STOCK MARKET WATCH, Tuesday 18 May

The link to the FDIC page at the end of this article is pretty interesting as well.

http://www.gold-eagle.com/editorials_04/laird051704.html

The subject of derivatives has created much interest in the money world. Many of these instruments are quite new, but have burgeoned into major components of our financial environment. Derivatives are used by major banks and businesses to hedge risk, make a market, or to engage in speculation. The sheer size of this phenomena has raised eyebrows here and abroad.

This paper takes a look at the basics of derivatives involving commercial banks, a subject which is relatively dense, but of great interest all over our financial world... One of the conclusions of this paper is that the sheer magnitude of derivative instruments combined with the principle of credit risk or assumed credit risk makes for a potentially devastating banking crisis. I am going to go over the basics of these issues in this paper, and provide reference material for those who want to delve into this in more detail. The figures are from the beginning of 2003, and the actual figures are much higher today.

What a derivative contract is in general:

A derivative contract is basically a contract between two parties that is linked to interest rates, currency exchange rates or indexes. The derivative contract links the holder of the contract to the risk and rewards of holding or owning a financial instrument, but without actually holding the instrument. It has tremendous leveraging effects.

There are three main areas of derivative activity. Hedging, dealing and speculating. Hedging is done by businesses to limit their risk exposure to interest rate changes for example. Dealing is the market making by banks to earn fees on derivative contracts, and provide the market for businesses to hedge or speculate. Speculation is the entry into a derivative contract without some or all of the offsetting components that are in hedging contracts.

more...

DERIVATIVE PYRAMID

The biggest risk for a USDollar short squeeze comes from the massive derivative pyramid, wherein the US Treasury securities are the biggest participating instruments. They are shorted in the numerous carry trades. Their long-dated bonds are capped by Fed monetization routinely. Bond-based carry trade represents the outsized risk, bar none, since nothing comes close in size and scope among all carry trades. P&P did not address this risk factor sufficiently. The bond-US$ dynamic is very evident nowadays. The bond-dollar-gold triangle is presently broken. With apparent renewed strength in the economy, with open statements of Fed plans to raise rates, with gathering evidence of price inflation across the board, bond yields have risen. The USDollar has been bolstered, and by domino, has hurt gold since the US$-gold dynamic is also evident and strong. Ironically, news of price inflation has hurt gold indirectly. Recent activity in financial markets clearly exposes the sheer power and awesome magnitude of bond futures and their associated carry trades in the process of unwinding. Bond vigilantes throw fuel on the fire.

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

That derivatives are also being used to skew the balance sheets of corporations?
Wouldn't that make it difficult for even the most savy and diligent investor to properly research and understand the true position of their investment choices?
That might explain how the likes of Cisco and Citicorp have made it into the top holdings for so many Mutual Funds out there.
Sure seems as though this "ain't your daddy's market" anymore.

In fact, it is often the correct thing to do.

Derivatives are often missunderstood. If they invested as an uncovered speculative position then they are incredibly risky (very much like buying underwater calls - you may lose your entire investment - in fact you are likely to).

If used correctly they are an entirely correct choice.

Take for example a bank that finds itself uncovered in their asset/liability rate spread and in danger of losing quite a bit of money if rates move in a particular direction too quickly. They can minimize that risk with a reletively small derivative position that will move substantially if rates do what the bank most fears.

If the worst comes to pass, they lose money in their standard investments but amke a fabulous return on the reletively small derivative position - balancing out the loss.

If it turns out rates don't move against them - they lose the entire derivative position, but make more than expected in their traditional portfolio of loans.


So derivatives balance the risk. They tend to slightly reduce total returns in exchange for an insurance policy against major losses. They are a VERY prudent investment if used properly as a hedge.

"unsuspecting" investors such as pension fund members thru securitization or other methods?

:shrug:

The people who "sell" or "create" the derivative to be invested in are hardly raw investers who need their hands held. They are usually looking to balance their own risks.

Say I own 1000 shares of XYZ at $40 a share. Every quarter I sell a short-term covered call option for $43/share for the end of the quarter. I make an immediate $.45/share profit every quarter for giving someone else the priviledge of buying my shares for $43.

As long as the price never goes over $43, I make a slow steady profit on a stock that doesn't seem to be moving at all and the guy buying the options loses his entire investment. But I take the risk that the stock will go to $50 tomorrow and I won't reap any of that profit above $43/share. His $.45 cent investment buys him a 1500% return in three months. I trade the possibility of greater profits for the surety of steady profits over time... he shoots for the moon and maybe hits it. If his overall portfolio is sensitive to a jump up in XYZ stock he covers that risk with a 45 cent investment (losing the .45 in almost every situation, but protecting himself against a big change).


It's the guy who just says "I think XYZ will go up but I only have $5,000 to 'invest' so I'll buy call options and make a killing" who is "speculating" wildy and taking the big risk.

Posted in the Economic Issues forum is some info from Rapier. This was posted as a sarcastic response to the original message. Despite the dripping sarcasm, I have read this info before but forget the source:

GM losing $2500 on every sale, it's rally time. because they borrowed $4 billion to pour into stocks, and help inflate stocks further. $1 trillion dollars in US Treasury bonds owned by foreign central banks held in account by the Fed being decimated by the double whammy of bonds and the dollar falling.

link to thread

I infer that the bargain-basement overnight lending rate would feed into certain entities ability to inflate the stock price and their balance sheet. Could we also suggest that the record high insider stock dump may feed this cycle?

someone just recently kicked it back up.

Not sure I am following you on the insider stock dump feeding the cycle. You mean sort of moving the money around - cause a rally over here, sell, take the proceeds to cause a rally over there, sell, start all over again somewhere else? Sort of like that article I posted a while back on manipulation?

Or in some other way held so that you couldn't post to them?

But threads do not lock just because they have moved off the active page(s) list. That is one of the new features of DU2.

Company insiders dump their stock and/or exercise options. The company buys back those shares using whatever resources available. The wholesale buyback of shares pumps the price upwards. Does this make sense?

in the manner of true sustainable growth of the company, but "on paper" growth, yes.

ON THE USDOLLAR SQUEEZE THESIS

Three unexpected events will take place to alleviate liquidity pressure in the coming crises. JW thinks outside the box:

*currency carry trade will return with force, in opposition to the USDollar

*reverse mortgages will enable households to spend more of their home equity

*consumers will walk away from bad debts en masse, and hold onto good assets

-cut-

THE PREVIEW OF A SQUEEZE

Recent market activity has been tumultuous. Since February, and especially since April, commodity currencies have suffered. To a higher degree, commodity investors in stocks have been hurt. The USDollar enjoyed a technical bounce off its double bottom DXY=85 low in the last four months. The exaggerated April jobs report was followed by a May jobs report with even more assumed imputed job growth. Release of the two reports powered the USDollar toward some key technical barriers, thereby calling the Fed’s bluff on a stronger economy. Trendline boundary, critical moving average, and past turns have provided serious resistance for the US$. The gold chart offers a mirror image in technical support. The Japanese yen currency is in the process of filling its dreaded 87-89 gap. The Chinese have added fuel to the fire in two ways. First, public announcements, timed curiously after top USGovt cabinet leader visits, assure that the Asian powerhouse will engineer a slowdown, come hell or high water. Second, the reality of a slower than torrid growth pace in China has shown itself in sharply reduced machine tool orders for Japanese firms. The Nikkei fell last week in response, has fallen more since. The JYen has fallen to fill the cited gap. An over-reaction has taken place in the financial markets. Equity pricing might now factor in a Chinese recession, instead of a slower economy.

-cut-

USDOLLAR SACRIFICED TO SAVE BONDS

Countermeasures are few at the disposal of authorities, as they demonstrate. P&P overlook a truly enormous device though. The Fed in all likelihood will monetize many types of debt, but do so secretly. Better to add to the US$ money supply behind closed doors than to allow long rates and mortgage rates to rise uncontrollably. Rumors are so hot now that ears are burning. The Fed might be preparing to monetize the Fanny Mae hedge book. They are well aware of mortgage convexity, and its unchecked potential for rising rates to cause massive sales of overloaded GSE hedge books. Expect the Fed to bail out some private hedge funds (maybe Meriwether’s new hedge fund). The Fed is also sure to monetize some portion of the federal deficit after the US Economy falters from rising rates, its bane. This is a natural response to troublesome bond liquidity. Unfortunately, such budget bailout activity is done in a public fashion. It broadcasts an open season to short the USDollar. The carry trade crowd knows all too well how to read these marquee banners in flashing lights. Gold will respond very well in the next phase of lost control. Upcoming Fed-speak statements will be the source of amusement, if not derision. Fed credibility will be lost completely.

more...

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

"Rampant speculation and pumping" may be closer.

What does this mean?

monetize the Fanny Mae hedge book

...The Fed is also sure to monetize some portion of the federal deficit after the US Economy falters from rising rates

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

Last trade 90.97 Change -0.03 (-0.03%)

http://www.reuters.com/newsArticle.jhtml?type=businessNews&storyID=5176721

Euro Falls 1 Pct on Day Vs Yen, GDP Helps

LONDON (Reuters) - The euro fell one percent against the yen on Tuesday as a series of large yen buying orders helped the Japanese currency extend early gains.

Earlier the yen drew support from data showing Japan's economy grew faster than expected in the first three months of the year. The euro slipped broadly after a survey showed optimism among German investors fell much more sharply than expected in May.

"The strong Japanese GDP number has contributed to a liquidation of long euro/yen positions. In the last few minutes, a small number of banks have hit the market with large orders," said Derek Halpenny, currency economist at Bank of Tokyo-Mitsubishi.

...more...

http://www.fxstreet.com/nou/content/2113/content.asp?menu=market&dia=1852004

Dollar Pummeled as Global Equities Shudder

The dollar was the biggest casualty of a geopolitically-driven sell-off in global equity markets, as investors across the board lost their appetite for risk. A series of explosions in Turkey as well as the assassination of the head of the US appointed Iraqi Governing Council Iraq's Governing Council Izzedin Salim punished the dollar across the board. The Nikkei joined its US counterparts in breaching below its 200-day moving average, while bonds enjoyed a rare moment of solace as investors rushed into the safer asset. Market’s attention should continue to be drawn towards the geopolitical picture for the week due to the relative scarcity of economic releases.

...more...

http://news.moneycentral.msn.com/breaking/breakingnewsarticle.asp?feed=OBR&Date=20040517&ID=3710734

Dollar Recovers Losses, U.S. Rates in Focus

TOKYO (Reuters) - The dollar recovered losses made against the yen on Tuesday as players shifted focus from stronger-than-expected Japan growth figures back to a likely early rate rise in the United States.

The U.S. currency suddenly fell more than half a yen to a session low of 113.83 yen after data showed Japan's economy grew a real 1.4 percent in the January-March quarter from the previous quarter. Economists had forecasted growth of 0.9 percent.

<snip>

``The main trend remains unchanged. The market believes that the dollar has bottomed out and will continue to rise on (an expected U.S.) rate hike,'' said a spot trader at a major U.S. bank.

``But clearing 115 yen will not be easy, so we'll see position adjustments on the way, like what we saw yesterday on geopolitical concerns.''

...more...

and in other news:

http://inhome.rediff.com/money/2004/may/18bpo2.htm

3.4 mn US jobs to be offshored by 2015

Despite the furore over outsourcing of jobs in the US a new study has found that about 3.4 million jobs will be moved offshore by 2015, more than estimated two years ago.

According to Forrester Research about 3.4 million jobs will move offshore by 2015, a number slightly more than 3.3 million estimated two years ago.

<snip>

"By the end of 2003, 315,000 jobs had been shifted offshore, which is less than one per cent of the jobs in the affected categories. The number will grow to 1.6 per cent by the end of 2005," the research predicted.

<snip>

"The political furore has increased the awareness of offshore outsourcing and increased the awareness of the value of offshore outsourcing," Forrester analyst Stephanie Moore said.

...more...

Have a Great Day at the Casino, Marketeers!

http://www.forexnews.com/NA/default.asp

snip>
The dollar recovered overnight losses in line with global equity markets which bounced back today following Monday’s steep losses. The euro continues to trade between the confines of two important support and resistance lines, one at 1.1820 which marks the 2-year uptrend support and downtrend resistance from its all time high, now crossing at 1.2050. A breakout should appear in the coming days, leading to a multi-week move. So far the dollar continues to fare well as yields remain near 2-year highs. But a breakdown in the steep 2-month uptrend in yields could bring the dollar back under pressure.

10-Year Yield Breaks Down

The 10-year yield closed below its steep 2-month uptrend at 4.7% on Monday in the wake of steep losses in the global equity markets. Bonds are technically oversold and in high demand among commerical traders as the speculating community has abandoned their yield carry trades sending rates sharply higher. Bonds may now see a mult-week advance to correct the 2-month plunge. Much ink has spilled over the newfound inflationary pressures, but yields were mainly rising from the sheer amount of leverage employed in the various carry trades put on in 2003. The Australian dollar, which yields 5.25% has also been under extreme pressure, falling from 0.80 in February to a new 7-month low of 0.68 today. Therefore, a temporary breakdown in the sharp meltup in rates could put the dollar under pressure and stabilize other currencies like the Australian dollar over the coming weeks.

German Sentiment at 10-Month Low

Germany’s May ZEW economic sentiment survey fell to a 10-month low of 46.4 from 49.7, down nearly 30 points from a high of 73.4 in December of last year. As we warned during the upturn in Germany, rising confidence came largely from a global reflation effort led by the Fed to support spending which in turn fueled demand from abroad. But Germany’s economy is sluggish as domestic demand has been and remains lackluster. Our fear has been that absent the record amounts of stimulus seen in the US in 2003, global growth will slow and put the Eurozone’s leading economy on even shakier ground.

Yesterday we reported that an interesting aspect of the latest commitment of traders report showed that euro net longs actually rose 6k in the week ending May 11, despite the euro falling sharply from 1.2170 on May 5 to 1.1787 on May 11. The buying took place in the wake of April’s surprise payroll report suggesting that traders are not yet willing to let the euro break down from its 2-year trendline support at 1.18. Yet with there being little reason to buy the euro amid signs of low growth and low interest rates, many attempts at a rally have not held.

Japan GDP Better Than Expected

Data today showed that Japan’s economy grew by larger than expected in Q1, up 1.4% q/q, exceeding forecasts of 0.9% growth. The annual figure also beat consensus forecasts of 3.6%, instead growing by 5.6%. Private sector consumption grew by 1.0%, while capex rose 2.4%. Commenting on the better than expected results, government officials said the data reflected a stable recovery and highlights improving conditions.

more...



And from the "Articles & Ideas" section under the "Fundamentals" menu of the same website:

US Stocks Dumped to Record Lows, Treasuries Bought to Record Highs

snip>
Most significantly is a record plunge in purchases of US stocks, as foreigners became net sellers at $13.45 billion from net buyers of $2.4 billion in March. The $13.4 in net sales of US equities was the largest since the creation of the data in 1978. The second highest number was in September 2001 when net sales totaled $11.5 billion.

Ominous Implications for Foreign Inflows

The massive selling in US stocks and sharp rise in acceleration of US treasuries shown by the March data explain the 6% slide in the S&P 500 and the 4% rise in US Treasuries during that month. Nevertheless, the April data is likely to show a decline in purchases of US Treasuries without a compensating increase of stock purchases by foreigners. As the Bank of Japan ceased from intervening in April, 10-year Treasuries fell by more than 6% in the month, while US equities also ended lower during the month.

Thus, we expect the April flows data (due in mid June) to show continued slowdown in overall net purchases of US stocks and bonds, as well as a decline in foreign central bank purchases of Treasuries. This could translate into threatening implications regarding the Unites States' ability to finance its record high trade deficit. And with the April trade report (also due in mid June) likely to show another record high deficit courtesy of soaring oil imports for the month, deficit worries should begin to resurface especially particularly as foreign flows continue to retreat. These issues are significantly negative for the dollar, which is being solely propped by anticipation of higher US interest rates.

Trade deficit concerns may have taken a backseat over the past 2 months, but erosion in foreign demand for US assets coupled with a deficit-boosting oil import bill should engender these, worries at the expense of the US dollar.

http://www.fxstreet.com/nou/content/102055/content.asp?idioma=angles

Euro/dollar:

Markets will remain dominated by risk aversion and a further reduction in high-risk trades. The immediate implications should be finely balanced, although longer-term dollar risks will increase. There will also be some speculation that the Fed will delay a tightening due to growth concerns. Overall, the Euro is likely to have a firmer bias with a 1.2120 medium-term target.


There have been further concerns over the Iraq situation, especially with President Bush's approval ratings continuing to decline, and the reports of a shell containing the sarin nerve gas are unlikely to have a sustained positive impact. Risk aversion remains high and this is tending to offer near-term support to the Euro and the dollar. The closing of carry trades is helping to underpin the US currency while the interest in safe European currencies is helping to support the Euro. If there is a sustained increase in risk aversion, there will be a greater risk to the dollar, primarily due to its wide current account deficit.

The latest figures on capital flows reported net inflows of US$78.6bn in March after US$83.3bn in February. The figures are historic and only of limited important, but there were net inflows of US$32bn from the Bank of Japan and there were net outflows from the US stock market. The Bank of Japan did not intervene in April and there will, therefore, be a greater dependence on private inflows. In this context, the weak equity flows will be troubling for the US currency's prospects.



Dollar continues falling at UTS

http://www.forexnews.com/outgoing/link/wraphead.asp?loc=http://c.moreover.com/click/here.pl?x155870979

RBC, 18.05.2004, Moscow 11:45:56.The weighted average dollar rate on tomorrow deals amounted to 29 RUR/USD at the opening of today's special session at the UTS. This figure was 0.04 rubles lower than the official dollar exchange rate set by the Central Bank for May 18. As such, the dollar weakened against the ruble again. The ruble has been strengthening for a third day in a row. As reported earlier, on May 14 and 17 the dollar lost 0.04 rubles in total.

The main reason for the dollar's weakening against the ruble is the dollar's decrease against the euro on international exchanges. At present the euro costs $1.2, whereas yesterday it cost not more than $1.1970. Consequently, the dollar lost 0.2 percent more against the euro on international exchanges over the past 24 hours.

According to commercial bank dealers, commercial banks are still short of ruble funds.


Link to page of headlines regarding Forex news (if you're interested in watching the currency news).
http://www.forexnews.com/other/moreover/default.asp?loc=moreover-forexmarkets&t=Forex%20Market%20News

http://timesofindia.indiatimes.com/articleshow/683328.cms

MUMBAI: Indian shares registered the steepest gain ever Monday as Congress party president Sonia Gandhi declined to become the prime minister and former finance minister Manmohan Singh emerging as a frontrunner for the post.

Even as the leaders of Congress party and its allies began persuading Gandhi to reconsider her decision, the sensitive index (Sensex) of the Bombay Stock Exchange (BSE) shot up by over 100 points in a matter of few minutes.

At 3:30 p.m. , the bellwether index was ruling at 4,898.96 points, up 393.80 points or 8.74 per cent over previous day's close.

I still find it interesting that the supposed fundamental reason for the big Sensex sell-off yesterday was that the Communist Party of India (CPI) will be in the new Government hasn't changed one bit.

The BJP and their crooked criminal cronies like Bal Thackeray and his Shiv Sena Party have done an amazingly-effective smear job on Sonia Gandhi, so good it seems that it has effectively defeated her in her party's moment of victory.

Sensex has recovered around 400 points as of about an hour ago.

9:00AM: S&P futures vs fair value: +7.0. Nasdaq futures vs fair value: +12.0. The futures market has slipped off its best levels of the morning, but continues to point to a higher open in the cash market. The favorable bias is largely a bounce from yesterday's sell-off, although upbeat news from Japan and lower oil prices are contributing factors. Note that this Friday marks a monthly options expiration, which has the potential to lead to volatile trading.

8:33AM: S&P futures vs fair value: +8.5. Nasdaq futures vs fair value: +15.0. Futures indications improve their standing, but are little changed compared to pre-release levels. S&P futures lift 0.5 points; Nasdaq futures increase 0.5 points. Accordingly, the cash market remains set for a higher open.

8:25AM: S&P futures vs fair value: +8.3. Nasdaq futures vs fair value: +15.0. The Housing Starts and Building Permits reports for April will be released at 8:30ET. The consensus estimate for the Housing Starts report is 1980K on the heels of last month's 2007K. For the Building Permits reports, the market expects a reading of 1960K versus last month's 1976K.

http://quote.bloomberg.com/apps/news?pid=10000006&sid=aCkvQ1l0c.9o&refer=home

May 18 (Bloomberg) -- U.S. housing starts fell 2.1 percent in April, the third decline in four months, as higher mortgage rates deterred some homebuilders from beginning work on projects they haven't yet sold, a government report showed.

Work began on 1.969 million homes at an annual rate, down from a revised 2.011 million in March, the Commerce Department said in Washington. All of the April decline was in the West. Building permits, a measure of future construction, rose 1.2 percent to a 1.999 million rate.

Increased job growth and other signs of economic expansion are keeping housing demand strong, even as mortgage rates rise from last year's record lows, making buying a home more expensive. The average rate on a 30-year fixed mortgage has jumped almost a percentage point over the past two months, which may slow demand later in the year.

``Housing activity will remain at a historically high pace, but it's going to be difficult to maintain,'' said Chris Wiegand, an economist at Citigroup Global Markets, before the report. ``As we move further in the year, the rise in starts will be dampened by mortgage rate activity.''

more...

http://www.forbes.com/markets/newswire/2004/05/18/rtr1375306.html

NEW YORK, May 18 (Reuters) - Sales at U.S. chain stores remained brisk in the latest week, helped by easy comparisons with the same period last year and strong demand for warm weather items, but retailers expressed concerned about high gasoline prices, a report said on Tuesday.

Sales at major retailers rose by 4.8 percent on a year-over-year basis for the week ended May 15, slightly down from the preceding week's 4.7 percent pace, said Redbook Research, an independent company. Sales so far in May were up 0.7 percent compared with April.

Department stores reported increased customer traffic and customers buying more items at full price, the report said.

"Meanwhile, retailers worry about high gasoline prices which would cut into consumer's disposable income and could slow growth in the second half of the year," the report added.

more...

http://www.thestreet.com/pf/markets/detox/10160722.html

"The Fed under Greenspan will do all it can to keep rates as low as possible. But it won't succeed. If inflation numbers come in as high as in recent months, the hikes could happen fast and furious. Indeed, we could easily see the fed funds rate at 4% or over, compared with the current 1%. At the moment, the Fed is lending at sharply negative real interest rates. The fed funds rate of 1% minus the latest inflation rate of 2.3% gives a negative real interest rate of 1.3%. The 20-year average is a positiverate of 2.4%. To get to 2.4% now would mean hiking the fed funds rate to 4.75%. No economists expect that to happen any time soon. But it shows that a fed funds rate of over 3% is a real likelihood over the next 12 to 18 months.

Market pundits and all debtors have gotten so used to the idea of rates being low that they just don't foresee the cost of borrowing ever going back up to the average levels of the past 20 years. There is no way that productivity has created the sort of environment where real interest rates can remain negative for long periods of time.

Keeping the economy afloat by inflating a credit bubble is the stupidest thing any central bank could do, but they do it again and again. The Fed under Greenspan took that stupidity to a new high. And America is about to pay with the greatest credit bust of the last 50 years."

http://www.forbes.com/personalfinance/funds/newswire/2004/05/18/rtr1375436.html

NEW YORK, May 18 (Reuters) - U.S. Treasury prices sank on Tuesday after a Federal Reserve official said the risk of inflation had increased and stock markets rebounded from a sharp selloff the previous session.

Prices fell on news that Richmond Fed President Alfred Broaddus, speaking to a Maryland Bankers Association convention, said that an upswing in core inflation had grabbed the Fed's attention and that the risk of higher prices was clearly greater than three months ago.

Broaddus noted that restrained wage growth and high productivity would hold unit labor costs down, thereby helping to restrain price increases.

"Broaddus just reminded everyone that the Fed is going to raise rates," said Dominic Konstam, head of interest-rate strategy at Credit Suisse First Boston. "He is clear that the inflation data has got their attention and that the Fed is much more wary of inflation."

more...

http://quote.bloomberg.com/apps/news?pid=10000103&sid=aic9w4z5xG2o&refer=us

snip>
``Inflation risks are still growing, and investors prefer to hold stocks rather than bonds,'' said Yasutoshi Nagai, at Daiwa Securities SMBC Co. in Tokyo. ``This is a good time to buy stocks and sell bonds.'' The 10-year Treasury yield may rise to 4.9 percent in coming weeks, he said.

Anthony Santomero, president of the Fed's Philadelphia branch, is scheduled to speak today about prospects for the economy. He also doesn't vote on monetary policy. On Thursday, Fed Governor Ben Bernanke will give a speech called ``Gradualism: Why the Fed Tends to Move in Small Steps.'' Fed governors always vote on rates.

snip>
Japan's Nikkei 225 Stock Average rose as a report showed the economy grew an annual 5.6 percent in the three months to March 31, the eighth quarter of expansion. The dollar fell against the yen as demand rose for Japan's stocks and currency.

``When you're a dollar trader, if you see the Nikkei stronger, you may start to sell Treasuries,'' said Kazuaki Oh'e, a bond salesman at CIBC World Markets in Tokyo. ``Dollar investors are just buying back the Nikkei and selling U.S. Treasuries.''

10:00AM Nasdaq Composite pulls back from resistance (COMPX) 1894 +17.94: -- Technical -- Solid start to the day with the index testing resistance mentioned in The Technical Take at 1897/1901 (session high 1898) before slipping. Losses have been limited thus far and as long as short term support at the top of yesterday's range (1887/1886) remains intact there is potential for upside follow through. Next resistance is at 1907/1910 with a stronger near term ceiling at the upper end of last week's range between 1924 and 1937. Failure at support leaves the door open initially to 1880 and 1873.

That toon is priceless!
Totally made my day.

Thanks for starting this thread every day. You're the best!

Just doing my part for democracy. Cheers!

:toast:

http://feeds.bignewsnetwork.com/?sid=5566ee0a1f624ccf

The European Union said Monday it will reject accounting rules on derivatives unless standard-setters and banks reach an agreement by mid-June.

Companies listed in the EU are expected to use accounting standards set by the International Accounting Standards Board from 2005. But the IASB and European banks have been unable to reach an agreement on rules regarding derivatives. While the accounting group wants to include derivatives in international standards, the European banks have argued that putting them in would increase volatility.

Under the proposed regulation, derivatives used in risk management must be measured at fair or market value. Volatility in profit and loss accounts can be avoided by using hedge accounts, but changes in the value of derivatives must be recorded in balance sheets.

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=5176670

LONDON, May 18 (Reuters) - Barclays Capital, the investment bank division of Barclays Plc (BARC.L: Quote, Profile, Research) , is to hire up to 3,000 more people over the next three years, a source familiar with the UK-based bank said on Tuesday.

Barclays Capital, which was the main driver behind its parent company's profits last year, has been hiring steadily over the past couple of years to broaden its bond sales and trading business into new products and markets, including the United States and Asia.

Yet the new target appears to go beyond the bank's previously-stated objectives. It said last November it aimed to recruit 250 extra staff in 2004.

snip>
Barclays Capital Chief Executive Bob Diamond has been leading the bank's expansion into higher-margin areas, such as equity derivatives and precious metals. He told Reuters in February the bank also wanted to move into the residential mortgage and commercial mortgage market in the United States.

snip>
Barclays Capital posted a 35 percent rise in operating profits last year to 782 million pounds ($1.4 billion), as low interest rates created a favourable climate for trading bonds and related products, such as derivatives.

snip>
The bond boom has provided bumper earnings for most major investment banks in 2003 and also in the first quarter of 2004, but with U.S. interest rates likely to rise soon, some fear the bonanza may be over.

http://www.btnsn.com/btnsn/pr_view.asp?id=5358&dt=&cid=1555

New York and London - Wall Street Systems Inc., a leading provider of global treasury and capital markets solutions, today announced the launch of its Credit Derivatives module and Structured Products Framework for creating, tailoring and auditing structured products. These two new products offer a major advance in the ability to manage complex products and their inherent risk.

The new Credit Derivatives module - available either as a stand- alone solution, or as an integral part of The Wall Street System® treasury and capital markets solution - supports diverse credit derivatives, including total return swaps, credit linked notes and credit default swaps with support for both single names or baskets. Traders using the new Credit Derivatives module are equipped with pricing, deal capture, trade structuring, trade valuation and risk management capabilities, as well as the tools to tailor products to meet client needs.

The Credit Derivatives module also provides a comprehensive suite of risk management functionality, hedging analytics and scenario analysis. Risk analyses are available in real-time on any subset of the trading portfolio, with a full audit trail maintained for all trades. By being fully integrated with The Wall Street System treasury & capital markets solution, banks will be able to manage all asset classes on one platform and one database. Complete risk, data and process consistency from front to back ensure extensive management control, regulatory compliance and legislative reporting in response to Sarbanes-Oxley and Basel II as well as Fed, FSA and SEC requirements.

The new Structured Products Framework (SPF) from Wall Street Systems, which brings together support for Interest Rate and Credit Derivatives, will enable banks to create, price, process and risk manage new deal structures using their own models and software with total confidence and complete independence from Wall Street Systems. The Structured Product Framework delivers extensive support for all capital markets instruments, including fixed income, collateral management, repo, FX & MM, and futures products, in all major currencies and most emerging markets. Firms can continue to create new products and models, even from external sources such as Excel spreadsheets. The Wall Street System® treasury and capital markets solution allows financial organizations to capture all results directly from these sources into a global risk and trading management platform for complete audit and hedging capability enterprise-wide.

more...

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

May 11 (Bloomberg) -- J.P. Morgan Chase & Co., the second- largest U.S. bank, said it combined its Asia equity derivatives group with its cash management business as demand rises for products that improve returns when interest rates rise.

``The horizon is getting more complicated with interest rates going up,'' said Bart Broadman, J.P. Morgan's vice chairman in Asia-Pacific, in a phone interview. ``We're telling clients that whatever their view, we've got a one-stop shop.''

Asian stocks and currencies have fallen in recent weeks on concerns that the U.S. will raise interest rates, increasing borrowing costs, and that China's attempts to slow its economy may hurt regional markets. Hong Kong's benchmark Hang Seng Index has fallen 17.6 percent since March 1, while Japan's Nikkei 225 Stock Average is down 6.8 percent since April 1.

Goldman Sachs Group Inc. and Merrill Lynch & Co. are among investment banks that have been combining equity and debt businesses globally to save money and offer clients more integrated services. J.P. Morgan in March was the first bank to combine its Australian, Japanese and Asian operations.

more...

http://www.investors.com/breakingnews.asp?journalid=21087191&brk=1

HOPEWELL, N.J. (CBS.MW) -- In spite of infamous blowups like the Enron collapse and the Freddie Mac accounting scandal, corporate use of derivatives has grown rapidly in recent years.

Chief financial officers of many companies view them as useful tools for hedging against risks, such as wide swings in commodity prices.

But these exotic financial instruments remain widely misunderstood, even by the people using them, and their regulation is limited at best.

As debt derivatives markets expand 30 percent year over year, CFO's may find themselves at odds with their financial management strategies.

With derivatives, due diligence is not an event, but a process.

With little market data and limited pricing transparency, many are saddled with the inability to effectively, monitor, report and mark-to-market these financial contracts.

more...

Dow 9,965.11 +58.20 (+0.59%)
Nasdaq 1,897.83 +21.19 (+1.13%)
S&P 500 1,091.90 +7.80 (+0.72%)
10-yr Bond 4.746% +0.047
30-yr Bond 5.466% +0.029

NYSE Volume 490,478,000
Nasdaq Volume 546,188,000

11:25AM: Little change since the last update as the major averages are trading up 0.6-1.1%... Although encouraging, these gains come short of recouping the entirety of yesterday's losses, which totaled 1.1-1.5%... Nevertheless, today's standing in positive territory is being backed by broad-based gains in influential and widely-held sectors... Breadth figures are favorable, with up volume outpacing down volume by a 3-to-1 margin on the NYSE and an 11-to-2 margin on the Nasdaq, while advancers are leading decliners by a roughly 2-to-1 margin on both exchanges...
Disappointingly, though, volume is running at an anemic level and is (thus far) lighter than yesterday's uninspiring levels, suggesting that there's little conviction from participants to the move higher...NYSE Adv/Dec 2223/870, Nasdaq Adv/Dec 1884/969

http://www.reuters.com/financeNewsArticle.jhtml?type=bondsNews&storyID=5169442

snip>
The company said that in April its average duration gap widened to plus 3 months in April from zero in March.

When the duration gap is positive, Fannie Mae's mortgage holdings are on average being paid off at a slower rate, and at lower interest rates, than its debt is being repaid.

In recent weeks, Federal Reserve and Treasury officials have raised concerns over the systemic risk that Fannie Mae and its smaller mortgage finance sibling Freddie Mac (FRE.N: Quote, Profile, Research) pose to the U.S. financial system if they run into trouble.

But Fannie Mae says that the duration gap is not wide enough, nor has it persisted long enough to create a problem.

The Washington-based company aims to keep its duration gap between minus 6 months to plus 6 months. From September 2003 to March, the gap has run between plus to minus one month.

Fannie Mae's April duration gap increase is much smaller than the increase of 14 months estimated by some analysts for the maturities of the mortgage market as a whole, said Mary Lou Christy, vice president of investor relations at Fannie Mae.

A Monday article in Barron's said the way in which Fannie Mae uses derivatives like interest rate swaps and swaption contracts to balance the duration between its assets and liabilities has resulted in billions in losses.

But these losses and Fannie Mae's true financial risks are understated according to Barron's because of accounting loopholes, a charge which Fannie Mae denies.

"The article misreports a number of facts that are a matter of public record and it represents a one-sided opinion about some familiar, well-debated issues in the guise of a straightforward news story," Fannie Mae's senior vice president Jayne Shontell said in a statement.

As rates have risen sharply in recent weeks, much of Fannie Mae's derivative losses raised in the Barron's article could have been "reversed or even turned to gains," said Jonathan Gray, analyst at Sanford C. Bernstein & Co., in a Monday research note.

more...

http://www.taipeitimes.com/News/edit/archives/2004/05/18/2003156010

Despite China's enviable economic performance, a reality check indicates that such high growth rates are unsustainable. The worse news is that there is also likely to be a sharp reversal which could harm many neighboring countries whose economies have become more closely integrated with China's.

This is because China's high economic-growth rates are based upon flows of cheap credit and growing public-sector borrowing that have prompted an investment bubble and instability in prices. Economic euphoria seems to induce people to forget that busts follow booms in the way that night follows day.

Or at least they do when macroeconomic policies push interest rates artificially low and promote increased deficit spending to create temporary growth spurts. A similar logic dictates that the greater the deviance of booms from the long-term growth trend, the sharper the corrective effect of the bust. And China's exchange-rate peg is worsening macroeconomic imbalances and hastening the day of reckoning.

It seems hard to argue against such storied economic performance. With industrial production growth of 19.4 percent, GDP rose by 9.7 percent from January through March this year. When comparing the economic data for the first quarter of this year with the same period last year, fixed investment rose 43 percent. And bank lending has risen by 40 percent over the past 24 months so that outstanding bank loans are equivalent to 140 percent of GDP, an exceptionally high proportion for a developing economy.

But bad news followed similar good news in China's previous boom and bust cycles. An initial double-digit growth spurt in response to economic reforms that began in 1978 ended with a sharp fall in 1981 to 5 percent. Rising investment allowed growth to rally back to over 15 percent in 1984 before plunging to nearly zero after the Tiananmen massacre. In 1992, another round of double-digit GDP growth rates began slumping badly in 1994 before hitting bottom in 1998, when growth was about 3 percent.

more...

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

snip>
But now the chickens are coming home to roost: the numbers coming out of China suggest that its monetary authorities face an uphill task to cool a rapidly overheating economy. Consumer prices last month rose at the fastest annual rate in over seven years. Retail sales rose 13 per cent over the same period and imports surged by 43 per cent. What happens in China matters not just because the country is a huge creditor to the US, but is also gradually replacing the latter as a global locomotive. The commodities markets in particular have read the signs out of China ominously and reacted accordingly.

Thus far, Beijing has tried through a combination of moral suasion, administrative fiat and (more recently) interest rate hikes to rein in speculation and stage a soft landing in advance of the Olympic Games in 2008. The jury is still out on whether this can be achieved, and it is also unclear whether market turmoil will, as appears to be the case in Washington, stay China’s hand and thereby allow even greater excesses in this economic relationship with the US to be perpetuated. Beijing’s dithering on significant interest rate hikes thus far is at least partly driven by a growing appreciation of the fragile nature of its state banking system, which the authorities are desperate to privatise. Arguably, China’s decision to address their current boom excesses exclusively through domestic adjustments, such as in the credit area, rather than through the expedient of a revaluation of the renminbi, could diminish import growth, shift the focus to export-driven growth and thereby perpetuate growing political and economic tensions with the US, particularly problematic during a Presidential election year in which the easy resort to protectionism becomes too tempting to resist.

On the other hand, were China to embrace the panacea of cutting the link to the US dollar, it is possible that the cure could be worse than the disease. At a time when the authorities are already moving to choke off domestic demand, anything that would suppress export gains in an economy already struggling to engineer a soft landing (and with a widely acknowledged bank loan problem) would be very dangerous for Beijing and have unhealthy knock-on effects for Washington. If the Chinese were to sever their links with the US dollar, this would likely constitute an enormous vote of no-confidence in the dollar as a major reserve currency on the part of the world’s largest savings bloc.

True, there are already signs that the reign of King Dollar is drawing to a close. East Asia is including moves toward closer co-operation on bond markets, currencies, and the management of foreign exchange reserves, according to leading Asian bankers and monetary officials who met this past weekend in Seoul. The meeting was a follow-up to a process commenced back in 2002, the so-called Chiang Mai Initiative, which called for a pooling of foreign reserves, and the continuing development of local-currency bond markets. New steps introduced this past weekend included calls for more regional free trade agreements, followed by interim measures to stabilise Asian currencies against each other and, finally, monetary union.

Clearly, Asian monetary union is not going to occur overnight and the dollar will still play an important role within the region as a reserve currency. But at least China, in contrast to the US, has a cushion of huge foreign exchange reserves and domestic savings with which to cope with growing American financial fragility: $440 billion in foreign reserves and a further $1.350bn in retail bank savings. When national savings rates are high, as they clearly are in China, this provides for a huge degree of policy flexibility. China may only have blunt weapons with which to handle overheating – the economic equivalent of pushing a walking stick into the spokes of a bicycle’s front wheel. But its huge domestic savings gives the country a powerful means of re-stimulating a sluggish economy. Not so in the US, which looks increasingly trapped in an economic cul-de-sac of its own making.

more...

12:40
Dow 9,980.72 +73.81 (+0.75%)
Nasdaq 1,901.25 +24.61 (+1.31%)
S&P 500 1,093.13 +9.03 (+0.83%)
10-Yr Bond 4.736% +0.037

U.S. stocks rally amid strong Q1 report from Home Depot

NEW YORK (CBS.MW) -- U.S. stocks enjoyed broad gains Tuesday, with the technology sector leading the way, as a strong earnings report and outlook from blue chip retailer Home Depot and stabilization in overseas markets emboldened investors.

A potential resolution of political turmoil in India and a pullback in crude prices also helped set a positive tone. New home construction data that was in line with expectations and comments from the Richmond Federal Reserve Bank president that inflation was "manageable" did not disturb the peace.

"Sellers are taking a breather, since we didn't get any bad news from the geopolitical arena," said James Park, senior trader Rodman & Renshaw. "But buyers are not coming back in swarms, however, as the market is still pricing in a lot of uncertainty."

more...

I have to leave for the rest of the afternoon. Thanks to everyone for such a wonderfully informative thread today.

See you in the morning.

Ozy :hi:

the day. Just sort of up and down all day, so far not ending up much higher than where it started.

Last trade 91.13
High 91.27 Low 90.79

http://www.nypost.com/business/24294.htm

May 18, 2004 -- Deutsche Bank's New York junk bond desk saw a $500 million bond deal finally go bust last night, forcing the giant firm to reprice the offering this morning.
Repricing the deal, done for tractor maker Case New Holland, is a major embarrassment to the bank and its top-flight junk desk, industry sources said.

Deutsche Bank, which bought the bonds - a standard procedure on Wall Street - may have to sell them for less, which could leave the bank with tens of millions in losses.

The bond bust-up is a black eye for Deutsche Bank, whose cranky bondholders have watched the value of the bond plummet as information came out showing that the CNH assets guaranteeing the bond were of a lower credit quality than was previously disclosed.

That made the bonds a riskier bet for investors, who in turn demanded a higher interest rate - the factor that sent Deutsche back to the drawing board.

Market sources say Deutsche Bank did not know about the disclosure issue when it priced the deal, but did know about it before the final documents confirming the deal reached investors.

A Deutsche Bank spokesman declined to comment.

more...

If you price a loan poorly because the credit was worse than what you priced into the loan - you are usually safe unless the company goes under (you just make a little less than you otherwise could have).

Poor credit work on a bond issuance hurts a lot more when your bad analysis is discovered before passing the debt on to the investing public. THEY don't want to make the loan at a lower rate - so you take a big hit.

It's amazing how important some of that back-office stuff is.

"This is a case of serial stuffing," said one competitor familiar with the deal. "If the bonds were trading at $98, none of this would happen. Instead, the bondholders are trying to stuff this to Deutsche Bank."

Dow 9,969.51 +62.60 (+0.63%)
Nasdaq 1,898.75 +22.11 (+1.18%)
S&P 500 1,092.54 +8.44 (+0.78%)
10-yr Bond 4.724% +0.025
30-yr Bond 5.445% +0.008

NYSE Volume 816,715,000
Nasdaq Volume 873,459,000

1:30PM: Mostly sideways since the last update, as the major averages have been able to maintain the bulk of their earlier gains... The oil services sector remains among the few laggards of note, with losses of 2.1%, as indicated by the OSX index... The group's decline coincides with a pullback in the price of crude oil to $40.78/bbl... Remember that the price of crude oil set a new record high in yesterday's session...
The decline in the oil services sector is particularly notable in the face of Goldman Sachs's upgrade of the Integrated Oil, E&P, and R&M sectors to Attractive from Neutral, as they see the potential for the stocks to rally 30-40% to peak valuations versus an estimated 10% trading downside risk...NYSE Adv/Dec 2318/927, Nasdaq Adv/Dec 1918/1102

http://biz.yahoo.com/cbsm-top/040518/9c2f5d243840387b6e00e37e5f6f144f_1.html

NEW YORK (CBS.MW) -- U.S. stocks enjoyed broad gains but on light volume Tuesday, with the technology sector leading the way, as investors were emboldened by a strong earnings report and outlook from blue chip retailer Home Depot and stabilization in overseas markets.

The re-nomination of Alan Greenspan as Federal Reserve chairman, the potential resolution of political turmoil in India and a pullback in crude prices also helped soothe investor uncertainty. New home construction data that was in line with expectations and comments from the Richmond Federal Reserve Bank president that inflation was "manageable" did not disturb the peace.

"Sellers are taking a breather, since we didn't get any bad news from the geopolitical arena," said James Park, senior trader Rodman & Renshaw. "But buyers are not coming back in swarms, however, as the market is still pricing in a lot of uncertainty."

snip>
Also, the Fed's J. Alfred Broaddus Jr. said that while rising prices for commodities and consumer goods have "gotten the attention" of the Fed, productivity growth, a weaker dollar, slack labor markets and strong global competition kept inflationary risks "manageable."

He added that the Fed's statement that it can raise rates at a "measured" pace seemed "reasonable" to him, and there was no reason for the market to expect a repeat of the rapid rate hikes in 1994 ( read more ).

The data and Broaddus' comments couldn't stop the bond market from pulling back from the prior session's strong showing. The yield on the benchmark 10-year Treasury note (CBOE:^TNX - News) rose 0.024 percentage points to 4.723 percent, after falling 0.089 percentage points on Monday. See Bond Report .

I thought the high gas prices were mainly attributed to the refineries falling behind. Remember reading that there's plenty of oil flowing in, but refineries were behind while running at 96% capacity. :shrug:

Shrub needs to hang on to that SPR so he looks like a visionary when that October surprise attack comes around. :evilgrin:

http://www.forbes.com/newswire/2004/05/18/rtr1375804.html

WASHINGTON(Reuters) - The Bush administration Tuesday rebuffed pressure from Democrats to open the nation's emergency oil stockpile to help lower record gasoline prices, saying the reserve should be saved for supply disruptions.

Democrats called on President Bush to release up to 60 million barrels of oil from the Strategic Petroleum Reserve to ease energy prices that have rippled through the U.S. economy. Airlines, trucking companies and even major retailers such as Wal-Mart have grown increasingly concerned about fuel costs in recent weeks.

U.S. Energy Secretary Spencer Abraham, who plans to meet with the Saudi oil minister later this week to discuss OPEC oil production, ruled out using the stockpile now.

"It's the emergency oil fund for this country in the event that a terrorist act, or any other activity in the world, might cease or suspend the production or delivery of oil into the marketplace," Abraham told reporters.

more...

http://www.iht.com/articles/520012.html

The oil crises of the 1970s began with big supply disruptions: the Arab oil embargo after the 1973 Israeli-Arab war and the 1979 Iranian revolution. This time, despite the chaos in Iraq, nothing comparable has happened - yet. Nonetheless, because of rising demand that is led by soaring Chinese consumption, the world oil market is already tight as a drum, and crude oil prices are $12 a barrel higher than they were a year ago. What if something really does go wrong?
.
Let me put it a bit differently: The last time oil prices were this high, on the eve of the 1991 Gulf War, there was a lot of spare capacity in the world, so there was room to cope with a major supply disruption if it happened. This time there isn't.
.
The International Energy Agency estimates the world's spare oil production capacity at about 2.5 million barrels per day, almost all of it in the Gulf region. It also predicts that global oil demand in 2004 will be, on average, 2 million barrels per day higher than in 2003. Now imagine what will happen if there are more successful insurgent attacks on Iraqi pipelines, or, perish the thought, instability in Saudi Arabia. In fact, even without a supply disruption, it's hard to see where the oil will come from to meet the growing demand.
.
But wait: Basic economics says that markets deal handily with excesses of demand over supply. Prices rise, producers have an incentive to produce more while consumers have an incentive to consume less, and the market comes back into balance. Won't that happen with oil?

more...

He was a stock character in 19th-century fiction: the wastrel son who runs up gambling debts in the belief that his wealthy family, concerned for its prestige, will have no choice but to pay off his creditors. In the novels such characters always come to a bad end. Either they bring ruin to their families, or they eventually find themselves disowned.

George Bush reminds me of those characters — and not just because of his early career, in which friends of the family repeatedly bailed out his failing business ventures. Now that he sits in the White House, he's still counting on other people to settle his debts — not to protect the reputation of his family, but to protect the reputation of the country.

One by one, our erstwhile allies are disowning us; they don't want an unstable, anti-Western Iraq any more than we do, but they have concluded that President Bush is incorrigible. Spain has washed its hands of our problems, Italy is edging toward the door, and Britain will join the rush for the exit soon enough, with or without Tony Blair.

At home, however, Mr. Bush's protectors are not yet ready to make the break.

Last week Mr. Bush asked Congress for yet more money for the "Iraq Freedom Fund" — $25 billion for starters, although Paul Wolfowitz, the deputy defense secretary, says that the bill for the full fiscal year will probably exceed $50 billion, and independent experts think even that is an underestimate. And you know what? He'll get it.

more...

Still nowhere to run to.

http://www.forbes.com/markets/newswire/2004/05/18/rtr1375852.html

NEW YORK, May 18 (Reuters) - U.S. Treasuries hold plenty of appeal for investors seeking safe-haven assets when turmoil threatens geopolitical stability, but with interest rates about to rise, analysts say not to hold out for dramatic rallies.

U.S. Treasuries, viewed as the ultimate safe-haven asset, ended a near-unbroken seven-week losing streak on Monday following news of the death of the head of the Iraqi Governing Council, who died in a suicide car bomb attack in Baghdad.

snip>

INVESTOR CONFIDENCE FLAGS

U.S.-based financial firm State Street said on Tuesday its investor confidence index fell to its lowest point this year in May, after falling pretty much consistently since December.

This would normally bode well for Treasuries as low investor confidence often translates into an unwillingness to undertake the risk of playing the stock markets.

But with the Fed's dual worries over the lack of inflation and hiring now seemingly unfounded in light of recent inflation and employment data, the negative sentiment in the bond market is too ingrained to shake off, especially as markets are expecting rates to rise in just six weeks.

snip>
"We could see 4.50 percent on the 10-year (note) as stocks finish this technical bounce and turn lower," Gilhooly said.

snip>
"The Fed wants us to believe that they really have scope for raising rates when ... it can't raise rates to any meaningful degree because they've got people hooked on low interest rates. It's an addiction," Gilhooly said.

more..

I called him to ask about Short Funds in my retirement account. He said "funny you should say that".....

Turns out that one of their main analysts did a conference call this A.M. about how this last plunge (yesterday) signals to him that the bottom has been hit, and that it's all UP from here. He says their own major fund manager just moved several million of his own $$ into a mutual fund that is broadly invested. The analyst/fund manager said THE BOTTOM has been reached.

Now, I'm not any financial genius, or I wouldn't be so broke! BUT... I read about the domestic and international political/monetary scene, and I just can't believe we're playing by the "old rules" of the market anymore. Am I just letting my tinfoilhat get in the way of my investing philosophy? OR, could it be that we, at DU, just tend to be pessimistic because we see the insidious take-over of the globe by a bunch of megalomaniacs?

I feel like it's time to put my $$ where my mouth is. But, I'm wondering: is my mouth just singing a negative tune that may be unwarranted?

It sure doesn't SEEM like it, because DUers have been SOOOOO "ahead of the curve correct" about the directions things would take in this country. And I, personally, see the rest of the world turning against the U.S. out of their own new awakenings to the dangers the U.S. obviously CAN pose to their economies when we have an idiot at the wheel.

I don't think the old rules are going to apply simply BECAUSE they now see the real and present danger of investing in our economy, basing their currency on the Dollar, and buying our ever growing debt, when our "business leaders" are sending our $$ to India and China and South America (not as much S.A. lately as before), and enriching those countries at the expense of the USA.

I don't think OPEC is going to want to continue to tie their oil prices to the dollar, when the US is screwing them around via the PNAC crowd. And I feel like if world economies & OPEC see the US may re-elect bush or if he may steal another election, they may pull the plug...which is now in their power to do, thanks to 30-years of short-sighted US government policies that have left us unprotected.

So.....MY QUESTION IS, DU Marketeers....do YOU GUYS think I'm just "negative" and tinfoilhatted-out at this point in our economic history and evolution? Or do you guys think things aren't as rosy as some $$ managers would like to believe? I'd do a "poll" if it was the start of a Marketeers Thread!

I don't think I'm the only DUer that may be wondering about these things...and some input from you guys might be welcomed by many of us!

P.S. I'm not asking for a "stock tip".....just some DU/Economics input.

:kick::kick::kick:

Ignore all of the rambling of the various political groups who see heaven or he11 in the numbers based on who is in office and how it affects their chances of winning elections.

Stick to the same fundamental philosophy you should have had all along. Make a proper asset allocation based soley on tollerance for risk and investment time horizon. Have a cash reserve fund equal to a number of months' salary (depending on your job type and how reliable your income is). Have a medium-term savings fund for larger expenses (car downpayments, vacations, college for kids if close, etc).

You should be holding a percentage of stocks and fixed income investments (plus international and a few other asset types as the dollar value rises) and <b>leave it alone</b>. Don't try to second guess the markets and make a quick buck. You should have this same plan whether the market is rising or falling and stick to it.


Remember - Don't be greedy "Bulls make money and Bears make money... but pigs get slaughtered". Just keep investing regularly and in the down years you'll be buying more. You don't CARE where the market will be tomorrow. You care about 20 years from now (or 30 or 40).

from 2 of my funds and the letters are recommending investors to keep realistic expectations. Your guy seems to be saying were headed to the moon!

No crystal ball here, but I would trust your gut.

Here's a quote from one of the reports I got this week. This part comes after spelling out the great gains they've had in the past year (and they have done quite well).

On the heels of a strong market rebound and a very good year for (fund), we recommend that investors keep realistic expectations of investment results and consider the history of long-term returns instead of focusing on the soaring markets of the late 1990s. It is useful to remember that over the past 78 years, the average annual total return for stocks as measured by the S&P 500 has been around 10% a year.

To some extent, the easy part of the recovery is over. Stocks have rebounded off their lows. Serious geopolitical risks remain, however, from the still unsettled situation in the Middle East to the threat of terorism. Other risks include a possible increase in inflation, heavy debt loads in the US and the potential overheating of some developing markets. That said, we are still very positive about the long-term growth opportunities for the companies in (fund)'s portfolio.

So they are basically begging me not to pull out and to tough it out and ride out the storm, thinking long term. Doesn't sound like they are thinking we are about to take off on another boom, zoom off to the moon trip.

they want you in the market, they want your business...

stock brokers don't know shit...

they get together in the morning and come up with their scripts...

want your repeated business (and many just don't give a rats ass about that - plenty more sheep out there for them to shear), they'll give you an honest heads up.

I'm one of those "chicken" investors. Don't care to make a huge killing but don't want to loose anything either. I'd rather pull out a bit early and miss out on a little gain than over stay the welcome and get clobbered. So I hop in and out, moving some off to the sidelines in a MM when things are looking a bit shaky. As long as there's not a complete melt-down, my $$$ are safe on the sidelines, just not working for me.

I've done pretty well doing this over the past 15 years. At least I don't end up praying the market goes back up to recoup my looses. Missed opportunity doesn't seem to hurt as bad as watching my hard earned bucks evaporate.

But, that's just me. I'm sure Frodo would slap my hands and tell me to stay in there through thick and thin. I'm neither a day trader or a buy and hold forever type.

What I am moving in and out of are funds, not individual stocks. As long as the movements are within the same fund faimly, there are no additional costs involved.
I only get sheared on the way in. ;-)

Gotta go.....

My tinfoil isn't quite so tight right now, after reading these. It's more clear to me now that I've been letting my own fears of the "wild card" concerning what other countries might/could do to the U.S. for "punishment" per bush policies, and for their own hedge against this happening again, eat away at me. Those other countries are also looking at their own best interests, and in the current world where there are beginning to be more "big players" who understand they can affect OUR position in the global marketplace, other countries will be determining their independence without as much "permission" from the former global "boss".

But as you guys point out, many mutual funds are spread across a big spectrum of the economies of those same players whose moves I fear, so there is bound to be some sort of safety net there.

So....I'll find the diversification I like and I'll ride out the next few years. Hopefully, I'll be able to retire at about 68 or 70 without the aid of social security.

Thanks again!

loudsue

:kick:

advice from strangers on message boards.

Good luck with your investment choices and finding the diversification you want. As long as you find YOUR personal comfort level you should do alright. I think a lot of people think they must have all their money in the market all the time. It just ain't so. It doesn't have to be an all or nothing proposition.

Look how much cash Buffet and a few others have been just sitting on. Yes, it's a shame it's not working for you, but you don't want to work it to death either.

JMHO

Have a great day Marketeers! :hi:

Dow 9,973.20 +66.29 (+0.67%)
Nasdaq 1,897.57 +20.93 (+1.12%)
S&P 500 1,092.28 +8.18 (+0.75%)
10-yr Bond 4.739% +0.040
30-yr Bond 5.458% +0.021

NYSE Volume 1,081,075,000
Nasdaq Volume 1,142,931,000

3:00PM: The major averages have used today's session as an opportunity to reverse some of yesterday's sizeable losses... Although encouraging, today's gains have thus far come short of yesterday's losses, which took the major averages lower by 1.1-1.6%... Despite a much better than expected earnings release from Deere (DE 64.86 -1.14), which reported Q2 EPS of $1.88, $0.13 better than consensus, the stock is trading lower (please see the Earnings Briefing for more details)...
The Machinery sector overall is relative flat after receiving a downgrade from Goldman Sachs to Neutral from Attractive on the heels of yesterday's downgrade by Morgan Stanley... According to Goldman Sachs, while fundamentals will continue to improve and stocks should trend higher, other industrial stocks and potentially other cyclical sectors should outperform... The firm upgraded IR and ETN to Outperform from In-Line...NYSE Adv/Dec 2310/986, Nasdaq Adv/Dec 1879/1207

Dow 9,968.51 +61.60 (+0.62%)
Nasdaq 1,897.82 +21.18 (+1.13%)
S&P 500 1,091.49 +7.39 (+0.68%)
10-yr Bond 4.736% +0.037
30-yr Bond 5.453% +0.016

NYSE Volume 1,352,697,000
Nasdaq Volume 1,444,785,000

Close Dow +61.60 at 9,968.51, S&P +7.43 at 1,091.53, Nasdaq +21.18 at 1,897.82: After opening higher, the major averages spent the bulk of the session trading in relatively tight trading ranges spanning roughly 20, 2, and 6 points for the Dow, S&P 500, and Nasdaq, respectively... Much of today's positive bias was a bounce from the losses of 1.1-1.6% realized by the market in yesterday's session... In that respect, the market didn't recoup the entirety of yesterday's losses, advancing "only" 0.6-1.1% today...
The favorable bias was set by favorable trade in international markets, which were higher after the Japanese GDP exhibited better than expected growth from January through March reassuring investors about global growth prospects... The Indian market and Indian ADRs on the U.S. exchanges were boosted by news that Sonia Gandhi has decided to step down as the parliamentary leader of the Congress party, effectively ending her chances of becoming prime minister... The major averages' advance was broad-based and supported by influential sectors such as hardware, internet, networking, semiconductor, telecom, biotech, banking, REITs, gold, industrials, broker/dealer, transportation, steel, coal, and retail groups...

The homebuilding sector was also higher on the heels of this morning's Housing Starts and Building Permits reports, which checked in at 1969K (consensus 1980K) and 1999K (consensus 1960K), respectively, indicating that the housing market remain strong... Laggards of note were difficult to find, but included the oil services sector, which was lower in conjunction with a 2.4% decline in the price of crude oil to $40.54/bbl... While the market's advance was encouraging, participants' conviction was lackluster, as exhibited by anemic volume levels...

Elsewhere, the bond market closed with losses across the yield curve and the 10-year note down 9/32, bringing its yield up to 4.73%...NYSE Adv/Dec 2409/926, Nasdaq Adv/Dec 2003/1141