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Marking American Net Wealth to Market...

The Case/Shiller house pricing index was released today for the month of April at -15.3% year over year. Of course, now it's June, and we can tell you that the homes that have been sold have been marked to market lower sequentially. Marking to model doesn't do anyone any good.

When we look back on 2007-2008, we are going to remember this as a time when we saw the largest collective losses in American equity and real estate portfolio's ever.

No, this is not good, and even though I got lucky buying this US market for a "Trade" this morning, it certainly doesn't change the fundamental negative "Trend" lower that will be perpetuated by this two track depreciation in American net wealth.
KM

(Picture:http://www.libertyfilmfestival.com/libertas/wp-content/uploads/2007/11/american-flag-2a.jpg)

Eye on Two Americas...

This morning's nasty US Consumer Confidence reading for the month of June confirms what we have been using as our theme of Wall Street's hopes versus Main Street's reality - Eye On Two Americas .

The June reading of 50 was -14% lower than May's reading of 58, and is the lowest print we have seen since 1992. We called out 1992 in our "RIPTE" macro note yesterday as the last time we saw a US Consumer Recession in the US Consumer Spending #'s, so this confidence reading adds conviction my thesis that we are about to enter a period that we have not seen since 1973-75.

Interestingly, the "expectations" component of the US Consumer confidence report came in at 41. This is the lowest # since they started keeping tabs of these #'s in the 1960's! Planned vacations also hit their lowest number since the data has been available, so this explains partly why the lodging stocks continue to act horrendously.

Our gaming/lodging guru, Todd Jordan, is working on a piece right now that captures the absurdity of Wall Street's expectations for US hotel operators numbers in the back half of 2008 and into 2009.

KM
(picture: http://share.skype.com/sites/devzone/vacancy_1_800.jpg)

Selling My Gold...

From a macro perspective, being long Gold for the last 3 weeks has been one of the few places (other than cash) for we non-energy investors to take a concentrated position and earn a real return. As the market opened lower, I bought some US stocks this morning, and this afternoon I'd be selling some of your gold long exposure, if you have it.

Gold has heavy resistance in the $895-916/oz range, and I like the idea of buying it back lower, closer to $828. I have been long gold since 2005.

In our process' language, gold remains positive from an intermediate "Trend" perspective, but negative from a "Trade" perspective.

Funny story for you anecdotally: a major hedge fund PM based in CT sat across the table from me in 2005 telling me he didn't think I knew what I was doing being bullish of gold and metals. In this past week's Barron's roundtable, I see that a handful of his "best ideas" are now metal stocks!

Funny guy. Funny business!

I have attached the 3 year chart of gold as an accountability check.
KM

(chart courtesy of stockcharts.com)

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Charting Russia: Short Term Momentum Breaking Down...

Russian equities continue to be a stealth leading indicator for energy prices. Recall the +16% two week gap up move the Russian Trading System Index had in early May, then the follow through we saw in crude oil and natural gas.

Today, the Russian stock market is finally correlating with a weak European market, trading -1.4%, and limping into the close. This is new, and should be noted as a leading indicator for oil prices potentially putting in a short term top. Eventually there is a demand destruction cycle component to oil prices that will matter, however short term it mattering will be.

As the facts change, we will. My short term topside target for crude oil is now $141.41. A short term topping process is underway.
KM

(chart courtesy of stockcharts.com)

Extreme Discounting - But Who's Got Jack's Back?

Jack in the Box (JBX) put out a press release saying that the company will give away two free tacos to any customer who presents a valid gas receipt on June 26th. JBX's Chief Marketing Officer said, The rising price of fuel is really putting the pinch on consumers. Giving away free tacos is our way of letting guests know that Jack's got their back in these tough economic times. This promotion does not require any other purchases so although it may bring people into the restaurants, it might fail to drive a high level of incremental sales.

I have written extensively about the role discounting has played in driving traffic for restaurant companies and the subsequent impact on margins. Specifically, I have the highlighted the issues around MCD's Dollar Menu. Recent NPD data shows how prevalent restaurant discounting has become.

For the February to April 2008 time period, MCD's traffic has grown 3% YOY. Transactions on deal have increased 10% while non-deal transactions were flat, and 60% of the incremental deal traffic was driven by the Dollar Menu. In that same time frame, Subway has experience a 65% increase in its deal traffic while non-deal traffic has declined 8%. This is not only a QSR phenomenon, however, as T.G.I. Friday's also saw its transactions on deal increase 17% (Yesterday, we posted a chart showing the impact this increased focus on value combined with rising commodity costs is having on casual dining margins).



Charting the FTSE: Finally Oversold!

Apologies in advance for our constant reminder of our market "SELL" call from mid May, but this is what we have to endure to "prove" to the buy side that we make and/or save people money.

A picture is worth a thousand words, and the chart below shows the swift -12% drop in the London Financial Times Index since May 19th.

My downside oversold target for the FTSE is 5605, and we're seeing that tested here this morning. If you're net short European equities, I'd be covering positions into the close and getting neutral, at a bare minimum.

KM

(chart courtesy of stockcharts.com)

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