Dollar Sinks, Bonds Soar

THE GREENBACK DOWN 9.6% FOR THE YEAR; THE 10-YEAR AT 4.55%

The dollar sank 2% this week to $1.3097/€ and ¥115.81/$. The greenback is down 9.6% against the euro for the year. Fears of inflation import drove U.S. Treasuries up; the 10-year yields 4.554%. The dollar jitters spooked stock investors worldwide; the Nikkei had the largest drop of 1.1%. Several factors are at play. Economic anemia in the U.S. lowers profits for multinationals. A Fed easing is increasingly likely as consumer and residential spending slow, especially if business investment slows too. The ECB on the other hand is likely to raise rates on economic strength and inflation fears in Europe. There is growing fear that central banks will start diversifying out of the dollar. China dropped such hints on Friday. China has allowed the yuan to drift up to near parity with HKD, but Japan and China still intervene massively. The dollar may rebound short-term, but the long-term outlook is grim. A European vacation in 2007 will cost a bundle. Those that exhorted China to stop intervening will beg it to maintain the peg to keep the prices at Wal-Mart low …Currencies and oil dominated trading on HedgeStreet last week, as oil spiked up above the $60 mark, to settle at $59.24. Hurricane 2006 season contracts stop trading this week pending settlement.
ECONOMIC RELEASES THIS WEEK Tuesday’s Expectations: Durable orders at -5.0%, as Boeing takes a breather, trend near +10% annual. Consumer confidence at 106.0, volatile lately. Existing home sales flat at 6.2m.
Wednesday’s Expectations: Q3 GDP at 1.8%, deflator at 1.8%; spending, durables and business investment provide a boost, residential investment a drag. New home sales down to 1.04m. Crude inventories released.
Thursday’s Expectations: Personal income +0.5%, spending +0.1%; as income growth outstrips spending, saving will be positive. Core PCE, still high, but expected to moderate to 2.3% year-on-year. Chicago PMI at 54.5 as manufacturing slows.
Friday’s Expectations: Auto sales 5.2m, trucks 7.3m, imports continue to gain market share, 23% in Oct. Construction spending -0.2%, vastly different trends in the three components: business and public is surging, residential is plummeting.

RUSSIA DYINGEx-spy Litvinenko died in London, poisoned by thallium and radioactive polonium-210. Russia is turning fast into an oil and gas-financed military autocracy that will stop at nothing. The civil society and fine arts are dead.

WAL-MART’S TROUBLE…TOMKAT IN MALDIVES…KRAMER “APOLOGIZES”Wal-Mart’s same-store sales may have dipped in November, the first time since 1996. Solution: A. Wider aisles, most shoppers too fat to fit in them, and B. Raise prices?…TomKat sailed through the Maldives on their honeymoon, stopping at none of the 1100 islands. The locals were disappointed, they wanted to show Tom their voodoo gear…Michael Richards (Kramer) used the word “nigger” five times during his two-minute racist rant, then apologized on Letterman to all “Afro Americans”.

Life is Good on Thanksgiving 2006

CHEAP OIL, LOW YIELDS PROPEL STOCKS TO NEW HIGHS
MY WIFE IS NOT GETTING A VICTORIA’S SECRET BRA

The Dow gained 234 points last week to close at 12342.56. The S&P500 closed above 1400 for the first time in 6 years. Investors are betting on a soft landing for the economy. Inflationary pressures appear to be easing. Oil dropped 6.34% to $55.81. The dollar traded sideways closing at $1.2826/€ and ¥117.76/$. Housing starts plummeted 14.6% in October alone, which means the real estate adjustment will be drastic, but perhaps quick. The only question is how much of the stock run-up is due to low bond yields. The 10-year Treasury is at 4.609% which puts the real rate at about 1%. Not much if you are trying to save. On HedgeStreet, crude oil dominated the volume last week, followed by the euro.
ECONOMIC RELEASES THIS WEEK Monday’s Expectations: Leading indicators at 0.2%, 5 declines and 5 gains this year, underscoring the economy at crossroads.
Wednesday’s Expectations: Claims at 310K, crude/gas inventories, and Michigan sentiment revision.

MILTON FRIEDMAN DIED

The champion of free markets, capitalism, voluntary army, school vouchers and low taxes died at 94. He believed that a socialist government cannot be truly democratic as it interferes in the lives of individuals. As an anti-Keynesian monetarist, he believed the Fed’s only job was to tackle inflation. We owe so many great ideas to one man.

NYMEX DEBUT…OIL NOT NEEDED…A $6.5 MILLION BRA…TOM-KAT & OPRAH

Shares of NYMEX doubled on the day of the IPO. The exchange’s trading floor is ridiculously obsolete, but the volume of non-equity futures and options is growing at a compound rate of 28%. Better lucky than smart…A WSJ headline read: “Oil falls to 17-month low, hurt…by warm temperatures”. Get it? Global warming = energy independence…Victoria’s Secret is offering a $6.5 million diamond-studded bra for Christmas. But if I buy it for my wife, she is not going to want to take if off. What’s the point?…Tom-Kat did not invite Oprah to their wedding in Italy. They did not invite Dr. Phil either, and God knows they need him.

Trouble Ahead: Slow Economy, Weak Dollar

REPUBLICANS LOSE, NEED GINGRICH BACK

The 10-year Treasury yield dropped 13bp to 4.59% last week. The dollar sank to $1.2847/€. The prospect of a slow U.S. economy, and stronger growth abroad, will put the pressure on the Fed not to raise rates, while the ECB is widely expected to do
so before the year ends. The dollar is likely to sink more. Oil and gold traded sideways last week, oil finished at $59.59, gold finished at $628.40. Copper sold off sharply. Stocks rallied in the U.S. and elsewhere.
On HedgeStreet, most action was in currencies, as the dollar steadily lost ground throughout the week. This week, the CPI binaries stop trading on Wednesday, the real estate contracts end on Thursday, to be settled off the NAR release on Monday, Nov 20th.
The people have spoken. Out go the tax-and-spend can’t-win-a-war Republicans. In come the tax-and-spend can’t-win-a-war Democrats. The Clinton-Gingrich years now seem like nirvana.

ECONOMIC RELEASES THIS WEEK

Tuesday’s Expectations: Retail sales -0.3%, ex-auto -0.1%, all categories weak except non-auto durables. PPI at -0.5%, core +0.1%, on declining energy prices, and moderating core. Inventories at 0.5%, but inventory-to-sales ratio still on the decline.
Wednesday’s Expectations: Crude/gas inventories and FOMC minutes.
Thursday’s Expectations: CPI expected at -0.3%, core +0.2%, leaving a low 1.7% year-on-year overall, but a high of 2.9% year-on-year core growth. Industrial production at 0.2%, capacity at 82.0%. Strong production thus far is slowing.
Friday’s Expectations: Housing starts at 1.690m, building permits at 1.625m. The trend is clearly down at -18%/-24% year-on-year; large declines expected in the South.

GATES FOR RUMSFELD…WAL-MART THE LOSER…MICROSOFT COPIES AGAIN

Bush nominated Gates to Defense, but he messed up again.
He got the wrong Gates…Donald Rumsfeld and Kevin Federline were in a bar drinking on Wednesday…With Hillary in charge, good bye everyday low prices at Wal-Mart…The big difference. Democrats: I did not have sex with that woman. Republicans: I did not have sex with that man…This week, Microsoft introduces Zune, a 30GB mp3 player, and 99 music downloads. Copying Apple in 1984 worked, but this time the guys at Apple are onto you. iPods rule.