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Five Things for Thursday


Competitive devaluation, US cities need a bailiout?, market exhaustion and brewers miraculously avoid droop.


1) The Mistake of Competitive Devaluation?

Flying somewhat under the radar due to a steady stream of bank "stress test leaks," is the quarterly monetary policy report form the People's Bank of China. Look, stock traders are going to do what stock traders do with little-to-no regard for what is happening in bond markets or with currencies.

But while they're busy hunkered down in front of monitors punching random buy and sell buttons there are other, more pressing matters afoot for the long haul, notably this stark warning from the PBC's report:

"A policy mistake made by some major central bank may bring inflation risks to the whole world. As more and more economies are adopting unconventional monetary policies, such as quantitative easing, major currencies' devaluation risks may rise."

And then, almost immediately after saying that, the central bank pledged to maintain "ample" liquidity in the financial system for economic recovery.

2) US Cities Need Bailout Agency

If you lived in New York City in the 1970s then you surely know the name Felix Rohatyn. The chairman of New York's Municipal Assistance Corp. from 1975 to 1993, Rohatyn was instrumental in helping what was then a beaten down city avert the humiliation of bankruptcy. Of course, that was back in the days when bankruptcy and humiliation went together hand-in-hand... unlike today when bankruptcy is merely a "new lease on life."

But enough nostalgic hand-wringing. Why are we talking about Felix Rohatyn almost 35 years later?

Because yesterday while speaking before the Reuters Infrastructure Summit, Rohatyn said policymakers should seriously consider setting up a bailout agency for failing national cities. Rohatyn recommended the Reconstruction Finance Corp., created in 1932 during the Great Depression, as a model to aid cities and states. Similar to the 1930s, today many cities and states are running billions of dollars of deficits and are faced with either raising taxes or cutting critical services and laying off workers.

Now, if you're like me, your immediate thought is: great, another bailout agency; just what we need. And you'd be right. Rohatyn's suggestions, many of which are outlined in a new book, "Bold Endeavors: How Our Government Built America and Why It Must Rebuild Now," are a little more complex than that, but at the end of the day it's still part of the ongoing pipe dream that we can spend our way to prosperity; a pipe dream intimately tied to the strange notion that Americans should be shielded from the individual consequences of their poor financial decisions... no matter what the cost to society as a whole.

3) Exhaustion Coming Into View

I am seeing some signs of weekly exhaustion coming into view for individual sectors.

  • On a weekly basis, while the S&P 500 Index remains on a 7 of 9 potential Sell Setup, the KBW Bank Index (BKX) is on an 8 of 9 potential sell setup if the close next week is above 37.19 and assuming we close this week above 33.81.

  • The AMEX Broker Dealer Index (XBD) is also on an 8 of 9 potential TD Sell Setup if the close next week 93.04.

  • The PHLX Semiconductor Index (SOX) is also on an 8 if potential 9 TD Sell Setup if the close next week is above 254.81.

  • The PHLX Housing Index (HGX) is also on 8 of 9.

Among some of the ETFs I follow:

  • The Consumer Staples ETF (XLP) is only on a count of 2 of potential 9 on the weekly chart.

  • And the Nasdaq Biotech ETF (IBB) looks nothing like the other sectors. It remains on a deferred TD Sequential 13 on the daily chart, so a move lower with the rest of the market should that occur has this sector on my buy list. An unfulfilled downside target remains in place at 58.13. Meanwhile, it is on bar 4 of a potential 9 TD Buy Setup on the daily chart, so may be next week's business.

4) No Brewers' Droop Thanks to Sales of "Economy Beers"

The most important scene in David Lynch's 1986 film, Blue Velvet, came about three-quarters of the way in when Frank Booth asked Jeffrey Beaumont a very simple question:

Frank Booth: What kind of beer do you like to drink, neighbor?
Jeffrey Beaumont: Heineken.
Frank Booth: Heineken? Fvc$% that sh1t! Pabst Blue Ribbon!

At least it was the most important scene for me. It took me more than 20 years to screw up the courage to order a Heineken in public after seeing that film, and undoubtedly put a damper on Heineken sales, at least among David Lynch fans who consistently rate it as the beer most likely to be enjoyed before winding up in the trunk of an amyl nitrate-huffing homicidal maniac's car. But again, I digress.

According to the Wall Street Journal this morning, "sales of so-called economy brews, including Busch, Miller High Life and Pabst Brewing Co.'s Pabst Blue Ribbon, are rising faster than the nation's beer sales overall, and are helping industry giants Anheuser-Busch InBev NV and MillerCoors LLC weather the economic downturn."

This year through April 19,sales of domestic "subpremium" brands were up 2.6% by volume and 8% by value from a year earlier, according to market-research firm Information Resources Inc., the Journal reported. Meanwhile, sales of "premium" beers, such as Bud Light and Miller Lite, which account for about half the industry's total sales, fell 1.4%.

5) Thursday's News & Weirdness

ECB Cuts Key Interest Rate to Record Low 1% - Bloomberg

Bank of England to Increase Asset Purchases by $75 Billion - Bloomberg

Gold Sales Cost European Central Banks $40bln - ($) Financial Times

China Central Bank Pledges "Ample" Liquidity to Sustain Growth
- China View

GM's $5.9 Billion Loss Smaller Than Estimated as Bankruptcy Deadline Nears - Bloomberg

Fed's Stress Test Results for Banks `Reassuring,' Show No Insolvency Risk - Bloomberg

Wells Fargo (WFC) Freezes Pension Plan - Charlotte Observer

Cisco (CSCO) Sees Tech Sales Steadying - ($) Wall Street Journal

Taleb Says Current Crisis `Vastly Worse' Than 1930s - Bloomberg

Dept. of Throwing Good Money After Bad:
Bill Miller Says Financials Are His Favorite Stocks for the Next Two Years - Bloomberg

Detroit's Troubles Lure World of Bidders - ($) Wall Street Journal

Companies Cut Back on Fancy Annual Reports
- USA Today

Survey: 22% of Internet Users Ditch Newspaper
- Time Magazine

Interesting Trivia About Deodorant!

Saudi Arabia's Only Beauty Pageant Focuses on Morals
- AP

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