Wednesday, February 14, 2007

The Thursday Curtain Raiser

It's Ben Bernanke Part Deux on Thursday, this time before the House Financial Services Committee. Ben will repeat his prepared text that he delivered to the Senate Committee Wednesday and then field those ever thought provoking questions from the lawmakers. Oh how I wish one of them would spend the weekend-before watching re-runs of Columbo to learn that "just one more thing" technique. Just when Ben thinks he's fooled another one, the hammer comes down from the lawmaker, "umm, Dr. Bernanke, just one more thing..."
Today our Fed chief talked of waning inflationary pressure and moderate economic growth - a wet St. Valentine's day kiss to Goldilocks and her economy. The stock market loved it, bond market loved it, dollar hated it.
Let's talk about the stock market first. The Dow wasn't able to hold to a triple digit gain for a 2nd day (not that there's a natural law that says it has to). I found that interesting given the strong NYSE ticks, a bunch above 1300 and one even above 1400. Despite so many stocks being bid up at the same time, it seemed as if that buying was still subsequently met with enough selling to keep the blue chips off the highs. The Naz was stronger with a gain of more than one percent as names like Applied Materials and Qualcomm became the leaders for a day, leaving the old leaders like Apple and Microsoft in the dust.
Zen Trader's indicators are telling him the stock market may be poised for a big lift higher. While the blogger behind, always an interesting read is throwing out a noteworthy caution.
There will be some IPO excitement Thursday. High speed telecom equipment company Opnext (OPXT) priced 16.9 mln shares at the top of the range at $15/shr. The managers for this one were Goldman, JP Morgan and CIBC. Barron's wrote about it over the weekend saying it would be a "hot" IPO.
Flat retail sales and falling bond yield conspired to send the dollar lower again. The Euro has shot back up to the upper end of the recent trading range - tonight March EuroFx up 9 points at 1.3152. Japanese Yen has been green on the screen for the past couple of day. March Yen futures are up another 44 points on a big jump in Japanese GDP. Will there soon be a rate hike in Japan? What will that do to the ubiquitous carry trade activity the funds and institutions that have been doing those trades with near reckless abandon? Let's hope the world doesn't find out the hard way.

10 year treasury yield holds at 4.74%
Gold at $673, silver at $14 - If the dollar index (in this chart I posted last night) breaks below 84, it will be a sure fire catalyst to run gold above minor resistance at $682, then to $690 and back to $700.
My nat gas short continues to simmer. The EIA on Thursday is likely to report a draw of 250 Bcf of nat gas from underground storage. We could be talking a record withrawal, but even with that supplies would still be more than 15% above 5 year averages. By this time next week temps are forecast to rebound back to the 40's in NYC! If we go well above 260 bcf tomorrow I will either hit the liquidate button, or the reverse button. We'll see how it plays out.
Crude oil little changed at just above $58, tomorrow is the last day to trade the March contract. A Sanford Bernstein analyst is making a bold prediction that crude could fall to as low as low as $30 a barrel with the slide getting underway as early as March if OPEC doesn't cut production enough. That would be a shorting opportunity of a lifetime! It would also change many investment ideas as well for a variety of markets - really turn the financial markets upside down. Just off the top of my head, that kind of a slide would crash oil company stocks but put a lot of discretionary dollars back in the pockets of consumers and save companies tons of energy consumption dollars. A rout in energy commodities would no doubt have a big impact on other commodties as well and surely if consumers can spend more it would probably reignite inflationary headaches for Gentle Ben Bernanke. And $30 oil would have interesting geopolitical implications for a variety of countries which rely on receipts from oil sales. It would be a fascinating situation if it happened.


Lauriston said...

I bet you we are going to see the Iran/US tiff re-ignited many times in the coming days. Someone somewhere (on which side?) is trying really hard to keep crude prices up using this political avenue...

Jim K said...

I think Amadinejad and Bush would both be unhappy with $30 crude. The Sanford analyst used the Contango argument but the contango has been long and around for quite some time, so i don't know if his scenario will come to pass. We almost had a little backwardation last month as i recall, but its all returning to the way it was once again. Bush's SPR strategy was to force the commercials down the road to bid on dwindling storage to lengthen the contango. Just seems like, at least in my lifetime, energy has only ever been going up - and that was long before the hedge funds flooded the scene.