Weaker-than-expected productivity growth for the third quarter and higher-than-expected unit labor costs must be creating consternation at the FOMC. It wasn’t long ago that the FOMC was citing “ongoing productivity gains” as being responsible for holding “down the rise in unit labor costs,” but that statement was dropped after the June FOMC meeting. And we don’t expect to see it reappear anytime soon: non-farm unit labor costs rose 5.3% on a year-to-year basis during Q3, the fastest annual rate of advance since 1982 and 1990 respectively. In 1990, the Fed’s preferred measure of core inflation was running above 4%; in late 1982 it was above 6%, which means contemporaneous data on unit costs is inconsistent with the Fed’s 1-2% core inflation objective absent massive pressure on corporate profit margins. While we do expect competitive pressures and tight labor markets to slow profit growth, we don’t think the monetary backdrop is tight enough to sink margins. To wit: real short rates remain modest, non-energy commodity prices stand at record levels, and global liquidity is growing at a brisk pace, which means firms should be able to lift prices to protect margins. This is why we continue to believe core inflation is much more likely to run in a 3-4% zone during the quarters ahead than to fall back into the Fed’s 1-2% comfort range. A term structure below the 5% level, the result of 50-75 bps of rate cuts priced in for 2007, is wholly unprepared for such an event absent an economic collapse we do not believe is forthcoming.

Great stuff, ORKiter. Thank you.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/10/30/ccview30.xml

interesting stat:
The futures markets have priced in a 77% chance of a flawless soft-landing for America's

"They should examine a recent report by the New York Fed warning that whenever the yield on 10-year Treasuries has fallen below 3-month yields for a stretch lasting over three months, it has led to each of the six recessions since 1968.

The full crunch hits 12 months later as the delayed effects of monetary tightening feed through, even if the Fed starts easing frantically in the meantime. By then it is too late. "There have been no false signals," it said.

As of last week, the yield curve was inverted by 29 basis points, was continuing to invert further, and had been negative for over three and a half months. If the Fed is right this time, the recession of 2007 is already baked into the pie. Those speculative positions may have to be unwound very fast."

From James DePorre (RevShark)

Although we aren't making much upside headway, the market continues to hold extreme well. The bears looking for a "sell the news" reaction can't seem to catch a break and are probably feeling a little "squeezish."

Someone sent me a critical note saying that I was foolish to buy a certain stock at 40 because I easily could have bought it cheaper not that long ago. I certainly can't dispute the argument that it would have been a good idea to buy the stock when it was at a lower price. But is it really that simple of an evaluation?

The first thing to keep in mind is that higher prices don't necessarily mean higher risk. The particular stock that this reader was referring to had moved higher following a very good earnings report.

In my estimation, the strong earnings made the stock less risky than it had been previously when the price was lower. The move higher was justified by the news and the likelihood that it could move even higher as more folks analyze the results and the valuation.

Higher prices also can mean less risk if a stock has heavy buying momentum. Stocks in motion tend to stay in motion, and quite often that means that stocks that are climbing higher will keep doing so, while those that are doing nothing will continue to do nothing.

A third issue to consider is the wisdom of forgoing buying something simply because we missed buying it at a lower price. Unless it's an IPO, there is almost no stock that we couldn't have bought cheaper at some point. Our goal shouldn't be to buy a stock at its lowest price, but to buy a stock that has the best chance of going up as soon as possible.

If you are too focused on buying cheap, you are very likely to miss out on some good profits. "Cheapness" is not a concept that works in the market like it does when you are shopping for other things. Don't obsess over prices to the exclusion of context and emotions.

Excellent stuff... Are you on sharktank now?

Article on Poker and trading :

http://www.marketstockwatch.com/Screens/Articles/Article_Nov2006.pdf

sweet!!! another great article. What are you? The amazing article man!

yes sir!

Article explaining Volatility and what is means......great article:

(ps- if this article doesnt make sense to you then you shouldnt be touching Options.....)

also, this will help you understand why people reference VIX all the time for sentiment which lately has been confounding most mkt analysts/traders as its near historical lows yet the mkt keeps ticking higher("VIX is often used as a contrarian indicator. Prolonged and/or extremely low VIX readings indicate a high degree of complacency and are generally regarded as bearish. ")
.....hence why following price/volume are indicator #1 and 2ndary indicators like VIX are useful but not exact....here is a summary explaining VIX for those who are familiar with what exacly VIX is

http://stockcharts.com/education/IndicatorAnalysis/indic_VIX.html

ps found it interesting.....after looking at the VIX pull up the nasdaq volatility index....ticker $VXN on stockcharts.com.....wow. if just broke down lower on Friday below 16level,  i havent really followed the Nasdaq VIX but that breakdown isnt good ....at 15.50 now(vs low reading at top in May was 14.38.......interesting and worth keeping an eye on it. as all he option volatility readings are extremely low and lathargic right now


so on that note below is excellent article and seems to be the best way to use VIX as an indicator:

TradingMarkets Rule 5 - Use The VIX...It Works

The VIX is the single best indicator to use to guide you in timing your indices and equity trading. From the research created by Connors Research Group. TradingMarkets has more than 16 years of statistical price studies backing this.
First, let's quickly define the VIX. The Chicago Board Options Exchange SPX Volatility Index (VIX) reflects a market estimate of future volatility, based on the weighted average of the implied volatilities for a wide range of strikes. 1st & 2nd month expirations are used until 8 days from expiration, then the 2nd and 3rd month are used.
When markets are rising the VIX is usually low. When markets are declining the VIX usually rises. Extreme market sell-offs are associated with extreme VIX readings. Many web sites and analysts attempt to use static numbers for the VIX. This is wrong (in the early 2000's the prevalent wisdom was to buy the market when the VIX rose above 30 and to sell it when it went below 20. This worked for a short while until the VIX went under 20 in March 2003 (triggering the so called sell signal) and over the next two years, the market rose approximately 50% off its lows while the VIX never saw 30 again during that time!
The proper way to use the VIX is to look at where it is today relative to its 10 day simple moving average. The higher it is above the 10 day moving average, the greater the likelihood the market is oversold and a rally is near. On the opposite side, the lower it is below the 10 day moving average, the more the market is overbought and likely to move sideways-to-down in the near future.
The TradingMarkets 5% Rule. If you only follow one market sentiment indicator, it should be the TradingMarkets 5% Rule. The 5% rule states - Do not buy stocks (or the market) anytime the VIX is 5% below its moving average. Why? Because since 1989, the S&P 500 cash market has "lost" money on a net basis 5 days following the times the VIX has been 5% below its 10 day ma. That's right, in spite of the S&P 500 rising over 300% since 1989, it's lost money 5 days following the VIX closing 5% or more below its 10 day ma.
The TradingMarkets 5% Rule is also extremely powerful on the buy side. Since 1989, whenever the VIX has been 5% or more above its 10 day ma, the S&P 500 has achieved returns which are better than 2 1/2 to 1 compared to the average weekly returns of all weeks.
What does this mean for you? It means the potential edge lies in buying the market and stocks when the VIX is at least 5% above its 10 day ma, and to lock in gains (and also not buy) when the VIX is 5% or more below its 10 day ma.

so after reading that note above-----according to stockcharts.com VIX reading is currently at 10.79 and 10da mvg avg is 11.12 so is therefore currently 3% below its 10day MA

also, the traditional VIX was derived from measuring volatility of OEX(SP100) option but now the more common VIX(also called New Methodology VIX) uses SP500 options instead now so the article above back tested and references the SP500 VIX.....i think most chart programs now use sp500 VIX when you type in VIX .....

I got the 10 day at 10.97, so 10.42 is the trigger on the down side, 11.51 on the upside...it would be interesting to back test this indicator, all I know right know is the general trend is still bullish.  remember the first and last point of a stocks price are the most expensive

I Can different 10 MVA depending where I look, anyway all are not below 5%

ORKiter, another batch of great articles.

Keep up the great work. I am amazed at every article you post. They are always excellent and concise.

So what will the ticket look like ...  Giuliani/McCain or McCain/Giuliani?  ...  I'd take either one ...  


NEW YORK (CNN) -- Former New York Mayor Rudy Giuliani, known for his apt leadership after the attacks of September 11, 2001, took the first step toward a possible 2008 presidential bid by forming an exploratory committee.

Giuliani has not officially decided whether to run, said committee treasurer John Gross in a statement.

"We have taken the necessary legal steps so an organization can be put in place and money can be raised," Gross said.