Wednesday, March 30, 2005


Junk Bonds Take Big Fall In March

Reuters is reporting that junk bonds are struggling through the worst month in years. "Bonds with "CCC" ratings, just above default, have posted a 1.76 percent year-to-date loss."

With bonds needing to roll over, more losses may be coming. "About $94 billion in U.S. junk bonds and bank debt will mature by 2007, according to Moody's Investors Service, about $12 billion of it rated in the "triple-C" range. Even before the recent sell-off in high-yield bonds, Moody's warned that companies could have difficulty refinancing some of that debt."


Shanghai Stocks At 6 Year Low

Globalism has hit the skids in China with the Shanghai index falling to levels not seen in 6 years. Some blame an increase in interest rates. "The government has taken a series of steps, such as the housing loan rate increase, to cool the overheating economy. It's estimated that tougher ones will follow," said Wang Kai.

The article in Asia Times Online points to a more likely reason. "The root cause of ailing investment confidence is that there is very little or even no return for investors. For more than a decade, many listed companies have regarded the bourses as cash cows and have not cared about investor sentiment - rarely paying dividends and often providing fake information. The fact that about two-thirds of the shares of domestically listed companies are non-tradable and lying in the hands of the state has left very little room for initiative, or enthusiasm, for public investors."

Monday, March 28, 2005


Study: Super Wealthy Hide $11 Trillion Offshore

The Observer is reporting on a study that disclosed the amount held by super wealthy individuals in offshore accounts is vast. "The world's richest individuals have placed $11.5 trillion of assets in offshore havens, mainly as a tax avoidance measure. The shock new figure:10 times Britain's GDP"

This revelation should make it clear the funds are available to manipulate just about any asset. Nor does this include the multinational corporations, many of which have economies larger than most countries.

I've got to go; doing my taxes today.

Friday, March 25, 2005


Excess Capital Plagues Investors

There is a FinFacts story running about excess capital and the implications for investors. "(A) sign of excess capital can be seen in what Argentina did to its creditors - and in how they reacted. When Argentina defaulted on its debt in December 2001, many thought it would eventually negotiate a deal with creditors. Instead, this year it imposed far harsher terms and refused to talk about them. The vast majority of the bondholders meekly went along and bonds of other emerging markets have not suffered."

"Why is there too much capital? One answer is that central banks reacted to the bursting of the technology bubble by cutting interest rates by too much for too long." Story at the bottom of this page.

Thursday, March 24, 2005


Dollar Rallies, Yahoo In Share Buyback

In a holiday shortened week the US dollar had quite a run. Versus the Swiss Franc it was up 3% in 4 days to finish above 1.20. Trading against the Yen left the greenback at a 6 week high, over 106.

In some late news of signifigance, the internet firm Yahoo announced a share buyback of $3 billion. The reason I find it important is the firm is signaling that no better investment is available, not in Yahoo nor any possible aquisition. That is a poor reflection on the state of the economy and Yahoos prospects.


Derivative Use Surges

The web site for the Bank of International Settlements put out a report on derivatives. "In the derivatives market, global daily turnover in foreign exchange and interest rate related products..increased by an estimated 74% between April 2001 and April 2004 (51% at constant exchange rates), to $2.4 trillion."

Some of us remember the Long Term Capital Management bust that involved only a few billion. Oh well, I am sure everyone knows what they are doing, right?

Tuesday, March 22, 2005


Dow, Nasdaq And S&P Head Lower

The good folks at Elliott Wave International made a good point this afternoon. While everyone has been concerned with rate hikes and earnings reports, the major indices have turned decidedly lower.

"(In) the past two weeks the Dow, S&P 500 and NASDAQ are each down more than four percent. In fact, the NASDAQ is now off more than seven percent on the year." As the Wavers are always quick to point out, the market doesn't wait for central planners to give it direction.

Sunday, March 20, 2005


US And Europe Face Junk Status reports that Standard & Poors has warned that the US, France, Germany and England will all face junk debt status as their population ages. " Moritz Kraemer, credit analyst at S&P, says: “Without further adjustment either to current fiscal stance or to social and healthcare costs, the general government debt ratios of France, Germany and the US will surpass 200 per cent. This will result in deficits more akin to those associated with speculative grade sovereigns.”

Friday, March 18, 2005


US Financing Profits Cited As Weakness

Business Week Online has a story out today regarding the reliance on financing revenue in US businesses. Titled "Corporate America's New Achilles' Heel", the piece notes that firms have been relying on the "carry trade" which will likely disappear.

"Finance supplies 30% of all U.S. company profits, as of last Sept. 30, up from 21% a decade ago." And the companies involved may surprise you. "Deere & Co., the farm-equipment company, finance produces nearly one-fourth of earnings. Retailer Target Corp. usually gets about 15% of its profits from its credit cards..H&R Block Inc. made $678 million in pretax profits from mortgages -- more than it did from tax returns."

"The most obvious threat to this earnings parade is the sharply narrowing gap between short- and long-term interest rates that market mavens call the spread. Last April the spread..was an exceptionally high 2.4 percentage points. It's now down to 0.8 point, making lending much less profitable than before."

Wednesday, March 16, 2005


Economist: Deficits, Not Asian Banks, Drive Dollar

Dow Jones newswire ran a piece on economist Joseph Stiglitz Tuesday. He lays the blame for US dollar weakness on domestic policies, specifically the trade and budget deficits. "The heart of the problem is domestic savings. And underlying that are the huge fiscal deficits."

It has become common for US politicians to scold China for its policy regarding exchange rates. But it is incredibly naive to think that other nations have a responsibility to put our house in order."The question is whether the adjustments to address major imbalances are smooth or abrupt. It's not whether the dollar is going to be weak."

Mr. Stiglitz also casts doubt on any boost for the greenback coming from overseas, "The exchange rate of the yuan won't have large effects on these variables. People simply haven't come to grips with this." A revaluation of the renminbi might narrow the U.S. trade deficit with China, 'but it will just show up in the trade deficit with someone else,' he said.

Tuesday, March 15, 2005


UCLA Forecast: Recession

The well respected Anderson forecast doesn't see a lot of pluses for the US economy. "Leamer sees no clear stimuli on the horizon in 2005, ruling out both tax cuts (which have already occurred) and monetary stimulus (which has also occurred through low interest rates). An increase in government spending is doubtful (unless it is wartime spending), leaving only exports as a possible ray of hope."

"Leamer concludes with the assertion that a recession is in the future; he just doesn’t know when yet. He doesn’t see it in 2005, but believes it could happen in 2006."

Monday, March 14, 2005


Top Microsoft Execs Selling

Lots of corporate insiders have been selling their interests recently and the honchos at Microsoft are included. But special attention should be paid to Bill Gates who unloaded millions of shares in February for a cool $1 billion plus.

This activity even has Jim Cramer worried, "The insider selling in Toll Brothers makes it scary to bottom-fish in the stock...Toll is now in the position that some of the tech stocks were in 2000, when execs reiterated and sold all the way down. Toll's not to be owned here, because there's something bigger going on, and we won't know what until too late."

Friday, March 11, 2005


Moodys: Defaults Increase, Possible Turning Point

The credit rating firm Moodys announced a higher junk bond default rate in the US. "Thus far in 2005, nine issuers have defaulted on a total of $2.1 billion of bonds, with all but three defaulters based in the U.S.. Among U.S. issuers, the speculative-grade default rate rose to 3.0% in February from 2.8% in January."

"The global speculative-grade default rate edged up to 2.5% in February from 2.3% in January, possibly signaling a turning point in the direction..For several months now, Moody's has been predicting that default rates would reach a cyclical low near the second quarter of this year."


China, Japan Step Away From Dollar

The web site is quoting a Lehman Brothers report on the Chinese governments apparent shift away from the US dollar due to weakness in the greenback. And Timesonline has a statement from the Japanese Prime Minister Junichiro Koizumi, "“I believe diversification is necessary.”

"Even as the reserves grew, the share of dollar assets held by China's central bank fell to 76 percent, down from 82 percent in 2003, Lehman Brothers said. The bank "is slowly diversifying its FX (foreign-exchange) reserves away from U.S. dollars."

Thursday, March 10, 2005


USD/JPY In Contracting Triangle

A feature article at EWI has a nice chart of the US dollar versus the Japanese yen. It is their opinion that the 103.83 level, which was breached today, is bad news for the dollar.

The dollar does seem to have broken down with few defenders, even within the federal government. The publics complacency about a dollar collapse is interesting and I expect that will change if we get below 100 yen. It wasn't that long ago that the exchange was 120 yen to the dollar and 140 Swiss francs to the dollar, which slipped again today to under 116 francs.


Dollar Weakness Examined

The Mises Institute website published an editorial by economist Antony P. Mueller that has been all over the internet. The most interesting point Mr. Mueller makes is that key elements of the economy are politically priced.

"One must not forget that three of the most essential prices in the modern monetary economy are politically determined or manipulated prices: the oil price, interest rates, and the exchange rates." As followers of Austrian economics are aware, artificial structures eventually give way to market forces. "Taking away the interventions, the price that the U.S. pays for imported oil, and the price for money and credit should already be much higher than they currently are."

Mr. Mueller seems to conclude the result will be deflationary,"stocks, bonds, and real estate...all must come down when the fall of the dollar continues."

Wednesday, March 09, 2005


Dollar Under Pressure Despite Yield Gains

The US dollar fell broadly today, even as the 10 year bond yield jumped well above the 200 day moving average. The return hit 4.51% to end very near the highs for the session.

The greenback dropped under 104 Yen and 116 Swiss Francs. The Euro continued a multi-week climb and spot gold stayed above $440. All major US markets finished lower. Equity traders appear nervous as weakness in the housing sector is evident. All eyes will be on the bond market tomorrow.

Tuesday, March 08, 2005


EWI: Platinum Reversal Soon

Elliott Wave Internationals' Jeffery Kennedy made a call for a big move in Platinum. As usual the subscription service isn't saying which direction, but I'll let the charts and Jeffery fill you in.

"The stage is set for a significant trend change in platinum prices. The market has consistently traded at or near 20-year extremes throughout the past year, and the wave patterns at several degrees of trend suggest the same thing: reversal, dead ahead."

"If you check out the forecast, you'll see that the daily chart of platinum illustrates a very nice "contracting triangle" pattern." Check here and scroll down to the 6 month chart and you can see the triangle Mr. Kennedy points out.

Monday, March 07, 2005


Asian Banks Trim Dollar Ratios In Reserve

The Financial Times is reporting that Asian commercial and central banks have reduced the percentage of US dollars within their reserves. "(According to) BIS data"..the banks "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."

Saturday, March 05, 2005


Berkshire Hathaway: $20 Billion Short Vs. US$

The company that is the vessel of billionaire Warren Buffett has a serious short position on the US dollar, reports. "Mr Buffett’s bet against the dollar also grew. Foreign exchange contracts – mostly short positions against the US dollar – nearly doubled over the year to $21.4bn, generating $1.8bn in gains as the greenback fell against other major currencies."

Berkshire's majority shareholder has an ominous warning for the US. "A country that is now aspiring to an “Ownership Society” will not find happiness in “Sharecropper’s Society..But that’s precisely where our trade policies, supported by Republicans and Democrats alike, are taking us."


Dollar Hits A Fireplug

The folks over at Elliott Wave International have got to be feeling pretty good today. Weeks ago they predicted the Dow would better its December high, and Friday it did so.

The US dollar wasn't so fortunate. Versus the Japanese currency it saw a drop of a full Yen before getting a little back by the end of the day. That move erased several days of advance by the greenback. The Swiss Franc, reflecting its gold bias, performed similar to the Yen without giving any back.

Gold took off from the open of trading in New York, up more than 5 bucks before settling down at $433.60 on the spot market. Silver ran up 15 cents.

The Volatility Index continues to be, well, volatile. Friday it lost 7.66% and closed at its low for the day. It appears traders can't make up their mind on the index, so we can expect more of the same.

Thursday, March 03, 2005


US Stocks Tremble; Dollar Strong; VIX Again

The US stock market is still range bound as oil pushes higher and the dollar picked up 2 Swiss Francs so far this week. The Volatility Index continued its charge ahead with a 3.4% move up. All eyes will be on the jobs report on Friday.

Wednesday, March 02, 2005


Volatility Won't Go Away

The VIX index was whip-sawed again today, closing up 3.8%, but it spiked much higher intraday. Check out this five day chart. As I understand it, this index represents the extent to which traders are shorting the S&P 500 and it has been very tame since May 2003.


Hedge Fund Closes, Investors Devastated

If you have followed Elliott Wave International, you know how the hedge fund industry has raked in billions of dollars of deposits in recent years. The high risk strategies the firms follow are cited as an example of public complacency regarding risk. Lets see how people react when it all goes wrong.

From the Palm Beach Post,"KL Financial, a hedge fund manager that catered to wealthy investors and held as much as $300 million of clients' money unexpectedly closed..My life savings are essentially gone," said one KL Financial client who asked not to be identified".

"There's little paper trail on the company, mainly because as a hedge fund it falls outside the purview of state and federal securities regulators.."They were clearly margined to the hilt".."I don't know a lot," said a somber Kochman, whose legal office is also in the Esperante building. "Most important, my thoughts are with the numerous innocent victims. I've lost all the money I have in the world."

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