Monday, February 28, 2005

Morning Comment... The last full week of February left the DOW and the S&P 500 within striking distance of fresh 52-week highs. This week’s busy economic calendar may provide the catalysts to reach those highs, with the highlight being Friday’s payroll #. At 8:30 AM, the Commerce Department is expected to report a 0.1 percent rise in personal spending, the smallest gain since August, after a pullback in car and light truck sales in Jan as automakers reduced discounts. Incomes probably declined 2.6%, after a 3.7% gain last month which included the $32bln MSFT dividend. The PCE deflator (YoY) is expected at +2.2%, with the core expected to rise +1.5%. At 10AM, New Home Sales are expected to rise to 1125k, from 1098k in Dec. The Chicago PMI probably declined to 60.2 vs 62.4 in Jan, although still consistent with robust economic growth. The $ is off 99c versus the Yen after Japanese retail sales reported the highest one-month gain in 6 years. European markets are higher overnight, led by energy, utilities, materials, and industrials. Telecom and financials are weaker.

Friday, February 25, 2005

Morning Comment... Are Foreigners "cold as ice"?...

No. Foreigners are still “hot blooded” for US Securities, as the Fed reported a weekly increase of $22.4bln in custody holdings by foreign central banks. Although this marks the largest weekly increase in at least a year, the trend is still below last year’s pace when foreign central banks increased their holdings by 30%.

Tuesday’s shellacking and subsequent 2-day recovery in the equity indexes has taken us on a circuitous path back to flat on the week. Now what?

Today’s Q4 GDP is expected to be revised to 3.7% from the initial 3.1%. The sharp rise is mostly due to the expected change in the Canadian export data with Canada being our largest trading partner (f-statcan). At 10am Jan Existing Home Sales are expected 6.7mm- little changed with Dec and slightly higher than average over the past year. Chief of the Int'l Energy Agency is publicly pressing OPEC not to cut production at their next meeting and he's concerned about current level. French unemployment hit a 5 year high at 10%. AMG reported equity inflows of $292mm into domestic funds, however, Int'l funds received 85% of total inflows.

Thursday, February 24, 2005

Morning Comment... Crude prices have jumped as much as 58 cents to $51.75 a barrel overnight on expectations that parts of the Northeast could see over ½ foot of snow in the next few days and a Siberian freeze in western Europe. With oil prices rising over 20% since the beginning of January, OPEC will most likely be forced to reinstate their 1mm b/d cut from 1/1/05. Expectations for the 10:30 storage data are: Crude +1.2mm, Gas +1.4mm, Distillates -1.75mm.

Jobless claims at 8:30 are expected 309k vs 302k last week, the lowest since Oct 2000. The low level of weekly jobless claims increases the odds of a high print in the payroll # next Friday (possibly 200k +). Jan Durable Goods are expected flat and up .3% ex-transports vs a 2.4% gain in Dec. Jan will be free of the Dec 31 '04 expiration of the depreciation tax credit implemented to spur cap spending.

Wednesday, February 23, 2005

Morning Comment... Jacko’s back in court, Barry Bonds is ‘roid-raging, it’s raining in southern California, and South Korean, Taiwan and Japan said they have no plans to diversify their US $ reserves. All’s back to normal. Also strengthening the $ is Germany's IFO business confidence # coming in weaker than expected and Japan's trade surplus lower than expected with an unexpected drop in exports. Oil lower by .30 after Kuwaiti oil minister said OPEC would act if prices went higher from here. Expectations for the much anticipated CPI are an increase of 0.2% for both the headline and the core reading. Because 60% of the CPI is service-related, the .8% core gain in the PPI may not show up in today’s CPI, but any delay is likely temporary. ABC confidence fell 1 pt to -11. Mortgage apps fell .6% with refi's up .1% but purchases falling to a 6 week low down 1.3%. FOMC minutes from Feb 1&2 meeting at 2pm.

Tuesday, February 22, 2005

Morning Comment... The $ is down sharply versus the yen and the euro after the Bank of Korea said they would diversify their currency reserves away from the $. South Korea has the 4th largest currency reserves in the world and are the 5th biggest holders of US Treasuries but hold just 10% of what Japan has. Diversification occur into the Canadian and Australian $’s. The shadow-scared Punxsutawney Phil is lengthening the winter here (and Europe as well), and cited as the reason for the $1 rise in crude prices overnight. European stocks are off about 1% on currency and oil factors. WMT reiterates 2-4% comp gains in Feb. Economists expect the 10am Consumer Confidence to be inline with the Jan reading of 103.4, which was the highest since July. Following the sticker shock core PPI last week, tomorrow's CPI is the key # of the week. 6 Fed rate hikes have only gotten real rates back to zero.

Friday, February 18, 2005

Brain Drain
Highlight from a report from the American Electronics Association:

Immigration policy post 9/11 has deterred foreign nationals from coming to the United States to study or work. They are choosing to go elsewhere and we lose when this happens. Last year, foreign applications to American graduate engineering programs plummeted 36 percent. One out of five scientists and engineers in the United States are foreign born.
PPI Comment

PPI is inline at +0.3%, however ex-food and energy number is a higher than expected 0.8%. The BLS commented to MarketNews, “No one driver accounted for the rise, it was broad-based”. Even if you take out the anomalous rise in cigarettes, alcohol, and heavy trucks, the rise was still 0.6%. The lack of a scapegoat appears to be roiling the markets right now.
Morning Comment
Today’s economic numbers will give us an indication as to the price of dirty water dogs when viewing the Gates this weekend. The Jan PPI is expected to show an increase of 0.3%, up from a 0.3% decrease in December. The higher reading is probably due to a strengthening commodity market, as yesterday the CRB index hit its highest level since the end of Nov and was up about 2% in Jan. Feb U of Michigan Consumer Confidence expected 95.5, unchanged with Jan. <>

The 10 year is down a point since the beginning of Greenspan’s
testimony. The Humphrey Hawkins testimony brings about an average absolute change of 34/32 in the bond market. Historically speaking, that move is followed by a larger move in the same direction. This is the backdrop as we await the PPI today and the CPI next Wednesday. Do the “curve-flattening” trades start to unravel? <>

led higher by strength in basic material stocks. France avoided a Q4 contraction with a 2.2% gain in GDP. Japan finished its 4th week in a row higher in spite of the Q4 GDP weakness. Jan semi equip book-bill hit lowest level since Nov '02 at .80 down from .94 in Dec. Also, AMG reported equity inflows of $616mm into domestic funds with large inflows into utility and energy ETFs.

Thursday, February 17, 2005

This story is even funnier if you know it happened the EXACT same way over a year ago. The Greenpeace protesters cut phone cords and then were beaten with the newly liberated handsets...


Morning Comment: The eBay market for 2.5 x 2.5 inch saffron-colored swatches of cloth is $20-$30. Does anyone have a step-ladder and a good pair of scissors?

There might be a few more people in the park to see the Gates this week as weekly jobless claims are expected to rise to 315k, that’s higher than last week’s 4-year low of 303k. If the trend below 320k continues, we could see the average monthly payroll gains to register above 200k. Jan Import Prices are expected up .6%. 2004 Import Prices were up 6.9% and 3.8% ex-petroleum, the highest since 1995 with the weaker $ being the main catalyst. Whilst most market participants agree that inflation is currently subdued, it’s the upward trend that the Fed is trying to slowdown with its rate hikes. At 10am Leading Indicators are expected down .2% following 2 months of gains which followed 5 months of declines. At 12pm Feb Philly Fed estimates are 17 vs 13.2 in Jan. The average in the last expansion was 11. Oil stocks are driving European markets higher while Asia is quiet. Greenspan repeats his testimony in front of the House at 10am followed by another Q&A session.

Wednesday, February 02, 2005

The 4 week moving average of new mortgage aps is below the 1-year average. This is a negative technical development. Could the socal floods and 5 feet of snow in New England be the explanation? It’s interesting to note that the S&P 500 Homebuilding Index recorded an all-time high yesterday. First Boston is also seeing positive areas of strength in So Cal, Arizona, and Florida...

Tuesday, February 01, 2005

Earlier Openings and the End of the NYSE

There are a variety of investor grumblings about the activities of the NYSE- front-running orders, inefficient executions, trading expenses- to name a few. However, no one suggests that the exchange would better serve its clients through additional trading hours.
An example of the NYSE's inefficiencies occurred on Dec 17th. Shortly before the open, PFE announced they would add warning labels to Celebrex. The stock traded down on heavy volume on the ECN's, however, it took the NYSE over half-an-hour to open the stock. When the specialist finally opened the stock at $23.5 on 30mm shares, this served as the low print of the day. It appeared as if the specialist waited to collect every SELL order before opening the stock and immediately running it to $24.50, and eventually through $26. In the time that PFE was halted on the floor, nearly 12mm shares traded on the ECN's.
If the NYSE seeks to be competitive with other exchanges, then be
competitive- provide liquidity when it is needed, and not when it's convenient to the member's financial situation. The NYSE should overlook this futile attempt to re-capture pre-market volume, and instead, focus its attention on the real reasons why business is "trading away". Doing anything else will only serve to protract its eventual demise.

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