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Stock Market - Pre Open Report - February 15th 2008

Futures have deteriorated substantially this morning on multiple signs that the economy continues to worsen. This morning we received the NY Empire Manufacturing Survey data and it indicated a continuing decline in employment and orders that manufacturing companies are receiving. Manufacturing industries in the United States has dwindled substantially over the past 5 years and turned this country into a service provider economy. From 1950 to 1990 the United States was a growing industrial complex. And because of that we rely more and more on imports and any change in import prices has a material impact on inflation and our economy. This brings me to the second bit of news we received this morning which was the import / export price data. Import prices has continued to rise over time and any change in import prices has a very material impact on our inflation.

Another aspect of the import / export price data is the difference between the imports and exports. Over the past 12 months import prices have risen 13.7% and our export prices has risen 6.7% for the same period. This relationship is important in that the United States is paying more to bring goods into the country then it is receiving for goods we sell. And our main export product is agricultural goods.

The import price increase adds to inflation pressures and makes it increasingly difficult for the FOMC to keep cutting interest rates. Credit availability continues to worsen and inflation is still growing.. Not a good combination.

On Wednesday we shorted the Dow by buying the Ultrashort DXD and this trade has worked perfectly so far with the reversal in the DOW taking place just where we predicted it would on our technical analysis. Volatility today is likely to rise on the deteriorating economic reports and it being options expiration day, this combination could provide some wild price moves. For those who also took the trade on shorting the Russell 2000 from our technical analysis are also doing well as that index has also turned as predicted.