Oil Rise Will Temper Growth

OIL AND GOLD UP AGAIN

Oil prices shot up 2.95% last week to reach $61.14. Gold added 2.14% to reach $683.10. That sent U.S. stocks down; the Dow lost 120 to close at 12,647. However, markets overseas were up. The Nikkei reached a seven-year high at 18,188; the FTSE closed at 6401. The markets in China and Taiwan were closed for the Lunar Year. The dollar slid to $1.3166/€ against the euro and rose to ¥121.09/$, despite the move by the BofJ to raise the rates. Continued suprime troubles and Iran worries drove the Treasurys up slightly; the 10-year yielded 4.678%. The rise in oil prices, if it is sustained, may shave the healthy GDP gains this year, and lets hope that the rise in gold does not augur resurgent inflation pressures. We may end up with slower growth, but more inflation, despite recent rosy Fed pronouncements. On HedgeStreet, oil and gold dominated the volume; silver and the euro were active too. New real estate contracts were introduced.

ECONOMIC RELEASES THIS WEEK:
Tuesday: Durable orders -2%, consumer confidence 109, existing home sales 6.24m.
Wednesday: Q4 GDP 2.4%, deflator 1.5%. New home sales 1.09m. Crude inventories published, prior 3.694m.
Thursday: Income 0.3%, spending 0.4%. Initial claims at 325K. Construction spending -0.4%. Auto sales 5.1m, trucks 7.3m, total down 0.3m. ISM index at 50.0.

OSCARS

Who cares… The 30th annual National Wild Turkey Convention at the Gaylord Opryland Resort in Nashville drew 5,000 visitors. Diamond Rio entertained at the award banquet. Comedian T. Bubba Bechtol and champion caller Preston Pittman attended. A live auction of guns and jewelry was held.

BERNANKE COOLS TEMPERS, AND THE DOLLAR

DOLLAR OFF ON LOWER RATES; GOLD UP

Bernanke comments on strong economy and abating inflation offered a prospect of lower rates, perhaps even this year. Additionally, the market expects the Bank of Japan and the ECB to raise rates. The dollar sold off 1.1% against the euro to $1.3138/€ and 1.9% against the yen closing the week at ¥119.43/$. This was the largest weekly yen gain since last May. The 10-year Treasury rose to yield 4.69%. Stocks were up; the Dow closed up 186 at 12767. Crude traded sideways closing at $59.39. Gold added another $5 to close at 672.80. The biggest surprise of the week was the housing starts number 1.408m which was even lower than the low consensus of 1.590m. During the Senate hearings, Bernanke was quizzed by Barney Frank (D-MA) why inflation was his primary focus not growth. Perhaps Mr. Frank should go back to college to take some econ classes to understand that the Fed sets the monetary policy, and he and the rest of the Congress set the fiscal policy. On HedgeStreet, oil, gold and the euro dominated the volume. This week, the exchange is relisting its real estate contracts, adding three more cities to the menu – Las Vegas, Denver and Washington, D.C., bringing the total to ten. The contracts on the median home prices in the ten metro areas will expire quarterly and semi-annually on the May 15 – Aug 15 schedule. The contracts are settled off the National Association of Realtors releases.

ECONOMIC RELEASES THIS WEEK:
Wednesday: CPI +0.1%, core 0.2%; the trend is very encouraging at 2.1% year-on-year overall and 2.6% for the core. Crude inventories and Fed minutes published.
Thursday: Initial claims at 320K.

CARNIVAL IN RIO … THE YEAR OF THE PIG … GM MAY BUY CHRYSLER

Skimpy bras and G-strings rule in Rio this week. But Brazilians can’t understand why Americans view the Carnival as a big porn fest instead of a “collective experience of an aesthetic appreciation of the human body”. Translation: communal sex party … Las Vegas is hoping to earn close to $100m from Asians playing baccarat and 155m people are traveling home in China this week to spend the Lunar New Year with their families. And that just to one city … GM is eyeing a future purchase of Chrysler from DaimlerChrysler after the division goes through the wrenching layoffs. So they can lose billions more than they are already losing.

DON’T SWEAT THE REBOUND IN OIL

FIRST HEDGE FUND IPO SKYROCKETS; G-7 ABANDONS YEN TALK

G-7 summitteers dropped the cheap yen from the agenda. And the market interpreted two Fed governors’ comments on the strong U.S. economy as signaling a likely upward bias. As a result, the dollar gained against the yen closing the week at ¥121.68/$ and pared euro’s earlier gains to $1.3006/€. Germany called for Russia’s full membership in G-7. The Germans are held hostage by Russian energy dependence; even the laggard Poles and Czechs are smarter to read the big bear’s real motives. Stocks retreated with the Dow closing at 12581. Crude prices rebounded by close to $10 over the last few weeks, flirting with $61 last week to close at $59.89. Yet with 3.5% Q4 GDP, consumer confidence at 110.3, unabated spending (+0.7% in Dec) and Q4 productivity at +3.0%, it is hard to see how even the housing bust and sputtering Detroit can spoil the party. The Fed governors’ comments only underscore the fact that the risk is more on the upside, and the growth could reignite inflationary pressures. Another 25 bp in short term rates would be a small price to pay for above-3% real growth. We should be so lucky. Meanwhile the smart are cashing in. Fortress Investment’s shares spiked 68% following the first IPO of a hedge fund in the U.S., making the owners supremely rich. Citadel plans to follow suit. The good news is: the private equity offerings are finally coming to the U.S. rather than London; the bad news is: small investors  have no business buying into risk they don’t understand. On HedgeStreet, gold was big last week; its volume topped oil and currencies on four out of five days. Gold rose $21.30 to $667.50 as its steady ascent continues.

ECONOMIC RELEASES THIS WEEK:
Monday: Treasury budget +$40.0bn, double the Jan’06 figure. The receipts are running at +11% year-on-year, and the trailing 12-month total is just -$190bn. Now that free-spending Republicans have been booted out, Bush may balance his budget before he leaves office!
Tuesday: Trade deficit at $59.5bn, 7% below last year’s level, and with export growth at 11% outstripping import growth at 5%.
Wednesday: Retail sales at+0.3%, ex-auto +0.3%, underscoring a slowing trend. Business inventories flat. Crude inventories released.
Thursday: Export/import prices. Initial claims at 310K. Industrial production +0.0%, capacity utilization 81.7%. Philly Fed low but positive 5.0.
Friday: Housing starts 1.600m, building permits 1.580m, largest declines in the Northeast and West. Definite signs of stability building since hitting the Oct low: Nov and Dec slightly up, and Jan slightly down.  PPI -0.6%, core 0.2%. The decline is due to a sharp drop in energy prices. The core is at a modest 2.0% year-on-year with only a partial feed-through to CPI. Michigan sentiment 97.0.

NY vs. NY IN 2008… HEIL ZETSCHE   … FOX BUSINESS CHANNEL … OH CANADA

Rudy vs. Hillary: In the left corner, a former prosecutor-turned mayor with three wives under his belt, a liberal, and the man who cleaned out New York. In the right corner, a former lawyer-turned senator with one womanizing husband under her belt, a liberal, and a woman who cleaned out in New York … Zetsche is to announce a “turnaround” plan for Chrysler which will involve layoffs and tying Chrysler closer to Mercedes operations (has he been to Detroit?). A better plan would be to close Chrysler (auf Wiedersehen) and sell Mercedes cars to us for Chrysler prices (danke schön) … Murdoch announced the launch of Fox Business Channel headed by Neal Cavuto to start in Q4. He offered straight business-friendly talk in contrast to the sensationalist CNBC. Let’s face it: Maria is cute but doesn’t know a thing about business. My prediction: just like CNN was dethroned in one year by Fox News, CNBC will be too. Even liberals need honest news when their money is involved … I was looking at maps with my kids this weekend. Did you know that there is a country called Canada to the north of us???