Friday, July 24, 2009

FRIDAY -- FUTURES POINTING TO LOWER OPEN

Thursday’s trading was strong as cash flooded in and all three major indices leapt to their best levels in months – stocks closing just off the session highs, the S&P 500 and Nasdaq rocketing. Earnings reports have been flooding in, and pretty much they have been okay (but keep in mind that very often this has been due to cost cutting, rather than real revenue growth). Crude oil was considerably stronger. And it seems Dow Transports have broken out.

Asian stocks have now risen for the ninth straight day -- and European stocks enjoyed their longest rally since 2006.

There truly has been a sense of euphoria as more and more folks have joined the camp of believers who think that they must get long or be left out.

There is no way to precisely know when this euphoria will wane, but we do expect that there will be a pullback – and that with patience, there will be better entry points. Should the market continue higher, we will continue to take bits of profit, raising cash for the better entries.

Also, with a longer term view, we keep in the back of our minds the fact that interest rates will rise -- even Federal Reserve Chairman Bernanke has said that. And as interest rates rise, borrowing costs will be higher for the U.S. government – which in turn will slow economic growth. So we believe that there are challenges ahead that will impact the market – and it is too early for dancing Bulls because we are not entirely out of the woods yet.

An additional note: Our office will be closed during the next week for our annual summer break. We will be back posting again on August 3rd – (already looking forward to getting back into things again). It is always hard to walk away from the market for even a day. But some of my children scheduled their own vacations to spend time with my husband and me, and I'm really looking forward to enjoying time with them. They are, after all, what it is all about. And truly everyone here deserves a break, a chance to do what is personally important to them. In the end, it is a good thing because we will return refreshed and ready to deal with what is at hand.

Thursday, July 23, 2009

THURSDAY, FUTURES INDICATED HIGHER

Yesterday the major indices ended mixed, but dip buyers were not backing away – still actively doing their thing. The Nasdaq posted some strong gains with semiconductors, consumer discretionary and retailers quite strong. Apple obviously had an impact. And less than an hour before the opening bell, the futures are indicating a higher open.

Yes, the news for the most part has remained pretty much okay. The trend is clearly higher, and as the saying goes, the trend is your friend. But day by day more and more chart entry points are simply getting harder and harder and harder to find. With three "harders," point made. Charts that are interesting are basing near highs -- a look rather like ARTG.

If any of those Bears decided to buck the consensus of the pow wow a few days ago and, instead of chasing higher, decided to bet short -- they have undoubtedly been feeling the pain and may very well be getting squeezed.

At the moment, we are pretty much market wallflowers – except for a tune we cannot resist, we are sitting out the dancing. We have positions on the long side that we are already in, but are not buying new or adding to many longs here. We always have been first about protecting our gains – and the risk/reward simply is not calling us onto the dance floor at this point. We simply don’t mind standing around the punch bowl and watching other dancers – until the conditions are right and they are playing our kind of music for dancing. As overbought conditions get worked off, the dance floor will once again look more inviting.

Wednesday, July 22, 2009

WEDNESDAY -- BANKING REPORTS RAISING SOME CONCERNS

Today, Wednesday, will likely be all about earnings – and about an hour before the open, the Dow, S&P 500 and Nasdaq were all indicating a lower open.

Apple, in early morning action, though, was indicated higher based on a 12 percent gain in sales and a 15 percent increase in third-quarter profit. Apparently after cutting prices in June, sales of Macs skyrocketed.

But banking sector earnings were were raising some concern. Morgan Stanley reported a third straight quarter loss that was worse than analysts expected – thanks in part to costs to repay the U.S. government. Wells Fargo reported second-quarter earnings that rocketed 81 percent for a new company record, but shares were lower based on worries that loan troubles are persisting. Bank of New York Mellon reported that it second-quarter earnings dropped 43 percent -- and SunTrust Banks reported a loss on increased credit costs.

Yesterday the market, after pulling back in the morning, posted a seventh straight day of gains -- all major Indices ending higher. Healthcare performed well, and there was weakness in Financials, likely because of the slew of earning reports due.

We are focused now, after the big run higher, on risk management – and believe that good setups will occur. We are looking at oils – and when the right opportunities are there, gold.

Tuesday, July 21, 2009

GOOD ENTRY POINTS ARE KEY

Yesterday, quite honestly, we were at least a little bit hoping that the market would hardly budge one way or the other. After last week’s gains -- many charts had shifted from oversold to overbought territory, and it seemed safest for the market, or the minds of the players, to simply work off the gains to create a better atmosphere for a move higher without hesitation or thoughts of too much too fast.

But yesterday some players were chomping at the bit to get into the action and during some brief dips, they quickly stepped up to take advantage. The S&P 500 closed near the high of the day. Consumer discretionary stocks enjoyed some nice gains and, not unexpectedly, there was some weakness in the defensive sectors.

There have been some positive signs lately – and as long as reports come in okay and there is no unexpected fly in the ointment, the market seems in pretty decent shape.

Having said that, though, our minds are unchanged. We do still anticipate that at some point here gains will need to be digested. And that should create some better entry points than we are seeing now.

Patience is generally rewarded -- and we expect to remain patient in waiting for those good entries.

Sunday, July 19, 2009

ARE THE BULLS BACK IN CONTROL?

Last week was a pretty nice week for the Bulls. The S&P 500 held the 880 support level -- closed on Friday having held onto the gains of the previous four sessions. On the whole, earnings reports were fine. The tech sector that we predicted would be a leader indeed was a leader -- and, of course, many sectors enjoyed nice gains. Resource stocks finally escaped from No Mans Land, primarily because of China. And at the bear's pow wow, the bears felt sufficient fear that they decided to jump in and chase prices higher.

But here we are -- another Monday, another start to a new week. There have been some encouraging signs recently, including some positive signs in the financial sector. Sentiment now seems improved. And a whole lot of charts are technically improved as well, although very few are what we would term screaming buys. Many actually went from being oversold into now overbought territory. So the question is -- will the market roll over, or will the Bulls make a push higher? Will the S&P move back up to the high of the year? Until we feel more comfortable about the answers, our moves will remain tiny.

But it does seem that the winds are favoring the Bulls. And with the already reported decent earnings reports, those Bears may very well be too frightened to get too close to the betting-short bonfire, not wanting to get burned again.

And today there is news that CIT may get a chance to restructure its debt outsie of bankruptcy.

After the gains of last week, it seems that it would be nice simply to see the market rest for a bit, digest gains, develop some nice buying patterns and then move higher again.

We have often mentioned keeping an eye on gold -- watching for further weakness in the $USD, and looking to add to gold stocks when the prices are right. No changes there. Some of the chemical types have some decent set-ups.

Saturday, July 18, 2009

WEEKEND READING



UNITED STATES

House ethics committee opens 15 new cases, thehill.com

Robin Hood Tax Policy, forbes

Takeover opportunities grow for House Dems, thehill.com

U.S. Weighs Special Team of Terrorism Interrogators, WSJ

Obama Challenges Black Community to Set High Goals, Bloomberg

Labor in the driver's seat, Jewish World Review

F-22 -- An Essential National Security Asset, Human Events


U. S. HEALTH CARE

House Panels Approve Health Plan With Tax on Wealthy, Bloomberg

Schumer Says CBO 'Wasky' on Health Cost, Sees Passage, Bloomberg

Obamacare: The Cost-Cutting Delusion, Forbes.com

Taking a scalpal to costs, Economist.com

Pay for care a new way, state is urged, hospitals and doctors may be put on budget in MA, Boston.com


CHINA

China's Market Value Overtakes apan as World's No. 2, Bloomberg

Asian Stocks Record Best Week Since May on Recovery Speculation, Bloomberg

U.S. Commerce Secretary: let's get balance right, xinhuanet.com

China becomes world's wealthiest state, Pravda

China's Bubbling Consensus, WSJ

Former Boeing engineer convicted of handing over trade secrets on the shuttle and Delta IV rocket to China

China Clamps Down on Activist Lawyers, WSJ Asia

RIO TINTO/CHINA

Rio Four versus iron will of the state

Rio 'bribery' case shakes foreign groups, ft.com


RUSSIA

Russian economy to continue declining till 2011, optimistc experts say, Pravda

Russia's arms deal with Iran makes Israel acquire F-35 fighters from USA, Prava

Russia's Su-30 fighter to become world's most exported jet, Prava


INDIA

India Designates Sites for U.S. Nuclear Deals, WSJ Asia

India's Biggest Economic Challenge w/comments, Harvard Business


OTHER GLOBAL

West African oil gets boost from Obama Ghana trip, says Gold Star Resources CEO, Scandinavian Oil-Gas Magazine

Miners still drawn to the Democratic Republic of Congo, Financial Post

Anarchy reigns and retail investors are in stocks, The Australian Business

Police tear-gas Iran protesters during prayers, breitbart


FINANCIAL

Panel Probing Financial Crisis Has Wall Street Ties, WSJ

Unwelcome attention, oversight of the Federal Reserve, Economist.com

China can do without US dollar?, Pravda

Banks Should Be Too Good To Fail, forbes.com

Bank profits not as impressive as they seem, Bloomberg

Swiss banks running out of storage space for gold bullion, Mineweb

Cheaper Mortgages Spark Lower FICO Scores for Payers, Bloomberg

Sandard Bank, ICBC look to Africa, Mineweb

Venture Capital Investment Quickens, but Still Down From '08


SECTORS/STOCKS/COMPANY SPECIFIC

With Goldman Sachs bonuses, new push for 'say on pay' bill, Christian Science Monitor

Goldman Sachs bites Uncle Sam's hand, CNNMoney.com

The politics of pipelines, Scandinavian Oil-Gas Magazine

What's next for Google' Android chief, CNNMoney.com

Pickens Said to Seek Investors for Hedge Funds After 79% Gain, Bloomberg

GE's profits almost halve, ft.com

For Intel, Nvidia, Worst Is Over, Says Jon Peddie, eweek.com

Spotify Looke For A New Tune, Forbes


OTHER

Socialist America Sinking, Human Events

Jockey Positions Speed Up Horses

Friday, July 17, 2009

FRIDAY -- WITH A LOT OF INFORMATION TO DIGEST




Yesterday, for most of the session, the market traded sideways. And then along came Nouriel Roubini to scare the ole Bears right into another big camping pow wow . The economist said that the worst of the financial crisis is over – that the recession might end sometime this year. Some of those ole bears got so frightened of being left out of the market merriment that they simply caved in and joined, pushing especially metals, homebuilders and semiconductors higher.

But today is a new day. There is a lot to think about, a look of earnings numbers and guidance to consider -- and options exp. And never forget that traders are incredibly fickle.

We have a bit of a mixed bag today. An influence on the market today will undoubtedly be GE, which beat on earnings and missed on revenue – and Bank of America, which reported that earnings dropped less than expected. Both premarket were looking weaker. Also, Citigroup, which beat analysts’ expectations, indicated higher.

In view of how far the market has surged this week, weakness is anticipated – but still, the Bulls must be afforded some benefit of the doubt. There are likely going to be some short positions to take here before too long – but it’s never a good idea to arrive at the party too early. A nice rest could allow charts to look more compelling to the long-side. Again, easy does it – we will wait for situations and prices to come to us.

(A reminder -- weekend reading will be posted tomorrow.)

Thursday, July 16, 2009

WATCHING THE WINDS FOR DIRECTION



Going into yesterday, it seemed pretty clear that it would be Intel’s day, likely spilling over into the technology sector – and, in the end, propelling semis to multi-month highs. We got our anticipated short squeeze. The S&P500 posted a good day and the Dow Industrials enjoyed the best gain in three months; in fact, there was a nearly 3 percent rise in major indices on great breadth and volume. After a month of pain, for the Bulls it must have felt a bit like Christmas in July.

And in the Bear camp, leaning to the short side, there had to have been a gathering around the campfire with chatter about waiting to see happens now -- because it is possible that the Bulls’ Christmas could continue toward the yearly high. Gold, which we believe will eventually move higher, stood firmer.

And yesterday financials had gifts under the tree. But we knew that it was prudent to contain gleefulness in front of reports from JPM, BAC, C and GE reports. Today JP Morgan, the second largest bank, reported that profit rose for the first time since 2007, helping to offset rising defaults on consumer loans. But investors are back in worry mode after CIT, running short on cash, says that it will not get a federal bailout. And there are the BAC, C and GE reports.

Yesterday the S&P 500 closed slightly over 930, the peak of the right shoulder, but that raised a dilemma – some stocks, after a few days of gains, became extended and possibly in need of churning for a bit. And some resource stocks, recently in No Mans Land, moved to overhead resistence on light volume – what did the Bears around the campfire decide about that?

What about the fact that Intel’s news was yesterday – and there are wild swings between euphoria and despair? Will the Bears, caught leaning the wrong way, feel too distraught to bet to the short side? What about the extended charts that need a rest? It will not surprise anyone that we want to see which way the wind is going to blow. Until we see clear signals as to the direction and strength of that wind, we want to play the slow game and be certain to play our cards right. It is all about risk-reward, and making the right moves.

Wednesday, July 15, 2009

WELCOME

At Hill And Street News, we seem to be gathering a considerable number of new readers -- and wish to welcome all of you to our community. Hopefully while here, together we can share some thoughts, manage the market to our best advantage -- and enjoy some comraderie at the same time. Welcome aboard.



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INTEL SETS THE TONE

Intel had a beauty of a report, bringing a rise of 7.8 percent in early trading after its revenue forecast topped analysis’ estimates. Just what the doctor ordered, huh? In fact, semiconductors have actually been one of the better acting groups in front of Intel’s report.

“Intel’s results reflect the stabilizing environment,” said CEO Paul Otellini. And while Otellini thinks that US businesses probably will not be shopping for new PCs until next year, he explained that consumers in Asia, especially China, are leading the recovery.

Remember, though, that the market is fickle – and what is giddiness one day can quickly turn to despair with countering news. Some earnings reports may give the Bulls some steam and frighten those troops with short positions based on the head and shoulders pattern and poor action in the resource camp, something that we have been alluding to and something to keep in mind. And even a strong initial showing can get faded – so as always, we will take things easy. And we’ll keep an eye on the S&P 500.

As if we didn’t know, earnings season can be extremely tricky – another reason for careful, slow moves.

The technical traders who placed their faith in that head and shoulders pattern suffered with the change in course. We had already mentioned that there could be that situation of covering short positions. Some traders are always looking for the quick pot of gold, hitting the exact moment that the tide turns – and then they get caught in the wrong camp, but it has always been our stance to move slowly and expect that anything can happen.



Ours is what we call the “Perry Como” approach. No one except old folks may remember Como, but he was a barber turned singer who was famous for his unwavering slow and easy style. My mother was a Como fan, so I grew up with his music. And I think that Como would have been good at doing what we do.

Remember, it is early – there are more reports to come this week. Don't get too caught up in things today -- remember, the market can turn on a dime. We are keeping our wits about us.

Tuesday, July 14, 2009

TUESDAY -- GOLDMAN SACHS NEWS

An imputus on trading today will be reaction to the Goldman Sachs earnings report -- which exceeded analysts’ estimates. Expectations had already been high, especially after Meredith Whitney’s call yesterday.

If there is an open sharply higher and then within the first hour a disappearance of those gains, be careful.

Bloomberg reports: Net income in the three months ended June 26 was $3.44 billion, or $4.93 a share, the New York-based bank said today in a statement. That surpassed the $3.65 per-share average estimate of 22 analysts surveyed by Bloomberg and compared with $2.09 billion, or $4.58 per share, in last year’s second quarter.

And that short squeeze that we mentioned yesterday caught folks off-guard. It seems that some traders had theorized that the break below S&P500 880 sent the message that it was time to go short. But as we have been saying all along, this is not a market to be trusted and it is a mistake to assume anything too quickly.

Patience, easy movements and waiting for prices to come to you is the way to collect rewards.

But for as long as it lasts, after four weeks down it felt awfully good to see so much “green” on the screen. But a little bit of green is still no cause for getting cocky and thinking that all is well. At this moment, the bears still have the edge -- until we see otherwise.

We are watching those oversold crude oil and precious metals to see how they react.

The question will be whether yesterday alleviated oversold conditions sufficiently that negative earnings reports will push the market lower, or whether we have worked off enough froth that the market will move higher again. Our thoughts are always the same – we will watch, wait for clear signals and make certain that we feel comfortable about what we do.

Monday, July 13, 2009

EARNINGS SEASON SWINGS INTO HIGH GEAR THIS WEEK


Futures are pointing to a higher market open on Monday, in part based on encouraging comments from Meredith Whitney who recommended buying shares of Goldman Sachs for the first time since January, 2008.

Friday was essentially a half-hearted trading day, probably a bit due to summer doldrums – but to a greater degree a reluctance to get too involved with earnings season swinging into high gear essentially on Tuesday of this week. Technology, which may well be a leader when the market recovers, performed okay, but all in all there simply was little of note.

In considering the total picture, though, it seems that the Bulls have a tough battle ahead. Recent momentum has more and more shifted in favor of the Bear’s camp across the board. And for the Bulls to defend their current position or even gain ground, they desperately need a whole lot of good ammunition, some very terrific earnings reports.

Cost-cutting measures helped last quarter. The bar is set pretty low with respect to earnings expectations. And we definitely go into this earnings season with the charts really quite mixed – some have held on quite well despite the general market, while others have become tremendously oversold. And speaking of oversold, there may be situations where unexpected positive earnings and guidance will result in short squeezes. Oils and precious metals are, of course, oversold, but they have been in No Man’s Land lately.

So there is the potential for a lot more action this week. Some pretty significant reports are on the agenda. And we will see how the earnings season begins to shape up – and how much of the individual results seem already priced in. Guidance will be critically important.

Some companies to watch that will undoubtedly grab headlines will be, of course, Intel (INTC), Goldman Sachs (GS), and Johnson and Johnson (JNJ) reporting on Tuesday – and Google (GOOG) and JP Morgan Chase (JPM)on Thursday -- and General Electric (GE), which just had a pretty tough week, on Friday.

Be careful – and if you plan to step into the battle, keep a watchful eye on just how the battle is shaping up. If it looks like the enemy is starting to gain traction, be quick to step out of the line of fire.

Saturday, July 11, 2009

WEEKEND READING

This is a longer-than-usual Weekend Reading, but we thought that we would make up for the fact that there was no list posted over the July 4th long weekend.


EXTREMELY INTERESTING

A Goldman trading scandal, Reuters

Ex-Goldman Programmer Described Code Downloads to FBI, Bloomberg

Goldman Sachs profit bonanza could stoke anger, Reuters

Lenders avoid redoing loans, Fed concluded, study cites lack of profit in aiding the distressed, boston.com


A MUST-READ

Dumbing-Down the U.S. Navy (it takes a bit of reading to get to the must-read portions!), human events

Government care a health hazard, jewishworldreview.com


HIGH U.S. INTEREST

G-8 Sets Agenda on Trade, Climate, The Wall Street Journal

House to target wealthy to pay for healthcare, The Hill

China's communist government has used its relationships with prominent Americans to further a propaganda effort aimed at influencing US policies and softening economic sanctions, Washington Times

China speaks with authority at Italy summit, China Daily

China criticises dollar, telegraph.co.uk

GOP hits Pelosi for mouse funds -- $16.1 million in stimulous money, Washington Times


CHINA/RIO TINTO SAGA CONTINUES

China v Rio Tinto, Wall Street Journal

Now China accuses the Rio Tinto Four of bribery as well as spying, Mineweb

Chinese spy row escalates as diplomatic crisis brews, The Australian

Beijing's intimidation, The Australian

Govt: Proof against Rio spies sticks, China Daily

China risks protectionist bonfire over Rio Tinto arrests, Telegraph.co.uk

Rethink follows arrests of Rio staff, the australian news


INVESTING, INCLUDING SECTORS AND STOCKS

Greenback on the back burner, where to invest when dollar is weak, MarketWatch

Bargains among blue chips as retirees sell, Canada.com

A record 43 Chinese companies earned spot on latest Fortune 500 list, China.org

June China iron ore imports second highest ever, Mineweb

Copper and Nickel to Correct says Macquarie Research, National Post

IEA: Global Oil Demand Expected to Rebound Next Year, Rigzone

Petrobras: 100% Success Rate Drilling in Santos Basin's Pre-Salt Layer, Rigzone


WHAT ABOUT TECHNOLOGY?

Goldman says it's time to get offensive with tech, MarketWatch

Cyber Attack Raises Stakes for Tech, TheStreet.com


AND GOLD

World's top 100 gold stocks: a little shabby, but strong enough, Mineweb

Lihir Gold, another major gold miner expressing confidence in gold's future, Mineweb


FOR A CHUCKLE



Oh la la - US President snapped checking out delegate's bum!, Bild.com

Beauty Who Turned Obama's Head Is a Brazilian from Rio, Brazzil.mag.com




OTHER

Michael Jackson: Chinese businessmen build new Neverland on island, Telegraph.Co.UK

Pelosi shuts down resolution on Michael Jackson, Yanoo! News

Friday, July 10, 2009

CHINA -- AN EMERGING SUPERPOWER (Repeat)

Our article on China, posted prior to the G-8 meeting, had moved off the blog's main page. We were asked if we would repost it -- and are doing so for the benefit of those who did not have the opportunity to read it previously. We also expect to update this in the near future.

CHINA -- AN EMERGING SUPERPOWER

At Hill and Street News, we have been and remain keen observers of what we believe are China’s strategies to become “the” new global superpower. Undoubtedly, our readers have noted our frequent reference to China, notably with respect to its growing political and economic power, its monetary policies and its prolific accumulation of natural resources.

First, it is entirely understood that United States and China have close economic links, particularly since China now holds more U.S. Treasury debt securities than any other country – and, of course, each is the other’s second-largest trade partner. Perhaps instead of speaking of “links”, we should allude instead to China’s huge position of power over the U.S.

To put the near-term economic growth outlook for the United States and China in perspective, consider information from the Washington-based International Monetary fund:
“Developing Asian economies, led by China and India, will expand 4.8 percent this year while the U. S. contracts by 2.8 percent and the euro area by 4.2 percent,” reported the IMF according a June 30, 2009 Bloomberg article titled, Asia Junk Bond Returns Top Stocks, U.S., Europe Debt. But the World Bank late last month raised its forecast for China’s economic growth this year to 7.3 percent and for 2010 it predicts China’s GDP growth will accelerate to 7.7 percent.

So while the Chinese economy is expected to expand this year, the economy of the U.S. is expected to contract.

And now let us glance at that U.S. debt, largely held by China. A June 29,2009 examiner.com article titled “Financial future of U.S. worsens under Obama”, that presents an abbreviated version of a Washington Times article of the previous day, cites that according to the U.S. Commerce Department, foreigners now hold 50 percent of our country’s publicly held debt – or 25 percent of the US national gross domestic product. And then it explains that if those foreign investors, “such as China, significantly reduce their purchase of future U.S. Treasury debt securities, without even dumping their current holdings, U.S. interest rates could soar and the dollar could collapse.”

Further:
“Three decades of massive ‘trade’ deficits have converted the United States from the world’s banker – able to pay any price and bear any burden in the cause of freedom’ – to the world’s largest debtor, utterly dependent on China and other foreign interests,” according to Charles McMillion, chief economist of Washington-based MBG Information Services. “We are so deeply in debt and this money is so liquid that it hamstrings our monetary, fiscal and trade policies. We’ve really mortgaged our financial future.”

And whether you accept or agree with information provided by Sen. Judd Gregg in a June 30, 2009 article at unionleader.com, this information is chilling and at least worth considering.

This article cites Gregg’s belief “that because of Obama administration spending, the U.S. will have budget shortfalls, or deficits, averaging $1 trillion each year for the next ten years.” Later it states that “By the end of the budget period as proposed by the President, the debt will have skyrocketed to 82 percent of GDP, which is not sustainable.” And further, it echoes previous sentiment that if the Chinese, who have already expressed concern about U.S. debt, “start to reduce their purchases of our government securities because of our need to borrow increasing amounts of money to finance all of the spending that the President has proposed, we will have to start offering higher interest payments to potential leaders to make our securities more attractive.”

Without a doubt, regardless of which political or economic leaders are believed, there is sufficient and convincing evidence at every turn that the U.S. is economically in a serious situation.

China, on the other hand, seems to be positioning itself to become “the” superpower – and more and more businesses want access to China’s markets.

Just watching headlines: June 30th, a People’s Daily Online headline reveals, “European businesses wish to invest more in China” – and in the body of this story, “European enterprises believe that China’s economy can recover earlier in the global downturn.” A recent New York Times article revealed, “Bain Capital, an American private investment firm, said Monday that it had agreed to invest as much as $432 million to acquire a minority stake in Gome Electrical Appliances, one of the biggest Chinese retailers.” This was termed “one of the largest American investments in a mainland Chinese company.” These are just a couple of numerous such stories.

Yes, there seems great interest in China, and why not. As Eswar Prasad wrote in a review of the book, The Chinese Growth Experience: A Golden Tapestry, “an economy that has grown at an average rate of about 10 percent per annum for over two decades, has over a billion people, and has vaulted over others to become the third-largest in the world tends to draw attention.”

THE EMERGENCE OF THE YUAN

Garnering considerable recent attention, Li Lianzhong,a senior researcher with the Communist Party, strongly suggested that China should buy gold and US land. “The US is printing dollars on a massive scale,” Li explained, “and in view of that trend, according to the laws of economics, there is no doubt that the dollar will fall. So gold should be a better choice.”

But he also suggested that an additional reason to buy gold is that the metal is considered necessary for an escalation in the role of the Yuan – “that if the yuan should go international or become a reserve currency, China needs more gold to back that.”

Li, who heads the economic department of the Party’s research office, opined that the yuan should become a fifth currency in the International Monetary Fund’s Special Drawing Rights. And he further suggested that it should have an equal 20 percent weighting with the US dollar, yen, euro and sterling.

Within days of Li’s report, the People’s Bank of China issued a statement saying that China expects to request a reform of the international currency system that will make it more diversified.

On Monday of this week, June 29, China and Hong Kong signed a deal that cross-border trade would be with the yuan – seen as a step in increasing the position of the yuan. Governor of the People’s Bank of China in Hong Kong, Zhou Xiaochuan, earlier this year even suggested the idea of the yuan replacing the dollar as the benchmark global currency.

And then today the Financial Post blarred the headline that China wants “to debate proposals for a new global reserve currency at next week’s Group of Eight summit in Italy." Further in the article, “The debate centres on proposals by some emerging powers that an alternative should be found to the U.S. dollar as the global reserve currency, to reflect the shifting balance of power in the globalized economy.”

Seemingly in support of an escalation in the role of the yuan, Russian Finance Minister Alexei Kudrin had previously said, “I think the shortest route would be if China liberalized its economy and allowed the convertibility of the yuan. … This could take 10 years, but after that the yuan would be in demand and it is the shortest route to the creation of a new world reserve currency, and I think China needs to think about this.”

U.S. LAND, OIL AND NATURAL RESOURCES

Li, of course, also suggested that US land is now a better investment for China than US securities. And, in fact, even before his suggestion, the Chinese had started to invest in U.S. real estate. "At the aptly named ‘America Is for Sale Expo,’ which occurred in Beijing in April 2009, Chinese buyers grabbed more than $100 million in U.S. real estate. Shortly after the expo, it was reported that an additional $400 million in sales was in the works. And another expo is scheduled for October.”

Further Li said that China should dedicate more of its $1.95 trillion in foreign exchange reserves to buying energy and natural resource assets – and, of course, when he spoke, it was widely understood that China has been gobbling up oil and natural resources for quite some time now.

China has been on a natural resources spending spree – not only buying companies outright, but also establishing relationships with other countries, as the nations of Africa, that give China access to natural resources.

In June, 2009 China’s state-owned Sinopac Group made the largest overseas purchase by a Chinese company ever, agreeing to pay US$7.19 billion for oil exploration company, Addax Petroleum Corp. This acquisition provides China with production capacity and reserves in West Africa and the Middle East.

The Wall Street Journal recently reported, “In the past year, Chinese state-owned companies have been encouraged to make acquisitions by a central government convinced that the global financial crisis has created an unmatched buying opportunity. They are taking advantage of depressed asset prices and access to Chinese credit to strike deals designed to secure the resources needed to power China’s growing economy." Further: “deals like the Addax acquisition show they are gradually growing into international oil companies, capable of striking high-profile, cross-border deals. They are even expanding into countries, such as Syria, deemed too risky by Western oil companies.”

And in March of 2009, a Financial Post article read: “Asia’s dealmakers say a Chinese resource spending spree will accelerate throughout the next 12 months, with Canadian mining and energy companies likely on the shopping list.” In the weeks preceding the publication of this article, it says: “With the backing of Beijing, cash-rich Chinese investors have spent the past several weeks working on a spate of overseas resource deals.” And while much of China’s spending had been directed toward Australia, “as the number of Australian targets shrinks, ‘low valuations elsewhere will likely move the focus to North America, particularly resource-rich Canada,” said Richard Griffiths, managing director with Royal Bank of Schtland’s M&A team in Hong Kong.

Of course, there was the well-publicized attempt by Aluminum Corp of China to buy Australian mining giant Rio Tinto for $19.5 billion, but Rio Tinto turned that offer down.

And while China has had no shortage of interest in acquiring oil and natural resource companies, its expansion spans beyond those sectors. Middle East North Africa Financial Network reports, “Mergers and acquisitions is a burgeoning industry in China. In the past year Chinese state-owned entities have successfully acquired minority interests in foreign banks and other financial institutions, and not all as a result of the credit crunch. … Financial news headlines around the world may be bemoaning a global slowdown, but Chinese M&A is definitely alive, well and expanding.”

Earlier we authored an article posted here that highlighted “compelling indications that China is not only strengthening economically and industrially, but that (it) is establishing strong footholds in oil-rich nations of Africa.” With such relationships in place, one has to wonder whether these African nations will sell exclusively to China. And, of course, it is understood that the U.S. and China may well be competing for global oil.

And even within its own borders, China has been on a spending spree -- including miles of high-speed rail lines and a new bullet train from Beijing to Tianjin which travels at up to 217 miles an hour. Money is going into other projects such as airports, highways and environmental projects. Unlike the U.S., China has few debts, only a small deficit and plenty of cash to pay for their construction boom and their expansion into a whole new level of global competition.

China’s emerging world dominance is evidenced within our own U.S. stock market. Three of the five largest companies in the global Russell index are now Chinese -- and PetroChina has replaced Exxon Mobile as number one based on market capitalization.

“In the past two years, we’ve really seen more quantitative evidence mounting about a shift in investment dollars flowing into China and related countries,” said Stephen Wood, chief market strategist for North America at Russell Investment. “The move up by PetroChina might not be significantly great in a strict statistical sense, but it’s going to grab some headlines. The transition in global economic power is under way.”

China should buy gold to hedge dollar fall-researcher
Russia Says Yuan Could be Reserve Currency in Decade
China Seeks New Global Reserve Currency
Sinopec Pact for Addax Boosts China’s Buying Binge
China wants reserve currency debate on G8 agenda: sources
Chinese M&A expanding despite global showdown
Asia Junk Bond Returns Top Stocks, U.S., Europe Debt
Financial future of U.S. worsens under Obama
China slowly preparing to dominate the globe
China Big Winner As Exxon Dethroned in Russell
World Bank Ups China 2009 GDP Forecast
China, Hong Kong sign yuan trade settlement deal
China’s Route Forward

WEEKEND READING LIST WILL BE BACK, ANOTHER FEATURE SOON

This weekend we will return with a reading list -- hopefully some information that you have not read before.

If you did not read the feature article on China, posted last week, you really should scroll down on this page and take a look. And we hope to get another one up very soon.

IT IS ALL ABOUT PATIENCE

Futures are indicating a moderately lower open this morning.

There is still no crystal clear indication of just where this market is heading, and we would really like to see the S&P500 gain some upside momentum. Yesterday provided an okay bounce in the most oversold sectors, energy, materials and financials, but there was sort of a lackadaisical feeling from the Bulls.

The overall trend, of course, has been lower, and we must respect that trend until we see signals that conditions have changed. Quite possibly, the market is simply going to churn here for a while. Without some positive news flow, it may well churn for a bit and then take another leg down.

Investors would most certainly like to hear some positive news from Washington. Folks would especially like an improved jobs report -- and, of course, talk of another stimulus package has them on edge.

It is times like these that make our job so difficult – the tendency is to want to do something, but wisdom dictates doing little to nothing at all. It is all about patience and waiting.

Thursday, July 9, 2009

THURSDAY OPEN LOOKS TO BE HIGHER

Futures are pointing to a higher open today, Thursday.

Yesterday – another tough day for the market. The Bulls, who had let that previous S&P500 880 line in the sand go, stepped up to defend the 870 level late in the day, and even mastered a bit of a bounce to the closing bell.

We have been patiently watching as technical conditions have deteriorated – along the way letting the warriors fight this one out while we stand on the sidelines. And it should go without saying that while we have been sitting on our hands as the battle plays out, we are all the while still looking at individual stock charts.

The S&P500 head and shoulders pattern is not to our liking, but, of course, it is still possible to find some decent looking individual charts that have held up pretty well. And there are a slew of stocks that seem oversold, particularly some of the oils.

The chances for an oversold bounce keep increasing.

And an additional factor in the whole mix is that there may be some interesting action next week as earnings season kicks into full swing.

We are, of course, following all of the news and have been particularly interested in the China/Rio Tinto situation -- something to ponder.

Wednesday, July 8, 2009

FLATTISH TO HIGHER OPEN ON WEDNEDAY

Futures are indicating a flattish to slightly higher open.

Yesterday was excruciating -- no escaping that fact. Stocks fell to their lowest level in ten weeks. Major indices ended the day an average of about 2 percent lower, just off their lows for the day. The S&P500 dropped under its 200 day moving average, and the Nasdaq was unable to hold its 50 day MA. Breadth was about 3:1 negative. And the beginning of the earnings season is now weighing heavily on folks’ minds.

After all of that, we could use some uplifting news, but about the best that we can do is to say that many charts are technically oversold.

It is hard to be idle, but we must respect that the trend has turned lower – and until there is a shift and positive signals, the best action that we are taking is simply sitting on our hands.

Tuesday, July 7, 2009

LOOKS LIKE A LOWER OPEN FOR TUESDAY

While yesterday the Bulls did step up to the plate to protect that S&P 500 support line of 880 that we had drawn in the sand, there is still not a clear signal of where things will go from here. Will we rest here and have satisfied the Bears that enough is enough -- or is this just a set-up for a rest and then another leg down?

Without clear signals, you know where we stand. Our choice is always to protect capital, and we can live with not trying to time an entry to the exact bottom of a move down. Having said that, we, of course, are keeping a sharp eye on some charts, looking for what we believe to be good entry levels -- and if we do make any moves, they will be tiny until we have greater confidence.

Beyond that, there is not a lot of news/announcements expected today -- which could help the market settle in here.

We obviously prefer having pretty clear signals for action to take. And it makes for a more interesting daily post when there is something to say beyond that we are staying patient and sitting on our hands. But patience is rewarded, and doing something just to do something rarely turns out to be a good thing. So today we will just keep our eyes focused on all of the usual signals that we have mentioned here so many times before.

Monday, July 6, 2009

AFTER THE 4th OF JULY HOLIDAY

Major indices are indicating a lower open following the long holiday weekend.

Given the broad-based technical damage of last week, it seems eyes will be focusing on whether the S&P500 (which, along with the Dow, formed a head and shoulders pattern) can now hold the 880 support level.

And, of course, with the second-quarter now in the history books, money managers will probably be a whole lot less interested in their propping games.

We previously mentioned that our concern level had risen in the past week or two – and that anything that we did would be very tiny. That sentiment has not changed. It seems a time for patience. There is nothing wrong with having some cash. And our primary stance is waiting for clearer signals and good opportunities.

Thursday, July 2, 2009

THURSDAY -- FUTURES INDICATING LOWER OPEN -- DISAPPOINTING JOBS DATA

Futures are looking lower premarket – and have, in fact, weakened since the release of the latest jobs data showing unemployment reaching 9.5 percent.

Although yesterday was not a bad day with indices posting okay gains, it was the defensive stocks that seemed to fare best. And of concern is the fact that the S&P 500 was unable to hold above the 930 level.

Do we even need to repeat that we will be watching the $USD and gold? By now, that seems a given.

Action today might get a bit touchy -- given this shortened holiday week and thin trading as folks begin heading for the beach. And, in fact, we will be observing the holiday here at Hill And Street News – so that our next report will be on Monday.

As a final note, we do hope that readers will glance over the China report below. It reflects much of what we have been alluding to over several months.

Have a safe and wonderful holiday!

Wednesday, July 1, 2009

CHINA -- AN EMERGING SUPERPOWER

At Hill and Street News, we have been and remain keen observers of what we believe are China’s strategies to become “the” new global superpower. Undoubtedly, our readers have noted our frequent reference to China, notably with respect to its growing political and economic power, its monetary policies and its prolific accumulation of natural resources.

First, it is entirely understood that United States and China have close economic links, particularly since China now holds more U.S. Treasury debt securities than any other country – and, of course, each is the other’s second-largest trade partner. Perhaps instead of speaking of “links”, we should allude instead to China’s huge position of power over the U.S.

To put the near-term economic growth outlook for the United States and China in perspective, consider information from the Washington-based International Monetary fund:
“Developing Asian economies, led by China and India, will expand 4.8 percent this year while the U. S. contracts by 2.8 percent and the euro area by 4.2 percent,” reported the IMF according a June 30, 2009 Bloomberg article titled, Asia Junk Bond Returns Top Stocks, U.S., Europe Debt. But the World Bank late last month raised its forecast for China’s economic growth this year to 7.3 percent and for 2010 it predicts China’s GDP growth will accelerate to 7.7 percent.

So while the Chinese economy is expected to expand this year, the economy of the U.S. is expected to contract.

And now let us glance at that U.S. debt, largely held by China. A June 29,2009 examiner.com article titled “Financial future of U.S. worsens under Obama”, that presents an abbreviated version of a Washington Times article of the previous day, cites that according to the U.S. Commerce Department, foreigners now hold 50 percent of our country’s publicly held debt – or 25 percent of the US national gross domestic product. And then it explains that if those foreign investors, “such as China, significantly reduce their purchase of future U.S. Treasury debt securities, without even dumping their current holdings, U.S. interest rates could soar and the dollar could collapse.”

Further:
“Three decades of massive ‘trade’ deficits have converted the United States from the world’s banker – able to pay any price and bear any burden in the cause of freedom’ – to the world’s largest debtor, utterly dependent on China and other foreign interests,” according to Charles McMillion, chief economist of Washington-based MBG Information Services. “We are so deeply in debt and this money is so liquid that it hamstrings our monetary, fiscal and trade policies. We’ve really mortgaged our financial future.”

And whether you accept or agree with information provided by Sen. Judd Gregg in a June 30, 2009 article at unionleader.com, this information is chilling and at least worth considering.

This article cites Gregg’s belief “that because of Obama administration spending, the U.S. will have budget shortfalls, or deficits, averaging $1 trillion each year for the next ten years.” Later it states that “By the end of the budget period as proposed by the President, the debt will have skyrocketed to 82 percent of GDP, which is not sustainable.” And further, it echoes previous sentiment that if the Chinese, who have already expressed concern about U.S. debt, “start to reduce their purchases of our government securities because of our need to borrow increasing amounts of money to finance all of the spending that the President has proposed, we will have to start offering higher interest payments to potential leaders to make our securities more attractive.”

Without a doubt, regardless of which political or economic leaders are believed, there is sufficient and convincing evidence at every turn that the U.S. is economically in a serious situation.

China, on the other hand, seems to be positioning itself to become “the” superpower – and more and more businesses want access to China’s markets.

Just watching headlines: June 30th, a People’s Daily Online headline reveals, “European businesses wish to invest more in China” – and in the body of this story, “European enterprises believe that China’s economy can recover earlier in the global downturn.” A recent New York Times article revealed, “Bain Capital, an American private investment firm, said Monday that it had agreed to invest as much as $432 million to acquire a minority stake in Gome Electrical Appliances, one of the biggest Chinese retailers.” This was termed “one of the largest American investments in a mainland Chinese company.” These are just a couple of numerous such stories.

Yes, there seems great interest in China, and why not. As Eswar Prasad wrote in a review of the book, The Chinese Growth Experience: A Golden Tapestry, “an economy that has grown at an average rate of about 10 percent per annum for over two decades, has over a billion people, and has vaulted over others to become the third-largest in the world tends to draw attention.”

THE EMERGENCE OF THE YUAN

Garnering considerable recent attention, Li Lianzhong,a senior researcher with the Communist Party, strongly suggested that China should buy gold and US land. “The US is printing dollars on a massive scale,” Li explained, “and in view of that trend, according to the laws of economics, there is no doubt that the dollar will fall. So gold should be a better choice.”

But he also suggested that an additional reason to buy gold is that the metal is considered necessary for an escalation in the role of the Yuan – “that if the yuan should go international or become a reserve currency, China needs more gold to back that.”

Li, who heads the economic department of the Party’s research office, opined that the yuan should become a fifth currency in the International Monetary Fund’s Special Drawing Rights. And he further suggested that it should have an equal 20 percent weighting with the US dollar, yen, euro and sterling.

Within days of Li’s report, the People’s Bank of China issued a statement saying that China expects to request a reform of the international currency system that will make it more diversified.

On Monday of this week, June 29, China and Hong Kong signed a deal that cross-border trade would be with the yuan – seen as a step in increasing the position of the yuan. Governor of the People’s Bank of China in Hong Kong, Zhou Xiaochuan, earlier this year even suggested the idea of the yuan replacing the dollar as the benchmark global currency.

And then today the Financial Post blarred the headline that China wants “to debate proposals for a new global reserve currency at next week’s Group of Eight summit in Italy." Further in the article, “The debate centres on proposals by some emerging powers that an alternative should be found to the U.S. dollar as the global reserve currency, to reflect the shifting balance of power in the globalized economy.”

Seemingly in support of an escalation in the role of the yuan, Russian Finance Minister Alexei Kudrin had previously said, “I think the shortest route would be if China liberalized its economy and allowed the convertibility of the yuan. … This could take 10 years, but after that the yuan would be in demand and it is the shortest route to the creation of a new world reserve currency, and I think China needs to think about this.”

U.S. LAND, OIL AND NATURAL RESOURCES

Li, of course, also suggested that US land is now a better investment for China than US securities. And, in fact, even before his suggestion, the Chinese had started to invest in U.S. real estate. "At the aptly named ‘America Is for Sale Expo,’ which occurred in Beijing in April 2009, Chinese buyers grabbed more than $100 million in U.S. real estate. Shortly after the expo, it was reported that an additional $400 million in sales was in the works. And another expo is scheduled for October.”

Further Li said that China should dedicate more of its $1.95 trillion in foreign exchange reserves to buying energy and natural resource assets – and, of course, when he spoke, it was widely understood that China has been gobbling up oil and natural resources for quite some time now.

China has been on a natural resources spending spree – not only buying companies outright, but also establishing relationships with other countries, as the nations of Africa, that give China access to natural resources.

In June, 2009 China’s state-owned Sinopac Group made the largest overseas purchase by a Chinese company ever, agreeing to pay US$7.19 billion for oil exploration company, Addax Petroleum Corp. This acquisition provides China with production capacity and reserves in West Africa and the Middle East.

The Wall Street Journal recently reported, “In the past year, Chinese state-owned companies have been encouraged to make acquisitions by a central government convinced that the global financial crisis has created an unmatched buying opportunity. They are taking advantage of depressed asset prices and access to Chinese credit to strike deals designed to secure the resources needed to power China’s growing economy." Further: “deals like the Addax acquisition show they are gradually growing into international oil companies, capable of striking high-profile, cross-border deals. They are even expanding into countries, such as Syria, deemed too risky by Western oil companies.”

And in March of 2009, a Financial Post article read: “Asia’s dealmakers say a Chinese resource spending spree will accelerate throughout the next 12 months, with Canadian mining and energy companies likely on the shopping list.” In the weeks preceding the publication of this article, it says: “With the backing of Beijing, cash-rich Chinese investors have spent the past several weeks working on a spate of overseas resource deals.” And while much of China’s spending had been directed toward Australia, “as the number of Australian targets shrinks, ‘low valuations elsewhere will likely move the focus to North America, particularly resource-rich Canada,” said Richard Griffiths, managing director with Royal Bank of Schtland’s M&A team in Hong Kong.

Of course, there was the well-publicized attempt by Aluminum Corp of China to buy Australian mining giant Rio Tinto for $19.5 billion, but Rio Tinto turned that offer down.

And while China has had no shortage of interest in acquiring oil and natural resource companies, its expansion spans beyond those sectors. Middle East North Africa Financial Network reports, “Mergers and acquisitions is a burgeoning industry in China. In the past year Chinese state-owned entities have successfully acquired minority interests in foreign banks and other financial institutions, and not all as a result of the credit crunch. … Financial news headlines around the world may be bemoaning a global slowdown, but Chinese M&A is definitely alive, well and expanding.”

Earlier we authored an article posted here that highlighted “compelling indications that China is not only strengthening economically and industrially, but that (it) is establishing strong footholds in oil-rich nations of Africa.” With such relationships in place, one has to wonder whether these African nations will sell exclusively to China. And, of course, it is understood that the U.S. and China may well be competing for global oil.

And even within its own borders, China has been on a spending spree -- including miles of high-speed rail lines and a new bullet train from Beijing to Tianjin which travels at up to 217 miles an hour. Money is going into other projects such as airports, highways and environmental projects. Unlike the U.S., China has few debts, only a small deficit and plenty of cash to pay for their construction boom and their expansion into a whole new level of global competition.

China’s emerging world dominance is evidenced within our own U.S. stock market. Three of the five largest companies in the global Russell index are now Chinese -- and PetroChina has replaced Exxon Mobile as number one based on market capitalization.

“In the past two years, we’ve really seen more quantitative evidence mounting about a shift in investment dollars flowing into China and related countries,” said Stephen Wood, chief market strategist for North America at Russell Investment. “The move up by PetroChina might not be significantly great in a strict statistical sense, but it’s going to grab some headlines. The transition in global economic power is under way.”

China should buy gold to hedge dollar fall-researcher
Russia Says Yuan Could be Reserve Currency in Decade
China Seeks New Global Reserve Currency
Sinopec Pact for Addax Boosts China’s Buying Binge
China wants reserve currency debate on G8 agenda: sources
Chinese M&A expanding despite global showdown
Asia Junk Bond Returns Top Stocks, U.S., Europe Debt
Financial future of U.S. worsens under Obama
China slowly preparing to dominate the globe
China Big Winner As Exxon Dethroned in Russell
World Bank Ups China 2009 GDP Forecast
China, Hong Kong sign yuan trade settlement deal
China’s Route Forward

WEDNESDAY MORNING

Well, it seemed that yesterday started okay, and folks made an effort to do a bit of salvaging in the final hour – but the day showed exactly why we have stepped back some lately. None of the sectors escaped unscathed, and goldminers certainly suffered.

We have, you will recall, termed the market “heated” and “frothy” -- and expressed that we have felt cautious. And it has been a while since we have posted that we have felt comfortable doing much of anything.

There do seem some decent charts -- and it also seems that there has been more of a leaning toward defensive stocks.

Still, we are simply enjoying the summer -- and any moves that we make will be tiny ones.

When opportunities present, it is nice to take advantage – but, as we always stress, hanging onto profits is always the first consideration.

It is the start of a new month and a new quarter, and there are some downgrades. And don't forget that the US markets will be closed on July 3rd.

Oh, and we will probably have our China piece later today.