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Five Things You Need to Know for Monday


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. Federal Reserve Chairman Ben Bernanke Speaks

  • Tonight Fed Chairman Ben Bernanke will deliver a speech.
  • The Fed chairman's speech is entitled, "Reflections on the Yield Curve and Monetary Policy."
  • It will be delivered at 7 p.m. at an Economic Club of New York dinner.
  • The FOMC meeting on March 27-28 will be Bernanke's first as Fed chairman, so the speech will be watched closely for clues to policy direction.
  • Recent data points - CPI at 2.1% year-over-year, only a .1% rise in the CPI in February, real weekly wages down .1% over the past year, cooling housing data - suggest the Fed may be on the brink of becoming more "dovish" on rates.

2. The Yield Curve Conundrum

  • According to Bloomberg, Fed Chairman Ben Bernanke tonight will likely say "Long-term interest rates will stay low as long as the Federal Reserve smothers inflation and the U.S. looks attractive to global investors."
  • Low long-term bond yields have this year fallen below short-term yields, creating an inverted yield curve.
  • A Fed study by Arturo Estrella, The Yield Curve as a Leading Indicator, suggests "The difference between long-term and short-term interest rates ("the slope of the yield curve" or "the term spread") has borne a consistent negative relationship with subsequent real economic activity in the United States, with a lead time of about four to six quarters."
  • The study further suggests that, "A signal that lasts only one day may be dismissed, but a signal that persists for a month or more should be looked at carefully."
  • Bernanke disagrees and said in two speeches last month that low rates are a vote of confidence in the Fed's inflation-fighting credentials and in the health of the U.S. economy.
  • Bernanke told the House Financial Services Committee in mid February that the inverted yield curve ``is not signaling a slowdown.''
  • Six-month Treasury yield is 4.785%, the two-year is 4.645%, the five-year is 4.619%.

3. Speaking of Yield...

  • According to Merrill Lynch, only 16 companies in the S&P 500 have dividend yields greater than the one-year Treasury Note.
  • The one year T-Note is presently at 4.68%
  • From April 1986 to today, the average number of S&P 500 companies with dividend yields greater than one-year T-Note is 66.
  • Of course, as Merrill notes, dividend yield has largely played a secondary role in equity investing over the past 20 years.
  • 10 was the smallest number of companies with a dividend yield greater than the one-year T-Note, and it reached that level in March, April and June 1998.
  • The highest level was 258, reached in June 2003.
  • Among companies on the list with a secure dividend yield rating from the firm:

    UST Inc. (UST) 5.61% yield
    Progress Energy (PGN) 5.36%
    Consol Edison (ED) 5.10%
    AT&T (SBC Comm.) (T) 4.93%
    Verizon (VZ) 4.71%

4. India to Remove Controls on the Rupee

  • India plans to make its currency, the Rupee, fully convertible.
  • The government is looking at setting up a "mechanism" for convertibility during the 12th plan period, which begins in 2008.
  • At present, India allows its currency to be convertible only on the trade or current account, meaning most money flowing into and out of the country is subject to approval by the central bank.
  • According to Prime Minister Manmohan Singh, such a move would allow Indian individuals and businesses to invest more freely overseas, allowing large companies easier and cheaper access to foreign debt that is currently limited to $500 million per company per year.
  • Rating agencies Fitch Ratings and Standard & Poor's rate India one notch below investment grade while Moody's Investor Service gives its foreign currency rating an investment grade.

5. MicroSecret (MSFT)?

  • Recently Microsoft unveiled a project called Origami, paperback-sized computers that will run Microsoft's regular Windows XP operating system.
  • Now there is buzz the company may have another secret project in the offing.
  • The Seattle Post-Intelligencer says the company may be working on another hardware project with Transmeta Corp. (TMTA).
  • TMTA disclosed in a regulatory filing last week that it had "substantially completed" work required under a series of "development services agreements" that it signed with Microsoft last year.
  • MSFT says the work is unrelated to the Origami project, but will not say what the company has been working on.
  • There has been widespread speculation that Microsoft might come out with its own music device, to compete with Apple's iPod.
  • Microsoft often shows new hardware prototypes at its annual Windows Hardware Engineering Conference. The next one is May 23 in Seattle.
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