Tuesday, May 17, 2005

The Snowman Speaks

If you look at the chart of the Dow for today, you see a distinct flat line of about 25 points range in trading until mid-afternoon when you see a vertical vault that lifted the Dow up about a 100 points. The primary reason sited for this rally was the good Secretary of Treasury, aka the Snowman in these parts. The Secretary did some sabre rattling at China to make progress on allowing a more flexible yaun. Well, one never knows if things like that can really move the market but it definitely seemed to coincide with the launch.

We are not sure that the US can make such demands on the Chinese. They hold and continue to buy many of our bonds supporting our desire for financing public debt at low rates. At the same time they would allow their currency to float, they would take a big haircut in the value of their bond holdings. (That's your homework assignment, figuring out why.)

Today's PPI increase was met with a yawn, not a yuan. The April number was 0.6% with core up only 0.3%, only. The Fed funds rate at 3% doesn't seem quite high enough compared to these numbers. Tomorrow we get the CPI, let's see what the market thinks of that.

Tonight we heard from two important tech companies, HPQ, Hewlett Packard (Compaq), and AMAT, one of our shorts. HPQ said their earnings were great and the new CEO, Hurd, said that the future was very bright indeed. So, in one short quarter this guy has turned the company around since Carley Fiorina left. The guy is truly amazing.

AMAT, on the other hand, said that earning for the quarter were down 18% and that revenue for next quarter might be down 10%. So, here we have the tale of two stocks. HPQ was up about 4% after the news and AMAT was down about 2%. We'll see how the market likes them in the morning.

As for gold, today was a good day for the mining companies as the HUI rose with very little net movement in the metal. This is the type of day we have been waiting for in order to trade into these stocks. The light is definitely turning from red to green--but we will wait a little while longer. You can do what you want.

Dow Industrials: 10,331.88 +79.59


Anonymous said...

can't a country set their own exchange rate, depending on what they are striving for? like you controlling your own budget?

Anonymous said...

can we call this up a trend

Glenn said...

Exchange rates are normally determined by the market and of course the fundamentals that lead to the market setting the rates. For China, they peg their currency to the dollar so as the dollar moves so does the yuan/renminbi. Since the US buys so much from China, in a normal world that would drive up their currency. See the Wednesday Update email version for more info in the morning.

This up move has been in place for the NASDAQ since April 15th and that market has been noticably stronger than the Dow. The Dow has basically had a three day rally which can NOT be considered a trend. Even in the NASDAQ we have only seen a five percent rally. I guess the question is "Will this up move continue?" To that I say, it's May and I don't see it continuing much further. More info again in the Wednesday Update email version.

Anonymous said...

you say "normally determined by the market". but why can't a country set their own rules? it's like just because it is pouring i need to use an umbrella, may be i haven't had a shower recently and i want to take advantage of the rain. shouldn't it be whatever it is best for me? or the country? if the country has leverage power why not use it and define the rules of the game?