Morning Call

0 CommentsMonday • February 22, 2010 • by alwaters

Ta panta rhei kai ouden menei. to say something”
“Everything flows, nothing stands still.”

Heraclitus Plato

Morning Call
February 22, 2010

Gold Update

Gold made a run above $1130 in the early hours this morning as fears eased somewhat about an imminent rate hike from the Federal Reserve. Since then, however, prices have pulled back and stabilized above $1120. We have seen a slow and steady wave of ups and downs for gold and prices may remain in this tight range for a while. There remains, however, some strong downside potential. Should gold lose the $1075 mark during its fluctuations, we would be extremely careful to protect profits.

Hot Stocks

We found a little known technology stock that has been quietly on the move. Telestone Technologies Corporation (TSTC) is a wireless communications coverage solutions provider. The Company’s wireless coverage solutions include research and development and application of wireless communications technology. This is a China based company, traded on the NASDAQ, which has taken an aggressive growth posture.

Public Finance Update

The primary market is expected to see nearly $7 Billion in new issues and market participants say investor appetite will depend on the pricing and structure of the deals. The municipal market is expected to be unfazed by the Federal Reserve’s discount rate increase last week. New York State alone will appear this week with $448 Million of tax-exempt GOs, traditional taxable debt, and BABs for transportation, environmental, and aviation projects.

In the budget proposal President Obama released last month, measures were reportedly included to significantly increase taxes paid by managers of private-equity firms and other investment partnerships. The proposal would more than double the tax rate on income known as “carried interest” or “carry.” The measure, however, has lost momentum in the Senate. A similar measure was passed by the House in December.

The Internal Revenue Service says it plans to audit some Build America Bond issues to make sure they meet the tax requirement on issue price. All issuers of BABs will reportedly receive a questionnaire regarding secondary market trading and seeking information regarding “flipping,” which occurs when dealers or institutional investors purchase bonds and then immediately resell them to retail investors at a higher price.

Market Outlook

Stocks ended the week flat on Friday. Futures this morning have stayed just slightly in the green each bit of economic news has been mixed at best. Interestingly enough, emerging market stocks and high yielding currencies have benefitted from speculation the Federal Reserve Chairman Ben Bernanke will tell Congress on Wednesday that interest rates will remain at record lows for a sustained period. Apparently, last week’s slight hike in the discount rate for banks had some thinking otherwise. In pre-market trading this morning, US banks are moving slightly higher.

Stocks in Europe are very mixed this morning. Even among the banks, several of the big names have risen by 2-3%, while others have moved lower. Traders are betting that the Euro’s decline will continue regardless of EU support for Greece. The Euro is already at a nine month low. Most believe that fiscal tightening in Greece, Spain, and Portugal will push those economies further into recession and handcuff European central bankers with respect to interest rates.

The indexes in Asia finished the day with average gains of well over 2%. Financial, industrial, and technology stocks all enjoyed strong positive movement. The Fed’s increase Thursday in the discount rate was initially viewed by overseas investors as a potential catalyst to a slowing of the recovery in the U.S. But a favorable report Friday on the Consumer Price Index — the core rate, which strips out food and energy costs, showed a decline of 0.1% — took the edge off concerns of imminent tightening.

Commodities are mostly higher this morning, although many have fallen off of earlier highs. Oil made a run to $80 in early trading, but has pulled back close to even at just below that mark. Gold is showing a $6 upside at $1123 after making a run above $1130 in the early hours. Natural gas has fallen back below the $5 mark once again. Ongoing concern in the European economy has the Dollar higher against the Pound and Euro this morning, although it has lost considerably against the Yen.

Investor sentiment today will be largely self-induced and speculative as there is little in terms of economic data scheduled today. The earnings calendar is also relatively light, but does include reports from Cabot Oil & Gas, Campbell Soup, Constellation Energy, Lowe’s, Nordstrom, Radio Shack, and a few others.

The Federal Reserve and, more specifically, interest rates will likely dominate the headlines this week. The equity markets took the slight hike in the discount rate for banks rather well last week. Most expect some reassurance from Chairman Ben Bernanke this week when he addresses Congress on Wednesday and Thursday. The key concern is for a proper exit strategy from an unprecedented level of monetary stimulus to stay ahead of inflation even though the economy is likely to stagnate for a while and keep inflation in check, for now. In the most recent report, headline CPI rose 0.2%, but the miss was entirely due to the miss in core inflation. Core CPI at -0.1% missed the consensus guess by a full two-tenths. The level is not exactly of concern, but clearly is still indicating inflation higher than the Fed would like to see.

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

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