Short-Term Market Outlook

I just gave an interview to CNBC Online. Here are my notes ...

OIL AND GOLD

Oil hit $88. It may have gone up too far, too fast, $92 is my line in the sand short-term, and I expect some consolidation before the next real run higher begins.

Gasoline should go higher due to supply squeeze, but it may follow oil if oil turns lower.

Gold hit $772 then reversed. (UPDATE: Now it's up again! Holy cow!) Looks technically poised for a pullback, but it really depends on what happens with the US dollar, which is managing a pathetic bounce.

TECH

So many investors saw tech as a refuge and piled in long after it became overpriced. Nasdaq is richly valued and bad news could burst the bubble of great expectations.

LM Ericsson's stock, which is listed on the Nasdaq, is getting hammered after the company softened its third quarter outlook "due to a shortfall in sales in mobile network upgrades and expansions which resulted in an unfavorable business mix.”

ValueClick shares tumbled Tuesday after the online-advertising firm lowered its outlook. This is a harbinger of doom for online and some tech stocks. Amazon and Overstock were both downgraded. IBM, Intel and Yahoo all report earnings after Tuesday's market close. I expect disappointment, though number-fudging can always come to the rescue.

FINANCIALS

Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. are starting an $80 billion to help revive the asset-backed commercial paper market.

The new company will buy assets from structured investment vehicles (SIVs), units set up to purchase securities such as bank bonds and subprime mortgage debt. Problem is, The SIVs have about $320 billion in holdings, which is now, according to some accounts, so much worthless paper.

Wall Street breathed a sigh of relief in recent weeks when one big bank after another reported “all the bad news” in earnings. They thought that this kitchen-sink approach meant earnings could only go up in future quarters. Now it looks like it’s not only the kitchen sink, but the entire plumbing that is rotten.

I think the big financials think $80 billion will be getting off cheap. And that is a scary thought for anyone who is long the financials.

The news this morning isn’t good, either. Midwest regional bank KeyCorp said Tuesday its third-quarter net income fell 33 percent from the year-ago quarter as it wrote down loans and took higher loss provisions as the value of mortgages fell. And Wells Fargo reported a smaller-than-normal 4% increase in its third quarter profit, as failing home and auto loans weighed on earnings. Both KeyCorp and Wells Fargo are members of the IYF, which tracks the Dow Jones US Financials Index. I think there’s more bad news to come.

AGRICULTURE

Exports running way ahead of expectations. Droughts around the world are heating up foreign demand.

Sky-high wheat prices are grabbing the headlines, but keep your eye on corn. Demand for corn is rising. Corn usage will jump 5.3% to 763.7 million tons, the USDA said. Corn is used to make sweeteners and ethanol as well as animal feed. Farmers are substituting corn for sky-high wheat. The real growth in demand is overseas. US exporters just reported sales of 242,000 metric tonnes of corn to South Korea.

And the Koreans aren’t alone. Customers are lining as a killer drought withers the China corn crop China is normally a big corn exporter, but not this year. China's corn production will fall to 143 million metric tons from 145 million a year earlier, the USDA estimates. As a result, China's exports will plunge to 1.5 million tons from 5.2 million.

This all puts a lot of money in farmers’ pockets, so they’ll be buying lots of fertilizer and seeds to plant from fence to fence. Equipment makers should have a bumper year.

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