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Five Things You Need to Know: Full Plate, Wither the Dollar?, Carry (trade) Getting a Little Hairy?, Inflation Who?, Just Sayin'


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Full Plate

This may be a shortened holiday week, but get ready for a full plate of business.

  • In addition to an important policy decision possibly coming out of Japan (see Number Three today), there are eight (count 'em, eight) Fed speakers slated to speak this week.
  • As well, we'll get earnings reports from a slew of S&P 500 companies, from GE and IBM to financials, such as Merrill, JP Morgan Chase and Bank of New York, to Pfizer.
  • And if you are an economic data geek, get ready for the PPI, the NAHB Housing Market Index and Beige Book tomorrow.
  • On Thursday you'll get a look at the CPI (see today's Number Four) and Housing Starts and Building Permits.
  • Those paying attention on Friday may want to check out Richmond Fed's Jeffrey Lacker as he's fresh out of the FOMC voting mix as the lone dissenter and delivering his Economic Outlook in Richmond.

2. Wither the Dollar?

Actually, make that whither, not wither.

  • First up, news over the weekend is that Asia's largest economies are planning a free-trade zone to rival the U.S. and the EU's.
  • Until this past weekend, the free-trade zone was held up by China's reluctance to include India and Australia.
  • Taking the long view, the cooperation and increased trade in a region with a combined economic output of $9 trillion - and almost half the world's population - looks like a negative for dollar-based hegemony.
  • And then there was this dire story in the Financial Times: "Euro Displaces Dollar In Bond Markets."
  • Euro-denominated debt accounts for 45 percent of the global market, compared with 37 percent for the dollar, the FT reported.
  • And new debt issuance last year accounted for 49 percent of the global total.
  • As recently as 2002, outstanding euro-denominated issuance represented just 27 percent of the global total, compared with 51 percent for the dollar.
  • The key factor is the successful issuance of a single currency (remember when "they" said it would never last?), which has helped in the development of a deeper and more liquid debt market.
  • So, dollar hegemony is being attacked on two fronts. Bad news for dollar bulls, right?
  • Well, not so fast. George Soros recently told the Spanish newspaper "Expansion" that it doesn't make sense to imagine a future in which the euro replaces the U.S. dollar as the global currency of reference.
  • There are too many central banks with too many dollars and these are seeking alternatives, although there are none available, Soros said, according to the newspaper.

3. Carry (trade) Getting a Little Hairy?

Some mixed news out of Japan over the weekend with respect to the Bank of Japan's decision to possibly raise interest rates as soon as Thursday.

  • According to XFN-Asia, Economic and Fiscal Policy Minister Hiroko Ota called for the central bank to hold interest rates steady to stimulate the economy and beat deflation decisively.
  • Ota also said it would be inconsistent for the central bank to raise the rate because few indicators on spending had been released since its last board meeting.
  • Meanwhile, barely a day later, Finance Minister Koji Omi said he sees no need for the government to ask the Bank of Japan to delay a decision on whether to raise interest rates, according to XFN-Asia.
  • Despite the conflicting calls for action and inaction, it is now widely expected that the central bank will raise the benchmark rate of borrowing to 0.50 percent on Thursday.
  • Although this increase is no doubt nearly on its way to being completely priced in by the market there and, by extension, those involved in the carry trade, what will be important going forward is any piece of economic data or hint from central bankers that the interest rate hikes will continue.
  • For the carry trade, two rate hikes is possibly ok, but three becomes a trend.

4. Inflation Who?

Yikes. Take a look at the Reuters CRB Index. It's down five-and-a-half percent year-to-date, and almost 14% year-on-year.

  • But that only tells part of the story. To be precise, it only tells 41% of the story, which is the weighting of Softs and Grains in the CRB Index.
  • Energy, Industrials and Metals have felt the brunt of the decline in the CRB.
  • Copper is at a nine-month low. Gasoline is down 4% year-to-date.
  • Meanwhile, corn has made new 10-year highs and demand for biofuels is supposed to boost demand this year by 47%, according to the Department of Agriculture.
  • The Wall Street Journal, however, noted that a report from Lester Brown, founder of the Earth Policy Institute, said the ethanol distilleries being built in the U.S. will need 139 million metric tons of corn by the 2008 harvest, far more than a U.S. Department of Agriculture estimate of the requirement, which was pegged at around 60 million tons.
  • Also, over the weekend California agriculture officials reported that frost there has destroyed as much as 70% of the citrus harvest.
  • What is interesting from a data standpoint is that food has a 14.% weighting in the CPI, compared to 8.7% for energy.
  • That should give the Fed something to chew on as they bask in the glow of the "easing" effects of the recent declines in energy.

5. Just Sayin'

TD Ameritrade said Tuesday its profit soared 69% in the latest quarter as revenue nearly doubled.

  • The online discount brokerage said it posted net income of $145.6 million, or 24 cents a share, for the fiscal first quarter ended Dec. 31.
  • That compares with net income of $86 million, or 21 cents a share, for the prior first quarter.
  • The boost was due in large part to the acquisition of TD-Waterhouse.
  • But we would also note that Minyanville's premier Buzz & Banter has just recently been rolled out to all of TD-Ameritrade's Apex users.
  • Sure, it could be sheer coincidence that this occurs just as they reported a huge jump in profit.
  • And sure, it's totally plausible that Buzz & Banter has nothing to do with the firm's profit and bottom line, but we're just sayin'.
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