STOCK MARKET WATCH, Tuesday 11 May

I see them circling in the futures pits. The question I have for them: Are these stocks really a bargain? Do they worry about an all-around fleecing from continually falling prices?

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

Last trade 92.06 Change +0.50 (+0.55%)

http://www.forbes.com/markets/newswire/2004/05/11/rtr1366773.html

FOREX-Dollar loses momentum, new stimulus needed

LONDON, May 11 (Reuters) - The dollar lost momentum on Tuesday after a broad rally on higher U.S. interest rate prospects, backing off an eight-month high against the yen and multi-month peaks versus the high-yielding commodity currencies.

The Paris-based Organisation for Economic Cooperation and Development backed expectations of U.S. rates hikes, saying in its semi- annual report that the Federal Reserve should start raising borrowing costs in the next few months.

But analysts said fresh stimulus was needed for the dollar to extend gains.

"It's just a bit of profit-taking after the very strong reaction seen on the dollar after Friday's payrolls," said Peter Fontaine, currency strategist at KBC in Brussels.

"The undercurrent here is for dollar strengthening. But there is a brief pause as you don't have anything from yesterday or today in terms of data so the market is a bit looking ahead and thinking it's better not to do too much."

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US RATES ON THE RADAR

The OECD's chief economist Jean- Philippe Cotis called on the U.S. to cool its economy sooner rather than later and said a June rate hike was a reasonable time to start tightening.

"For the U.S., the main risk is that macroeconomic policies remain too expansionary too long during the upswing," he told Reuters in an inteview.

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http://www.fxstreet.com/nou/content/102055/content.asp?menu=market&dia=1152004

Daily Market Briefing 11/05/04

Key factors today:

Interest rate trends and equity markets will continue to have an important impact on risk aversion and currency flows over the next 24 hours, especially with no major US data until Wednesday.

Yen:

Underlying yen sentiment will remain fragile in the short term. There should be scope for a further near-term correction, potentially weakening the dollar back to 112.8, but the markets are likely to be determined to challenge the 115.0 level and fresh dollar buying is liable to emerge. There will, however, be little merit in long dollar positions beyond the 115.0 level.


The dollar strengthened to a high of 114.15 against the yen during New York on Monday before weakening back to 113.5 in early Europe on Tuesday.

There was a small recovery in Japanese stocks with a 0.2% increase after the rout seen the previous day, but underlying sentiment remains fragile and there will be the risk of further Asian stock selling in the short term as overseas investors curb their overweight positions.

There will be speculation that the yen will now be used as a funding currency instead of the US currency, especially with the prospect of higher interest rates in the US making the dollar less attractive to sell.

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EXPORTED INFLATION & CRISES

Inflation not only causes erosion to stored wealth, it creates false wealth like a cancer. Worse still, when it is exported, international crises inevitably occur. In recent years, extraordinary measures have been used to hang onto to the alpha dog position. Ever reliable inflation and debt have been the hallmark devices utilized, but unfortunately they exist as weapons of mass destruction. Many authentic factors enabled the United States to attain a world leadership position. The “arsenal of democracy” was quite the reality during World War II as our massive resources, industrial capacity, and manpower were marshaled in the defense of freedom, against totalitarianism. The USA prevailed, which set the stage for our nation to rise to geopolitical leader, economic leader, and financial leader, not to mention cold war military leader. Times have changed; the empire is fading. What the heck, let’s mix metaphors. The inflation chickens are finally coming home to roost, winging on both inflationary and deflationary winds. At the same time, the timed sequence of recent crises is rising in tempo. We lost all control all through the 1980 decade, and after 1995, when crises occurred.

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America has had to resort to inflation, leverage, and financial engineering in order to create wealth and remain as the predominant world power and largest world economy. Its real engines of wealth (machines and people) have been either abandoned or circumvented. Let us not overlook how the USDollar currency, health care costs, higher corporate taxation, and more obstructive environmental regulations add to the cost of doing business within our borders. Now we resort to phony financial engines to produce what we falsely claim as wealth. While dependence has impinged our national security, we boast of working as the world economic engine. We depend upon foreign credit supply. Since the fall of the Soviet Union, no nation or region can challenge our military power. Military might plays a role with the annexation of Iraq, and the squatter claim on its oil supply. We seem to export crises with impunity, or else under the cover of ignorance. Few among the economic expert brain trust even detect a problem, at home or abroad. In fact, they recognize inflation, debt, and negative real interest rates as potentially a problem, but make no connection to the crises.

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We utilize no divine mental powers, to be sure. So like children in the back yard, we make a mess. Like genius gone awry, we make monster machines which break. Like bullies, we step on neighbor toes. Like misguided experimenters, we tinker with a system and risk having it break or turn against us. However, we keep the game going year after year, crisis after crisis, by denying our role in making the mess. We opened Pandora’s Inflationary Box at the Bretton Woods divorce. We unleashed funny money and encouraged imbalances as capital sloshes around the globe with little stability. We dread “hot money” while our printing press continues to pour it out. We over speculate at home, while they overbuilt abroad. Before the China boom, foreigners had overbuilt their industrial base. As foreign investors own a larger share of our Treasury debt, we risk hot money fleeing our homeland. We celebrate the printing press, but deny its role in creating crises.

What follows is a partial list of crises, with a sketch of how we encouraged or caused them. We do so with inflation, control of world bank institutions, and political power implicitly enforced by ownership of the largest economy and by control of an unchallenged military. When it comes to keeping inflation under wraps, the US financial system is like a bedridden hospital patient, hopelessly incontinent. He messes the sheets constantly. What has been inflated in the body economic are the US bladder & bowels, and foreign muscle mass. The current danger is for exported inflation to return to our shores. That process has begun. Its signature is finished product prices held down, and rising raw material prices (BOTH DEFLATION AND INFLATION).

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

Fannie Mae, the giant mortgage finance company, said an important measure of its performance turned sharply negative in the first quarter even though it reported a $1.9 billion profit.

In a report to the Securities and Exchange Commission, Fannie Mae said its shareholders' equity fell $1.6 billion in the quarter, to $20.8 billion, as long-term interest rates fell. A company's equity is the amount left over after its debts are subtracted from its assets. The company noted that the decline resulted from falling interest rates and that rates have risen so far this quarter.

Fannie Mae discourages investors from judging it by changes in its shareholders' equity, arguing that the measure is very volatile and does not reflect its business. But some analysts and hedge fund managers say that the figure's bumpiness illustrates that the company's results are much more volatile than the company would like investors to believe.

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The companies (Fannie Mae and Freddie Mac) have come under sharp scrutiny from regulators, the Federal Reserve and the White House, which worry that they are too big, too risky and without enough equity capital to protect themselves from rapid changes in interest rates. With about $20 billion in shareholders' equity backing $1 trillion in loans, Fannie Mae has $50 in loans for every $1 in equity, making it much more highly leveraged than banks like Bank of America.

http://www.nytimes.com/2004/05/11/business/11fannie.html

Mortgage giant Fannie Mae will adopt a tougher accounting standard demanded by its regulator in valuing securities backed by loans on manufactured homes, the company said yesterday in a regulatory filing.

The change involves accounting for some $8 billion in manufactured home loans -- essentially mortgages on mobile homes -- and $300 million in aircraft leases. Manufactured home loans have been beset by defaults recently and the regulator, the Office of Federal Housing Enterprise Oversight (OFHEO), wants such losses reported more quickly.

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District-based Fannie Mae said in a filing with the Securities and Exchange Commission that it had conferred with the agency. And "taking into account guidance from the SEC," it had concluded that its past treatment of losses on manufactured housing and asset-backed securities was "consistent with" generally accepted accounting principles and that "no restatement of prior period financial statements is required."

http://www.washingtonpost.com/wp-dyn/articles/A15904-2004May10.html

n/t

The market is softened up for profit taking. The "witching hour" from 3-4pm would probably erase most of a 200-point gain should that happen.

9:33
Dow 10,008.68 +18.66 (+0.19%)
Nasdaq 1,911.25 +15.18 (+0.80%)
S&P 500 1,089.63 +2.51 (+0.23%)
10-Yr Bond 4.796% +0.015

10-yr bonds and, thus, the 30 year mortgage rate are going up.

So far the gains in the Dow and S&P are modest at 9:40. Nasdaq is looking aggressive.

Dow 10,017.27 +27.25 (+0.27%)
Nasdaq 1,916.94 +20.87 (+1.10%)
S&P 500 1,092.33 +5.21 (+0.48%)
10-Yr Bond 4.793% +0.012

I would not be a bit surprised if we see huge purchases from a "large anonymous buyer".

London markets were calm but wary by mid session on Tuesday. After an initial spurt as blue chips rebounded from the heavy losses inflicted in the previous session, investors sat on their hands waiting for indications of the next direction from US indices.

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Traders were relieved to find that markets in New York had not fallen further overnight. The Dow Jones closed down 1.3 per cent at 9,990 while the Nasdaq Composite lost 1.2 per cent to 1,896.1. However, some feared the bounce could prove to be short-lived while uncertainty over when the Federal Reserve (news - web sites) may next raise interest rates is resolved.

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The oil sector was weaker as the price of crude slipped from its highs in the wake of calls from Saudi Arabia to raise Opec output quotas. BG, which also reported results at the top end of expectations, lost 0.5 per cent while BP was off 0.6 per cent and Shell fell 0.4 per cent.

story

So it looks like the rest of the world waits to see what bargain hunters in the US will do. I agree with some of the concerns voiced in this article regarding the climb in interest rates and their bearing on the stock markets. However, I wish the author had considered the more superficial reasonings like turning a quick buck.

Dow 10,021.53 +31.51 (+0.32%)
Nasdaq 1,924.25 +28.18 (+1.49%)
S&P 500 1,093.98 +6.86 (+0.63%)
10-Yr Bond 4.787% +0.006

U.S. stocks post modest gains in morning trade

NEW YORK (CBS.MW) -- U.S. stocks moved higher Tuesday as broker upgrades for Disney and ExxonMobil helped the Dow Jones Industrial Average rebound from the prior session's heavy sell-off, while the Nasdaq gained as technology shares rallied.

However concern over higher interest rates and the delicate political situation in Iraq continue to persist.

"It's a little bit of a dead-cat bounce," said Jay Suskind, director of trading at Ryan, Beck & Co. "People are still leery of the market because of looming inflation and higher interest rates."

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You folks have a great afternoon! See you in the morning.

Ozy :hi:

http://www.forbes.com/business/services/2004/05/11/cx_da_0511topnews.html

NEW YORK - Citigroup's agreement to pay $2.65 billion to settle, in part, lawsuits about its role in the buildup of WorldCom, now MCI, was accompanied by the inevitable statement that paying the money will allow the bank to "put this unfortunate chapter behind us." But the settlement doesn't really do that--other WorldCom litigation is still pending--and it shouldn't, as the deal is part of Wall Street's reckoning of recent wrongs, which is ongoing.

The size of the payout is staggering not because it is the second-largest class action settlement in history, but because it dwarfs the $1.4 billion settlement agreed to by Citigroup's (nyse: C - news - people ) Salomon unit and the rest of Wall Street last year.

That settlement, which concerned conflicts of interest by stock analysts, now seems like a down payment. Wall Street still faces analyst-related litigation and lawsuits about the spinning and laddering of IPO shares. These actions fester despite some of the cases against Henry Blodget and Merrill Lynch (nyse: MER - news - people ) being dismissed and despite Credit Suisse Group's (nyse: CSR - news - people ) settlement with the U.S. Securities and Exchange Commission concerning IPO allocations. Citigroup, J.P. Morgan Chase (nyse: JPM - news - people ) and other big banks have settled some Enron-related cases, but more are outstanding.

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Dow 9,990.66 +0.64 (+0.01%)
Nasdaq 1,920.44 +24.37 (+1.29%)
S&P 500 1,090.97 +3.85 (+0.35%)
10-Yr Bond 4.782% +0.001

Moved it to Nasdaq's house...I hear his dad buys them booze!

(Sorry; painting in the kitchen again and the fumes must have gotten to me!)

Dow 10,007.12 +17.10 (+0.17%)
Nasdaq 1,928.35 +32.28 (+1.70%)
S&P 500 1,093.84 +6.72 (+0.62%)
10-Yr Bond 4.761% -0.020

Pretty nice at the Nasdaq, a bit of a yawner everywhere else.

BTW, great toon today. :-)

Julie