A.L. Waters Capital, LLC

Morning Call

0 CommentsTuesday • March 9, 2010 • by alwaters

“Beware lest you lose the substance by grasping at the shadow.”

Aesop

Morning Call
March 9, 2010

Gold Update

Comments out of China have stirred the markets in several areas. The world’s largest holder of foreign exchange reserves renewed its commitment to the U.S. Treasury market on Tuesday but also said it would be wary of substantially boosting its gold holdings. “The U.S. Treasury market is the world’s largest government bond market. Our foreign exchange reserves are huge, so you can imagine that the U.S. Treasury market is an important one to us,” Yi Gang, head of the State Administration of Foreign Exchange (SAFE), told a news conference. This has served to lead the Dollar higher and taken the wind out of the sails for gold traders. Momentum could shift later this week, but for now caution is recommended for gold.

Hot Stocks

With oil falling, our recent pick of ProShares Ultra Short Oil (DUG) has worked out rather well. We haven’t been too quick to jump on Toyota’s woes, but with news of another sudden acceleration occurring in a Prius model, taking a Put position on Toyota shares (TM) has also become an attractive opportunity. Whether deserving or not, Toyota is under the microscope and further bad news in the near term seems highly likely. It may be important to remember Audi’s woes in the past with negative publicity surrounding sudden acceleration accusations. Audi did, in fact, recovery from the publicity onslaught and Toyota should as well. For now, expect further downside in shares in the coming months.

Public Finance Update

The Municipal Securities Rulemaking Board, has released proposals to the Securities and Exchange Commission looking to broaden disclosure about bids in auctions and how variable-rate yields are set. The MSRB is hoping to create greater transparency in the municipal marketplace in the name of helping investors. Under the proposals, dealers would have to disclose details on the types of bidders and orders for auction-rate securities, including the number of orders to buy and sell and whether dealers are bidding. The variable-rate disclosures would tell investors more about how and when interest rates are set and the identity of the provider of the so-called liquidity facility.
In New York, Governor David Paterson, despite having opposed deficit borrowing to shore up the state’s fiscal condition, has now said that such a plan is under discussion. Further south, New Jersey Transit has announced plans to raise rail and bus fares 25% in order to generate $140 Million of new revenue to fill a $300 Million gap.

Market Outlook

The Dow finished slightly to the downside yesterday and futures indicate the momentum is still downward. Corporate earnings have been giving some reason for home among investors, but the latest round of reports has been a little more disappointing. Several industrial manufacturing and base metal mining companies have released dismal reports and that has investors growing weary. This has also led the energy sector lower on concerns that demand will be weaker than expected. In the US, bank shares are heading a little lower in pre-market activity this morning, as well.
Stocks were somewhat mixed in Asian trading last night, setting the stage for what may be a stronger pullback tomorrow. The Nikkei fell slightly, while China’s Hang Seng ended nearly flat. Financial stocks were flat to slightly lower, industrial shares dropped, and select technology stocks managed minimal gains.
German Chancellor Angela Merkel spoke out in Luxembourg calling for urgent regulation of credit-default swaps to shore up the euro area and prevent a repeat of the Greek financial crisis. Greek Prime Minister George Papandreou meets with President Barack Obama in Washington today, presumably to discuss support for stricter regulation and a coordinated effort to combat what Papandreou referred to as “unprincipled speculators.” Merkel and French President Nicolas Sarkozy are teaming up to advance regulatory efforts to tame the surge in Greek financing costs and stop speculators from exploiting euro-region budget deficits that spiked during the financial crisis.
European stocks are lower by an average of 0.5% this morning. Technology stocks are pacing the market while bank shares are strongly underperforming, with average losses of 2% or more at mid-session.
Commodities are notably weak this morning as economic sentiment has slipped. Oil has given up more than a Dollar, thus far, holding comfortably above the $80 mark after surging above $82 recently. Concern for Greek debt and weakness in the Eurozone has turned the Dollar around and taken away from the gold trade considerably. Gold began to deflate last night and is showing an $11 downside on the morning session at $1112. The Dollar remains weak against the Yen but is moving higher on the Euro and Pound.
On the agenda today for economic data is some Retail Sales figures, the Economic Optimism Index, and Job Vacancies; all of which will weigh heavily on investor sentiment. The next round of earnings news will be coming from Acadia Pharmaceuticals, Boston Beer Company, Collective Brands, Endeavor International, Gulfport Energy, J. Crew, the Kroger Company, and a few others.

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

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