STOCK MARKET WATCH, Tuesday 18 January

THE DOW REPORT
Retail and the Industrials

It has been about six months since we looked at the retailers. For that reason and the fact that we just had the holiday season, I would like to take a look at this sector again and compare it with the Industrials.

“Retail HOLDRS are Depositary Receipts issued by the Retail HOLDRS Trust which represent your undivided beneficial ownership in the common stock of a group of specified companies that are involved in the retailing industry. The Bank of New York is the trustee. Retail HOLDRS may be acquired, held or transferred in a round-lot amount of 100 Retail HOLDRS or round-lot multiples. Retail HOLDRS are separate from the underlying deposited common stocks that are represented by the Retail HOLDRS. The Retail HOLDRS Trust is not a registered investment company under the Investment Company Act of 1940.”

The companies in the index include:

The Retail Holders Index

Albertsons Amazon Best Buy
Costco CVS Federated Dept. Stores
Home Depot Kroger Kohls
Limited Brands Lowes May Dept. Stores
RadioShack Safeway Sears Roebuck & Co.
Target TJX Companies Walgreen
Wal-Mart

-cut-

The index below is the Dow Jones Retail Index. This index is broader than the Retail Holders Index in that it includes 30 of the nations top retailers. It’s worth noting that these same non-confirmations tend to also form between this index and the Industrials at major market turn points.

The fact that we currently have non-confirmations between the Industrials and the Retailers is telling us that since mid November the consumer has pulled back on his spending. This pull back is now beginning to show with the recent break in the Transports. After all, if the consumer is not consuming, then the Transports aren’t transporting. The next domino to watch is the Industrials.

more...

http://www.financialsense.com/Market/wrapup.htm

http://news.ft.com/cms/s/74c4d922-689b-11d9-9183-00000e2511c8.html

US retail sales growth will slow sharply in 2005 compared with last year as consumers feel the pinch of higher energy costs, slow wage growth and lack of economic stimulus, the National Retail Federation said on Monday.

The NRF's sombre outlook for consumer spending, which accounts for more than two-thirds of the US economy, comes despite stores reporting robust sales during the crucial holiday spending period.

Last week the NRF said holiday sales rose 5.7 per cent in 2004, beating its own forecast of 4.5 per cent growth and the 5.1 per cent increase in 2003.

Consumer spending is closely watched as an indicator of income and confidence levels.

In its quarterly Retail Sales Outlook Report, the NRF said 2005 sales of general merchandise, apparel, furniture, sporting goods and other items GAFS sales will rise just 3.5 per cent about half of last year's rate of 6.7 per cent, which was the highest retail sales growth since 1999.

Richard Hastings, retail economist at Variant Research Corporation, said he was also cautious about the outlook for spending in 2005.

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Indexes Spotlight

The March S&P 500 index was lower overnight but remains above the 25% retracement level of last year's rally crossing at 1181.58. Stochastics and the RSI are oversold and are neutral hinting that a short- term low might be in or is near. Multiple closes below the 25% retracement level would open the door for a test of December's low crossing at 1175.70 then the November 22 reaction low at 1171. Closes above last week's high crossing at 1196.70 are needed to confirm that a short-term low has been posted. The March S&P 500 Index was down 3.10 pts. at 1182.90 as of 5:50 AM ET. Overnight action sets the stage for a steady to lower opening when the day session begins later this morning.

http://www.ino.com/

Last trade 83.27 Change +0.21 (+0.25%)

The dollar is up, but my bet's that is will be going down.

U.S. Jan. Empire State index falls to 20.1

http://cbs.marketwatch.com/news/newsfinder/pulseone.asp?dateid=38370.3544968866-831100381&siteID=mktw&scid=0&doctype=806&

WASHINGTON (CBS.MW) -- Manufacturing activity in the New York area expanded at a slower pace in January, the New York Federal Reserve Bank said Tuesday. The bank's Empire State Manufacturing index fell to 20.1 in January from 27.1 in December. The reading was lower than expected. The consensus forecast of Wall Street economists was for the Empire State index to fall to 25.3 in January. The employment index fell to 12.7 in January from 15.7 in December.


8:30am 01/18/05 U.S. JAN. EMPIRE STATE PRICES RECEIVED RECORD HIGH 27.7

8:30am 01/18/05 U.S. JAN. EMPIRE STATE EMPLOYMENT 12.7 VS.15.7 IN DEC

8:30am 01/18/05 U.S. JAN. EMPIRE STATE INDEX BELOW CONSENSUS 25.3

8:30am 01/18/05 U.S. JAN EMPIRE STATE INDEX 20.1 VS. REV 27.1 IN DEC.

Have a Great Day Marketeers!

(personal note: I will not be able to be consistently online for the next 4 weeks but I hope all of you will keep the market watch vibrant and informative while I am away - I will hopefully be able to check in on occasion, but I'm not certain that my computer connections will actually work - fingers crossed.

Take care and have fun at the casino!)

By Christina Fincher

LONDON (Reuters) - The dollar bounced back from a five-year low against the yen and hit a two-month high against the euro on Tuesday as market attention swung back to the prospect of rising U.S. interest rates.

Several Federal Reserve officials are due to speak later in the day and could reinforce the tone struck by the minutes of the central bank's latest policy meeting.

"The Fed has struck a somewhat more hawkish tone and today's Fed speakers could hint again the pace of interest rate hikes could be faster. This is giving a cyclical support for the dollar," said Shahab Jalinoos, senior currency strategist at ABN AMRO.

snip..

By 6 a.m. EST, the euro was down 0.15 percent at $1.3042 having fallen below $1.30 earlier in the session for the first time since November. The dollar was up 0.75 percent against the yen, at 102.80, up more than a yen from five-year lows hit on Monday.

Sterling gained after news of an acceleration in British inflation dimmed speculation the Bank of England may lower interest rates in the coming months.

http://www.reuters.com/newsArticle.jhtml;jsessionid=K1G3RRNEZU222CRBAEKSFEY?type=businessNews&storyID=7353323

Will the dollar become strong again? If so, how?

the buck...talk about a long title!

Lesson in Values: As Dollar Weakens, Hidden Strengths May Stave Off Crisis; 'Twin Deficits' Would Sink Other Currencies, but U.S. Is Clearly a Special Case; Brazil Takes Tough Medicine

Abstract summary of article:

Mr. Roubini says the U.S. shares several of these vulnerabilities: large current-account and budget deficits -- nicknamed "twin deficits" -- with little prospect of resolution, and a growing portion of those deficits financed with short-term borrowing from foreigners. "The average emerging economy would have already gone belly up with these twin deficits," Mr. Roubini says. The U.S. has been spared, he says, because it can still borrow in dollars instead of foreign currency, meaning others bear the pain if the dollar depreciates. By contrast, developing countries often borrowed in dollars to take advantage of lower interest rates but faced a crushing repayment burden when they could no longer keep their currency pegged to the dollar. Brazil's Mr. notes fear of government default was a key contributor to its crisis, but that has "zero probability" in the U.S.

Indeed, as imbalances have grown in the past decade, currency markets, by some measures, have become more orderly. It's been a decade since the dollar's drop seemed dangerous enough to spark a concerted response from the U.S. and its allies. On the morning of March 2, 1995, Ted Truman, then top international staffer at the Fed, was getting reports of massive dollar sales, some triggered by derivatives strategies, driving the U.S. currency down sharply against the deutsche mark and yen. Bond yields were rising. Mr. Truman went to see Mr. and recommended the Fed and Treasury intervene in the markets to buy dollars. "I don't think it's going to do any good," Mr. Truman recalls telling Mr. Greenspan. "But by not being there we are saying we totally don't care what the conditions of the markets are."

Mr. Truman, now a scholar at the Institute for International Economics in Washington, predicts that in the next five years, the U.S. will have to intervene again "either because it's a period of disorder or because we can't withstand the political criticism from our partner countries." He adds: "The very richness and increased flexibility of markets that Alan Greenspan has emphasized probably translates into fewer episodes of disorder, but when they come, they're going to be bigger."



snippets from actual article:

snip>

A lot has changed since 1978. At the time, the falling dollar was both a cause and consequence of high inflation, which corroded its purchasing power at home and abroad. Today, inflation is much lower and investors believe the Fed will keep it that way. While the falling dollar and high oil prices have boosted inflation a bit lately, investors believe that will be temporary. Ten-year Treasury-bond yields remain near 40-year lows of 4%, compared with 9% in 1979. The Fed thus believes it can gradually raise its short-term interest-rate target, still very low at 2.25%, without slowing the economy in the process.

But some things are worse. In 1978, the U.S. current account deficit -- the balance on goods and services trade plus the balance on investment income between the U.S. and its trading partners -- was less than 1% of gross domestic product. It is now approaching 6%. That deficit represents the extent to which U.S. households, corporations and governments spend and invest more than they earn. Compared with 27 years ago, U.S. households save far less of their after-tax income, and thus must borrow more to finance their housing and consumption. The federal government also borrows more; its budget deficit was 2.7% of GDP in 1978 but was 4.5% last year.

Just as an individual who spends more than he earns must borrow or sell some of his assets to pay his bills, the U.S. finances its current-account deficit by either borrowing or attracting foreign investment in its businesses and stock market. Lately, it has borrowed heavily by selling Treasury bonds and other IOUs, often to foreign central banks. As a result, the U.S. has gone from having net foreign assets equal to 9% of GDP in 1978 to net liabilities equaling about 25% now. Mr. Eichengreen says there is no historical precedent for such a large economy being so heavily in debt to the rest of the world. Timothy Geithner, current head of the New York Fed, recently highlighted the risks: "We are significantly more dependent today on the confidence of the rest of the world in U.S. economic policy."

snip>

Indeed, as imbalances have grown in the past decade, currency markets, by some measures, have become more orderly. It's been a decade since the dollar's drop seemed dangerous enough to spark a concerted response from the U.S. and its allies. On the morning of March 2, 1995, Ted Truman, then top international staffer at the Fed, was getting reports of massive dollar sales, some triggered by derivatives strategies, driving the U.S. currency down sharply against the deutsche mark and yen. Bond yields were rising. Mr. Truman went to see Mr. Greenspan and recommended the Fed and Treasury intervene in the markets to buy dollars. "I don't think it's going to do any good," Mr. Truman recalls telling Mr. Greenspan. "But by not being there we are saying we totally don't care what the conditions of the markets are."

Mr. Greenspan agreed, and that afternoon the Fed and the Treasury waded in, buying $600 million of marks and yen. The next day it repeated the action, joined by 13 central banks. The dollar stabilized. Bond yields dropped.

The U.S. intervened to support the dollar a few more times that year, but hasn't done so since; markets have generally been smooth, and the Clinton and Bush administrations came to see intervention as being of limited use.

Mr. Truman, now a scholar at the Institute for International Economics in Washington, predicts that in the next five years, the U.S. will have to intervene again "either because it's a period of disorder or because we can't withstand the political criticism from our partner countries." He adds: "The very richness and increased flexibility of markets that Alan Greenspan has emphasized probably translates into fewer episodes of disorder, but when they come, they're going to be bigger."

got hit with the flu last week. Haven't been that sick since 1968 during the Asian flu epidemic. Anyway, I'll post the closing #s today. Dana ; )

those flu bugs that are making the rounds are pretty nasty this year. Think I've had just about each strain that's floating around this area over the past few months. Hoping I'm done with that BS for the year. Nasty stuff!

http://www.prudentbear.com/randomwalk.asp

Headline readers spent Friday evening celebrating benign inflation numbers bestowed upon them by the producer price index. At least that was the case for headline readers who think falling producer prices are as a good a reason as any for a party. Would-be revelers who read the rest of story, however, stayed at home drinking de-caffeinated coffee and watching the History Channel. That’s because although December producer prices dropped 0.7% in December, this measure of inflation was up 4.1% for all of 2004. While 4.1% may sound low for those who spent their formative years watching Sanford and Son and wearing W.I.N. buttons, the number comes close to wiping out recent gains in wages and salaries, and soundly squashes them on a per capita basis. For the record, prices for intermediate goods, excluding food and energy, were up 8.3% in 2004, with crude goods soaring 20.1%. People who pay attention to this stuff think that businesses have been absorbing much of these costs, but ultimately will pass them onto us, making even the government’s CPI figure creep higher.

While goods inflation is bad, its twin - wealth creation - is deemed to be downright angelic. In fact, it’s wholesome, clever, well-mannered, never caught snatching the last crab cake off the tray, and is a welcome visitor, even near the end of Law and Order when the jury foreman is nervously delivering the verdict.

This Good Inflation was very good in 2004. Home prices nationally rose about 10%. Houses located near a coastline, an investment banker, or a movie star inflated faster. In fact, wealth creation is so impressive that more investors (i.e. people dissatisfied with microscopic returns on savings accounts) are deciding that homeownership is the path to riches. And the more homes you own, the shorter the path. According to CBS MarketWatch, the portion of new mortgages signed by borrowers who aren’t planning on living in the newly mortgaged home, doubled last year to around 9%.

As Donald Trump would say when he’s not saying, “Funny how this hairstyle looks attractive on a rich guy,” - “If you’ve got wealth, you might as well use it.” And that’s just what wealth-laden Americans are doing by way of the home equity line of credit. Now the HELOC is not a traditional home equity loan where you hand the banker your remaining sliver of equity in exchange for cash to remodel the kitchen or buy a bass boat. No sir. Those types of loans are soooo 2003. A home-equity line of credit is like having your banker install an ATM machine next to your Viking stove. HELOCs are such a hot ticket that they are said to account for 80% of the home-equity market.

Since the refinance boom has busted, all this home equity borrowing has rescued homeowners from the rigors of actual saving. So kitchens continue to get new cabinets and fishermen continue to get new bass boats. The problem with taking the revamped kitchen over the bass boat is that the former increases the value of the residence while the latter merely increases the value of the time spent away from the kids.

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Last entry on the page -

http://www.prudentbear.com/creditbubblebulletin.asp

January 13 – Bloomberg (Alison Fitzgerald and Vivien Lou Chen): “Identifying asset price bubbles as they occur is ‘arguably impossible’ and there’s no appropriate way for central bankers to respond by altering monetary policy, Federal Reserve Vice Chairman Roger Ferguson said. ‘Current statistical methods are simply not up to the task of ‘detecting’ asset-price bubbles, especially not in real time, when it matters most,’ Ferguson said in the text of a speech to the Stanford Institute for Economic Policy Research… Therefore, ‘a clear-cut policy response to suspected waves of exuberance cannot be suggested.’ Recessions preceded or accompanied by a bust in asset prices are not necessarily more costly or longer than ones in which securities or real estate retain their value… ‘Each recession and recovery episode would seem to call for its own tailor-made policy response.’”

The Greenspan Fed undertook the study of asset Bubbles nearly a decade ago. There is no doubt that this effort has been a disappointing failure. And the pathetic state of understanding with regard to the nature of asset inflation and Bubble dynamics is an indictment of our central bank as much as it is of contemporary economics. I found Mr. Ferguson’s paper and discussion especially discouraging. Not only does the Federal Reserve today possess a dismal appreciation for the underlying dynamics that fueled the telecom/tech Bubble, they are seemingly oblivious to the reality that Credit and asset Bubbles have taken full command of global asset markets and economies. Somehow the Fed insists – and is intent on celebratory self-congratulations – that we are in a healthy post-Bubble environment. How can this be?

I will begin with an interesting exchange from Mr. Ferguson’s Q&A session:

big snip>

My concluding comments: The nature of contemporary finance dictates that central banks must be especially on guard and ready to ward off Credit excess, non-traditional inflation and Bubbles. The backdrop beckons for central banker diligence and caution. Free-wheeling Credit systems are unconstrained in their capacity to create inexpensive and abundant liquidity, while financial systems have a strong predilection toward asset-based lending. A massive global pool of vacillating speculative finance has evolved. Meanwhile, central bankers have relegated themselves to the only line of defense against asset inflation, destabilizing speculation, and Bubbles. Yet they have no sound analytical framework for discharging this most important responsibility.

Amazingly, the Fed has learned exactly the wrong lessons from the Japanese experience. Rather than moving early to quell lending and speculating impulses before Bubbles become unwieldy and a great risk to the financial system and economy, the Fed has convinced itself to move immediately and aggressively to ensure the avoidance of post-Bubble fallout. No good will come from Bubble Perpetuation, Evolution and Dispersion. Today’s paramount issue for monetary policymaking is to be able to differentiate stimulation/stabilization in a post-Bubble environment from nurturing and supporting unsustainable/destabilizing asset inflation and Bubble dynamics. This is a most challenging endeavor, one made insurmountable by the Fed’s misguided analytical framework.

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http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=39603

In the concluding “Credit Bubble Bulletin” for the year, Doug Noland characterized 2004 as the “Year It Didn’t Matter” and hypothesized that 2005 may be the year it does. “It” being a catchall for all the negatives and vicissitudes of the past year which seemed to have no visible effect on a U.S. economy which grew at around 4%, long rates and spreads which actually contracted, ebullient equity markets spurted and residential real estate continued to climb. Some of these ignored difficulties include 125 bps of rate increases by the Fed, continuing internal deficit and expanding external deficit, sliding dollar and all time record credit expansion.

Perusing the first WSJ of the year, the issue that corrals all visible economists for forecast, the year looks to be more of the same. The consensus sees 3.6% growth, a long bond inching up to 4.7%, inflation decreasing to 2.5% and the dollar pretty much unchanged from yearend. Separately, the savants of markets see high single-digit to low double-digit equity returns, corporate profits up 10%, and slightly less rapid sales and appreciation in housing.

In the afore-mentioned Bulletin, Doug chronicled the latest innovation from the “Financial Engineers”, the CDO SQUARED’S. This most fascinating vehicle seemingly (we say seemingly because we admit we still don’t fully comprehend the invention) are leveraged (we don’t know how much) pools of “Synthetic” CDO’s which are composed of pools of credit default swaps. If you are not confused by now, you are ahead of the writer. (CDO’s started out as Collateralized Debt Obligations or in vernacular, puddles of debt consisting of underlying loans as collateral.)

Presumably the buyer of one of these things receives a neat, computer generated, analysis of risk, credit quality, etc. with all the usual disclaimers. With 50 years experience in credit analysis we declare that we would find it hopeless to even attempt to do such a risk analysis, but computers and financial engineers obviously can. When thinking of Will “It” ever matter? abominations such as this seem to suggest that maybe the financial world is getting close. I sometimes read a quirky individual known as “The Mogambo Guru” and he summed up the situation recently with a valid quote from the “old” Henry Ford! “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” These systems’ evolution would probably provoke an even more evocative comment from “Old Henry” now.

Covering two topics in one paragraph, we will refer again to Credit default swaps, the supposed underlying fodder in synthetic CDO’s as described above. These instruments, according to a Fitch Study we saw quoted, more than doubled in the last year. Since product inception in the early 1990’s, growth has been rapid, but not this exponential. The new notional totals are north of $3 trillion and are increasingly being competitively issued by hedge funds at lower premiums than the originators, the money center banks and prime brokers are willing to accept. These are “over the counter,” unregulated footnote accounted for instruments deeply buried, where they can be tracked in 10Q’s and K’s (Of course, for the portion issued by hedge funds, their opacity is total). A supposition we read (in Grant’s Interest Rate Observer) which seems reasonable is that the likelihood that issuers, again, particularly hedge funds known to be enamored of trading in volatility, will have hedged some of this risk in the actual debt markets. With an increment of more than $1.5 trillion in 2004, such hedging would add an “artificial” or added demand factor of, for example $300 billion in the BB or less debt markets if 20% had been hedged. This may be a partial answer to the puzzling situation of lower grade debt spreads actually having contracted considerably against treasuries in 2004 counter-intuitively. 2004 will go down as the oddity of a year where the Fed raised 125 bps and longer debt, treasury, investment grade AND junk/emerging markets rates stayed low and, other than treasuries, contracted against that benchmark. The benchmark treasury immobility over the year from 4.20 to 4.20 is fairly easy to understand. It started with the Japanese buying some $300 billion in the 1st quarter and continued through the 3rd quarter with the “Oil producers” buying $80 billion after several years absence from the market. (Have to bet that they were thrilled to do so or, in the absence of the Japanese, did they get a little hint from Snow et al?) For those who look at the Fed Z1, it can be ascertained that the “Caribbean” continued to be a big net buyer of U.S. debt. Not that those little islands have hundreds of billions but that is where the “offshore companies” wind up being reported. This is confirmation that the “telegraphed” Fed “measured” policy of rising rates has enabled the carry trade players to continue to play. Add together all of the foregoing and there is possibly an inkling of an answer to some very puzzling 2004 debt market action. From a risk standpoint, none of the above has ameliorated the multi-year acceleration of risk in an ever-increasingly leveraged, convoluted and opaque debt explosion. Add up the $700 trillion of foreign debt demand and the hypothetical $200-400 billion of credit default hedging artificial demand and the supply to meet demand is there even with a national savings rate of +/- ZERO.

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http://news.ft.com/cms/s/571cec12-68d1-11d9-9183-00000e2511c8.html

Hedge funds now play a dominant role in trading US distressed debt as well as accounting for a third of all trading in futures, junk bonds and credit derivatives, according to a study published on Tuesday.


The report by Greenwich Associates, an investment advisory company, shows that hedge funds are now more influential participants in these markets for less liquid and more exotic instruments than they are inconventional bond and equity markets.

“Hedge funds made up 82 per cent of trade volume in US distressed debt and almost 30 per cent of volume in US below-investment grade bonds and credit derivatives,” says the study.

It says that hedge funds, unregulated investment vehicles that have about $1,000bn (£535bn) in funds under management, accounted for more than half of the listed or plain vanilla over the counter options contracts and almost a third of the total number of futures traded in the US last year. They also accounted for more than 70 per cent of the volume of US exchange traded funds. “You are talking about relatively narrow markets in general . . . these are the markets that are targeted by hedge fund strategies. What it generally shows is that assets under management are still small but in terms of their importance to Wall Street and to the brokerage community they are massively important,” William Wechsler, one of the report's authors, said on Monday.

snip>

But hedge fund managers are now investing heavily in European distressed debts, such as Parmalat, the collapsed Italian food processing company. They are also looking at China where a slew of ailing companies have built up a mountain of bad debts. Distressed debt investors buy bonds or loans at a small fraction of their nominal price so are satisfied if pressure on other creditors can lead to an increase in value.

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http://www.boston.com/business/articles/2005/01/18/total_class_of_painkillers_said_to_pose_heart_risks/

WASHINGTON -- Two studies released yesterday have turned up new evidence that all of the popular arthritis painkillers known as cox-2 inhibitors may put users at greater risk of heart attacks and strokes.

The first of the two papers published online by the journal Circulation found that patients who had had heart bypass surgery and were taking Pfizer Inc.'s Bextra, in combination with an experimental medication, were three times more likely to have strokes and heart attacks than patients taking a placebo. The statistically significant tripling of the risk showed up when researchers combined the results of two earlier studies involving more than 2,000 people in a statistical technique called meta-analysis.

A second study found that when mice that are genetically prone to hardening of the arteries were treated with a cox-2 drug and an aspirin substitute, their condition worsened rather than improved, as researchers had anticipated.

Lead researcher Garret A. FitzGerald of the University of Pennsylvania said the two studies led him to conclude that the entire class of drugs poses a risk. He also said an upcoming clinical trial proposed by Pfizer, the maker of Celebrex, to test whether that drug may help patients with heart disease should not go forward.

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http://www.bloomberg.com/apps/news?pid=10000085&sid=a3N8jbn4F9b4&refer=europe

Jan. 18 (Bloomberg) -- The European Union dropped a probe of widening budget deficits in France and Germany, saying the two largest countries using the euro are on track to get under European deficit limits next year.

EU finance ministers made the concession at a Brussels meeting where Germany's Hans Eichel and France's Herve Gaymard pressed their case for a loosening of the deficit constraints, originally designed by Germany to protect the euro.

Steps taken by both countries are ``broadly consistent with a correction of the excessive deficit by 2005,'' the ministers said in a statement today. The EU said it will ``continue to monitor'' both countries' compliance.

Germany designed the stability pact over France's objections in the 1990s to boost confidence in the euro. Widening deficits led Germany to embrace French calls for a relaxation of the rules.

France and Germany have been breaking EU rules since 2002 by running deficits above 3 percent of gross domestic product. Both defied the European Commission and cut taxes as the economy slowed

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http://www.bloomberg.com/apps/news?pid=10000100&sid=a3JV8hWnoEM8&refer=germany

Jan. 18 (Bloomberg) -- German exports rose to a record last year as foreign demand helped Europe's largest economy return to growth after the longest period of stagnation since World War II.

Exports rose 10 percent to 731 billion euros ($953 billion) from a year earlier, the Federal Statistics Office in Wiesbaden said today. The surge in sales abroad boosted Germany's trade surplus by a fifth, taking it to a record of 155.6 billion euros.

The fastest global expansion in nearly three decades fueled Germany's recovery from a contraction in 2003. A jobless rate at a six-year high and the euro's 8 percent appreciation against the dollar last year are clouding the outlook for 2005.

``There don't seem to be signs yet that the stronger currency is having a big impact, but everyone will be watching that,'' said Natascha Gewaltig, an economist at IDEAGlobal in London. ``Germany has traditionally lived well with a stronger currency.''

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http://www.bloomberg.com/apps/news?pid=10000103&sid=aWRdsCg7_KXc&refer=us

Jan. 18 (Bloomberg) -- Bank of America Corp., the third- biggest U.S. bank, said quarterly profit rose 41 percent as consumer banking fees climbed and the company arranged more loans for both individuals and companies.

Net income increased to $3.85 billion, or 94 cents a share, from $2.73 billion, or 92 cents, in the three months ending in December, according to a statement distributed by PR Newswire. The Charlotte, North Carolina-based bank was expected to earn 94 cents a share, according to the average estimate of analysts polled by Thomson Financial. Revenue rose 42 percent to $13.7 billion.

Bank of America Chief Executive Kenneth Lewis, 57, boosted profit for a 13th-straight quarter by selling more credit cards, checking accounts and personal loans through 5,800 U.S. branches. Executives have said the bank is gaining clients in the northeastern U.S., where it bought FleetBoston Financial Corp. in April for $48 billion.

``They have done wonders with the consumer bank and have become much more of a formidable competitor,'' said Robert Maneri, who helps manage more than $50 billion, including 3 million Bank of America shares, at Victory Capital Management in Cleveland.

The company's total assets rose 51 to $1.15 trillion, helped from the addition of assets from FleetBoston.

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http://biz.yahoo.com/cbsm-top/050118/fd7e072c8676089f105f435c6e35f564_1.html

NEW YORK (CBS.MW) - U.S. stock futures are pointing to a lower open Tuesday as concern over a fresh spike in oil prices overshadowed a raft of broadly positive earnings reports led by 3M and Bank of America.

Dow futures were down 21 points, at 10,526, Nasdaq 100 futures dipped 2 points, to 1,560.50, while S&P 500 futures slipped 1.40 points, to 1,182.40.

"Earnings appear to be off to a decent start, but are not providing the impetus for the rally that we would have hoped for," said Marc Pado, U.S. market strategist, at Cantor Fitzgerald.

"If this market is to have any chance of turning the trend around, we will have to take the minor resistance at Dow 10,700 and S&P 1190. With oil up, it doesn't look like it's going to happen today."

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http://www.nytimes.com/2005/01/18/business/18ebbers.html?oref=login&adxnnl=1&oref=login&adxnnlx=1106016487-1ABLTcBEGf8fetaqTKSY8w

Poor Bernie :nopity:

Few executives have helped create and then watched the destruction of as much wealth as Bernard J. Ebbers, the former chief executive of WorldCom.

With resolve and salesmanship, but little training in finance or engineering, Mr. Ebbers built one of the world's largest telecommunications companies - at its peak worth $160 billion. Now, with WorldCom in tatters, he stands accused of masterminding a record $11 billion accounting fraud that toppled the company he created and left investors, former employees and others to pick up the pieces.

It was the largest bankruptcy ever, measured by WorldCom's $107 billion in assets at the time of its filing for bankruptcy protection in July 2002. And the fallout from WorldCom's implosion includes many other telecommunications companies that staggered or collapsed, in part from trying to keep up with the phantom growth pace set by WorldCom.

Once heralded as an outsider who bucked the system and won, Mr. Ebbers has become an outsider in the truest sense: He is millions of dollars in debt, has been widely assailed for his excesses and is treated as an outcast even by some in Mississippi, where WorldCom had its headquarters and where he was once held in esteem for his pluck and foresight.

As far as he has fallen, Mr. Ebbers could lose still more if he is convicted of conspiracy, securities fraud and filing false financial reports in a criminal case scheduled to begin today in United States District Court in Manhattan with preliminary motions and the beginning of jury selection. The trial is expected to last about two months. If convicted on all counts, Mr. Ebbers, 63, faces a prison sentence as long as 85 years.

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Dow 10,512.33 -45.67 (-0.43%)
Nasdaq 2,080.37 -7.54 (-0.36%)
S&P 500 1,181.67 -2.85 (-0.24%)
10-yr Bond 4.236% +0.02
30-yr Bond 4.746% +0.012
NYSE Volume 251,016,000
Nasdaq Volume 372,125,000

10:00AM: Little change since the last update, as the major indices continue to chalk up losses... Meanwhile, investors have received an early read on January manufacturing conditions, courtesy of the January NY Empire State index, which fell to 20.08 from a revised 27.07 read in December... While this month's figure was weaker than economists' forecasts of 25.0, the data are still suggestive of an expanding manufacturing sector as any reading over zero reflects growth... Since the index only surveys regional manufacturing conditions, however, the data have had little impact on the market... NYSE Adv/Dec 948/1605, Nasdaq Adv/Dec 1040/1522
9:40AM: Stocks open on a downbeat note, in line with futures indications, as a 2% surge in oil prices counters relatively bullish earnings reports... It appears two to three more weeks of quarterly results may be needed to provide a clearer picture of corporate earnings growth, as we are still early in the earnings season for investors to find convincing enthusiasm for equities...

With six consecutive quarters of earnings growth close to 20% coming to an end, as current Q105 forecasts call for earnings growth of closer to 7%, the anticipated slowdown in earnings momentum has also stalled broad-based buying interest in the early going...

9:15AM: S&P futures vs fair value: -4.0. Nasdaq futures vs fair value: -7.0.

9:00AM: S&P futures vs fair value: -3.7. Nasdaq futures vs fair value: -6.5. Futures market still exhibiting a negative tone, suggesting a lackluster open for the indices... Mixed quarterly guidance has added little support in the early going while overseas markets have seen weakness across the board... Japan's Nikkei closed down 0.6% while London's FTSE has fallen 0.9% so far...


Advances & Declines
NYSE Nasdaq
Advances 1202 (39%) 1179 (41%)
Declines 1663 (53%) 1513 (53%)
Unchanged 217 (7%) 144 (5%)

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Up Vol* 59 (37%) 93 (32%)
Down Vol* 93 (58%) 188 (66%)
Unch. Vol* 6 (3%) 3 (1%)

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New Hi's 66 36
New Lo's 17 16

Separating the spin from the reality is wise for those seeking guidance on investments.

http://www.ocregister.com/ocr/2005/01/18/sections/business/business/article_380212.php

Now's the time when investors eagerly await companies' quarterly financial results, looking for signals to buy, sell or hold.

But now is also a good time to remember that earnings announcements are press releases, and some companies use them to shed favorable light on negative news.

"Companies can spin their results and it's a natural inclination for managers to want to put the best possible face on corporate performance," said Rebecca McEnally, a director of the capital-markets policy group at the CFA Institute, which administers the "chartered financial analyst" designation worldwide.

Others agreed. "There's a lot of fluff in there. There is some good information, but everyone's putting a positive spin on everything," said Brian Breidenbach, managing principal of Breidenbach Capital Consulting in Louisville, Ky.

And given that companies aren't required to publish results before their 10-Q (quarterly) and 10-K (annual) filings with the U.S. Securities & Exchange Commission, the information presented in earnings press releases varies by company.

more...

http://www.321gold.com/editorials/chapman_d/chapman_d_011805.html

snip>

If the opponent's numbers are correct then the massive deficits of the US promise to become even more massive. The massive deficits of budget and trade are already becoming astronomical. If the US were any other country the IMF would already be calling and a major devaluation of the currency would be underway. But we have cited that what is going on is system of mutually assured destruction with foreign countries purchasing US debt in order to prevent their own currencies from rising too fast and impacting their export industries. This of course is very similar to the "beggar thy neighbour" policies of the 1930's that contributed to the Great Depression.

The fact that a major financial crisis has not as yet happened is no reason for complacency on anyone's part. The games life is getting shorter but even we admit it could still have another year or so left but time is running out. If the social security diversion gets underway its life could become even that much shorter. Some opponents consider this a great line in the sand that if does happen will guarantee the bankruptcy of America. Strong words but the reality is at the moment the rosy forecasts on one side are offset by the gloomy forecasts on the other and they are just that at the moment - forecasts.

snip>

Over the past few weeks the US Dollar has rebounded from its lows. Many have crowed that the US$ fall is over and we should embark on a new era of a strengthening US$. More modest forecasts are saying that a US$ recovery could last the better part of the year. Certainly our long chart of the US$ index indicates that we could rally up to 85 to 87 and still remain in the bear channel that has been in place over the past three plus years. But to believe that the long decline of the US$ is over one would have to believe that the US deficits are coming to an end and that the US is about to embark on a new era of economic expansion.

Of course that is just wishful thinking. The US is now running the biggest deficits in world history. Yet this myth persists that just because the US is the world's biggest economy and that they are also the world's reserve currency at the end of the day everything will work out fine and we will avoid the economic collapse and Armageddon that some of us have been calling for now for years. The admission that Social Security is bankrupt and that they may have to default is a scary proposition. Investors should be very wary especially if this battle for Social Security is won by those wishing to go the privatization route.

For those who believe that the US would never default one only has to hearken back to when the gold standard was ended in August 1971. At the time the US$ was supposedly convertible into gold. Of course the ability for all the US$ floating around the world at the time to be converted into gold was impossible at the time (estimated to be around 20% at the time). So the end of the gold standard was effectively a default. Could Social Security be the next big default?

more...

http://www.mises.org/fullstory.aspx?control=1727&id=76

I come to you from a state with a Republican governor, elected to cut government but who, in 2003, attempted to pass the largest tax increase in the history of the state. In the same bill, which the state constitution required be submitted to public vote, the governor sought to change the constitution to make it easier on every future governor to raise taxes.

The governor invested every bit of political capital he had. During the push, he enjoyed the plaudits of the press and the fawning of the public sector. Of course he was heralded for his steadfast courage, his refreshing honesty, his hopefulness in the face of cynicism, and all the rest. They even tolerated his religious right vocabulary, given his claim that Jesus wants higher taxes.

The proposal failed by a vote of 2 to 1. It doesn't take a political scientist to understand why. People figured that they fork over quite enough to the government and they didn't want to give any more money to these birds to build their nests. This was one of the most inspiring moments I can ever recall in politics.

Interestingly, the governor was careful not to call his bill a tax increase. He called it a tax reform. He claimed that he was not raising taxes. He was making them more fair. He wasn't increasing the burden. He was lightening it on the neediest among us, while asking the richest to attend to their civic obligations.

But people saw through this rhetoric.

It used to be said that the Democrats were the evil party and the Republicans the stupid party. My impression of late is that these monikers have switched. However, not even a conservative Republican who claimed to be devoted to freedom and limited government could pass off an attempted heist as an act of benevolence. There are important lessons here for all of us, which I would like to apply to tax politics at the federal level.

more...

http://www.kitco.com/weekly/paulvaneeden/jan142005.html

snip>

During the 1990s, the Labor Department felt that employment estimates did not account for the number of jobs created when new companies were formed. As you may recall, thousands of new companies were being formed during that “New Era” of the tech-boom. So a method was devised to account for those jobs.

In June 2000, the CES (Division of Current Employment Statistics of the US Department of Labor) began implementing a new adjustment to the employment data based on a corporate net birth/death model.

snip>

Now, I don’t know if the employment numbers are right or wrong. But I do know that if roughly fifty percent of the jobs created last year were created on a spreadsheet, based on how many businesses were incorporated, and how many jobs those new business created, based on how many businesses failed, then I have my suspicions.

The point is that if the US economy is not creating the jobs that we are led to believe it is creating, who is going to buy all the stuff that American corporations are producing? America most certainly cannot rely on foreign consumption; it has a trade deficit.

Perhaps here are more accurate indications of the labor situation: the US labor force participation rate is declining, especially among younger workers. The labor force participation rate is the percentage of the "working age" population that is willing and able to work, and is either employed or actively seeking employment. The trend data show that while younger people are, apparently, less eager to join the work force, the number of people fifty-five years and older, working, or looking for work, is increasing. That doesn’t sound healthy to me.

Could it be that a lack of employment opportunities is keeping younger people out of the labor market while the older work force is forced to work because they cannot afford retirement? Are those the kind of demographics that would suggest we are just about ready for another period of sustained economic growth in the United States?

more...

http://www.kitco.com/ind/Hoye/jan172005.html

• Our proprietary Bank Trading Guide, which had been in a steady uptrend since June, 2003, steepened its climb in setting what turned out to be the high on December 1.

• The Guide's sudden plunge was noted in the December 9 edition of Pivotal Events when we increased our commitment to selling the banks and financials – globally – and advised more aggressive action when the Guide had technically completed the reversal.

• While we await this technical part of the signal to aggressively sell the sector, it is worth noting that credit spreads for high-yield (as well as junk) and some emerging debt have been widening since late December. This suggests a possible reversal from reckless to more sober lending policy. Given that such reversals typically reveal a lot of bad loans, we consider this as a fundamental reason to reduce exposure in the banks and financials generally.

PHENOMENAL WEIGHTING GAMES

One of the measures of supreme confidence in a sector has been an extraordinary weighting relative to the rest of the stock market. Over the past 25 years, there have been 3 such examples of phenomenal weightings that formally recorded big market compulsions that inevitably became
unsustainable.

At the end of 2004, the Financial Services Sector accomplished a 23% weighting relative to the S&P 500. This compares with the 7.5% recorded in late 1990 as the Fed had to suddenly bail out Citigroup and Chase as they became insolvent following their aggressive lending in real estate and energy.

Banks are the most recent example and could be vulnerable to the typical post-euphoria loss of esteem so it is worth noting that the two previous examples were followed by a long period of dismay and, eventually, neglect.

more...

http://www.kitco.com/ind/Droke/jan142005.html

Back in the mid-‘90s I was working as a business page editor of a small A.P. daily in the D.C. metropolitan area. I was assigned the task of interviewing a former diplomat who was a major proponent of "globalism," a word that at that time was just beginning to come into everyday vocabulary. Though not well versed on the subject I tried to appear as conversant as possible during my sit-down interview at a local coffee shop with this proponent of the global economy.

I was very skeptical about his statements about the benefits of a global economy and financial system but as a journalist tried to remain as unbiased as possible. His high praise of globalism was pretty much standard fare -- the usual propaganda the globalist shills would always offer when discussing the subject. But there was one thing he said at the conclusion of our interview that I’ll never forget. At that time everyone was bearish on the prospects of the U.S. stock market and many high profile analysts and newsletter writers were predicting an outright market crash and major depression.

Near as I can remember he told me, "You can bet your bottom dollar that the stock market will soon bottom and take off from here. The government and the multi-nationals will not allow the market to sink much further because it would jeopardize all the work they’ve accomplished in paving the way for the global economy. They haven’t finished yet so there’s no way they can let the market and the domestic economy sink. We’ll see a major economic boom here before long."

As it turned out he was exactly correct. The market did bottom shortly after our interview and went on to make sizzling gains in the remaining part of the ‘90s, igniting the economy along the way. In many ways my interview with that pro-globalist (whose name I can no longer recall) was pivotal and has given me a clear vision of the motives behind each of the major economic shifts we’ve seen here and abroad since that time. What it all boils down to (as I’m sure the pro-globalist would agree) is this: everything that happens in the financial markets is with a view toward establishing and fully integrating the global economy (and eventually a global government and judicial system).

Why did the stock market boom and the domestic economy sizzle in the late ‘90s (at the expense of commodities)? To allow multi-national corporations to merge and consolidate in preparation for globalist integration. Why was the U.S. dollar strengthened in the late ‘90s? To help overseas exporters strengthen their economies in preparation for entry into the globalist economy. Why were commodities allowed to rally to stellar heights in the past couple of years when inflation was never really an issue? To allow those industries that were left behind in the ‘90s to play "catch up" in the globalist agenda. Why has the dollar been allowed to collapse to such extreme depths recently? To give a competitive edge to domestic exports as the integration of the multi-nationals into the global economy continues to expand (as a recent headline in the Financial Times states, "Manufacturers in U.S. benefit from falling dollar.") In one way or the other, everything that happens in the financial world ultimately converges at one central goal, that of globalism.

more...

http://www.kitco.com/ind/Benson/jan122005.html

At the end of last year, the nation's financial deficit - what the United States owes the rest of the world, minus what the rest of the world owes the United States - amounted to more than $3 trillion, and it's still growing. This account deficit means the United States imports more than it exports. To fill the gap - and its budget deficit - it borrows heavily. However, while the trade deficit weakens the dollar, it strengthens the world! For Europe, Japan, China, and even America, as long as the nation's trade and budget deficits continue to grow and are financed by the world's central banks, everyone seems to win! Let me explain.

Let's take The European Central Bank "ECB" as an example. The ECB is the central bank for Europe's single currency, the euro. Their main task is to maintain the purchasing power of the euro and thus price stability in the euro area. The euro area comprises the 12 European Union countries that have introduced the euro since 1999. The ECB needs to be able to "place their paper" at a reasonable cost when they borrow, the same way any corporation that borrows would have to do. Given the fact that Germany and France are having a horrendous time keeping their budget deficits below three percent, and Greece is regularly "cooking their books" and running six percent budget deficits, you would wonder who in their right mind would be interested in putting their cash in sovereign euro debt.

The current account deficits - the broad gap between exports and imports of goods and services - are mushrooming out of control so much so that on a relative basis, they almost make the euro look good on an absolute basis. In 1999 when the euro was introduced, there was great fear that it might fall apart. Sure, the Europeans hate the weak dollar and the fact that the Americans and Chinese are competing with unfairly low prices. But for now, making the euro a rival to the dollar as a world reserve currency is more important! As the euro is being firmly established, European countries and businesses can borrow at subsidized rates because of the pressure to get out of the dollar. Inflation in Europe is also lower and oil is relatively inexpensive. Euro pride can run high!

Another example is The Bank of Japan's buying of limitless amounts of United States' treasury and agency securities. This has allowed Japan to run their printing press much faster than they could otherwise without suffering embarrassment. Japan's budget deficit is approximately seven percent, which makes the United States look fiscally responsible in comparison! In 2005, Japan will have about $240 billion worth of fresh Yen bonds to sell to finance their government deficit but very few people will want to buy them with interest rates there at almost zero. When Japan is buying dollars to hold down the Yen, no one thinks twice about the extra monetization. What's more important, is the fact that as long as the world thinks there is money to be made from dumping the dollar against the Yen, speculators and gullible investors will buy the hundreds of billions in new government debt Japan has to place. (In reality, Japanese fiscal policy remains bankrupt.) In addition, Japan gets to build up massive dollar credits it can use in the future so it can continue to attack and destroy industries, such as the American Auto Industry (GM just announced another seven percent cut in U.S. jobs). Of course, the Japanese would like to keep their foreign exchange reserves safe, but funding their deficits and getting American jobs is more of a priority.

The story on China is similar to Japan, only more so. In 2004, speculating investors invested over $95 billion in China. This cash is in addition to China's $150 billion trade surplus last year and the massive $610 billion in foreign currency reserves they have amassed. China is running the fastest industrialization effort in the history of the world using classical "mercantilist trade policies". A greatly undervalued Yuan is pegged to the dollar. These speculating investors may never get a return on their money, much less a return of their money, but they are confident they can't lose as the Yuan will have to revalue against the dollar. Don't hold your breath. (Obviously, these investors have never read history; even recent history!)

more...

http://www.prudentbear.com/internationalperspective.asp

When the Argentine economy collapsed in December 2001, predictions of financial Armageddon abounded. Unless it adopted orthodox economic policies and quickly cut a deal with its foreign creditors, as it had done repeatedly (and to little avail) in the past, hyperinflation would surely follow, the peso would become worthless, investment and foreign reserves would vanish and any prospect of growth would be strangled. More importantly, the country would become an investment pariah, starved of any needed foreign capital to finance future growth.

How different things appear today. Just three and a half years after Argentina declared a record debt default of more than $100 billion, the largest in history, the anticipated disaster has not played out. Instead, the economy has grown by 8 percent for two consecutive years, exports have soared, and the currency has even begun outperforming the dollar on the foreign exchange markets. Contrary to expectations, investors are gradually returning (the stock market has more than quadrupled from its Aug. 2001 lows) and unemployment has eased from record highs - all without a debt settlement or the requisite good housekeeping seal of approval from the IMF.

Much ink has been spilled over the past few years suggesting the obsolescence of the United Nations or the World Bank, but somehow the IMF has escaped comparable scrutiny. Other than a few staunch golfing purists, most of us believe in the concept of taking a mulligan. And if the Argentina episode was an anomalous misstep in an otherwise stellar history, we wouldn’t be so hard on the IMF. But the singular lack of success of the Fund, especially over a series of emerging markets’ crises in the 1990s does call into question the organization’s long term viability as a positive reforming force in global finance. If anything, its record over the past decade has been one of expanding moral hazard and exacerbating underlying global financial fragility.

Consider the emerging markets’ crisis of 1997/98. When the East Asian financial crisis hit in 1997–98, many of the commentators who had earlier attributed East Asia’s “miracle” to its free enterprise system suddenly disavowed the region’s “growth miracle”. They now alleged that the crisis was due to excessive government intervention in markets, especially financial markets where intervention was aimed at supporting investments by government “cronies.” They argued that the current crisis would mark the beginning of the end of the outmoded state-directed Asian system, and brought in the IMF to “reform” the various afflicted economies. Typical were the views proffered by the chairman of the U.S. Federal Reserve, Alan Greenspan:
“The current crisis is likely to accelerate the dismantling in many Asian countries of the remnants of a system with large elements of government-directed investment, in which finance played a key role in carrying out the state’s objectives. Such a system inevitably has led to the investment excesses and errors to which all similar endeavours seem prone.”

In Mr. Greenspan’s view, the Asian crisis accelerated a worldwide move towards “the Western form of free market capitalism” and away from the competing Asian approach that only a few years ago looked like an attractive model for nations around the world: “What we have here is a very dramatic event towards a consensus of the type of market system which we have in this country.”

more...

11:45:40 AM 10,599.67 11:45:40 AM 10,599.67 +41.67
+0.39%
+0.39%

at 11:57 EST

Dow 10,604.33 +46.33 (+0.44%)
Nasdaq 2,097.76 +9.85 (+0.47%)
S&P 500 1,192.04 +7.52 (+0.63%)
10-yr Bond 4.234% +0.018
30-yr Bond 4.74% +0.006
NYSE Volume 675,505,000
Nasdaq Volume 917,445,000

11:30AM : Equities continue to trade at improved levels as strong earnings in the financial sector pace the progress... Strength in its consumer banking business and contributions from recently-acquired Fleet Boston have boosted Banc of America's (BAC 45.31 +0.42) Q4 profits 41%, beating forecasts by four cents, while increased deposit fees have offset a decline in mortgage lending to help National City Corp's (NCC 36.08 +0.86) handily beat expectations....
Fourth quarter profits at Charles Schwab (SCH 11.38 +0.26), however, fell 64% but the discount broker beat analysts' expectations by a penny, while competitor Ameritrade (AMTD 12.98 +0.55) beat estimates by three cents...NYSE Adv/Dec 1820/1282, Nasdaq Adv/Dec 1600/1314

11:00AM : Major indices turn positive for the first time as crude oil falls below $49/bbl... The commodity ($48.95/bbl +0.57), which climbed more than 2% early on to a 7-week high, buoyed by a cold snap in the Northeast, lower than expected production from non-OPEC countries and increased fuel demand, has succumbed to recent selling pressure...

While investors had been relatively comfortable with crude oil futures remaining range bound between $40 and $50/bbl, a nearly 7% surge in oil last week has renewed concerns that oil could again reach $50/bbl, which could adversely impact consumer spending patterns... NYSE Adv/Dec 1728/1282, Nasdaq Adv/Dec 1665/1179

10:30AM : The market recovers some ground but selling remains widespread across most areas... Networking, semiconductor and hardware have kept technology under pressure, offsetting modest gains in the disk drive space... Materials has fallen as the dollar extends its gains against the euro (1.3010)and yen (102.76) while consumer staples, homebuilding and health care have also traded lower... Showing modest strength early on has been energy, as crude oil remains above $49/bbl (+0.62), while brokers and airline have edged higher... NYSE Adv/Dec 1274/1649, Nasdaq Adv/Dec 1188/1570

10:00AM : Little change since the last update, as the major indices continue to chalk up losses... Meanwhile, investors have received an early read on January manufacturing conditions, courtesy of the January NY Empire State index, which fell to 20.08 from a revised 27.07 read in December... While this month's figure was weaker than economists' forecasts of 25.0, the data are still suggestive of an expanding manufacturing sector as any reading over zero reflects growth... Since the index only surveys regional manufacturing conditions, however, the data have had little impact on the market... NYSE Adv/Dec 948/1605, Nasdaq Adv/Dec 1040/1522

9:40AM : Stocks open on a downbeat note, in line with futures indications, as a 2% surge in oil prices counters relatively bullish earnings reports... It appears two to three more weeks of quarterly results may be needed to provide a clearer picture of corporate earnings growth, as we are still early in the earnings season for investors to find convincing enthusiasm for equities...

With six consecutive quarters of earnings growth close to 20% coming to an end, as current Q105 forecasts call for earnings growth of closer to 7%, the anticipated slowdown in earnings momentum has also stalled broad-based buying interest in the early going...

http://thestar.com.my/news/story.asp?file=/2005/1/17/business/9869898&sec=business

IT is a policy mistake to downplay, let alone ignore, the seriousness of the implications of the unsustainable current account deficit of the US, both within and without. The US current account deficit has continued to soar without respite in recent times, at the rate of roughly US$2bil a day, setting an all-time record close to 6% of gross domestic product (GDP) in 2004.

It is simple arithmetic that the reverse side of the balance-of-payments current account deficit of the US comprises the surpluses of some of its trading partners. Thus, the US accounts for about 70% of the current account surpluses of other countries, notably China, Japan and Germany.

This simply means that the US current account deficits cannot be reduced unless other countries are willing to reduce their own current account surpluses. Thus, the burden of adjustment will have to fall on both sides of the equation. This calls for the depreciation of the deficit country’s currency and the appreciation of the surplus countries’ currencies.

snip>

However, there is a growing consensus among analysts that exchange rate changes alone will not be sufficient to correct the US imbalance. This observation calls for expenditure adjustments, as well, on the part of the US. The massive current account deficit incurred by the US is a clear indication that the US is living beyond its means, consuming more than what it earns, by simply borrowing.

To plug the hole, the US must increase its domestic saving. The most effective way to augment domestic saving would be for the US government to cut its budget deficit, which now exceeds 5% of GDP, and to restrain consumer credit growth.

The US current account deficit is so large that it needs both expenditure cuts and currency depreciation. If nothing is done on the expenditure side, it is projected that the US dollar would fall to 1.80 against the euro by 2008. Many analysts are thinking of the unthinkable, which smacks of another 30% depreciation of the dollar. The smaller the expenditure adjustment, the bigger the exchange-rate depreciation needed to correct the current account imbalance.

Needless to say, all this is no music to the ears. It will be painful not only for the US but also for the rest of the world. Expenditure adjustments will cause US growth to decelerate vehemently, exacerbated by the negative wealth effect emanating from the depreciation of the dollar, although this will be offset partially by the positive impact of cheaper dollar on US exports. To be sure, the net upshot will be slower growth in the US in the short term.

more...

http://www.marketwatch.com/news/yhoo/story.asp?source=blq/yhoo&siteid=yhoo&dist=yhoo&guid=%7BE321F2B3%2DE285%2D407A%2D97BA%2DD04F70532532%7D

WASHINGTON (CBS.MW) -- Capital flows into the United States increased in November to their highest level since June, the Treasury Department said Tuesday, spurred by jumps in U.S. stock purchases and foreign central bank purchases of U.S. Treasurys.

Purchases of U.S. financial assets rose across the board. Total net capital inflows rose to $81 billion in November from an upwardly revised $48.3 billion in October.

The dollar improved after the data was released. The euro fell back to $1.3037 from $1.3065 earlier. The dollar rose to 102.57 yen from 102.50 earlier.

Net foreign purchases of domestic securities rose to $99.7 billion in November from $65.4 billion in October.

Foreign purchases of U.S. Treasurys rose to $32 billion in October from $20.9 billion in September. And foreign purchases of U.S. equities rose to $14.5 billion in November, the highest level since May 2001.

more...

Dow 10,597.97 +39.97 (+0.38%)
Nasdaq 2,100.12 +12.21 (+0.58%)
S&P 500 1,192.19 +7.67 (+0.65%)
10-yr Bond 42.22 +0.06 (+0.14%)
30-yr Bond 47.31 -0.03 (-0.06%)
NYSE Volume 815,826,000
Nasdaq Volume 1,083,170,000

12:30PM : The broader market averages hold steady at higher levels as investors digest a number of CEO departures... Shares of May Dept Stores (MAY 32.35 +4.51) have surged more than 16% after the retailer announced CEO Gene Kahn's resignation while Krispy Kreme (KKD 9.84 +1.12) has gained nearly 13% following news that CEO Scott A. Livengood has left amid a Federal investigation...
Charter Communications (CHTR 1.97 -0.07), however, which has appointed Robert P. May as interim CEO following the resignation of Carl Vogel, has fallen below $2 a share for the first time in over a year while Tollgrade (TLGD 10.06 -0.06), despite raising Q4 guidance, has also fallen after naming a new CEO...NYSE Adv/Dec 2049/1136, Nasdaq Adv/Dec 1848/1127

12:00PM : Market climbs to new session highs midday as crude oil slumps to fresh session lows and investors embrace solid quarterly earnings reports... Some profit taking in crude oil futures ($48.60/bbl +0.22), which had kept a lid on buying interest in the early going when the commodity hit a seven-week high amid freezing weather and supply concerns, has renewed some optimism and reversed this morning's bearish bias... Strong Q4 earnings results from several banks and brokerage firms have underscored the resurgence in equities following two weeks of declines for the major indices...

Bank of America (BAC 45.42 +0.53) beat forecasts by $0.04 while earnings from NCC, STT, SCH and AMTD also came in ahead of expectations, offsetting an earnings miss from WFC... Dow component 3M Company (MMM 82.54 -1.43) and drug maker Abbott Labs (ABT 46.31 +0.06) matched analysts' Q4 expectations... Virtually every sector has shown strength midday with no major sectors showing substantial weakness... Technology has been strong across the board while airline, banks, brokerage and biotech have posted gains in excess of 1.0%... Retail, telecom services, utility and transportation have also shown strength...

The materials sector, which had been pressured by strength in the greenback against major currencies, and homebuilding, which had shown little follow through from Friday's strong showing (+1.7%) due in part to higher bond yields, have both turned positive... The benchmark 10-year note remains off 4 ticks to yield 4.22%... Separately, the January NY Empire State index, despite falling to 20.08 from a revised 27.07 read in December, has given investors an early read on continued regional expansion in the manufacturing sector...NYSE Adv/Dec 2004/1144, Nasdaq Adv/Dec 1736/1207

Advances & Declines
NYSE Nasdaq
Advances 2100 (62%) 1847 (58%)
Declines 1103 (32%) 1164 (37%)
Unchanged 170 (5%) 128 (4%)

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Up Vol* 531 (69%) 641 (61%)
Down Vol* 207 (27%) 386 (37%)
Unch. Vol* 24 (3%) 11 (1%)

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New Hi's 127 79
New Lo's 20 22

http://quotes.ino.com/chart/?s=NYBOT_DXY0&v=s

Last trade 83.34 Change +0.28 (+0.34%)

Settle 83.06 Settle Time 23:37

Open 83.55 Previous Close 83.06

High 83.66 Low 83.08


The buck is looking neutral while all the competing currencies appear to be turning a bit bearish

http://quotes.ino.com/chart/?s=FOREX_XAUUSDO&v=s

CURRENCIES http Commentary://quotes.ino.com/exchanges/?c=currencies
The March Dollar was higher overnight due to short covering and is challenging the 25% retracement level of the May-December decline crossing at 83.71. Stochastics and the RSI are turning neutral hinting that sideways to higher prices are possible near-term. Closes above the 25% retracement level of the May-December decline crossing at 83.71 are needed to extend the short covering rebound off December's low. Closes below the 20-day moving average crossing at 82.13 would open the door for a larger-degree decline into the last half of January. Overnight action sets the stage for a steady to firmer tone in early-day session trading.

The March Euro was lower overnight as it consolidates below the 10- day moving average crossing at 131.486. Stochastics and the RSI are oversold but have turned bearish again signaling that additional weakness is possible near-term low is in or is near. Closes above last week's high crossing at 133.020 are needed to confirm that the correction off December's high has come to an end. If March extends last week's decline, the 38% retracement level of the April-December rally crossing at 129.550 is the next downside target. Overnight action sets the stage for a steady to weaker tone in early-day session trading.

The March British Pound was higher overnight due to short covering as it consolidates above the 38% retracement level of last year's rally crossing at 1.8564. Stochastics and the RSI are oversold but are bearish hinting that additional short-term weakness is possible. Closes above the 25% retracement level of last year's rally crossing at 1.8869 are needed to confirm that the correction off December's high has come to an end. If March extends this year's decline, the 50% retracement level crossing at 1.8292 is the next downside target. Overnight action sets the stage for a steady to firmer tone in early-day session trading.

The March Swiss Franc was slightly lower overnight and is challenging the 38% retracement level of last year's rally crossing at .8418. At the same time stochastics and the RSI are oversold, diverging but remain bearish hinting that a short-term low might be near. Closes above last week's high crossing at .8627 are needed to confirm that a short-term low has been posted. If March extends its decline off December's high, the 50% retracement level of last year's rally crossing at .8276 is the next downside target. Overnight action sets the stage for a steady to weaker tone in early-day session trading.

The March Canadian Dollar was lower overnight and is breaking out below the 20-day moving average crossing at .8201 but above the 25% retracement level of the May-November rally crossing at .8174. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible into the last half of January. Multiple closes below the 20-day moving average crossing at .8174 would signal that last Wednesday's high marked a double top with the late-December high. Overnight action sets the stage for a steady to weaker tone in early-day session trading.

The March Japanese Yen was sharply lower overnight due to profit taking as it consolidates some of last week's rally. Stochastics and the RSI are overbought and turning neutral to bearish signaling that a short- term top might be in or is near. If March extends last week's rally, a test of December's high crossing at .9885 is the next upside target. Closes below the 20-day moving average crossing at .9714 would signal that a double top with December's high has been posted. Overnight action sets the stage for a steady to weaker tone in early-day session trading.

http://money.cnn.com/2005/01/10/markets/invest_dollar_0502/index.htm

I love this line:

snip>
But here's the standard take: In the eyes of the rest of the world, Americans are starting to look like savings-challenged, credit-addicted gluttons.
We consume more stuff from the rest of the world than we sell back to them, resulting in an annual trade deficit set to top $600 billion.

We've racked up $2 trillion in consumer debt, and the federal budget deficit stands at over $400 billion.

What all this adds up to is that we've borrowed a lot of money from foreign investors -- most notably China. About 40 percent of U.S. Treasuries, for example, are held by foreigners.
<snip

Isn't the official position that debt is good?

http://finance.yahoo.com/mo

3:30PM: Market continues to put together a solid advance ahead of tonight's earnings reports... After the close, AMD, IBM, MOT, STX, FSL and YHOO will release quarterly results while Dow components GM, JPM and PFE will headline tomorrow's earnings reports... Other notable earners before the bell Wednesday include BK, MEL, WB, LUV and NWAC... Economic data carrying the most weight will be December CPI (consensus 0.0%) and core CPI (consensus +0.2%)...

Also out at 8:30 ET will be weekly jobless claims (consensus 345K) as well as Housing Starts (consensus 1905K) and Building Permits (consensus 1985K) for December... At 10:30, weekly oil inventories will hit the wires - crude oil (consensus +750K) and distillates (consensus -400K) - while at 14:00, the Fed's Beige Book will be released...NYSE Adv/Dec 2113/1210, Nasdaq Adv/Dec 1844/1270

3:00PM: Indices are off their highs but are holding on to the bulk of today's gains... Top performing groups with an hour left of trading include: Drug Retail (+2.3%), Department Stores (+2.2%), Financial (Broker/Dealer +1.7%, Diversified Banking +2.2% and Multi-line Insurance +1.9%), Disk Drive (+1.5%) and Internet Software & Services (+1.2%) while Paper Products (-2.5%) and Industrial Machinery (-1.5%) remain under pressure...NYSE Adv/Dec 2156/1147, Nasdaq Adv/Dec 1857/1230

2:30PM: Holding steady at sharply higher levels as buyers remain in control of the action... A handful of M&A announcements have kept a few companies in focus... Despite surging nearly 3.0% in early trading after MeadWestvaco Corp (MWV 32.21 -0.70) agreed to sell its papers business for $2.3 bln to Cerberus Capital Management, shares of S&P 500 constituent MWV have fallen about 2.0%...

Sorry I have been away all day really busy at work today, when inspiration hits you have to channel it.

details soon

U.S. financial markets were closed Monday for the Martin Luther King Jr. national holiday.

The Dow Jones industrial average (up 65.67 to 10,623.67, Charts), the Nasdaq composite (up 17.19 to 2,105.10, Charts) and the broader Standard & Poor's 500 (up 10.57 to 1,195.09, Charts) index all rallied soundly, according to early tallies.

http://money.cnn.com/2005/01/18/markets/markets_newyork/index.htm

Close: The belief that stocks may be oversold in the wake of solid earnings reports and encouraging corporate news was enough to shrug off early weakness, keep sellers on the sidelines and close the indices at their highs of the session... Led primarily by leaders in the financial sector (+1.5%), better than expected results from BAC, NCC, STT, SCH and AMTD helped offset in line earnings from MMM and ABT and an earnings miss from WFC, paving the way for buyers to extend Friday's gains and help ease the pain of two consecutive down weeks...

Virtually every sector closed higher, ignoring an early 2% surge in crude oil prices which had hit a seven-week high amid freezing weather in the Northeast and supply concerns... The commodity closed unchanged at $48.38/bbl, but kept energy in positive territory, as investors remain relatively comfortable with oil prices between $40 and $50/bbl... Technology was strong across the board with disk drive (+2.3%), hardware (+1.6%) and software (+1.0%) gaining the most ground... Also surging more than 1.0% on the day was brokerage (+1.8%), banks (+1.7%), biotech (+1.4%), telecom services (+1.4%), consumer staples and retail...

The latter was assisted by the resignation of May Dept Stores' (MAY 32.24 +4.40) CEO... The only major laggards were paper products (-2.1%), following MeadWestvaco's (MWV 32.05 -0.86) plan to sell its paper business for $2.3 bln, and industrial products (-1.1%), which felt pressure from Parker Hannifin's (PH 65.75 -7.68) Q2 earnings miss... Treasuries, which were lower most of the session due to several comments from the Federal Reserve, rebounded into the close to push the benchmark 10-year note up 4 ticks to yield 4.18%.

Dow 10,628.79 +70.79 (+0.67%)
Nasdaq 2,106.04 +18.13 (+0.87%)
S&P 500 1,195.98 +11.46 (+0.97%)
10-Yr Bond 41.95 -0.21 (-0.50%)
NYSE Volume 1,596,455,000
Nasdaq Volume 1,982,050,000

Dow 10,628.79 +70.79 (+0.67%)
Nasdaq 2,106.04 +18.13 (+0.87%)
S&P 500 1,195.98 +11.46 (+0.97%)
10-Yr Bond 41.95 -0.21 (-0.50%)
NYSE Volume 1,596,465,000
Nasdaq Volume 2,004,188,000


Close: The belief that stocks may be oversold in the wake of solid earnings reports and encouraging corporate news was enough to shrug off early weakness, keep sellers on the sidelines and close the indices at their highs of the session... Led primarily by leaders in the financial sector (+1.5%), better than expected results from BAC, NCC, STT, SCH and AMTD helped offset in line earnings from MMM and ABT and an earnings miss from WFC, paving the way for buyers to extend Friday's gains and help ease the pain of two consecutive down weeks...
Virtually every sector closed higher, ignoring an early 2% surge in crude oil prices which had hit a seven-week high amid freezing weather in the Northeast and supply concerns... The commodity closed unchanged at $48.38/bbl, but kept energy in positive territory, as investors remain relatively comfortable with oil prices between $40 and $50/bbl... Technology was strong across the board with disk drive (+2.3%), hardware (+1.6%) and software (+1.0%) gaining the most ground... Also surging more than 1.0% on the day was brokerage (+1.8%), banks (+1.7%), biotech (+1.4%), telecom services (+1.4%), consumer staples and retail...
The latter was assisted by the resignation of May Dept Stores' (MAY 32.24 +4.40) CEO... The only major laggards were paper products (-2.1%), following MeadWestvaco's (MWV 32.05 -0.86) plan to sell its paper business for $2.3 bln, and industrial products (-1.1%), which felt pressure from Parker Hannifin's (PH 65.75 -7.68) Q2 earnings miss... Treasuries, which were lower most of the session due to several comments from the Federal Reserve, rebounded into the close to push the benchmark 10-year note up 4 ticks to yield 4.18%...

Solid earnings in the banking sector spark buying :eyes:

NEW YORK (CBS.MW) -- U.S. stocks ended higher Tuesday to post their first consecutive gains for 2005, amid broad-based buying fueled by a two-week decline in the market and a set of largely positive earnings reports, notably in the banking sector.

The Dow Jones Industrial Average ($INDU: news, chart, profile) ended at its high for the session, up 70.79 points, or 0.7 percent, at 10,628.79, recovering from an intraday low of 10,500.58 on a morning spike in oil prices.

"The initial impact of rising oil prices hit stocks, but a lot of traders feel the market has overdone it on the downside over the last two weeks," said Michael Metz, chief investment strategist, at Oppenheimer & Co. "I think we're going to have an up week. The downside was mostly momentum traders, and I think they're largely out."

snip>

The greenback climbed to session highs in the wake of a Treasury Department report that showed the largest amount of foreign money flowing into the United States in November in five months. Read about the report

Also, in the first of a long lineup of Federal Reserve speakers for Tuesday, Philadelphia's Anthony Santomero fueled expectations for additional rate increases by the U.S. central bank. See related story.

"A number of Federal Reserve speakers today could echo hawkish comments heard from monetary officials over the last two weeks. The market has bid the greenback higher recently on the prospect of a potentially more aggressive pace of monetary policy tightening from the Fed," said Alex Beuzelin, senior market analyst with Ruesch International in Washington.

more...

http://biz.yahoo.com/rb/050118/economy_fed_1.html

CHICAGO (Reuters) - Possible differences on Federal Reserve monetary policy emerged on Tuesday when two regional Fed presidents downplayed the risk of inflation while a third urged greater vigilance against rising prices.

In separate appearances, Minneapolis Fed President Gary Stern and Anthony Santomero, president of the Philadelphia Fed, said interest rates still have room to rise but can most likely continue to do so at a measured pace as inflation stays low.

Sandra Pianalto, president of the Cleveland Fed, followed with a more hawkish view that seemed to favor a more aggressive approach toward inflation.

"It is prudent to move the federal funds rate up to a positive that gives me more confidence that monetary policy is no longer accommodative," Pianalto told a corporate meeting in Pittsburgh.

The central bank cannot underestimate the possibility of inflation creeping in, and pushing up rates sooner rather than later is better than "finding out the hard way," she said.

Fed speakers are out in force this week ahead of the FOMC policy meeting on Feb. 1-2.

more...

kick