WHILE YOU WERE SLEEPING IN THIS ISSUE – read the whole 7 pages HERE.

• Equity markets are rallying again, but the data could cooperate more

• When you have the Fed Chairman and a CEO of a bank saying the same thing, one of them can’t possibly be right

• U.S. dollar is clearly in decline; good for commodities, terrible news anyone earning U.S. dollars

• The greatest non- confirmation of the rally in the equity market is the near-zero yield on the U.S. 3-month Treasury bill

• Japan’s Nikkei index has become a confirming barometer for the S&P 500

• Canadian existing home sales — what housing collapse?

• U.S. retail sales very strong in August …

• … And so was the PPI and NY Empire manufacturing index

Equity markets are rallying again (the MSCI Emerging Market index just hit its best level in over a year) but the data could certainly cooperate more.  German retail sales were reported down 1.7% through the first seven months of 2009.  U.K. data on employment was weaker than expected too — wages slowing to +1.7% YoY in July from 2.5% in June (+1.9% was expected) and August unemployment jumped 24,400 (and all this prompted a further move down in the U.K. 2-year Gilt yield to a 17-year low of 0.74%).

As for yesterday’s data, the reason retail sales in the U.S.A. exceeded expectations was the use of very aggressive seasonal factors, which made the raw data seem stronger than they may have been.  In fact, we estimate that it made the difference between the 2.7% gain we saw and the 2.0% gain (and flat core number) we would have likely seen with the application of a more normal seasonal adjustment factor.  The market wants to believe that the American consumer is poised for a sustainable recovery, but there are far too many roadblocks and in due course, investors will be back pricing in the new frugality that is customary after a credit collapse and asset deflation of the magnitude that households endured over the last two years.  As an aside, you know that when you have Ben Bernanke and Ken Lewis both saying the same thing — the recession is over — one of them can’t possibly be telling the truth (though Greenspan sounded optimistic for the next six months yesterday and the Oracle is a buyer — 55% and 8 multiple points later (isn’t a value investor supposed to buying low and selling high?).  And, the ballyhooed call for a renewed inventory cycle just isn’t happening — U.S. business inventories actually declined 1.0% in July, the 12th decline in a row.

The U.S. dollar is clearly slipping to new lows for the year and with the DXY at 76.291, we are a hair’s breadth away from breaking below the September 22, 2008 nearby low of 75.89 and once that figure is taken out, there is nothing but air down to the 70 level.  Great news for commodities or anything else “priced in” U.S. dollars; terrible news for anyone earning dollars (though most pundits are mercantilists and think this is a great reason to buy equities) and it means that the Loonie is going to very likely break back above par sooner rather than later.  Canadian importers, such as retailers and wholesalers, will benefit; manufacturers and tourist operators will bear the brunt of the adjustment. Resource producers will be cushioned by the secular growth in Asia and the concomitant positive implications for underlying commodity prices.  Gold, as an aside, just made a fresh 18-month high above $1,020/oz.

….read pages 2-7 HERE.