STOCK MARKET WATCH, Friday 28 May

http://biz.yahoo.com/rb/040528/markets_stocks_us_europe_1.html

LONDON (Reuters) - Wall Street is expected to open softer on Friday in light pre-holiday trade, with the spotlight on Blue Coat Systems (NasdaqNM:BCSI - News) after the network security company's shares fell sharply overnight.

Investors will also keep a close eye on oil prices, hoping that Thursday's drop below $40 a barrel could signal the end of a dizzying rally this month that took crude prices to a 21 year high.

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"I expect investors will have largely closed their positions and will be trading in a defensive position," Peter Dixon, an economist at Commerzbank in London, said.

"We have had a very volatile couple of weeks. The fact oil prices have fallen has given investors a bit of a lift."

Wall Street rose for a sixth session in a row on Thursday, as a drop in oil prices eased worries about the impact of high energy costs on the economy.

more...

Revisiting the Technology Generals

“A look at the Technology Generals,” posted on October 9, 2003 included my fundamental overview of Intel Corp., and technical analyses of the large capitalization technology leaders of the rally from the October 2002 “bottom.” At that time Intel and Dell Computer were looking technically strong, while Cisco was facing technical resistance, which it subsequently broke to the upside. Microsoft and Oracle were weak; however, with the backdrop of a strong Nasdaq continuing into mid January of 2004, each of the five stocks posted significant gains, before topping with the broader market. Tonight I will revisit the technical charts of these former Nasdaq leaders, as well as present some fundamental thoughts about Oracle. A technical review of the “Technology Generals” indicates three stocks – Oracle, Cisco, and Intel sit near the necklines of bearish head and shoulders reversal patterns. These necklines have not been broken decisively. Oracle sits at the neckline both a short- and long-term head and shoulders patterns. A break of the long-term neckline would suggest that the stock would trade down to the low single digits. Dell and Microsoft are showing manic trading patterns that are generally bearish. It’s not a pretty picture for the technology generals.

...

A review of the data plotted above suggests that while Oracle may be a viable and successful business, it provided very little in the way of shareholder value. While the company has made over $11billion over the last three years, shareholder equity has actually dropped over that same time. Where has all the money gone? Not to dividends, as Oracle has never in its history paid any dividends. As you can see, Oracle purchased their own stock for a large part of that money. So has the money gone to shareholder’s coffers via less shares? Not exactly. The share count has changed very little over that time frame. So where’s the money? In the hands of employees and officers of the company by way of stock options. The bottom line for outside shareholders is that Oracle has broken even over the last three years. For their investment in Oracle, they received three years of happy headlines, but no tangible increase in shareholder equity. Some “investment!"

You would think that the owners of the company (shareholders) would be livid over this apparent theft of wealth that appears to be so obvious. Yet Oracle trades at an expensive P/E of about 23.5. This is in spite of perpetually optimistic Wall Street analyst’s 5-year earnings growth estimates of only 10%. So who are these shareholders who are “A-Okay” with paying up for a stock which only “breaks even” on their behalf? The following lists the seven largest shareholders of Oracle company stock (data from Lionshares.com).

...

Today’s Market

Philadelphia Phillies Hall of Fame 3rd Baseman Mike Schmidt once said after a hitting slump that lasted several weeks, “Playing in Philadelphia has given me the thrill of victory, and the agony of reading about it in the newspapers the next day.” Today I feel much like Mike Schmidt must have felt at that time. Writing my bearish intermediate views of the Nasdaq has given me the thrill of victory and the agony of writing about it the next day! The Nasdaq posted its 5th straight positive day, but has yet to trade an average day’s worth of volume. You could have seen this one coming because over the last decade, when head-and-shoulders patterns whipsaw, they do so fast and tradable. Still as I referenced above, “in those extraordinary cases when a Complex Formation does go wrong, it still stands, like the plain Head-and-Shoulders, as a warning that the final Reversal is near.”

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

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Has Anyone Noticed?

Yahoo is back to August 1999 levels. One of the following must be true:

1. In August 1999 we were not in a stock market bubble.
2. Today, we are in a stock market bubble.
3. Yahoo has the potential future sales and earnings to make it worth its current stock market valuation of over $40 Billion. For ready reference Yahoo has a price to earnings ratio of 138, not including costs for expensing stock options. (Source: Yahoo Finance.)

http://www.washingtonpost.com/wp-dyn/articles/A62389-2004May28.html?nav=headlines

LONDON (Reuters) - The dollar hit an eight-week low against the euro and a three-week trough on the yen on Friday as disappointing U.S. data in the previous session raised uncertainty as to how much U.S. interest rates need to rise.

Analysts said disappointing figures for U.S. jobs and economic growth released on Thursday had sparked a liquidation of long-dollar positions that had been piling up on expectations the Federal Reserve would raise interest rates in June -- making returns on the greenback less unattractive.

Investors are awaiting more U.S. data releases due later, manufacturing survey and a final reading of the University of Michigan consumer sentiment survey ahead of a three-day weekend in Britain and the United States.

"What we are seeing is a reaction to softer than expected data that has come through since the start of May, which has led U.S. interest rate expectations down," said Shahab Jalinoos, senior currency strategist at ABN Amro.

"Today we have some pretty important numbers -- Michigan confidence and Chicago PMI - but the tendency since early May has been for the numbers to disappoint."

more...

http://www.forbes.com/strategies/2004/05/26/cz_do_0526hedge.html

NEW YORK - A dynasty returns to power in India and the stock market falls out of bed. Latin-American bonds sell off. Currencies Down Under take a tumble. What does one market have to do with the others? They are all part of a flood of borrowed money now unwinding its way around the globe. Hedge funds, leveraged up and crowding into the same markets, are behind much of the selling.

Known as the dollar carry trade, it works like this: A new hedge fund raises money, say $100 million, in U.S. dollars. The money is deposited with a prime broker; The Bear Stearns Cos. (nyse: BSC - news - people ), The Goldman Sachs Group (nyse: GS - news - people ) and Morgan Stanley (nyse: MWD - news - people ) are some of the most active. To juice returns, brokers will lend the hedge fund as much as ten times the initial investment. As long as interest rates are low, there is an incentive to leverage as much as possible. Even a modest return can cover the interest charged by a broker. And as long as the dollar is falling, as it has for the last two years, there is an incentive to invest overseas. Much of the $170 billion in profits and new money raised that flowed into hedge funds last year, plus the billions they borrowed, poured into Brazilian debt, high-yield bonds and commodities.

These trades made money, so hedge funds and trading desks at Wall Street firms all piled in. But, as with any highly leveraged deal, even a small change in direction can set off a chain reaction. A few weeks ago, the U.S. Federal Reserve Bank indicated that interest rates would rise sooner rather than later, and bond prices started to fall. Hedge funds started getting collateral calls from their brokers demanding more cash and the selling began.

Commodities and commodity-linked currencies--a favorite of hedge funds--were some of the first to fall. Gold has dropped 12% since April and the Kiwi--as the New Zealand dollar is fondly known--is down to 61 cents from a high of 71 cents in February. Indian equities, one of the most volatile markets this month, bounced around in a 20% range after elections there last week. Russian corporate debt plunged along with other emerging debt markets, even though Russia's economy hasn't looked this good in years. Trading froze in many of these debt markets as everyone headed for the exits at the same time.

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"If this were simply a flight to safety, you would see investors selling Brazilian debt and Indian equities and investing in gold and U.S. Treasurys," says Gulliver. "Instead, you see everything declining at once, except the dollar."

snip>

...But beware of two new trades drawing the hot money crowd, who are buying oil and shorting U.S. Treasurys. With oil prices higher than $41 per barrel and worries that government bonds will deliver negative returns this year, there may be sound reasons to invest in oil and sell Treasurys--just as the fundamentals have favored investing in Indian equities. But, warned Wood, "crowded trades have a habit of unwinding nastily, especially given the lupine tendencies of absolute return investors to hunt in packs."


more...

http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1084907878491&p=1012571727204

Use of credit options has exploded this year, according to JP Morgan, one of the leading banks involved in this type of derivative.

In the first five months of 2004 the bank has seen nine times as much volume as in the same period last year.

snip>

The main area of growth has been options on credit default swaps. CDSs are tradeable derivatives that provide insurance against default but which can also be used speculatively.

Albin Spinner at JP Morgan said CDS option volumes "have picked up significantly since the beginning of the calendar year. JP Morgan London alone has traded a notional of CDS options in the multi-billions since January."

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"Both Europe and the US are growing exponentially. The US tends to be driven by hedge funds who are truly trading volatility. In Europe there are more larger credit players who want to take a view on a specific company."

more...

http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1084907882034&p=1012571727108

Fannie Mae's compensation of top executives is drawing closer scrutiny from both regulators and lawmakers amid concerns that incentives may have encouraged overly aggressive bookkeeping.

The Office of Federal Housing Enterprise Oversight is examining the housing-finance company's "earnings per share challenge option grants" as part of a broader investigation of its accounting methods, according to people familiar with the matter.

Meanwhile, lawmakers in the House of Representatives have asked Ofheo for further information on the compensation received by high-ranking officials at Fannie Mae and Freddie Mac, its sibling government-sponsored entity.

Ofheo's investigation comes as Congress considers legislation to create a more powerful regulator for the GSEs. Legislation is unlikely this year, with Republicans and Democrats unable to agree on reforms.

more...

http://www.gulf-daily-news.com/arc_Articles.asp?Article=82040&Sn=BUSI&IssueID=27061

It may be time for some countries to stop pegging their currencies to the dollar, which is likely to remain weak and volatile for years to come, an internationally renowned currency strategist said in Bahrain yesterday.

BNP Paribas foreign exchange strategy global head Hans Redeker said that the US's ballooning budget deficit and current account deficit would keep the currency weak.

Recent strength in the US dollar is due to cyclical factors such as rising interest rates and is not expected to be sustainable.

However, the currency is likely to fall further against the Japanese yen than it is against the Euro, predicts Mr Redeker.

snip>

Mr Redeker said that it may be more beneficial for countries to peg their currencies to a basket of currencies selected based on trade exposure.

http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1084907877869&p=1012571727204

Foreign investment in Japanese bonds hit a record high last week as non-Japanese buyers seized on debt as a haven from Tokyo stocks and a means of profiting from the strength of the yen.

Overseas investors spent Y2,460bn ($22.18bn) on mainly government debt - more than Japan earns each week from exports and the largest figure since records began in 2001, according to data yesterday.

The huge inflows came despite yields on Japanese government bonds (JGBs) being among the lowest in the world. And, with deflation easing, the value of debt bought today is likely to fall as interest rates rise.

The news coincided with record demand at an auction of new two-year Japanese government bonds yesterday. The bids amounted to Y272,000bn - 160 times the amount offered - equivalent to 59 per cent of Japan's 2003 gross domestic product. The bonds were yielding just 0.145 per cent yesterday.

snip>

Analysts suggested that investors buying bonds might be seeking exposure to the yen, which has strengthened to Y111 against the dollar from an eight-month low of Y114 in mid-May.

http://www.nytimes.com/2004/05/28/business/28disrupt.html

HOUSTON, May 27 - With demand high, supplies squeezed, prices climbing and refineries already running flat out, what if something really went wrong? Something like a terror attack on crucial oil installations in Saudi Arabia or in the United States, or something less sinister but just as disruptive, like a fire or accident at a major refinery or port or a flare-up of civil or labor turmoil in Nigeria or Venezuela?

Industry experts say that the drum-tight American fuel market has become unusually vulnerable to any such nasty surprises, because there is little spare capacity available and because traders, executives and policy makers are nervous about terrorism and other threats - to the point that crude oil now carries a "risk premium" of 12 to 25 percent, analysts estimate.

"The problem is, we've already tasted some of these events in one form or another," said Daniel Yergin, chairman of Cambridge Energy Research Associates, an energy analysis company. "The threat of an oil shock is very tangible. If an oil trader wants to think about risk, all he has to do is turn on the television."

Just how big a risk premium traders will demand on oil is a subjective calculation, driven up or down from day to day by news developments. One energy strategist, Fadel Gheit of Oppenheimer & Company in New York, estimated that worries about Nigeria contributed about $1 a barrel; Venezuela another $3; the situation in Iraq, $4 more; and jitters about new trouble in Saudi Arabia, $5 a barrel. "In a psychologically charged market, bad news travels faster than good news," Mr. Gheit said.

Without the black cloud of vulnerability from the market, many analysts say, crude might trade for $30 or $35 today instead of nearly $40.

more...

http://story.news.yahoo.com/news?tmpl=story&u=/afp/20040528/bs_afp/ecb_bank_eurozone_040528084127

FRANKFURT, (AFP) - Growth of the eurozone money supply, which the European Central Bank sees as a key gauge of future inflation, slowed sharply in April, ECB data shows.

Last month, the eurozone's money supply, as measured by the broad indicator M3, grew by 5.6 percent, much slower than the growth of 6.3 percent recorded in March, the ECB calculated.

Nevertheless, analysts had been pencilling in even lower M3 growth in April of around 5.4 percent.

The ECB closely monitors developments in the money supply when deciding the appropriate level of interest rates because it sees a link between the level of liquidity in the economy and future inflation.

more...

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

Last trade 88.83 Change +0.16 (+0.18%)

http://www.fxstreet.com/nou/noticies/afx/noticia.asp?pv_noticia=1085743174-9e32d306-21793

Dollar regains composure but US data expected to fuel selling pressure

LONDON (AFX) - The dollar clawed back some ground lost in the recent sharp sell-off, but most market participants expect little respite for the US unit from a raft of US economic data this afternoon

The dollar's trade-weighted index is now at its lowest level for over a month, with the euro up three cents on the week and near six-week highs

Renewed dollar weakness is expected over the rest of the day with market participants wary of holding onto dollars over the long weekend in the US and Europe, and US economic data unlikely to excite

The dollar has been under pressure for a number of days as investors reevaluate the outlook for US interest rate hikes to the downside in the wake of sky-high oil prices

"Widening interest rate spreads, terrorism fears, growth concerns and panic selling all led to a ferocious sell-off in the dollar," said HBOS currency strategist Steve Pearson. A week of US data disappointments added to the pressure on the dollar

As a result, analysts said the risks in the dollar remain to the downside, especially if next week's employment report for May falls short of expectations

This afternoon's data is unlikely to prompt a reversal in the dollar, analysts said. Personal income in April is expected to rise 0.5 pct from March's 0.4 pct, while consumer spending during the period is set to rise 0.3 pct from 0.4 pct in March

Meanwhile, the Chicago PMI for May is expected to slip to 61.9 from 67.0 in April

...more...

http://www.fxstreet.com/nou/noticies/afx/noticia.asp?pv_noticia=200405280628MKTNEWS_MAINWIRE_6FE8_2483

Ldn FX: Dlr Off Lows On Pre-Long Weekend Position Squaring

LONDON, May. 28 (MktNews) - The dollar recovered off session lows
against the euro and yen as traders squared some short dollar positions ahead of the long weekend in the US and Europe and a raft of US data due later in the session.

EURO SUMMARY: Opened early European trade at $1.2288

-- The euro held a narrow range in Asia with $1.2260/80 containing trade until just ahead of the European open. Then, European accounts started to bid the euro up to test offers at $1.2295/00 as stops were tripped over $1.2290
-- Profit-taking soon emerged and the euro came under steady pressure back through the Asian lows and through $1.2250
-- Further bids are seen at $1.2200/15 with offers remaining ahead of stops at $1.2300
-- Attention now turns to the raft of US data due later in the session and traders warn of thin conditions as the market approached the long weekend for UK and US markets.

MNI SOURCES: Market News International - Sources say concern about
inflation has mounted at the Federal Reserve and that, while the Fed still expects inflation to remain modest, it is inclined to act somewhat more preemptively than it would have several months ago to make absolutely sure inflation does not develop more upward momentum.

...more...

Have a Great Day Marketeers!

I have a full day away from the computer scheduled. What a hectic week!

Have a wonderful day at the Casino, Marketeers. And have a doubly safe and wonderful long weekend. See you on Tuesday.

Ozy :hi:

http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=32927

snip>

The other item is something that gets rolled out by stock bulls whenever interest rates are going up or are likely to. This is a purposeful minimization of what a 30 or 40 basis-point rise in yields really means. Much of this minimization comes from sheer ignorance -- something I hope this article will help redress.

But some of the minimization also comes from Wall Street's efforts to always put the best spin possible on items that might adversely affect the stock market. Therefore, when investors assess matters that could be of more than a modicum of importance, they should keep in mind that as of the end of last year, the Fed estimated that there was $22.4 trillion of domestic nonfinancial-sector debt in existence. I think this figure strongly suggests that even a few basis points here or there is of some interest.

As the earlier table indicated, the yield on the on-the-run long Treasury bond is up 30 basis points this year-to-date, and this is after a decent price rally/yield decline, over the last week or so. At the recent high yield, the Treasury 5.375s of 2/15/31 stood at 5.55%, versus yesterday's 5.37%. (As an aside, the Treasury's "30-year" bond is really a "27-year" bond, since the Treasury has not auctioned a current-coupon 30-year issue since the 5.375s were issued about three years ago.)

So if you listen to most of the Wall Street cheerleaders, this mere 30 basis points was no big deal. However, if you bought the 5.375s of 2031 at the end of last year and computed your return as of yesterday's close, you might feel differently.

Between 12/31/03 and yesterday, the T-Bond holding earned interest income equaling 2.10% (non-annualized). This is not bad at all, considering that a 90-day T-Bill over the same period had a non-annualized return of only 0.39%. But ... there's more to the story. For the year to date through yesterday, the Treasury 5.375s of 2031 lost 4.10% of their principal value. Netting this against the positive income return left an investor with a non-annualized, negative return of 2.00%. Therefore, the T-Bill's paltry +0.39% whipped the bond's total return of -2.00% in a rather major way!

more...

10:00AM: Stocks dip a bit on the weaker than expected Michigan Consumer sentiment reading, but then return to their earlier levels... The May result was revised down to 90.2 (consensus of 94.2) - its lowest level since October - as worries about escalating gasoline prices and violence in Iraq outweighed recent labor market gains and the improving economy... Most sub-groups of technology, banking, and energy are trading lower at the moment and confining the major indices to negative territory... The May Chicago PMI Index was just released at the top of the hour, and came in at 68.0 (consensus of 62.0)...
In the first minute following its release, it's had little impact on trading...NYSE Adv/Dec 1269/1269, Nasdaq Adv/Dec 1150/1185

9:40AM: Sluggish start for the equity market with the indices stuck below the unchanged mark... Novellus (NVLS 32.44 +1.06) gave a bullish mid-quarter update last night - in which the chip maker raised its Q2 (June) guidance - but investors have been reluctant to bid up shares in a broad-based fashion with the market already up for the week... Economic data out of Europe - where the inflation rate hit a 2-year high for 12 countries - have been discouraging, but reports out of the US have been upbeat... :shrug:

April Personal Income and Spending both topped expectations, and the market will get the last of the data in 20 minutes... May Consumer Sentiment at 9:45 ET (consensus of 94.2) and May Chicago PMI (consensus of 62.0) at 10...

Dow 10,184.23 -20.97 (-0.21%)
Nasdaq 1,978.24 -6.26 (-0.32%)
S&P 500 1,119.06 -2.22 (-0.20%)
10-Yr Bond 4.636% +0.048

10:30AM: Market continues to drift lower, despite the surge in the May Chicago PMI Index to 16-year highs... The regional manufacturing index climbed to 68.0 - charging past the consensus estimate of 62.0 - as new orders spiked to 74.4... The survey's employment index also rose to 54.8 - quite encouraging considering how hard Chicago-area businesses were hit during the recent downturn... The strength of the data suggests that estimates to next week's May ISM Index will be revised higher (consensus currently stands at 61.0)...
Stock action off the encouraging report, however, has been disappointing - bringing to mind past weeks when strong economic reports were greeted with disinterest from buyers...
http://finance.yahoo.com/mo

http://cbs.marketwatch.com/news/story.asp?guid=%7B5947BE82-C83A-49A4-B39E-D949FD61AF11%7D&siteid=google&dist=google

WASHINGTON (CBS.MW) - U.S. consumer sentiment sank to a seven-month low in late May, as worries about higher energy prices and terrorism outweighed signs of an improving economy.

According to media reports, the University of Michigan's proprietary consumer sentiment index fell to 90.2 in late May from 94.2 in April and 94.2 in early May. It's the lowest reading since October's 89.6.

Economists were expecting an increase to about 93.7 in late May, according to a survey conducted by CBS MarketWatch. See Economic Calendar.

The current conditions index fell to 103.6 from 105.0 in April and 107.2 in early May. It's the lowest since February, just before government data showed a sharp acceleration in job growth.

The expectations index fell to 81.6 in late May from 87.3 in April and 85.8 in early May. It's the lowest since September.

Since the final figures include responses from the entire month , the sharp decline suggests an even more severe deterioration in attitudes since the preliminary survey was released two weeks ago.

...more...

"This is disconcerting as it takes place in the midst of an environment where most other economic statistics - notably those related to the labor markets -- are showing solid improvement," said Anthony Karydakis, economist for Banc One Capital Markets. "Apparently the higher gasoline prices and the Iraq situation are taking a toll on consumer psychology."

:eyes: Sheesh, get a clue people! Main St doesn't look at no stinking statistics! They are living and attempting to navigate down this highway to Hades!

Consumer confidence surveys measure attitudes, not behavior. Consumer spending has held up well throughout the post-Sept. 11 period, despite the depressed sentiment figures.

http://www.321gold.com/editorials/bond/bond052804_wsj.html

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....CPM Group's Jeff Christian was quoted by Mineweb the other day thusly: "A (gold) price over $400/oz is not sustainable in the long run unless the world goes to hell in a handbasket. The average long-term clearing price of gold is between $320/oz and $380/oz," Christian told Mineweb.

snip>

Ah, but there was that magical caveat: "unless the world goes to hell in a handbasket."

Well, duh. Plenty of evidence exists that the world already is going to hell in a handbasket.

The U.S. Army, reports the Financial Times, is running out of bullets. Even the REMFs in Afghanistan and Iraq need to chamber a round from time to time to avoid ambush, and the Army says it will need to, ahem, outsource its bullet supplies to make up for an estimated 300-500 million shortfall Lake City Ammo can't make up in each of the next five years. More of these little 55-grain lead rocks - which totes up to several thousand tonnes of lead - won't come from the U.S. because the EPA has outlawed lead mining in this country, so we will have to buy them from the Chinese company Norinco, but the Chinese may need more bullets for themselves as we waltz inexorably together into a confrontation in the Straits of Formosa over the sovereignty of Taiwan. (The Chinese, you may recall, offered some trade concessions to Europe last month if Europe would lift its Tiananmen Square-inspired small-arms embargo against China).

Hang with us here, but if one takes the time to study Southeast Asia history as pertains to U.S. relations, one quickly learns that President Harry Truman declared to the Chinese in 1950 that whoever owned Taiwan was not America's business. So forgive the mainland Chinese their confusion as to U.S. foreign policy whilst we send a carrier group their direction. Going to hell in a handbasket? Fifteen thousand tons of lead were depleted from the LME recently, and not by U.S. bullet makers. We have partied and splurged our way into make-believe prosperity by means of asset inflation, which may be the most insidious inflation of all. Whilst Fannie Mae and Freddie Mac utter death throws so loud even Greenspan's thugs heard them, we've gleefully hocked our houses for three times their worth, and a collapse in the housing market is now almost a given. The newfound "equity" we peed away on digital cameras, motor-homes and Carnival cruises is now gone. All this spending gave an illusion of prosperity but it will not last. Real prosperity comes from just two things in the only two basic sectors of the economy: productivity on the farm and new mineral discovery and recovery on the ground. Anything else goes up and down with the tides, and the water is definitely receeding.

Going to hell in a handbasket? Consider that the EU is now bigger than us; that China exceeded the U.S. last year in foreign investment; that India's silver-grounded economy is catching up as fast as the Chinese; that we lost our moral bully-pulpit utterly in Europe with the Baghdad prison abuse scandal; that the Arab world, also devotees of gold and silver standards as alternative to U.S. reserve currency hates our guts; that Mexico might soon start chasing out bad money (U.S. fiat currency) with good money (silver coinage); that Russia is busy sucking up every molecule of gold, silver, nickel and PGMs on the planet.

snip>

Going to hell in a handbasket? Only the Fed, Bush's Council of Economic Advisors, and a handful of single-cell amoebae seem not to have noticed that we already have.

more...

http://www.321gold.com/fed/temp_bank_res.html

What does this mean?

http://www.publicdebt.treas.gov/opd/opdpenny.htm

05/25/2004 $7,197,503,931,787.58
05/24/2004 $7,193,240,510,846.79
05/21/2004 $7,191,790,812,520.17
05/20/2004 $7,191,321,725,950.37
05/19/2004 $7,179,680,898,792.06
05/18/2004 $7,183,392,668,476.95
05/17/2004 $7,175,792,737,791.70
05/14/2004 $7,148,485,831,875.31
05/13/2004 $7,147,545,929,573.40
05/12/2004 $7,138,336,407,027.29
05/11/2004 $7,140,938,564,371.73
05/10/2004 $7,136,491,126,797.91
05/07/2004 $7,131,316,785,832.04
05/06/2004 $7,133,629,790,637.80
05/05/2004 $7,127,985,763,866.20
05/04/2004 $7,124,773,711,006.15
05/03/2004 $7,105,796,969,042.55

I believe these are the bond issuances

http://www.forbes.com/markets/bonds/newswire/2004/05/25/rtr1384325.html

excerpt:

Investors were encouraged on Monday when the Treasury Department said it would sell a $25- billion package of two-year paper on Wednesday, making this the smallest auction since September, albeit by just $1.0 billion.

The short end of the Treasuries curve staged a small rally, aided by relief over the smaller size of Wednesday's debt sale, while a spike in oil prices roiled share prices.

Even so, the small rise in bond prices is unlikely to deter buyers at the auction, given that two-year yields <US2YT=RR> are still close to their highest levels since July last year at around 2.54 percent, having climbed from 2.10 percent a month ago.

http://www.ny.frb.org/education/addpub/pdf/ch5.pdf (page 7)

The Desk uses short-term RPs with dealers to add reserves on a temporary basis. Under the RP arrangement, the Desk buys securities from dealers who agree to repurchase them at a specified price on a specified date. The added reserves are extinguished automatically when the RPs mature. It is much more convenient for the Fed to inject large amounts of reserves on a temporary basis through RPs—or System RPs as they are usually called—than through outright purchases. RPs allow the Desk to respond quickly when reserves fall short of desired levels and they can smooth the pattern of reserves for the maintenance period by meeting needs for particular days. Moreover, transaction costs for RPs are very low, and acceptable collateral is broadly based to include Treasury bills, notes and bonds and certain
federal agency securities held by both dealers and their customers.

The Desk can conduct RPs on an overnight basis or on a term basis. While the Desk is authorized to arrange term RPs for up to 15 days, most term RPs are arranged to mature within seven days. The distribution of RP transactions among dealers is determined by auction
in which dealers bid for a dollar amount of RPs at a specified interest rate. With all the offers arranged in descending order of interest rates, the Desk accepts offers that carry the highest rates up to the desired dollar amount.

The Desk also has arranged customer-related RPs with dealers on behalf of foreign official accounts, generally to meet relatively modest reserve needs. These customer RPs—as distinguished from System RPs described above—have been arranged to mature on the next business day, with their volume being limited by the total funds available from foreign accounts for investment. In December 1996, the Desk announced that it is likely to use customer-related RPs much less frequently in the future than it has in the past.


:shrug:

the long- and short-term spread?

http://www.forbes.com/business/services/newswire/2004/05/27/rtr1387690.html

NEW YORK, May 27 (Reuters) - U.S. swap spreads tightened for
a second session on Thursday, following another rally in
underlying yields that some market players described as
"unsustainable" and may reverse after the Memorial Day weekend.

The 10-year Treasury yield fell to a three-week low of 4.60
percent, mainly due to buying of Treasuries as well as agencies
and mortgages as fund managers are forced to match a big
extension of the leading Lehman bond index. Some players have
also short positions to cut back on risk before the long
weekend.

Traders said that in all likelihood the buying tied to index
extension had run its course ahead of Friday's abbreviated
trading session that officially ends at 2 p.m. EST (1800 GMT).
But market players said trading would likely grind to a halt well
before then.

Receiving of fixed rates, which usually drives spreads
narrower, was seen across the curve and from a variety of
accounts, including mortgage portfolios in the seven- and 10-year
area. Traders also noted one big dealer receiving in the
intermediate part of the curve, perhaps on behalf of a mortgage
portfolio.

Graig Fantuzzi, head of global interest-rate strategy at
Morgan Stanley, said the mortgage-related hedging need "gets a
little worse in a rally. But with better economic data likely to
come next week, he said it was "not a sustainable rally."

Other traders agreed, with one saying "at the end of next
week, the bear market will be back."

New corporate debt issues may have also played a factor in
the spread tightening, with Bank of America selling $750 million
of 10-year notes, though some traders said they weren't so sure
the deal was swapped to short-term floating rates. Citigroup sold
$1 billion of three-year floating rate notes.

<snip>

The next big hurdle will be the April core PCE index in the
personal consumption and income report on Friday, which is
expected to rise 0.2 percent on the month to take the
year-over-year PCE up to 1.6 percent, double the pace from
December. Any bigger rise would likely drive rates higher and
hurt spreads.

...more...

Or was that just more bond talk? :shrug:

the past that discussed watching the repos, but alas I am suffering from a brain fart as to the particulars about them. I do remember they weren't considered a good thing in large quantities. I'll have to ponder on this for a while.

http://sify.com/finance/fixedincome/fullstory.php?id=13461995

Bonds remained almost steady during last week, as traders turned cautious in view of the warnings issued by the Reserve Bank of India.


Traders said that top RBI officials have been cautioning banks against unbridled trading and warned that external developments were bound to have an impact on the domestic bond markets. The key external development identified to have an impact on the domestic markets were the large fiscal and trade deficits of the US.

Traders said that both these developments were likely to lead to large US sovereign borrowings, leading to higher dollar interest rates. Traders said that adding to these developments were also the firm international oil prices. What had so far kept the rates down were the repeated interventions by Asian central banks, both in the foreign exchange and US bond markets. The accretion in the reserves were in turn invested in the US treasuries. This ensured that the US treasury yields remain low.

<snip>

The repo rate has remained at 4.5 per cent, despite speculation that it could fall further. However, bankers said, that some of them have already discounted a 25 basis point (0.25 per cent) drop in the repo rate, though few were certain on the timing of the drop.

But interventions in the markets through the 91-day T-bill route, under the market stabilisation scheme continued unabated, in view of the liquidity flows. There were also interventions through the 7-day repos all at 4.5 per cent.

As a result, the repo rate was now acting as a floor for all interest rates. Insurance companies, banks and mutual funds continued to be largest buyers. Purchases by insurers were mostly at the long end of the yield curve.

...more...

http://www.gold-eagle.com/editorials_03/bolser042603.html

This report briefly examines the Federal Reserve's Repurchase Agreement mechanism and its near-term relationship to the DOW Jones Industrial Average. The RP issuance and expiration schedules create a pool of temporary investment funds available to select financial entities that can exceed $30 Billion. A correlation between the RP pool totals and the DOW is found and charted since December 2002. In addition, a sharp August 2002 increase in RPs is noted with an apparent correlation to changes in the Major Currency Dollar Index . Finally, the debt-trap dynamics of Japan, proposed re-flationary solutions and similarities to the US are briefly discussed.

http://biz.yahoo.com/cbsm-top/040528/db778010bbd4803158a9b5d4ea9f6db4_1.html

NEW YORK (CBS.MW) - U.S. stocks were modestly lower Friday morning as investors booked gains heading into the holiday weekend amid worries about rising interest rates resurfaced after a stronger-than-expected report on manufacturing.

snip>

Trading was on the quiet side as many take an early start to the holiday weekend. U.S. markets will be closed Monday in observance of the Memorial Day holiday.

"It's pretty dead and I don't expect it to get any better," said John Hughes, market analyst at Shields & Co. "I think just because it is dead you'll probably get some pushes up and some pushes down at some point today just because the volume is so thin."

snip>

Funds investing primarily in U.S. stocks took in $1.9 billion during the week ending May 26 after suffering outflows of $200 million the week before, estimated Trim Tabs director of research Carl Wittnebert. International stock funds had inflows of $200 million, vs. outflows of $300 million the prior week. Bond funds lost $1.2 billion, adding to the prior week's outflows of $2.3 billion.

Doin' the Wall Street Shuffle :evilgrin:

snip>

Pilgrim's Pride (NYSE:PPC - News) said it found Avian flu in a 52-week old commercial chicken breeder flock at a contract grower's farm in Northeast Texas. Pilgrim's Pride believes the discovery will not impact earnings. :wow:

Pilgrim's pride shares fell 3.2 percent to $26.99. Fellow poultry producer Tyson Foods (NYSE:TSN - News) slipped 1.4 percent but Sanderson Farms (NasdaqNM:SAFM - News) edged up 0.3 percent.

more...

Dow 10,191.01 -14.19 (-0.14%)
Nasdaq 1,984.05 -0.45 (-0.02%)
S&P 500 1,120.47 -0.81 (-0.07%)
10-yr Bond 4.643% +0.055
30-yr Bond 5.351% +0.039

NYSE Volume 390,876,000
Nasdaq Volume 450,663,000

11:30AM: Major indices pare their losses some, but have been unable to make any headway into positive territory... Selling persists in internet, software, networking, computer hardware, and biotech, and that has hindered the extent of the Nasdaq's recovery effort... As for the blue chips, they have seen some buying in interest-rate sensitive issues like REIT and homebuilding as the bond market has rallied for 2 weeks now... Today, though, treasuries are lower off the jump in the May Chicago PMI and the April Personal Income and Spending data...
The 10-year note is currently down 10 ticks, bringing its yield to 4.64%...NYSE Adv/Dec 1613/1374, Nasdaq Adv/Dec 1172/1616

10:55AM: Equities remain on the defensive as buyers remain a reluctant bunch this morning... Breadth figures continue to favor the bears with decliners outpacing advancers, and down volume leading up volume at the NYSE and Nasdaq... The tendency to take profits ahead of a long weekend - particularly in light of this week's large gains and the fear of terrorist activity - has offset mostly bullish economic data and an upwardly revised outlook from Novellus (NVLS 32.68 +1.30)...

The semiconductor group has managed an up move today, but other influential sectors - like financial and transportation - have traded lower...DJTA -0.3, SOX +0.5, NYSE Adv/Dec 1356/1535, Nasdaq Adv/Dec 1053/1627



Advances & Declines
NYSE Nasdaq
Advances 1593 (49%) 1195 (40%)
Declines 1407 (44%) 1610 (54%)
Unchanged 196 (6%) 171 (5%)

----------------------------------------------------------------------

Up Vol* 161 (46%) 179 (44%)
Down Vol* 173 (50%) 212 (52%)
Unch. Vol* 11 (3%) 13 (3%)

----------------------------------------------------------------------

New Hi's 36 28
New Lo's 8 15

http://www.forbes.com/business/energy/2004/05/28/cx_da_0528topnews.html

NEW YORK - OPEC's official price target remains $22-to-$28 per barrel, though it has exceeded that target for a while. Even as the price of U.S. light crude fell 34 cents, to $39.10, prices are still far higher than OPEC's goal. While some, mostly Saudi Arabian, OPEC ministers, say the current price is too high for the health of the world economy, they also are starting to say that the official price target is too low.

The cartel is mulling a shift in the price band for a barrel of crude by as much as $8 per barrel, according to The Wall Street Journal. The new target would start at $28, which is still $10 per barrel less than the current reality.

Part of the reason OPEC nations want higher prices--apart from the obvious reason that everyone wants a higher price for what they sell--is the decline in the value of the dollar relative to other world currencies. Since oil contracts are priced in dollars, the same price has meant less purchasing power for oil producers.

snip>

According to OPEC's Web site, though, OPEC nations, excluding Iraq, were already producing 25.7 bpd for world markets as of the beginning of April, so it is not entirely clear what the new policy would mean. It is also not clear at what point member nations will increase production to take advantage of current prices that are better than 42%-to-82% higher than the current target.

Some OPEC members, such as Venezuela and Libya, are expected to oppose a rise in production quotas. These two nations are actually pumping less than their quotas, according to OPEC.org, so they would have nothing to gain either short term or long term from a dip in prices.

http://quote.bloomberg.com/apps/news?pid=10000006&sid=aqRgxgaV2mnU&refer=home

May 28 (Bloomberg) -- U.S. consumer spending rose in April, incomes had their biggest gain in five months and more companies in the Chicago area said business improved this month than at any time in almost 16 years, reports showed.

Personal spending rose 0.3 percent in April after a 0.5 percent increase in March that was larger than previously estimated, the Commerce Department reported in Washington. The National Association of Purchasing Management-Chicago said its index of area business rose to 68.0 this month, the highest since July 1988. A reading above 50 signals expansion.

The biggest two-month gain in payrolls in four years is boosting wages, helping to mitigate the effects of rising gasoline prices by giving consumers the wherewithal to keep spending. Improving demand is fueling a rebound in production.

<snip>

The University of Michigan's final index of consumer sentiment fell to 90.2 in May from April's 94.2. Rising gasoline prices and violence in Iraq may be to blame.

...more...

Wow! 16 years! I remember 16 years ago - that would have been 1988 (if my math is correct) and golly, geewiz, ohmy! What a booming economy the Midwest was in! Foreclosures galore, bankruptcies rampant, S&Ls going under by the bucketloads, FDIC insurance strained to cover the bank failures.... :wtf: Oh, and Daddy-Warbucks was cleaning our clocks with his Voodoo economics. Sheesh!

search. Sounds pretty rosy in Chi-town!

Easy street
Easy street
Where you sleep till noon

Yeah, yeah, yeah

She'd repeat
Easy street
Better get there soon.

Easy street
Easy street
Where the rich folks play
Yeah, yeah, yeah
Move them feet

Move them ever-lovin' feet
To easy street
Easy street
When you get there stay

http://www.forbes.com/business/commerce/newswire/2004/05/28/rtr1388509.html

CHICAGO (Reuters) - Some U.S. consumers plan to cut back on travel and shopping as long as steep gasoline prices keep taking a bigger bite out of their wallets, according to an NPD Group survey released Friday.

The sales and marketing information group's survey found that 28 percent of American consumers say they have bought less gasoline than usual, and a "significant percentage" plan to reduce spending on clothing, dining out and entertainment like cinema, theater and sports events.

"At some point, gasoline takes such an increased share of the wallet that consumer spending suffers in other areas," said David Portalatin, NPD's auto industry analyst.

"Breaking the symbolic $2 per gallon price mark appears to have been enough to force consumers into action," he added.

The price of gasoline recently rose above $2 a gallon to record levels. That's up more than 50 cents from a year ago heading into the Memorial Day weekend, the traditional kickoff to the peak summer driving season in the United States, which is the world's biggest consumer of the motor fuel.

...more...

I was surprised to not see the 1903 gasoline price comparison in this article :D

Hey Marketeers-

Just stoppin' in for a quick dose of all th financial lo'-down and to post a quick update.


Dow 10,176.32 -28.88 (-0.28%)
Nasdaq 1,983.20 -1.30 (-0.07%)
S&P 500 1,119.43 -1.85 (-0.16%)
10-Yr Bond 4.655% +0.067

Pretty flat but some bruising in Treasuries....

Julie

http://www.thestreet.com/_tscs/markets/dumbestgm/10162761.html

1. The Richard Don't Always Get Richer

Dick Grasso says he looks forward to his day in court. We're not so sure he should.

<snipping a lot of good stuff>

2. To Email BB&T or Not to Email BB&T

Imagine you've decided you don't want to get any speeding tickets. Which of the following strategies should you employ?

1. Be sure to drive no faster than the posted speed limit.

2. Lock your car in the garage and never drive again.

Well, if you chose answer No. 2, it appears you have a future at the financial services firm BB&T

<snipping some CYA news>

3. Mace's Spray and Wash

If you were looking for a way to invest in the homeland security phenomenon, would you invest in a chain of car washes?

<snipping a big OOPS!>

4. More to Tell at Nortel


On April 28, Nortel Networks (NT:NYSE - news - research) dumped President and CEO Frank Dunn "for cause."

<snipping some gossip :)>

5. Child's Play in the Resume

<snip>

The 31-year-old CEO, according to the proxy statement, "has been involved in the programming and operations of computers and digital communications for over 20 years."

...more...

e-mail tale. Those execs are probably the guys that kept getting promoted out of harms way. :evilgrin:

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=5290703

NEW YORK, May 28 (Reuters) - U.S. Treasury holders could face expect a gradual decline in prices in the run-up to the May employment report next Friday that could be the deciding factor in the timing of the first fed funds rate rise.

Since the last jobs report in early May showed a second successive month of robust growth, Treasuries have been holding out to see what the May data will reveal, as it comes just three weeks before the Federal Reserve's June meeting.

Despite this week's rally in fixed-income markets, interest rate futures continue to show the odds are stacked in favor of the Fed raising rates by 25 basis points in June, although expectations have been tempered by softer inflation data.

The Labor Department reports May non-farm payrolls data on Friday, which economists expect to show a rise of 225,000, after 288,000 in April, while the unemployment rate is forecast to remain unchanged at 5.6 percent.

"People are looking at Friday as something of a seminal event," said Bill Hornbarger, chief bond strategist at AG Edwards & Sons in St Louis.

more...

more exciting. Even the blather is uninspiring.

Dow 10,176.74 -28.46 (-0.28%)
Nasdaq 1,986.66 +2.16 (+0.11%)
S&P 500 1,119.84 -1.44 (-0.13%)
10-yr Bond 4.655% +0.067
30-yr Bond 5.348% +0.036

NYSE Volume 838,754,000
Nasdaq Volume 932,940,000

3:00PM: Haven't seen the most inspiring action in the afternoon trade, as the indices have spent most of the time trading close to the flat line... Most of the big market players have already headed out for the Memorial Day holiday weekend, making for fairly dull trade with no decisive trend... While Briefing.com does not expect this to last all summer, we do point out in today's Tying It Together column that trading volumes - and conviction on the part of traders - generally drop off during the summer months...
Among the things we would look for during the summer are (1) continuous sector rotation (2) fears of terrorism to persist (3) growing attention paid to Japan's domestic recovery, and (4) the FOMC to raise the fed funds rate by 25 basis points in June...NYSE Adv/Dec 1849/1378, Nasdaq Adv/Dec 1549/1484

2:30PM: Equity market continues its back and forth motion, lifting a bit higher after drifting lower earlier... Sector leadership remains elusive, with groups trading in sideways fashion... Retail and energy have edged higher this afternoon, but their gains have been counterbalanced by losses in transportation, drug, biotech, and brokerage... AG Edwards (AGE 37.32 -0.65) was downgraded by Wachovia to Market Perform from Outperform - based on valuation - and that has acted as a weight on that sector...

Banking has also traded lower today, and without the participation of the financial area as a whole, the blue chip averages cannot be expected to advance like the Nasdaq...SOX +1.2, NYSE Adv/Dec 1759/1448, Nasdaq Adv/Dec 1474/1544

http://www.thestreet.com/pf/funds/jubak/10159684.html

Just walk into the toy section of a Wal-Mart (WMT:NYSE) if you want proof that China's emergence as a global economic power reaches deep into the lives of all of us here in the U.S.

China manufactures about 80% of all toys sold in the U.S., even such iconic products as Etch A Sketch. In 2001, Ohio Art moved production of Etch A Sketch (which it playfully likes to claim is the world's first laptop) to Shenzhen near Hong Kong from Bryan, Ohio, where the toy had been made for 40 years.

Count the ways this one example ripples across our economy:

Manufacturing jobs that paid $9 an hour in Bryan are shipped to China, where workers at the new manufacturing plant make 24 cents an hour.

Toys are cheaper at Wal-Mart, where an Etch A Sketch sells for just $9.99. (That's pretty remarkable for a toy that sold for an inflation-adjusted $23.99 in 2004 dollars when it was first introduced in 1960.)

There's more pressure on the pensions and health benefits of U.S. workers because most of the workers they're competing with don't get those costly "perks."

OK, you're familiar with the lost-job story by now. But the China syndrome -- which I'm using as shorthand for all of the changes to the global economy brought about by the entry of China, India and other rapidly growing economies onto the world stage -- is by no means limited to job losses and lower prices at Wal-Mart. It extends far deeper into our lives than most of us realize. And for better or worse, China will have even more of an influence here in the years ahead.

Let me dust off my trusty crystal ball and sketch eight ways that China matters -- or will matter -- in our everyday lives.

more...

the last paragraph here is disturbing:

China has resurrected 19th-century imperialism with a twist. In the bad old days, imperial powers turned less powerful regions into colonies. From the colonies, they then extracted raw materials and sold manufactured goods on their own very favorable terms of trade. In the 21st century, don't expect a return to such naked grabs of real estate. Instead, the industrial economies will fight a much more subtle economic battle to lock up critical commodities. You already can see this in northern Asia, where China and Japan have been brawling over the route of an oil pipeline from Russia's Siberian fields. China thought it had a done deal to send the pipeline to Daqing in the heart of China's oil-producing region. But Japan now seems to have the inside track for a route that terminates in the Pacific port of Nakhodka -- and bypasses China's oil fields.

The U.S. has one key edge in this global competition because it is the sole industrial power with the ability to project military force just about anywhere in the world. A key question is how often the U.S. will choose to employ that edge in the competition for resources.

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_pauly&sid=akzjbvhsk44c

May 28 (Bloomberg) -- U.S. Federal Reserve Chairman Alan Greenspan -- like all saints -- should be a pain in the neck to other mortals. When Americans happily bid up stocks and home prices and the government helps them out with tax cuts, it's Greenspan's job to say ``whoa.''

Now, at 78 and with a growing, inflation-free economy as the legacy of his 17 years as Fed chairman, Greenspan has turned strangely accommodative.

Reminiscent of his failure in the late 1990s to raise interest rates enough to curb the stock market frenzy, today he's content to keep them at 40-year lows even though the economy is spurting, the prices of many goods and services are rising and the housing market is out of control.

Greenspan says there's no hurry to boost rates because there's little danger that the Fed's easy money policy will increase the rate of inflation. Labor costs are stable, and worker productivity remains high.

The Fed suggested on May 4 that it would only raise its 1 percent interest rate on overnight loans among banks at a ``measured'' pace. That at a time when a doubling or tripling of the overnight bank rate would be reasonable.

Healthy Growth

more...

http://www.businessweek.com/magazine/content/04_23/b3886127.htm

The end of the mortgage boom is nigh -- and it could get ugly for banks and thrifts

In most markets -- be it stocks, bonds, or commodities -- most participants never realize the market has topped until it's too late. But for banks and the rest of the nation's mortgage lenders, the signals are as clear as can be. It's becoming painfully evident that the current surge in housing activity probably represents the blow-off to a four-year party.

snip>

Just how much pain will an industry contraction cause? Plenty, for the simple reason that the nation's banks and thrifts have increasingly staked their loan portfolios on the mortgage and home-equity businesses. Over the past year, banks have raised their holdings of residential mortgages by some $125 billion, to $1.35 trillion, or about 18% of their assets. At the same time, home-equity loans have soared by 36% over the past year, to a record $324 billion. To handle these loan volumes, lenders have built up huge infrastructures. According to the MBA, total mortgage-related employment has risen by 120,000 since 2001.

Now it looks likely that banks and thrifts will have to drastically pare back on those extra workers. Indeed, the Seattle thrift, Washington Mutual Inc. (WM ), laid off 2,900 in the first quarter after eliminating 4,500 in the prior four months, with most of the cuts coming in the firm's mortgage lending departments. And the end of the mortgage boom is likely to trigger a deeper shakeout within the industry. "There are a lot of regional banks, brokers and mortgage banks that built their operations on refinancings," notes Joe Anderson, a senior managing director at Countrywide Financial Corp. (CFC ). "When that business goes away and the margins drop, they don't have other options."

snip>

SCARY STUFF
Certainly, lenders are writing more loans to so-called subprime borrowers with poor credit histories: The volume of such loans surged 70% in the first quarter of 2004, to $105.6 billion. They now account for 18% of all mortgage activity, vs. 7% in the first quarter of 2003, according to Inside Mortgage Finance, a mortgage trade publication. If rates rise fast enough and high enough, analysts believe banks and thrifts could be facing "some scary defaults in the mortgage business," predicts George R. Yacik, a vice-president at SMR Research Corp., a Hackettstown, N.J., mortgage research firm. "There could be some real pain for lenders here."

more...

http://www.chron.com/cs/CDA/ssistory.mpl/business/2596562

IT'S time to pay for the excesses of the dot-com boom. I don't mean in the way that many already have paid: joblessness, bankruptcies and 401(k) plans gutted by worthless stock. I mean pay in the literal sense.

No one has ever picked up the tab for one of the greatest excesses of the late 1990s: stock options. Companies grant options to give employees and executives the right to buy shares of stock at a discount. As the stock rises, the options' value increases, creating a windfall. Options became the currency of the boom, when soaring stock prices made their value rise dramatically.

Companies like them because, under accounting rules, they don't have to book options as an expense until employees cash them in.

Salaries and benefits cost money. Options don't — at least not right away.

snip>

The industry argument goes like this: expensing options will hurt rank-and-file workers, preventing them from participating in their company's success. Small businesses won't expand because they'll actually have to pay fair wages to hire workers instead of paying them with options.

It's an interesting bit of revisionism. We are now to believe options are a benefit for the little guy. That may be more palatable politically, but it was top executives who got rich off options. Ken Lay, the former chairman of Enron, for example, cashed in almost $57 million in options during the three years leading up to the company's collapse, according to filings he made with the SEC.

more...


edit to add related -http://www.cfo.com/article/1,5309,13978||T|1682,00.html?f=home_todayinfinance

Cisco and FASB: Options Showdown


Once the accounting standards-setter called for expensing options, employees at the maker of computer routers sent plenty of comments FASB's way.


Craig Schneider, CFO.com

May 28, 2004

On March 31, the Financial Accounting Standards Board issued a proposed rule that would require companies to expense the value of employee stock options. As of last week, FASB had received 2,600 comment letters — more than two-thirds of them from employees of Cisco Systems.

About 1,800 Cisco employees, or 7.5 percent of the company's domestic workforce, have submitted comments on the proposed rule; in a CFO.com sampling of 25 letters, all of them opposed it. But do these letters really represent a groundswell of individual indignation?

According to a Cisco source, the comment letters may have been inspired by a memo signed by chief financial officer Dennis Powell. That message alerted employees to FASB's 90-day public comment period and invited employees to visit Cisco's internal government-affairs Web site to learn how their opinions could be heard.

Kim Gibbons, a Cisco spokeswoman, insisted that the flood of letters is a voluntary, grassroots movement led by concerned employees in the United States, not a political mandate from senior management. "We have always encouraged employees to understand issues and be involved politically if they choose," said Gibbons.

:eyes: Yep, I remember the big letter writing campaign years ago when I worked for a bank. We had to write a letter to our reps singing the virtues of interstate banking, if we wanted our Christmas bonus that is.

more...

http://www.forbes.com/technology/ebusiness/newswire/2004/05/28/rtr1388771.html

NEW YORK, May 28 (Reuters) - Some top executives at No. 1 personal computer maker Dell Inc. (nasdaq: DELL - news - people) exercised stock options worth tens of millions of dollars in 2003, according to a recent regulatory filing.

Dell Chief Financial Officer James Schneider sold 1,136,000 shares for a gain of $30.09 million, leaving himself at the end of the fiscal year with 868,249 exercisable options and 1,591,040 options that can not yet be exercised.

That means Schneider sold 32 percent of his total options or 57 percent of those he had the right to exercise, according to a shareholder proxy statement Dell released on Thursday evening. Executives also disclose options exercises as they occur during the year.

Schneider received 650,000 options in fiscal 2004, which ended in January, up from 400,000 the previous year. His salary was $500,000, up from $417,692 the previous year, while his bonus rose to $720,000 from $643,507.

http://www.forbes.com/markets/newswire/2004/05/28/rtr1388550.html

WASHINGTON (Reuters) - The United States and five Central American countries signed a free trade agreement Friday, but strong opposition from labor, environmental and other groups could keep it from becoming law.

The deal essentially would extend the North American Free Trade Agreement down most of the land bridge connecting Mexico to South America. It would bring the Bush administration a step closer to its goal of creating a free trade zone covering every country in the Western Hemisphere except Cuba.

The fate of the agreement could depend on this year's U.S. elections. Democratic presidential candidate John Kerry has criticized the pact's labor and environmental provisions as too weak and has said he can not support it in its current form.

U.S. Trade Representative Robert Zoellick and trade ministers from Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua signed the U.S.-Central American Free Trade Agreement, or CAFTA, at the Washington headquarters of the Organization of American States. The United States plans to sign another agreement with the Dominican Republic in coming months and attach it to CAFTA.

more...

Better late than never. Guess I got too engaged watching the grass grow yesterday.

Dow 10,188.45 -16.75 (-0.16%)
Nasdaq 1,986.74 +2.24 (+0.11%)
S&P 500 1,120.68 -0.60 (-0.05%)
10-yr Bond 4.655% +0.067
30-yr Bond 5.348% +0.036

NYSE Volume 1,169,635,000
Nasdaq Volume 1,245,592,000

Close: The major indices were stuck in a rut for the entirety of the session, burning a hole around the unchanged mark...The impending 3-day weekend (the market will be closed on Monday in observance of Memorial Day) drove a lot of traders to abandon their posts early in favor of their favorite vacation spot... The lack of participation was evident in the anemic volume levels (the NYSE and Nasdaq barely crossed the 1 bln mark), mixed market internals, and lack of sector leadership...

Investors preferred to dabble lightly in stocks - taking profits in some cases - with the market up for the week and fear of geopolitical strife in the back of their minds... Economic reports were thus given little thought by traders, even though most of them were encouraging... The May Chicago PMI Index climbed to 16-year highs, at 68.0 (consensus of 62.0), while the April Personal Income and Spending reports both exceeded consensus expectations at 0.6% and 0.3%, respectively... The revision to May Michigan Consumer Sentiment was the only disappointment, falling to its lowest levels since October as survey participants were troubled by escalating gas prices...

The semiconductor group emerged as one of the biggest winners of the day, due to a better than expected Q2 (June) outlook from Novellus (NVLS 33.18 +1.80)... The energy shares also performed well thanks to the $0.44 increase in the price of crude oil to $39.88/bbl following talk that OPEC might suspend quotas - which could end up increasing the group's long-term price target... As for the weakest sectors, tobacco, steel, and transportation rounded out that list...SOX +1.3, NYSE Adv/Dec 1918/1348, Nasdaq Adv/Dec 1631/1453



Advances & Declines
NYSE Nasdaq
Advances 1897 (55%) 1621 (49%)
Declines 1385 (40%) 1492 (45%)
Unchanged 167 (4%) 156 (4%)

----------------------------------------------------------------------

Up Vol* 629 (53%) 709 (56%)
Down Vol* 519 (44%) 512 (41%)
Unch. Vol* 25 (2%) 24 (1%)

----------------------------------------------------------------------

New Hi's 65 56
New Lo's 15 22


Enjoy the long weekend everyone! :hi: