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Pre Market - December 13th 2007

Producer Price Index (PPI) data was released this morning and the part that stands out the most is the cost of goods is continuing to rise which will continue to put down ward pressure on the average person. As the cost of goods rises faster than income then you continue to build a ‘tipping point’ situation where the consumer is forced to cut back on discretionary spending. And that adds to the chances of an economic recession which is induced by the consumer.

The big jump in the PPI data this morning was a mostly a result of the cost of home heating oil and gasoline escalating by large amounts.

Home Heating Oil: 31.5 (two months ago it was 2.0)

Gasoline: 34.8 (two months ago 8.4)

Our view on PPI data is that higher the wholesale inflation is, the greater the chances of a consumer induced recession.

Weekly jobless claim were also released this morning and were down by 7K. No significant event in either direction yet, but I still anticipate unemployment will edge up in the near future.

This morning H & R Block reported:

Said in its Q2 report filed with the SEC that it doesn’t expect it will be in compliance with an OTS order to meet a 3% minimum ration of adjusted tangible capital to adjusted total assets.

Company disclosed that it doesn’t expect to meet the minimum ratio by April, and said the OTS could require the company to pay civil monetary penalties and sell assets. If it doesn’t cure the deficiencies and if its operating results continue to below its revised capital plan, "a resulting failure could impair our ability to repurchase shares of our common stock, acquire businesses or pay dividends,"

Lehman (LEH) reported a better than expected earnings for the quarter, however the stock continues to sell down in pre market as the confidence and trust in financial companies continues to be erased.

Retail sales data was better than anticipated, BUT, the important thing to remember here is that year over year it is lower. When the talking heads on TV say "retail sales were great" you must remember that the context is on expectations, which have already been lowered. So even though numbers were better than expected, it is lower than what we had last year. Slowing consumer spending remains our concern for the economy. And the higher cost of goods will impact this even further.

Countrywide Financial (CFC) said this morning that mortgage funding for November was down $23 Billion (40%)