Five Things You Need to Know: China Tweaks, Gold Freaks, Bernanke Speaks, the Senate Peeks and a Judge Relinquishes Grip on Reality
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. China Takes a Hike
The People's Bank of China surprised the market by raising interest rates by 0.27 percentage points to 5.85%, its first rate hike since October 2004.
- Recent Chinese economic data raised concerns that the economy might be overheating.
- China passed France and the U.K. last year to become the world's fourth-largest economy.
- While most expected a policy adjustment in some form, the consensus view was China would simply increase bank-reserve requirements rather than raise interest rates.
- The rate increase applies to base rates of financial institutions for loans of one year and longer.
- China last raised rates on October 29 (gulp!)... 2004 (whew!).
- Of course, as everyone knows, October 29 is an extraordinarily symbolic date: In the Tunney Hunsaker household it has come to be known as "Foggy Friday"* after Hunsaker, the chief of police for Fayetteville, WV lost a six-round decision to Cassius Clay in Louisville, KY on October 29, 1960.
- The fight marked Clay's first professional boxing victory.
- Hey, weird! Did you know that October 29 is also the day the stock market suffered a brief correction in 1929? That's what they call "synchronicity" in the Jungian school, or "a coincidence" in layman terms.
* Editor's Note: Admittedly, we're not totally sure the Clay-Hunsaker fight took place on a Friday, but we figure it is at least a somewhat reasonable guess. Also, the alliteration works.
Ever since the whole China rate hike deal was announced this morning, Gold has taken a vicious blow to the chin like Tunney Hunsaker on "Foggy Friday" (see previous item).
- Commodities investors must have a decent memory. The last time China raised interest rates, on October 29 (gulp!)... 2004 (whew!), commodity prices fell during the quarter.
- The CRB Index was lower by half a percent in the fourth quarter of 2004, silver lower by 1.5%.
- Gold, however, was actually up for that quarter, higher by nearly 5%.
- The market this morning is hinting that physical demand of gold from China is likely to decrease should the economy cool.
- But we're not buying it. Literally.
- Minyanville Professor Kevin Depew recently pointed out a number of technical factors suggesting gold has reached the end of its heady run.
- Bob Prechter of Elliott Wave International also this week released a report suggesting gold has reached the end of a 21-year bear market rally or "upward correction."
3. Bernanake in Transparent Attempt at Greater Transparency
Federal Reserve Chairman Ben Bernanke will testify before a Joint Economic Committee hearing this morning at 10 a.m.
- Markets will be looking for two things:
1) Will the Fed Chairman succeed at his goal of bringing "greater transparency to the Fed"?
2) Will the Fed Chairman consequently outline policy-making expectations beyond the next Fed meeting in May?
- Minyanville morning Bernanke line:
1-5 Bernanke says future policy decisions depend on incoming data.
1-1 Bernanke says the Fed is pleased with the cooling housing market but concerned about potential labor market tightness.
2-1 Bernanke says the economy is healthy, growing, and that the backup in yields is a reflection of strong underlying economic trends.
20-1 Bernanke says the Fed has purchased 12 helicopters from China... just in case.
50-1 Bernanke says this fiat currency regime has pretty much reached the end of its ability to confiscate wealth from a generally unwitting public.
- Meanwhile, also on the Fed agenda today is Fed governor Mark Olson, scheduled to speak on the banking industry at 10:30 a.m. and to take audience questions afterward.
- Also, look for Fed Governor Donald Kohn to give a speech this afternoon on business capital spending. He will also take questions afterward.
- Yesterday Five Things you Need to Know... noted Bernanke's initiation of a major internal Fed review on communications with the hopes of providing greater transparency to Fed decision-making.
4. Senate Peeks Behind the Big Oil Tax Curtain
A U.S. Senate Committee has demanded the tax records of the 15 largest US oil and gas companies.
- Chuck Grassley, Republican chairman of the finance committee, and Max Baucus, his Democratic counterpart, asked the Internal Revenue Service to provide the tax records of the oil and gas giants for the last five years.
- The last company the Senate asked for tax records from was Enron, which set off a "Witch Hunt," according to Ken Lay.
- Congress is also taking a closer look at tax breaks, many of which have been around for years (through $18/bbl oil) and some of which ($2 billion dollars worth) were introduced more recently through last year's Energy Bill.
- The Congressional Joint Committee on Taxation estimated Tuesday that oil and gas companies would receive about $10 billion in tax breaks over the next five years that are specifically aimed at their industry.
- Suddenly, we're reminded of that scene in the movie, The Grifters, between BoBo Justus and Lilly.
A person that don't look out for
himself is too dumb to look out for
anybody else. He's a liability,
(this is his creed)
You're a thousand percent right!
Or else he's working an angle. If
he doesn't steal a little, he's
You know it, Lilly.
- You know it , agrees Congress. If a big oil company ain't stealing a little, they're stealing a lot. Now, let's see them tax records.
5. Da Vinci Judge Reveals Loose Grip on Reality
The judge presiding over the Da Vinci Code copyright infringement trial put a code of his own into his ruling, and yesterday he said he would "probably" confirm the meaning to the person who breaks it, according to Associated Press reports.
- Judge Peter Smith in London ruled in favor of Da Vinci Code author Dan Brown in a lawsuit accusing the author of copyright infringement.
- Meanwhile, lawyers in London and New York have noticed odd italicizations in the 71-page document.
- The first italic is found in the first paragraph of the 360-paragraph document. The letter "s" in the word "claimants" is italicized.
- The italicized letters in the first seven paragraphs spell out "Smithy code," playing on the judge's name, according to AP.
- "I can't discuss the judgment," Smith said in a brief conversation with Associated Press, "but I don't see why a judgment should not be a matter of fun."
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