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Five Things You Need to Know for Thursday


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


Five things you need to know to stay ahead of the pack on Wall Street.

1. It's Trichet to Rock a Rhyme, to Rock a Rhyme That's Right on Time, It's Trichet

We can never get enough Run DMC in the 'Ville because we're old school. It's like that. And that's the way it is. We can also never get enough Jean-Claude Trichet, president of the European Central Bank, who today announced the ECB has raised interest rates to 2.5%. Oh, why Trichet? Why?

  • The move was widely expected, but why?
  • Because inflation pressures continue to build as economic data for the eurozone continues to improve.
  • Headline inflation rate rose to 2.4% year-over-year in January.
  • Some of the 18-member ECB governing council are concerned about the effect low interest rates have had on consumer borrowing and real estate.
  • Data released this week showed lending to households rose at an annual rate of 9.4% in January, the fastest pace since 2000.
  • Eurozone property prices rose 7.7 per cent in the first half of 2005, leading Jean-Claude Trichet, the president of the ECB, to argue that tighter monetary policy may be needed to contain a property "bubble", as well as to fight inflation.
  • Meanwhile, GDP growth remains sluggish, just .3% in the fourth quarter of 2005.
  • Also, core inflation slowed to 1.2%.

2. Happy Google Analyst Day, Everyone!

Google (GOOG) executives will spend four hours talking to Wall Street at the company's annual analyst day.

  • Google's stock tumbled 7.1% to $362.62 Tuesday, following comments from the company's CFO warning of slowing growth.
  • Google does not typically provide explicit financial guidance to analysts, but many will be looking for any kind of clue today from the company after fourth-quarter earnings fell short of expectations.
  • In particular, analysts are looking for answers today about the health of the company's advertising system, and the company's ability to monetize existing products and services.
  • According to a WSJ Online poll, 73% of 4700 voters believe GOOG will hit $250 before $500.

Google monthly chart, with Nasdaq-100 overlaid in red

3. The Bear Flag

Minyanville Professor Bennet Sedacca earlier this week identified a "bear flag" forming in 10-year Treasury Notes. Sounds bad. Very bad. What is it?

  • The 10-year is right now six ticks away from completing the bear flag, according to Professor Sedacca.
  • Technical analysis gurus define a "bear flag" as a period of regrouping that occurs in a downtrend after a fairly severe rout.
  • In other words, bear flags are pauses before a decline continues.
  • According to Prof. Sedacca, "With so much action taking place in such a short time, it builds a lot of 'energy' in a security. When it finally breaks out of the range, the move can be large, perhaps VERY large."
  • Other bear flags:

Chart courtesy Bloomberg

4. Other Countries Have Stock Markets Too

Emerging markets are emerging as investment destinations of choice after being largely ignored for years.

  • Emerging markets equities and bonds have outperformed developed markets now for several years after a long period of underperformance.
  • Since January 1, 2003, the iShares Emerging Markets ETF (EEM) is up 193%, the iShares MSCI Brazil Index Fund (EWZ) is up 438%, the iShares S&P Latin American 40 Index (ILF) is up 301%, handily outpacing the 78% gain in the S&P 500.
  • Year-to-date, the BLDRs Emerging Markets 50 ADR Index (ADRE) is up nearly 14%, while the BLDRs Developed Markets 100 ADR Index (ADRD) is up 5.9%.
  • Meanwhile, Brazil and Venezuela recently announced they were buying back billions of dollars worth of their Brady bonds.
  • At the end of 2000 the spread of emerging market debt yields over US Treasuries, represented by JPMorgan's Emerging Market Bond Index Plus, was 756 basis points. Yesterday that spread had contracted to 191 basis points.
  • In the late 1990s, these countries were plagued by current account deficits, budget deficits, overvalued currencies and insufficient foreign exchange reserves.
  • Those problems have changed as many emerging markets countries now have current account surpluses, larger reserves, and are more open and accessible to foreign investment.

5. The End

And in the end, the love you take is equal to the love you make, according to some people. Also, the Beatles.

  • "The End" is the final song ever recorded collectively by all four Beatles.
  • It is featured on the album "Abbey Road."
  • Recorded in 1969, the song is the only one in the Beatles catalog to feature a drum solo by Ringo.
  • Oh yeah, all right.
  • Are you gonna be in my dreams tonight.
  • Love you, love you, love you, love you...
  • And in the end, the love you take is equal to the love you make.

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No positions in stocks mentioned.

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