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ozymandius Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Jan-23-07 08:03 AM
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1. Today's Market WrapUp
Big Debt Sales in Focus This Week

Stock prices are under pressure to begin the week with continuing declines in technology shares on earnings concerns, broker downgrades, and higher energy prices. Two weeks ago stocks were moving higher across the board (as bonds sold off) on improving economic data, but last week the tables were turned on tech stocks with disappointing forecasts from Apple and IBM. The selling on the NASDAQ continues, but this week it is also accompanied by selling pressure in the larger-cap Dow Stocks. Pfizer is lower after reporting a decline in fourth-quarter earnings, Boeing was downgraded to market perform by Wachovia and Caterpillar is lower on some analysts' expectations that the capital spending boom has topped-out. As we continue to move through the week I expect to hear more of a slowing economy with inflation held in check which would help to make U.S. Treasury debt more attractive. As it stands, the Treasury is scheduled to sell between $40 and $42 billion of new debt over the next three days.

In recent months there has been less global demand for U.S. debt paper as foreigners work to diversify their holdings away from U.S. dollars. In December we kept hearing analysts talk about the dollar falling off a cliff, but since then bond prices have fallen (moving yields/interest rates higher) while the dollar has rallied. We havent heard much about our Dream Team (Chairman of the Federal Reserve Bernanke and Treasury Secretary Paulson) and what they brought back from their trip to China last month, but I will speculate they tried to drum-up some support from China to buy our debt. Put another way, we need China to help us support our deficit spending and continue our consumption of imported Chinese goods. Six out of the last seven weeks bond prices have moved lower, making yields more attractive. I firmly believe this was done as a pre-cursor to the heavy issuance of bonds due this week AND AGAIN JUST TWO WEEKS down the road in February with the Treasurys quarterly refunding.

In the news today we are hearing of higher energy prices as crude oil holds above the $53 mark after briefly topping $54. We have already seen the beginning of price inflation in the food arena with higher corn and wheat prices. With oil beginning to move higher again one might think it could rekindle the concerns about inflation, but not this week! This week the government needs to borrow money; therefore, U.S. Treasuries need to look more attractive. Higher energy prices are now putting pressure on stocks (free-up some money for the bond market) and the media spin has higher energy prices causing the economy to slow. A slower economy is good for bonds, whereas higher inflation caused by higher energy prices would be bad for bonds. The mainstream media wants you to believe higher energy will slow the economy, not cause inflation. The spin should last for a few more weeks until the debt sales are complete, then the Wall Street Spin-Masters will be free to promote stocks once again. For now, the agenda is to sell government debt paper.
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