My Two Cents on the Currency Debate

This week's econoblog has breathed some new life into the currency debate. David Altig and Kash are exploring what actually constitutes a hard landing, while Brad Setser takes issue with Andrew Samwick's reliance on the calming effect of central bank actions.

As I said on Monday, I am not so sure that any hard landing scenario will necessarily be kicked off by dollar selling. Based on Kash's sevenfold path through a hard landing, maybe we are already at step 4. If we do see market weakness in stocks, real estate, or credit spreads (i'm adding that one), it should shake up monetary and fiscal policies. Once that happens we get to watch the policy decisions to see if market weakness will translate into real economic weakness.

I have some general beliefs about what might happen but guessing my way through the possible scenarios is a bit beyond me.

• There will be some sort of market event with the most likely candidates being housing and interest rates.
  
  
• This market event will ultimately require international cooperation (G7, G10). It may take a series of trials (maybe a series of crises) by various CBs and governments but eventually they will need to coordinate policy. The world will need to decide how to handle the issue of the weakening dollar as its main reserve currency.
  
  
• On a related note, foreign CBs will not turn net sellers of dollar assets. They will stop adding to USD reserves which still creates a substantial problem for U.S. interest rates. The markets will continue testing the CBs' appetite for dollars until we see real policy changes and a market determined equilibrium.
  
  
• Unemployment seems like the best indicator of how hard or soft the landing is in the real economy. Below the June '03 high of 6.3% seems like a good definition of a soft landing for the U.S.
  
  
• The U.S. current account deficit will get worked off through the growth of emerging market consumption rather than U.S. economic contraction. These emerging economies are the logical target for the world's investment dollars so once the market regains control of capital distribution they should see some benefits.
  

What to do with this Breakdown?

While I took a few stops, I am still left with a fair number of positions that held their Thursday lows. This breakdown in the indices is ugly though and had me thinking pretty hard about just going flat into tonight. Not going to do that but I am impressed at how powerful the urge is even though my stops are near enough that it doesn't really matter.

Some of my anxiety stems from the give up in steel and copper stocks. Those charts say maybe the inflation fears last week were just a big headfake. I would watch Phelps Dodge (PD) around the 100 level to see whether this breakdown is the real deal.

Despite that weakness many of the gold and silver stocks I watch are still slighly green. That stands out a bit in the face of dollar strength and general weakness. My interpretation is to watch the dollar to see if they are leading a short-term trend change.

Signs of a Hard Landing?

I just finished reading econoblog at the WSJ featuring Nouriel Roubini and David Altig. It was a thorough debate on the USD / foreign borrowing dilemma but it did not really cover much new ground. Probably just seemed that way to me because they have both been talking about the topic for quite a while on their respective blogs.

Their discussion was whittled down at the end to whether a fall in the dollar due to a lack of foreign central bank demand would necessarily lead to a hard landing. I was left with a feeling of irony because right here the world seems to be tilting towards a hard landing (or at least the sudden fear of a hard landing) but it is not because of the dollar. Instead it stems from new found inflation fears, higher interest rates, and some credit issues at GM (maybe AIG, FNM, C...). If these trends continue the next big risk I see in the pipeline is clearly the housing market. The housing market has gained increased importance in this economic cycle because of the impact of refinancings on consumption. Interest rates may become range bound for a little while but even so it seems like the demand for housing is going to pull back and perhaps be overwhelmed by supply. Charts of the housing stocks show a lot of room before next support.

For the stock market, I tend to agree with Barry Ritholtz that we are seeing the sort of deterioration in internals associated with at least medium-term weakness. Check out the McClellan summation and notice how much weaker it appears than the market. I also like to watch the percentage of NYSE stocks above their 200 DMA which is currently hitting levels not seen since last May (59%). I am still long some post FOMC purchases but am shortening my original horizon of 2-3 weeks to be flat by the end of this week. A pullback tomorrow does seem likely but if stocks can stay above Thursday's lows maybe we can get a better rally into the end of the week. The rally may go longer but I want to position myself to be net short and not be trapped long if the rally fails abruptly.

Circling back to currencies the dollar is going to challenge its downtrend line very shortly with its 200 day MA sitting just above that. It might try to shake things up by getting through those levels for a short time (and maybe DXY 85.45 as well) but within the next 3 weeks I imagine it will again be headed lower. Commodities are taking a well deserved rest / pullback while some related commodity stocks look pretty ugly for the short term. Maybe a buying opportunity but like the dollar I would act over weeks rather than days.

Asian Tech Weakness

The FT sums up Asia's overnight weakness:

Sony lost 1.6 per cent as chairman Ryoji Chubachi was quoted as saying that the electronics maker would find it difficult to hit its 2006-07 operating profit target.

Rival Sanyo Electric lost 4.6 per cent to Y336 after it warned it was likely to make a full-year loss owing to falling prices for digital cameras and slower demand. Meanwhile, Seiko Epson, the printer-maker, lost 3.2 per cent to Y3,930 after it, too, warned of sluggish demand.

Pioneer, the consumer electronics maker, shed 2.5 per cent to Y1,932 as it warned would miss its sales and earnings targets owing to increased restructuring costs.

Toshiba slid 3.2 per cent to Y449 after Lexar Media, a maker of removeable memory cards, said a US court had ruled in its favour in a case between the two companies involving theft of trade secrets, and ordered the Japanese company to pay US$380m in damages.

TDK bucked the trend, adding 0.8 per cent to Y7,480 as the technology maker upped its dividend to Y70 per share from Y55 a year ago and ahead of its previous forecast of Y60 per share.

Tokyo Electron, the chip equipment maker, and Advantest, the chip equipment tester, were 0.3 per cent stronger at Y6,130 and 0.6 per cent higher at Y8,160 respectively, on hopes that conditions in the chip sector were showing signs of improvement.

Exporters were stronger, partly thanks to the US dollar's rise to a six-week high against the yen. Automaker Honda was 0.6 per cent firmer at Y5,300 and electronics maker Matsushita 0.4 per cent higher at Y1,568.

Those are some pretty big moves so overall it is impressive the Nikkei was down less than a percent. For our markets news like this usually stays contained to specific names.

Japanese Property Prices Rise

This datapoint flagged in the FT is interesting:

Land prices in Japan's big cities started to rise last year, the strongest sign yet that the devastating asset price collapse that followed the bursting of the country's economic bubble in the early 1990s is coming to an end.

According to a survey by the Ministry for Land, Infrastructure and Transport, residential prices in central Tokyo rose 0.9 per cent in 2004, the first rise in 17 years. Residential prices in central Osaka and Nagoya also registered positive growth.

I'd call that good news.

Stocks get Whacked on Bond Selloff

Didn't really see that coming. It is hard for me to understand the weakness in stocks given the FOMC statement. Since they hit my "bullish" case (along with expectations), I hate to think what would have happened had they not.

My feeling is that bonds got caught very wrong footed following this AM's PPI. The sharp reversal easily broke new lows in 5s and 10s which left them little chance to recover. Stocks in all sectors got sold , being led lower by Citibank (C) and AIG (AIG). I still think there is a chance for an equity rally tomorrow but am generally surprised at the way the stock market fell apart today.

I am particularly surprised that gold, silver, and copper stocks all came off with the market. I realize the dollar rallied but there is a disconnect between inflation fears and commodity weakness.

Some Tech Looks Attractive

I am looking at some tech stocks today mostly for short-term bottoming patterns but a few uptrends also. Some stocks that stood out to me were SYNC, CMGI, EBAY, SYMC, BSG, JNPR, RIMM, and AMZN.

I may do some small buying in the AM and use the volatility around the FOMC statement to get bigger. These are 2-3 week trades just looking for tech to play catch up while the stock market gets off of its heels a bit. Stops will be new 2 or 3 day lows.

The semiconductors and semicaps don't look like they will be tech leaders on a rally.

Before the Fed

My take is that the Fed comes out of this meeting with a 25 bp hike and removes the "measured" language to gain some flexibility. I have heard some traders talk of a 50 bp move but don't see much reason for that. I would put the chance of keeping the word "measured" around 30%. That is just my feeling because the changes possible in central bank statements, oil prices, and labor demand before the next meeting will make it harder for the Fed to know what it wants to do. The Fed needs to prepare the market now to be more open minded at the next meeting.

If the Fed keeps the "measured" language U.S. stocks look like they are in position for a nice bounce. I don't think tomorrow means much to bonds (keeping measured may cause some buying of 5-yrs) while the dollar seems to be getting too much of a bounce in front of a widely expected move. The metal weakness looks like a knock-on effect from the dollar.

I liked these thoughts from the Capital Spectator:

Meanwhile, there's plenty of talk. Fed Governor Edward Gramlich opined last September that there are no easy monetary policy answers in managing oil shocks today than there were in decades past. "Today the question of how to respond to oil price spikes is better understood, but the outcomes are no more pleasant," he asserted. "It is virtually inevitable that shocks will result in some combination of higher inflation and higher unemployment for a time. But I must stress that the worst possible outcome is not these temporary increases in inflation and unemployment. The worst possible outcome is for monetary policy makers to let inflation come loose from its moorings."

The worst possible outcome is in fact what worries one David Gitlitz, chief economist with TrendMacrolytics, who warns in an essay to client today, "Record crude prices mean a monetary mistake could be not just dumb, but disastrous." Some at the Fed look at the recent past and conclude that since the economy's chugged along nicely despite the higher oil prices there's little to worry about on this front. "This reasoning," Gitlitz writes, "also accords with the idea that since the oil price moves have apparently been marked by significant speculative excess, they are not a 'fundamental' factor that need be of particular policy concern."

It is not clear to me that high oil prices are more than a short-term problem but agree that it is a risk the Fed should not really be playing with.

Flight to Quality is a Positive

I am watching the bond rally continue today. If you are looking for a world ending dollar collapse, this rally in reaction to corporate troubles (GM) means you have a while to wait.

My Proudest Moment

A Yahoo! search for "company generating the most blog chatter" puts my site at the top.

While I tend to doubt the validity of my status, I will gladly accept the server bestowed title.

GM Set to Wake up Risk Premiums

With the spread widening and stock collapse in GM this AM we are set for an interesting day. We also have the DXY breaching Monday's lows early while gold probes the Monday high.

I would guess that the GM news affects the morning and dollar weakness will grow as the day goes on. I would not be surprised if GM can manage a bounce off the 27 or 28 level. Does not really matter as much to the market. The impact in the bond market is what matters. If it spreads beyond GM it will be a contiuation of last weeks news, that might lead to longer-term weakness.

My concern for the dollar stems mostly from its disconnect to equity and UST weakness yesterday. It had a sharp correction once Tokyo opened and 82 is a big level for the DXY.

Equities

Part of me thinks I have been leaning too bearish as equities hold their ground in the face of weak bonds.

The other part of me wonders why, if I were leaning too bearish, the market failed to take my head off with the breakout last week.

It probably makes sense to accumulate some longer term equity vol in here. Beyond that I am going to be watching currencies, bonds and oil a lot closer than stocks.

A Corporate Spread Wobble

The FT had this to say about credit spreads last week:

But last week's fall in the price of US Treasury bonds, coinciding with signs that bankers are struggling to complete riskier corporate bond issues, has added to a sense of nervousness in some quarters.

And in more detail here ($$):

Last Wednesday, two private equity firms suffered a setback in their attempt to fund the acquisition of Telcordia, a US supplier of network software, by issuing junk debt. As jittery bond markets caused a sudden spike in long-term interest rates, Telcordia's banks took the unusual step of postponing the completion of its bond issue. A day later, on the anniversary of the 2000 Nasdaq peak, Moody's Investors Service revised its outlook for the technology company, warning the bonds could fall to a rating indicating a substantial risk of default.

Ringgit Toss

This Malaysian ETF (EWM) shows the same bullish trend shared by many non-U.S. equity markets. It is at an interesting entry point with a stop below Friday's low.

Click on the chart to see a larger image!!

Posted by Hello
In our own markets, I expect to see demand emerging for the 5-yr note around 4.40-4.50%. At that point I would expect the 5-10 and 5-30 spreads to start steepening out. The equity indices in the U.S. still have not shown tolerance of higher rates so until bonds find a bottom I don't see much reason for new purchases.

I described a bet in Exxon (XOM) on Monday. You'll notice I would have lost the bet with the reversal during the week. I still expect oil stocks to consolidate for a while while the underlying commodity still might have room to run.

January Trade Deficit

From General Glut:

Most disconcerting should be the rocketing non-petroleum goods balance, which leapt from -$42.8bn in December to -$46.0bn in January. Y-o-y non-petroleum goods imports are now up a whopping 18.2% while total US exports are up just 13.6%. January 2005 and November 2004 hold pride of place as the two largest non-petroleum trade deficit months, and with oil prices shooting through the roof again, we should expect monthly deficits well over $60bn as the spring progresses.

Indian Reserve Diversification

This morning we have India keeping the ball rolling.

Reserve Bank of India governor Yaga Venugopal Reddy said on Friday that diversification of foreign exchange reserves was being discussed within the bank and it was a subject of ongoing debate amongst all central banks.

India is the sixth largest holder of dollar reserves.

While the currency markets largely ignored the news I think they are still a bit stunned by the S. Korean intervention yesterday. With all the chatter about the need to diversify and S. Korea appearing to lead the shift a few weeks ago, they stepped in last night and did the opposite. While the interventions are not sustainable in the long run, the CBs potential losses are not yet keeping them out. It is a bit like playing a winning poker hand against someone who keeps raising.

Also, notice that Japan took the same route as S. Korea claiming that diversification referred to assets and not currencies. That equates to sacrificing U.S. bonds to maintain the currency.

How this game will end is much bigger than the day-to-day news in domestic markets.

Another Commodity Stock becomes a Standard Bearer

So just a few short weeks after Exxon Mobile (XOM) took the top slot away from General Electric (GE), CVRD, the Brazilian iron company, became the largest company in Latin America by market cap.

From the FT($$),

CVRD, the world's largest iron ore producer, has surpassed America Movil, the Mexican cellular telephone company, to become Latin America's most valuable listed company.

The company's market capitalisation this week stood at $37.5bn, ahead of America Movil with $34.9bn, according to a ranking published this week by Economática, a São Paulo-based financial consultancy.

Just pointing out an obvious trend but it never hurts to log the landmark days.

Japan has Diversification Plans Too

Bloomberg:

The dollar fell to a nine-week low against the euro after Japanese Prime Minister Junichiro Koizumi said today his country ``in general'' needs to consider diversifying its foreign currency reserves, the world's largest.
Koizumi said in response to a question at parliament ``it's necessary to diversify the investment destinations'' of reserves while ``considering what's profitable and what's stable.'' The dollar pared losses after a finance ministry official said Japan has no plan to shift its $820.5 billion of reserves, comments later echoed by Finance Minister Sadakazu Tanigaki.
``The market will believe Koizumi,'' said Steve Barrow, a currency strategist in London at Bear Stearns Cos. ``This is an issue that's not going to go away'' in the foreign-exchange market. ``That's going to undermine the dollar.''

Yen is still 104.2 but that statement is big news. The Euro hit 134.56 after the news.

The FT adds this:

Elsewhere is Asia, the South Korean won jumped Won13 against the dollar to a seven-year high of Won989.2 as Korea's consumer expectations index surged to its highest level since September 2002. This prompted Seoul to spend an estimated $2bn on intervening to buy dollar and send the won spinning back to Won1,000.2.
The New Zealand dollar rallied to a fresh 22-year high of $0.7449 against the greenback as the Reserve Bank hiked New Zealand interest rates by 25 basis points to 6.75 per cent, surprising the 50 per cent of the market that had been expecting rates to be held.

Inflation Fears and a Dollar Solution

This AM I wrote that the Fed " is worried that commodity inflation (PPI) could eventually move the CPI." And this afternoon the beige book comes along. The FT sums up the report like this:

US manufacturers are finding it easier to pass on higher energy and other raw material costs to their customers, and companies are finding it harder to hire skilled workers, a Federal Reserve report said on Wednesday.

That is why the bond selling took off again in the afternoon.

Another interesting thought comes from Brad Setser:

Credit should be given where credit is due: one of the predictions of Dooley, Garber and Folkerts-Landau was that Latin America would join Asia in de facto pegging to the dollar. No Latin country has followed the example of Malaysia and China. But many now are intervening heavily to resist pressure on their currencies to appreciate. Countries like Brazil and Argentina, though, still have quite substantial external debts; they are a long ways from joining emerging Asia and becoming true net creditors to the world. But they equally clearly now prefer keeping their currencies a bit undervalued and building up reserves -- rather the opposite of the strategy Brazil pursued in the mid-90s, and Argentina pursued until the end of 2001. Latin America on its own, though, cannot come close to generating the flows required to sustain the enormous expected US current account deficit.

Every day around noon the headline "Brazilian central bank buys dollars" (I'm paraphrasing) hits the Dow Jones wire. As Brad says the Latin American economies are not big enough to sustain the U.S. current account deficit but on the margin it is news that seems to be a bit over looked right now. Could certainly be viewed as a marginal offset to Asian diversification. If you get some other dollar positive news, like falling U.S. gov't spending, it could turn the currency game a bit.

A bigger picture thought and not so important in the near term I would imagine.

Yields Resume Trend

The new highs in the 5-yr yield yesterday confirm my view of the jobs report. The Fed sees rates as accommodative and is worried that commodity inflation (PPI) could eventually move the CPI. The economy is not very strong though which could lead to political pressure to choose inflation over unemployment. That jobs number confirmed economic weakness while still putting up a strong headline number for employment growth. That leaves us with accommodative rates, commodity inflation and no pressure to keep rates low.

Stocks are tough to call here. They may be a safe haven against inflation and can lag interest rate moves by months. I tend to think they will have a negative short-term reaction to higher yields but we now have lots of support from last year's highs and this year's lows nearby.

The ECB is making some tough talk about inflation but I still see their next move as a liquidity increase to bring the Euro down. I have thought that for over a year.

Can Adobe hold the Breakout?

Watching Adobe (ADBE) closely in here. I thought the close yesterday was a bit weak. It barely managed to keep the $65 level. Today's action looks like day traders piling in. If the market rolls over it might make sense as a short against these early highs.

Dollar Holdings Fall in India and China

From the FT:

The Asian central and commercial banks covered in the BIS data held only 67 per cent of their deposits in dollars as of September 2004, down from 81 per cent in the third quarter of 2001, said the Basel-based bank.

The data indicate the shift out of the dollar was most evident in India, where dollar holdings fell from 68 per cent to 43 per cent during the three-year period. Chinese banks have reduced their dollar share from 83 per cent to 68 per centa cut that mostly happened before the third quarter of 2002.

On first blush these numbers are a lot like the news out of S. Korea but they also have a more positive interpretation that the adjustment is behind rather than ahead. The article also points out that the shift is caused more by a falling dollar than by any change to buying habits.

Oil Bet

Two weeks ago today, I offered to a bet to a friend that Exxon Mobile (XOM) would make a high in the next two weeks that would not be eclipsed for two months. My friend did not take the bet. I am not sure at this point whether that is good or bad. I did not think the rally would last until Friday so obviously we have a good shot at knocking out the high in the very near term. It still feels more like a top than an entry point though.

Maybe not so for oil prices themselves as the stocks rallied well in front of the underlying commodity.

Metals on the Move

The underperformance and relatively nasty looking charts in the precious metals really stands out compared to the CRB and crazy strength in other commodities. On a pullback it will be interesting to see if they can hold on to their gains from the last couple weeks. If not I would look out in that sector. That weakness could be a sign that the world is overplaying a move by foreign CBs out of the dollar. Of course it could be heavy based on worries about IMF selling but I lean towards the former.

Dollar strength with rising commodity prices could be interpretted as an adjustment to high productivity gains in the service sector that have little impact on commodity supplies.

A few interesting charts in here are EK, NKE, and RTN.

Daily Kos to Focus on Greenspan

I doubt this will have an impact but I don't think Daily Kos is on the radar of many financial institutions. This is what is there:

As you've probably noticed, there have been several Alan Greenspan-related posts on the main page in just the past day or so. In one of those threads, blogswarmer Bob Brigham suggested that we "unleash the blogosphere" on Greenspan. It's a brilliant idea - no one is more worthy of having a halo-ectomy than St. Alan - so let's have at it.

If you're interested in joining this research project, here's my thinking on how it should proceed. (And feel free to chime in with suggestions on the process as well.) We should hunt down anything Greenspan has ever written, said or done that reflects poorly on him. This would include erroneous predictions, older statements which contradict things he's said recently, and anything that's just plain wrong, venal or stupid. The only rules are that it has to be true (of course) and sourced (preferably with a link, but if you're using Lexis, that's cool too - just tell us where it's from).

And for those of you who want to really get down & dirty in the trenches, we can turn this into a one-degree-of-separation venture. That is, if you can find similar material for anyone who is closely linked to Greenspan, that's fair game, too. Good examples would be Greenie's idol, the nutbag "objectivist" Ayn Rand, and Andrea Mitchell, his NBC reporter wife. (An aside: We can debate the merits of this approach all you like, but suffice it to say, there is no question that Republicans do the same crap to us all the time. If you still want to play by the Marquess of Queensberry rules, fine - but I've moved on to brass knuckles.)

Might make for interesting reading. Maybe they should start by finding out what happens on his trips to the White House.

Positive Employment Headlines but...

I watched the report come out on CNBC and always marvel at how important the comparison to consensus is for them. They have been pitching the same "not too hot, not too cold" story about the jobless recovery for over a year now. Their take was that the numbers beat consensus but not by too much, maintaining growth but without inflation fears.

Brian Reynolds says: "We think it is a weak number under the surface. The Birth/Death model swung from -280k [in Jan.] to +100k [in Feb.], as we expected, adding 380k to the total, so the underlying trend of jobs weakened markedly. In addition the pace of aggregate hours worked looked slightly more modest than previously thought."(minyanville $$)

I am not a payroll economist but still noticed that half a million people (a full million if you don't trust the seasonal adjustments) opted for part-time work for non-economic reasons with the headline unemployment rate still rising. That is a bit odd but maybe that sort of shift takes time to carry through to create demand for replacement. Would certainly slow the pace of aggregate hours. The full report is here.

The economy maintains the status quo while giving the Fed the green light to hike rates further.

**added at 1:13 PM - Barry Ritholtz chimes in on the not-too-hot-not-too-cold side.

More Sitting less Trading

I took some real effort not to trade today but with the jobs number tomorrow and the whippy market action that is what I did.

I am not sure tomorrow's data will matter with the trends as they are but a new short-term trend will have an easier time getting started once it is out of the way. The interest rate market is focused on central bank flows the price of oil is determined by the weather. Tomorrow's number may cause some noise but I am not sure it can change any of the bigger trends.

I noticed a few positive charts today: PAL, ALTI, CAD, and WTW to name a few. SMRT had a sharp pullback in an uptrend. The apparel retailers have put together an impressive 2 days.

FYI, what I do with names like these is just add them to a watch list and see what develops. I pick them out on obvious patterns like strong volume, new highs, moving average crosses, or gaps. If they are near a good stop I may enter a trade quickly but these patterns create crowded trades so waiting for a shakeout of some sort is my preference.

Napster Raises Revenue Guidance

The main impact of this is on Apple (AAPL). I view it as a positive and if AAPL breaks that small near term range to new highs it could really put in a big day.

This is the story on Napster.

Napster (Nasdaq: NAPS), the biggest brand in digital music, today raised guidance for its fourth fiscal quarter ending March 31, 2005. Napster now expects to report revenues of approximately $15 million for the fourth quarter, an increase from its prior projection of $14 million. "We are raising our guidance based on robust growth in our subscription service," said Chris Gorog, Napster's Chairman and CEO.

Mark Cuban is Happy he sold Mamma.com

The .com billionaire has an interesting thread going on short selling. I agree 100% with his view that a company's complaints about short interest are a giant red flag. He ends with an interesting little tidbit on former highflier Mamma.com (MAMA).

4. Finally, and this has nothing to do with Naked Shorting, I wanted to reference Mamma.com. I had purchased stock in Mamma.com in hope that it could be an up and coming search engine. I thought I had done some level of due diligence. Talked to the company management. Talked to some employees who worked in sales. Read the SEC Filings. I knew that they had a checkered past and had been linked to stock promoter Irving Kott, and that their law firm still handled some of Kotts business, but the CEO, Chairman, lawyers all said that things were reformed and the company was focused on its business.

Then the company did a PIPE financing. I'm not going to discuss the good or bad of PIPE financing other than to say that to me its a huge red flag and I dont want to own stock in companies that use this method of financing . Why ? Because I dont like the idea of selling in a private placement, stock for less than the market price, and then to make matters worse, pushing the price lower with the issuance of warrants. So I sold the stock.

I bring all of this up now, because in one of the comments in the Naked Shorting thread, a poster mentioned Lines Overseas Management of Bermuda and how there had been allegations made against them (http://www.theroyalgazette.com/apps/pbcs.dll/article?AID=/20...) That rang a bell. Turns out this was the same company that Mamma.com's current CFO used for a private placement for Mamma (http://www.sec.gov/Archives/edgar/data/839435/00010842410300...)

I said at the top that I found out some interesting things in this thread, this was probably the most interesting. I will leave you to make your own decision as to whether this connection matters or not. I'm glad I sold my stock.

Adding Contrahour to my List of Blogs

The community of market blogs is growing rapidly and the quality seems to be picking up too. Contrahour is quite new but looks like it is well worth checking out.

Continued Focus on Semiconductors

Bloomberg:

U.S. stock-index futures fell, as shares of Intel Corp. declined amid concern about a slowdown in the semiconductor industry.

Novellus Systems Inc., a chip-equipment maker, dropped after saying Japanese demand may weaken.

Computer-chip makers may slow worldwide spending this year to $44.1 billion after additions to production last year resulted in excess capacity, according to a report today by market researcher ISuppli Corp.

The semiconductors did not manage to breakout to the upside yesterday and look set to fail today. I am watching the recent low in KLAC (near $47) to gauge the weakness.

Australia at a Crossroads

This is what happened to Australia's currency last night.

The Reserve Bank of Australia (RBA) today raised official interest rates by 25 basis points to 5.5%, just hours before national accounts estimates reported that the economy grew by a dismal 0.1% in the December quarter 2004. This slowed annual GDP growth down to just 1.5%, very low by recent standards. Exports were a big drag on the economy, coupled with falling inventory levels. (from New Economist)

I also ran across this yesterday detailing some other long-term problems the currency may have.

The current account deficit has grown to more than 7 per cent of the economy for the first time in half a century, as the nation racks up foreign debt to pay for consumers' hunger for imports.
The deficit in the last three months of 2004 totalled an estimated 7.1 per cent of gross domestic product, far larger than that which prompted the warning by the then treasurer, Paul Keating, in 1986 of Australia becoming a "banana republic".
And if not for very favourable trade prices, the deficit would have been far higher than $15.2 billion.
The shortfall is one item in a trifecta of economic and political headaches for the Government. (from The Sydney Morning Herald)

Australia seems to be at an interesting monetary crossroads. On one hand their economy is slowing but on the other they have a perceived real estate bubble and strong consumption based on borrowing.

I thought last year that Australia's economy would slow as the result of rate hikes and that rate cuts and currency weakness would be the outcome. I would still rather sell the AUD than own it but I guess it will be the economic weakening that brings the currency down rather than rate cuts. I also wonder if they will see a knock on effect from any U.S. problems just because of similar current account structure.

Australia Hikes Rates

Bloomberg:

Australia's central bank raised interest rates for the first time in 15 months to curb inflation. The currency fell after a report showing the economy barely grew last quarter increased speculation rates won't be raised again this year.

Gross domestic product in the three months ended Dec. 31 rose just 0.1 percent, the slowest growth in four years, the Australian Bureau of Statistics said in Sydney today. The Reserve Bank of Australia's board, led by Governor Ian Macfarlane, increased the overnight cash rate target a quarter percentage point to 5.5 percent.

Heavy Semi Caps

Kla-Tencor (KLAC) and Applied Materials (AMAT) look poised to turn lower here. That will probably turn the SOX and the market as a whole.

After the semi upgrade this AM, a second firm took down '06 numbers on the semi equipment stocks setting up an interesting competition.

Semi Upgrade will Test Selling Pressure

I mentioned the semis last night for being in relatively neutral ground. This mornings uprgrade by JPM should give them a good open but I am not sure it jump starts the next leg of a rally in the sector. If that sector reverses it will lead the market down.

If you are interested in steel prices you can read this follow up on last weeks news. My guess is these stories are setting the sector up for a bit of heartbreak when a buyer manages to negotiate a better contract but we shall see.

Monday Night Charting

I was struck going through charts tonight that the day was much worse than it felt. The best charts are still energy and commodities which are showing euphoric strength that is difficult to take advantage of. The semiconductors have bounced into an ambiguous level and could possibly go higher but that does not give me much faith. And lots of stock stood out as just plain ugly. Most notably some big stocks look horrible. Microsoft (MSFT) and General Motors (GM) are the worst but they were not alone.

Many stocks saw volume increase with the today's drop. That seems noteworthy for a Monday. Maybe it was month end and the biotech carnage but some big red bars showed up in a lot of stocks.

I included the following stocks as two big dogs that look short-term negative but are in longer uptrends. Stocks like this need to turn higher and do the lifting if the market is going to rally.

Click on the chart to see a larger image!


Posted by Hello
After today I would say last weeks lows seem like an easy target. I still expect vols to pick up and am surprised they have managed to stay near their lows.