High fliers clipped

RTGAM

Think about a high-flying stock. Now watch it fall.That seemed to be one of the themes playing out in North America on Thursday, as many of yesterday's winners turned south. Some might call it "profit taking."

Others will call it healthy consolidation. And still others will point out that winning stocks tend to overshoot their underlying fundamentals, creating dangerous momentum that ends in tears.Here are a few examples: Potash Corp. of Saskatchewan Inc. fell 1.1 per cent, its first losing day in the past 13 sessions; Monsanto Co. fell 3.2 per cent, a day after surging 7.2 per cent; and Timminco Ltd. fell 7.9 per cent, the biggest one-day setback for the specialized metals producer in about a month.That said, many of the long-ignored or beaten-up stocks performed well, leaving major indexes above water.

The Dow Jones industrial average closed at 12,620.49, up 1.22 points or flat on a percentage basis. Citigroup Inc. rose 2.5 per cent, American Express Co. rose 2.2 per cent and International Business Machines Corp. rose 2.2 per cent. Pfizer Inc. was the biggest loser on the blue-chip index, falling 3.3 per cent and dragging down Merck [amp]amp; Co. Inc. with it.The broader S[amp]amp;P 500 closed at 1365.56, up 0.85 of a point or less than 0.1 per cent. Google Inc. closed at $449.54 (U.S.), down $5.49 or 1.2 per cent.

After markets closed, the Internet company reported a surprising 31 per cent jump in first-quarter profit, beating expectations. In extended trading, the stock rose 11.5 per cent, to $501.In Canada, the S[amp]amp;P/TSX composite index closed at 14,115.50, up 16.02 points or 0.1 per cent. Without Potash Corp. - the biggest mover on the benchmark index in recent weeks, and now the biggest one-day drag - to drive it higher, the Big Banks and energy producers took the lead. Royal Bank of Canada rose 1 per cent and Toronto-Dominion Bank rose 0.9 per cent. Canadian Natural Resources Ltd. rose 1 per cent and Suncor Energy Inc. rose 1.7 per cent.[amp]nbsp;[amp]nbsp;Copyright 2001 The Globe and Mail

Low inflation? Ya, right

Low inflation? Ya, right

Thursday, April 17, 2008
Not everyone is buying the idea that the U.S. inflation rate is relatively benign and therefore nothing for the Federal Reserve to worry about as it slashes its key interest rate. Some observers believe the actual rate is closer to 9 per cent, rivalling China's problematic rate of inflation.

Martin Hutchinson, writing on Breakingviews.com (subscription required), noted that the official change in the consumer price index, as reported by the Bureau of Labor Statistics, showed a rise of 0.3 per cent in March. Big deal. But that is only after BLS changed its seasonal adjustment policy drastically.

Traditionally, BLS has seasonally adjusted the March rate downward, by an average of 0.2 percentage points over the past 10 years, and at most 0.3 percentage points. This time, according to Mr. Hutchinson, the seasonal adjustment was a baffling 0.6 percentage points because of a change in the methodology in January.

If instead the seasonal adjustment had followed the average, the March reading for the consumer price index would have been 0.7 per cent, more than double the official 0.3 per cent, which amounts to an inflation rate heading toward 9 per cent on an annualized basis.

“That is remarkably close to the inflation rate in China, where the central bank is busy raising rates and squeezing financial institutions,” Mr. Hutchinson said. “It's well above the rate in the euro zone, where the European Central Bank has held rates constant, without letting troubled banks run out of money. But the Fed has been cutting while prices rise.”

Barry Ritholtz, writing on The Big Picture blog, couldn't agree more with the 9 per cent figure floated by Mr. Hutchinson: “That's a little closer to reality than the reported nonsense we got yesterday,” he said.

“Unless of course you believe that food prices in the U.S. have only risen 4.5 per cent over the past 12 months. Other countries with much stronger currencies are suffering from global food inflation in the double digits – but we of the free-falling American Peso have inflation under control. Does that smell kosher to you?”

© Copyright The Globe and Mail

Oil Patch Moving Up

JPMorgan relief - If good news comes in waves, Wednesday is a good day

JPMorgan reliefRTGAMIf good news comes in waves, Wednesday is a good day for

surfing.JPMorgan Chase [amp]amp; Co. reported first-quarter earnings that were 50 per cent lower than last year, but above expectations and a huge relief for investors worried that big surprises lurked at the investment bank.As well, the bank's per share profit of 68 cents (U.S.) was higher than the consensus expectation of 64 cents a share.This follows the report Tuesday's report from Intel, which announced a 12 per cent dip in first-quarter earnings but a confident prediction for second quarter sales that topped expectations.In economic news, the U.S. Labor
Department reported on Wednesday that consumer prices - an important gauge of inflation - rose 0.3 per cent in March, much higher than the flat reading in February but right on expectations. Much of the increase was due to rising energy prices.

The core rate, which strips out food and fuel prices, rose 0.2 per cent, also in line with expectations.The U.S. Federal Reserve, which has been cutting its key interest rate to strengthen the economy, is betting that the inflation rate will settle back as the economy slows.North American stock index futures were higher with an hour to go before markets open for trading. Futures for the Dow Jones industrial average rose 64 points, to 12,418. Futures for the broader S[amp]amp;P 500 rose 9 points, to 1345.In Europe, the U.K.'s FTSE 100 rose 0.9 per cent and Germany's DAX rose 0.6 per cent. In Asia, Japan's Nikkei 225 index rose 1.2 per cent in overnight trading.[amp]nbsp;Copyright 2001 The Globe and Mail