at a car dealership to buy a Chevrolet pick-up

Man buys Chevy with small change

Chevrolet Silverado (image from Chevrolet website)
The Chevrolet Silverado Mr Jones bought was a 2008 model

An Ohio man with a hatred of paper money slapped down $8,000 in coins at a car dealership to buy a Chevrolet pick-up - then paid the rest by cheque.

James Jones, 70, produced 16 coffee cans full of coins to buy his new Chevrolet Silverado in Cincinnati and staff spent 90 minutes counting it.

But his coin hoard only covered half of the $16,000 (£8,500) price tag.

The man's son said the most amazing thing for him was his father deciding to replace his 1981 pick-up at all.

As far back as he could remember, Dennis Jones told the Cincinnati Enquirer, his father had always had coins.

“He gave me lunch money in coins and each time he ever gave me money it was in coins,” he recalled.

Paper money will burn, but it is hard to damage coins
James Jones

“I am amazed that we were able to talk him into buying a new truck, because he is pretty tight with his money.”

According to the paper, James Jones walked into the Jake Sweeney dealership, plunked down his cans and said: “I want that Chevy truck.”

"In my 19 years in this business I have never seen anything like this,” said Biff Arnold, finance manger for Jake Sweeney.

“I have seen many buyers come in with a lot of cash money, but never this much money in coins.”

Salesman David Crisswell said the coins included "dimes, quarters, half-dollars, silver and Susan B Anthony dollars".

The new owner of the Chevy says he does not trust banks or paper money.

“Paper money will burn, but it is hard to damage coins," the retired engineer pointed out.

"I bought four or five rolls of coins each month. I don't know how long it took me to save this amount, probably all my life.”