Morning Call

0 CommentsTuesday • February 9, 2010 • by alwaters

“Well begun is half done.”

Aristotle

Morning Call
February 9, 2010

Gold Update

Essentially, the Dollar lost momentum after the currency markets readjusted to concerns in Europe and gold is on the rise once again. In early trading, gold jumped higher by about $15 to $1076 and is likely to level off somewhat at this level. The U.S. Dollar Index fell by as much as 0.4% on speculation that the European Union will agree to help Greece tackle its budget deficit. The Dollar had climbed for a third week last week as concern over the Greek deficit weighed on the Euro. China’s sovereign wealth fund took a $155.6 Million stake in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion.

Hot Stocks

We will expect strong movement in our mining positions as gold takes center stage today. Even beyond the emotional buying as investors seek a way to participate in the rise in spot prices, several of the miners have positioned themselves for a strong year and Q2 results should lead share prices considerably higher for some. For some time now we have liked Jaguar Mining (JAG) Eldorado Gold (EGO) and Newmont Mining (NEM).

Public Finance Update

The Obama administration hopes to extend the BABs program while, at the same time, making the program more revenue neutral. Municipalities have reportedly sold more than $70 Billion in taxable Build America Bonds, thus far, and forecasts are for another $130 Billion to $150 Billion in issuance this year. The administration, however, is looking to lower the current federal subsidy from 35% possible to 21%.

According to a press release yesterday, New York Governor David Paterson is looking to increase taxation on New York City businesses in order to support the Metropolitan Transportation Authority.

In California, lawmakers are under fire after an LA Times article pointed out that, even as the state grappled with its budget crisis last year, the state spent nearly $45 million on new vehicles, almost $30 million on new furniture and more than $2 million on off-site meetings and conferences. Departments under scrutiny include Caltrans, the Department of Motor Vehicles, and the California Air Resources Board.

Market Outlook

The Dow gave up the 10,000 mark yesterday with consumer stocks and energy leading the way down. This, of course, is a good indication of investor sentiment toward the global economy and concerns with growing national debts. This morning futures are somewhat higher as the result of some speculation that Greece will receive help from the European Union to tackle its budget deficit. As Portugal struggles to cut its deficit, word is that the European nation has hired bankers to help issue 10-year notes in Euros. Portugal has promised to reduce its budget deficit by more than half in three years in order to meet European Union limits. Portugal’s public debt will rise to 91% of its GDP by 2011, up from 77% last year, according to European Commission forecasts.

Stocks in Asia leveled off from their losses of the prior session. The Nikkei fell just below even after paring its earlier losses and the Hang Seng managed to finish higher by a little more than 1%. In Europe this morning, after a volatile start to the trading day, stocks have turned slightly positive. Greek banks led the gains in European shares as the National Bank of Greece jumped 6.3% in Athens and most other banks moved several points higher. The financial sector in Asia had only managed modest gains overnight. UBS reported its first profit in more than a year but also said that withdrawals by wealthy clients continued to accelerate.

Despite some weakness on the Dollar, commodities are very strong this morning. Oil has gained nearly 1% to trade in the mid-$72 range. Gold has certainly benefitted from downward pressure on the Dollar; gaining $15 this morning to $1076. The Dollar is holding up against the Yen, but has pulled back considerably on the Pound and Euro.

On the economic calendar today we will have Wholesale Inventory data, some Retail Sales figures, the Economic Optimism Index, and the job Vacancies report. For earnings news, we turn to Acadia Realty Trust, Agrium, Aramark, Aspen Technology, Baidu, Biogen Idec, Coventry Healthcare, Molson Coors, Pulte Homes, Coca Cola, Walt Disney, and several others.

We have gone from applying to “too big to fail” doctrine to financial institutions and insurers, to sovereign nations. As national debt grows exponentially in many developed countries, concern over defaults has grown and the effects on the underlying currencies have also been troublesome. In the currency markets, traders have bet nearly $8 Billion against the Euro in the largest ever short position of the currency. Concerned about a Eurozone debt crisis, traders have built up more than 40,000 contracts against the Euro. The Dollar and Yen have fluctuated considerably as investors ponder what amounts to the lesser of evils between Asia, Europe, and the US. Without a doubt, budget cuts around the globe will have a lasting effect on the level of services that the western world has grown accustomed to.

Posted in: Morning Call: Daily Analysis of the Global Markets and Economy

Tagged with: bonds, economy, gold, oil, public finance, stocks