Mixed economic reports injected extra uncertainty into the market this week. Retailers' lackluster same-store sales reports Thursday spooked traders and sparked the worst selloff in several months. Yet a mild core PPI reading Friday suggested inflation was well under control, and the bulls took back control.

Friday's action lifted the


111.09, or 0.84%, and the index finished at 13,326.22. The

S&P 500

rose 14.38 points, or 0.96%, to close at 1505.85, and the


added 28.48 points, or 1.12%, to end the session at 2562.22.

For the week, the industrials tacked on 0.5%, but the S&P 500 was essentially unchanged, and the Nasdaq actually lost ground, slipping 0.4%.

Once again,


bloggers were all over the market action, and we'd like to share the best of their commentary this week with readers of the


. These posts best capture the intent of these blogs, which is to provide intelligent discussion on the issues each writer sees as most pressing that day.

Let's take a look at

Rev Shark

on the bears' brilliant reasoning,

Cody Willard

on the dropping-dollar debate,

Steve Smith

on options action before takeover announcements and

Tony Crescenzi

on misleading jobless claims.

Click here for information on


, where you can see all the blogs -- and reader's comments -- in real time.

Rev Shark's Blog: Ignore the Bears' Brilliant Reasoning

Originally published on 5/10/2007 at 8:22 a.m.

"Acceptance of what has happened is the first step to overcoming the consequences of any misfortune."

-- William James

Despite the fact that markets are hitting new highs, many investors are feeling quite unhappy because they feel they have not participated to any great degree. That feeling isn't all that surprising given that leadership has been quite different than anything we've seen in prior rallies over the past 10 years or so.

In addition, the malaise in the real estate market, concerns about an impending economic slowdown, high gas prices, and generally subdued consumer sentiment have kept many from embracing what would appear to be a market with a perfect storm of positives. Earnings have been good, merger and acquisitions news plentiful, and buckets-full of cash are at the ready to throw at any weakness.

Market players should be celebrating this wild momentum but many are grumbling about the lack of pullbacks and are dwelling on the mistake of staying too cautious as the Dow goes on a record-setting run.

So what do we do? As Professor James states above, the first step is to simply accept reality. The market is making a parabolic run and giving no indication of slowing. Maybe there are good reasons why this is unsustainable and just plain illogical, but the market is not a rational beast and trying to argue with it is totally useless.

Doug Kass over on Street Insight has

lots of good reasons to support the idea that this market is going to fall apart, but the market's reaction is "Doug who?" Those great bearish arguments only matter when momentum dies and the trend turns down. You will only be frustrated if you try to anticipate that point.

Even if the market does weaken, the initial pullbacks are likely to be shallow and will entice underinvested bulls who are looking for entry points. We are very unlikely to see the market fall apart and go straight down immediately after hitting new highs. Any change in trend will take time to develop.

So accept the reality of this momentum-driven, parabolic move and don't expect it to end with a mighty crash. Things will eventual change but it will be a difficult transition over a fair amount of time. If you are too bearish too early it will likely cost you more than if you stay at least a little bullish too long.

We have a little pressure this morning as the focus shifts to retail sales, which look to come in a bit weak due in part to poor weather in April. In addition, calmer heads are contemplating the Fed interest decision this morning and may question whether the lack of any change in policy is a positive.

Cody Willard's Blog: The Course of the Dropping Dollar

Originally published on 5/7/2007 at 2:11 a.m.

"You say times are tough.
We've got the best of both worlds here.
The real world is not as calm as it appears to be from here,
The old world is not as safe with the new world closing in."
-- Midnight Oil



is still printing money, as any M2 chart will tell you. So would any M3 chart too, I'm sure, though the government decided its bureaucracies were too busy to continue reporting such data. If you believe that any bureaucracy in history has ever been interested in the effective use of time, I've got some swampland in Florida to sell you. Oh, wait, somebody already bought that swampland with the free money that the M3 chart would show the Fed is pumping into people's pockets. Ah, the irony.

The world's other fiat currencies, when priced in dollars, are appreciating. Gold, silver and most any other metal are gaining big ground against the dollar still. "Oil and the energies" aren't just a great name for a Midnight Oil cover band; they're also up big against the dollar over the past few years. Treasuries and just about every other form of debt are also near historic highs against the dollar. Domestic real estate is basically the only asset that isn't appreciating against the dollar in a macro way.

I state the rallies in those asset classes in terms of appreciating against the domestic fiat currency, the U.S. dollar, because that's certainly part of the booming rally we're experiencing. The dollar's drop against the world's other fiat currencies and the impact it's having aren't only about the "

effects of FX" on earnings. And it's not just about whether or not anybody overseas is making any money, as measured in their own fiat currencies, in our domestic markets, as the great debate in

Columnist Conversation is hitting on.

But what's the end game of this dropping-dollar scenario? If the dollar continues to lose its value against most any other asset class, then we're going to start to see inflation really kicking in. After years of arguing that any understatement of inflation by the government bureaucracies hasn't been worth paying attention to, I'm no longer of that mindset. A continued mass loss of value of our domestic fiat currency would mean that inflation will get quite problematic. But don't worry, the bulls will tell you; as long as you're buying stocks in dollars to begin with, they'll inflate, too.

TST Recommends

What if the dollar recovers some lost ground against other currencies, commodities and most other asset classes? Would stocks be included in that asset class, such that a stronger dollar would be the worst thing for this market?

It sure "feels" like cash, even with its 5% yield, is the enemy and that anything -- stocks, milk, gold, the


, the


and, yes, certainly

Darfur -- is a better play than cash.

I sure wouldn't run for the hills off this type of big-picture macroeconomic analysis, as anyone who has laid out these types of arguments as a reason to short the market has been dead wrong for most of the last century, decade or five years. But, as I keep saying, I'm more worried about the macroeconomic setup and the possible complacency therein than I've been since I first started this business five years ago.

Ouch! I better go spend those dollars burning a hole in my pocket. Or maybe I could use them as fuel for my new grill. After all, the cost of goods into the penny and most other coins is more than their intrinsic value now. Maybe the profligate Fed's effect on the dollar and the greenhouse's effect on wood supplies, not to mention the booming chemical sector rally, will conspire to push the cost of making a dollar bill higher than its intrinsic value.

Let's debate in the comments area of my blog. See you in there.

Steven Smith's Blog: A Sobering Take on Takeovers

Originally published on 5/10/2007 at 3:20 p.m.

Not only has the pace and size of takeovers hit record levels in recent weeks, but it seems that almost every deal was preceded by -- and had profits realized from -- astute, some might say, suspicious option trading.

But a recent study from McMillan Analysis Corp,, an option-based research and money-management firm, has come to the conclusion that there are very few deals in which option activity has actually tipped off the real deal. In fact, the data shows that in the past 52 weeks, there have been some 100 rumored takeover deals, with a full 60 of these failing to materialize.

According to TheDeal.com, of the 40 that did occur, only seven had action that "might have been considered noticeable in advance" based on the stock and option activity in the three or four days preceding the announcement. These include

ABN Amro

( ABN),


( HET),

Catalina Marketing

( POS) and

Sabre Holdings


But maybe the fact that most of these slipped under the radar has made recent activity more brazen and suspect. The most obvious examples that are now under investigation include

First Data Corp

(FDC) - Get Report

, which I

flagged three days prior to its buyout bid,


( TXU) and

Armor Holdings


, which I also

flagged a few days prior to the deal. So basically you are looking at a one in 50 chance that rumors and option activity will translate into an actual deal, meaning on the whole, chasing every rumor has been a losing proposition.

But the report also makes note that the frequency of accurate tells has coincided with the increased size of the deals, in terms of both monetary value and the number of parties involved. To secure the capture of a $20, $30 or $80 billion company requires a much larger army, from a combination, or clubs, of buyers, to larger teams of lawyers and more investment banking partners that bring a longer line of analysts in tow. This makes it much more difficult securing the integrity of all the players and dealing with a larger pool from which possible leaks must be plugged.

The conclusion of the study in regard to increasing the probability of profiting from takeovers is to ignore rumors and focus on companies that have publicly announced they are for sale or seeking strategic alternatives.

In the past six months, there have been 20 examples of such situations, including


( MEDI) and


( OMM).

Of these 20 occurrences, 16 traded substantially higher following the announcement. But more importantly, nine of those 16 produced an average 10% gain following the price pop after the initial announcement the company was on the block. The remaining four saw their stock ultimately trade lower than the price prior to the sale confirmation.

The bottom line is it's great to gamble and be right on a speculative rumor that proves to be true, but the high-probability trade is to go with situations that have some degree of factual confirmation.

Tony Crescenzi's Blog: How Jobless Claims Might Mislead

Originally published on 5/10/2007 at 9:23 a.m.

Jobless claims fell for a fourth consecutive week, underpinning the ideathat weakness in April employment statistics may have been unduly influencedby extraordinary weather conditions. The figures also support the idea thatspillover from the housing market, particularly the recent sub-prime mess,has been small.

Nevertheless, jobless claims are probably understating thedeterioration that has occurred in the labor market mainly because the dataare failing to capture layoffs of unauthorized workers, who are ineligibleto receive jobless benefits. This is particularly important in the currentsituation because the construction industry is known to employ a large shareof the nation's unauthorized workers.

Data from Pew Research indicate that 1.4 million of the 7.2 millionunauthorized workers in the U.S. work in the construction trade, or roughly25% of the 7.68 million construction jobs. This means that many layoffs inthe industry will be unrecorded.

There probably are a number of registeredU.S. citizens also working "off the books" in the construction trade, whichboosts the odds that layoffs in the industry will be undetected, at least asfar as the jobs data go. The layoffs will be detectable in data such asretail sales, which will capture the income losses that occur. This isevident in today's chain store sales data.

As for the numbers, claims were 297k in the week ended May 5, 18k belowthe consensus forecast and the lowest since the week ended January 12th.Excepting that week, claims are at their lowest since February 2006. Thecurrent level is 22k below the 1-year average.