POSITIVE SPIN

Let's try to put a positive spin on all the things I worry about. After all to climb a wall of worry is a good thing. My worries fall primarily into three categories, the economy, geopolitical, and the market itself.

Economy-
Interest rates- we are in our 4th year of rising rates, but don't worry they are still historically not high, so the market can still move forward. Hey I heard it on CNBC.
yield curve - Its flat to inverted but this time is different Bernanke told me so.
Housing is slowing down, along with prices, but the Fed said the economy can withstand a housing slowdown.
Sales- they have been weak, as stated in housing, autos , and most recently retail sales, but we are not at a danger point yet.
International rate hikes- Both the ECB and the Bank of Japan have snugged up monetary policy and as a result global liquidity is being reduced. The tightening is occurring from such a low level that it's not a problem.

Market-
We are overbought, but I guess we can get more overbought.
Mutual Fund cash is at record low levels so buying power is lacking. But,the little guy is coming back into the market.
Leadership- Some of the bellwethers have been shot down, Google and Intel to name two.
Others will emerge.
Insider selling is very high, especially in semiconductors. The little guy is buying.
NDX short interest is at very low levels, not much buying power left from short covering.
The little guy is buying.
Volume is low. It will pick up as soon as we break through the highs.
Block trades are way off signaling a lack of institutional participation, but you guessed it , the little guy is buying.
This is one of the longest periods ever without at least a 10% correction. So what.

Geopolitical-
Iraq- deteriorating into civil war. I remember when we turned over more responsibility to
ARVN the South Vietnamese regulars. It was the beginning of the end. Maybe it will force us out of there sooner.
Bird flu- the northern migration of wild birds should bring it to our shores soon. Think of all the pharmaceutical stocks that will benefit.
Iran- no end in sight to that confrontation. At least it's not in the headlines every day.
Trade - Senator Schummer is in China trying to get them to revalue their currency and threatening to slap a 27% tariff on their imports if they don't. If he does, that will thrash the dollar which will be extremely good for multinational earnings.

MCDONALD'S

Earlier this week McDonald's reported February sales. Same store sales were up 4.7%, total sales up only 3%. Sofar this year SSS were up 5.7% in Jan and the 4.7% last month, This is the best back to back SSS increase since 2004 but the stock didn't react, and in fact has been acting week for a month. What gives? Total sales growth has been slowing significantly and persistently throughout 2005. Read my posts on 1/25 and 8/15/05 for background. It is now picking back up but the stock gets no benefit. Analysts have the first quarter earnings at .48 a share, about the same as last quarter, although last qtrs .48 included .015 impairment charge for South Korea, but was fairly clean otherwise. 2005 quarterly numbers have been a quagmire to sort out because of impairment charges, repatriation of overseas profits, large tax benefits, etc, making it easy to obfuscate the underlying trends.

To make .48 last quarter, they had 5.235 billion in revenues, which by the way was the first sequential revenue drop in a 4th quarter since 2002. With two months under our belts and total sales growth was 4.2% in Jan and 3% in Feb yoy. Total revenues are always a bit higher than the sales numbers they announce monthly because they do not include affiliated restaurants like Boston Market. So lets assume next month totals sales spurt to 5% and avg 4% for the quarter, throw in another 1% for Boston Market and say total revenues will be up 5% forma year ago. Last year's 1st qtr revenues were 4.8 bil, so a 5% increase would take them to 5.04 bil. Bottom line, I don't think they are going to make their numbers. They could miss by 2 cents. They sold some Chipolte shares and took a capital gain but that was offset with some further impairment charges. They also bought back a lot of share this quarter which will help and they could sell more Chipolte shares, but I think the street would see through that. In any event we will know in early April as they always pre-announce earnings with their monthly sales release. As an aside, I saw on Bernie Schaeffers website that the Mar 37 1/2 calls had large open interest, probably due to the earlier hedge fund interest in McDonald's. They look to expire worthless now.

The markets rally over the past month that recaptured the highs of the beginning of the year was largely driven by lower oil prices. Most other rallies over the past several months were driven by the Fed is almost done mantra. Today we have a real trifecta weighing on the markets. Bond yields are at their highs for the year, oil is back over $62, and retail sales were softer. I won't go into it now, but final demand is critical to the economy, asset prices, the bond conundrum, exchange rates, etc. In that regard we saw evidence this week that it is faltering. New home sales, resales, auto sales, and today retail sales are all showing sign of softness. The housing market we've known about for a while, auto sales were already weaker last month but were obfuscated by fleet sales. Yesterday both GM and Ford said they were trimming production next quarter, so they don't see the softness going away any time soon. Walmart gave forward guidance of 1-3% for sales this month, not great either. One month does not a trend make, but it is time to keep our eyes open for the often predicted consumer slowdown.