Dec 16, 2004

Morning Take

The main event is outside of stocks this AM. It looks like the USD has successfully retested lows. The CAD and AUD continue to look very weak against the USD and did not really participate in the retest. Real confirmation would come with a further breakdown in the precious metals. Gold is sitting at its 50 day ($434) and silver is pinning its 200 day ($7.71). The breaks will be sharp if they occur. Next would be to watch copper and the other non-precious metals to see whether they are trading opposite the dollar or if international demand can keep prices high while the dollar rises.

Bonds in the U.S. are giving back some love from the last couple of days. Yields are really whipping around lately and I see it as mostly trader vs. fundamentally driven. I think that the steepening and yield increases are good for stocks to a point as it demonstrates that bond investors see economic growth. I would guess the 5-year can approach 4% before people need to be too concerned about leverage problems.

FNM is holding up well after last nights news but the real story is whether it can stay near $70 after options expiration on Friday. I am also trying to keep an eye on agency spreads as the nearness to year end could create knock on selling if traders are hit with a sudden loss.

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