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???

SUPER BOWL PREDICTS A BULL YEAR FOR 2007

NFC WIN PLUS UP JANUARY BODE WELL FOR STOCKS

Since both Super Bowl teams this year were original NFC teams, it is all but assured that 2007 would be a good year for stocks. The Super Bowl oracle – NFC team wins, stocks go up; AFC team wins, stocks go down for the year - has been accurate 32 out of 40 times, or 80% of the time. With the Dow 1.3% up in January (62% time: January up, the rest of the year up), shorter hem lines on women’s skirts (consumer confidence), and the third year of the second presidential term (100% up since FDR), only the devil, a voodoo doll or Gore winning the Nobel Peace Prize could ruin the party. Look at last week. The ISM index at 49.3 and non-farm payrolls at 111K came below expectations, and oil price shot up 6.5% to $59.02. The 10-year Treasury and the dollar sold off (to ¥121.04/$ and $1.2967/€). Despite that the Dow gained 166 to close at 12,653.49 and the Nasdaq and the S&P 500 gained more. Stocks in Europe and Japan rose. Punxsutawney Phil did not see his shadow predicting a short winter. That is bound to help ease oil and gas prices. The obvious conclusion: buy stocks, sell oil … More oil in the news: the Saudis supported a production cut, Exxon made $39.5 bn, and Total’s CEO unabashedly said he would seek deals in Iran and Iraq. On HedgeStreet, oil captured more than 50% of the volume on Monday and Tuesday; currencies, gold and silver dominated on other days. All five currencies started the four-expiries-per-day cycle. Last week, the FDIC extended the moratorium on industrial banks dealing a blow to Wal-Mart’s hopes for a bank. This week, Yahoo starts copying Google’s pay-per-click and Nike may announce mall stores.

ECONOMIC RELEASES THIS WEEK:
Monday: ISM Sevices flat at 56.5.
Wednesday: Q4 Productivity 1.6%. Crude inventories and consumer credit.
Thursday: Initial claims at 310K. Inventories down to 0.6%.

$155M HOUSE … MISS LOSER USA … EXXON VS SYRIA … VIVE LA FRANCE

An under-construction house in Wyoming was listed at $155 million. It has its own ski lift and helipad. There are ten potential buyers. Wealth is not concentrated after all … Miss USA Tara Conner revealed cocaine use (illegal), and underage drinking and driving (illegal). The Donald gave her a second chance. Back in the 1990s, Vanessa Williams posed nude (legal) and was stripped of the crown. You still want to be the Donald’s apprentice? … Exxon made $39.5 bn profit in one year. By comparison, the annual GDP (=revenue) of some countries in $bn is: Libya $38.7, Sudan $27.5 Syria $27.3, Serbia $24.0, and 100 countries even lower than that. How come on the news, I hear about these losers, and I don’t hear anything about one of our great winners? … French health minister is considering rules to force employers to allow napping on the job. If you add that to coffee, sex, smoking and listening to Céline Dion, the French work about 5.2 hours a week and get 7 weeks of vacation. Americans work 33.9 hours and get two weeks. C’est malade, but at least we don’t have to live with the French.