Monday, November 27, 2006

11/27/06 Morning Market Comment

Front and center this morning is the dollar. After a slide that caught most everyone off guard during what was supposed to be a quiet holiday trading week last week, the greenback regained only a little lost ground overnight, but the Euro remains above $1.31.

The biggest problem for the buck is expectations the housing bust on this side of the Atlantic will slow the U.S. economy enough to force Helicopter-Ben and the gang at the Fed to cut interest rates early next year, while the ECB lifts rates further to cool Euroland economic growth. That would tilt money flows more in the direction of European assets. Last weeks comments by a VP, ok really THE VP at the People Bank of China, are also a burgeoning and negative reality. Remember, no Central Bank is going to admit to ‘selling’ dollars. They merely have to wink, insinuate, or just blurt out their desire to load up on less U.S. treasuries through ‘diversification’ – and voila, that’s enough to pressure the greenback. With our current account deficit what it is, overseas investors like the Peoples Bank are needed to buy as much U.S. paper as possible to fund the American debt fixation.

The dip in the dollar gave gold a boost overnight, but the metal has since moved back to about unchanged to a bit lower as traders await further dollar cues. The $640 area remains a major area of resistance. We continue to hold the December gold contract.

A plethora of economic data this week will play a big role to either enhance bearish dollar sentiment through weak data, or providing fuel for a relief rally on stronger data. A barrage of numbers are on the way: durable goods (+5%), consumer confidence (106.4), October existing home sales (6.2 mln), revised GDP (1.8%), jobless claims (315k), consumer spending (.1%), Chicago PMI (55), construction spending (unch), and November ISM (52.2).

Stock futures are soft as energy prices move higher. There's speculation that the OPECers will resort to another production cut to keep the price of crude supported. Colder weather is forecast in the northern tier of states by the end of the week. Our trade in natural gas is doing quite nicely this morning. Wal Mart with its forecast over the weekend of a slight decline in same store sales this month is also a negative on sentiment this morning. Wal Mart is down about 1% and a host of others are also trading lower. We were up in Bennington, VT over the weekend and paid a visit to a WMT store on Friday evening, and it was quiet with plenty of 32" and 42" HDTVs sitting at the front of the store.

GOOG is down another $4 in pre-market and we won't be surprised if we get stopped out this morning, but through other options and futures trades, the speculative/trading portfolio is up 54% over the past week, so we'll take the loss in GOOG and move on IF that's what happens this morning. A disciplined approach with respect to trading anything is essential but especially with leveraged assets likes options and futures. This means a stop loss level must be determined at the time of trade and the loss taken if the stop is hit.

GM shares are up 2-cents, but the longer term trend doesn't look good. The Journal devotes ink ink this morning to the travails of the auto industry with no end in sight thanks in part to the housing bust.

The Heard on the Street column (by subscription) of the Wall Street Journal takes aim at makers of drug coated stents: Johnson & Johnson (JNJ), Boston Scientific (BSX) and Abbott Laboratories (ABT). The column says the FDA will be holding safety hearings next month, something that is spooking investors as the hearings get closer. The stents have been increasingly blamed for causing heart attacks due to heightened risk of blood clots.

No comments: