Derivati USA: CME-CBOT-NYMEX-ICE T-Bond-10y-Bund : la maledizione di f4f (vm18)

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Tuesday August 29, 3:35 AM
Gasoline demand rises slower in June
NEW YORK (Reuters) - U.S. gasoline demand in June grew by just over 0.6 percent year-on-year, less than half the rate previously implied by weekly data, the U.S. government's monthly oil data showed on Monday.

U.S. gasoline demand rose by 60,000 barrels per day to 9.44 million bpd in June, or up 0.64 percent from June 2005, the Energy Information Administration's monthly petroleum supply report said.

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This compared with the EIA's weekly data that had showed demand increasing by more than 120,000 bpd.

But the EIA noted this summer that its more detailed monthly data often show a smaller increase in oil consumption than the weekly figures imply.

EIA officials and other analysts predicted earlier in the summer that U.S. gasoline demand growth in 2006 would be a modest 0.5 to 1 percent as high prices encouraged motorists to curb their fuel use.

But robust weekly gasoline demand figures have been cited as evidence by oil market analysts of continued strength in oil demand growth and a key factor behind high crude prices.

"Year-over-year demand is still up and that is something we have seen fairly consistently," said Jason Schenker, an economist with Wachovia Bank in Charleston, North Carolina.

"Going forward, things are a bit more bearish with the U.S. economy and the rest of the G7 along with the emerging economies slowing down due to a concomitant increase in energy prices and tightening global liquidity."

Gasoline demand has not contracted in the United States for 23 years but high prices in 2005 and 2006 have deflated the rate of increase from levels between 1.5 and 2 percent seen earlier.

U.S. gasoline prices in June averaged $2.93 per U.S. gallon, compared with just over $2.33 per gallon in June 2005, according to the EIA. As recently as 2004, the average price of gasoline in June was only $2.01 per gallon.

 

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FOREX-Dollar softens ahead of Fed minutes, US data
Mon Aug 28, 2006 2:47pm ET

By Kevin Plumberg

NEW YORK, Aug 28 (Reuters) - The dollar softened in quiet trade on Monday ahead of key signals this week of where U.S. interest rates might be headed, including Federal Reserve meeting minutes and the August payrolls report.

The yen also was broadly weaker, falling to a record low against the euro, due to reduced expectations for rate hikes this year by the Bank of Japan following soft Japanese inflation data on Friday.


"Economic data in the U.S. this week is likely to reinforce expectations that the Fed tightening cycle has ended," UBS currency strategists wrote in a note to clients. "The combination of slowing activity data and tame inflation is negative for the dollar and should keep euro/dollar elevated."

Trading volumes were thin on Monday because London's financial markets were closed for a holiday.

By early afternoon, the euro was up 0.3 percent at $1.2792 <EUR>, but this was more than a cent below two-month highs of around $1.2940 on Aug. 21.

The euro hit a record high against the yen just below 150 <EURJPY>, according to EBS, where traders cited market talk of large option barriers being protected.

The 150 level has captivated dealers for the last few weeks, especially because of its psychological importance and the likelihood of big clusters of automatic buy orders above it.

The dollar slipped slightly against the yen to 117.16 yen <JPY>, mostly due to the U.S. currency's broad weakness.

The dollar fell 0.4 percent to 1.2350 Swiss francs <CHF> while sterling rose 0.5 percent to $1.8962 <GBP>.

FUNDAMENTALS ARE CRITICAL THIS WEEK

Beyond Monday, dealers will have a bevy of economic and monetary policy indicators to trade on. The Fed will release minutes from its August meeting on Tuesday, when only one member of the policy-setting committee voted against a decision to keep interest rates steady for the first time in two years.


The Fed is expected to keep interest rates unchanged again next month and investors are sensitive to any clues about the central bank's policy bias beyond its Sept. 20 meeting.

"We're trying to get a handle on whether this was just a short pause to get a handle on what their policy had accomplished so far or if the talk was leaning toward this being the end of the line," said John Beerling, chief currency dealer with Wells Fargo in Minneapolis, Minnesota.

Markets are looking to this week's August U.S. payrolls report on Friday, as well as indications from the personal consumption expenditures price index for July, due on Thursday.

"A moderate gain (in payrolls) in line with the past few months will confirm the stand-pat stance for the Fed," said Avery Shenfeld, chief economist at CIBC World Markets in Toronto.

This is "no surprise, but part of a bearish underlying picture for the U.S. dollar versus overseas majors," he added.

 

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NY gold tumbles to 10-day low as weaker oil weighs
Mon Aug 28, 2006 2:40pm ET
NEW YORK, Aug 28 (Reuters) - U.S. gold futures sank 1.1 percent to close at a 10-day low on Monday, as storm fears faded and prompted widespread selling in crude oil and the precious metals, dealers said.

Oil prices slumped about $2 a barrel as a Caribbean storm lost strength and veered toward the east coast of Florida and away from oil rigs in the Gulf of Mexico and oil refineries along the Gulf Coast.

Hurricane Ernesto weakened to a tropical storm but forecasters said it could regain strength as it barreled toward the Florida Keys.

"With the hurricane being downgraded, that has brought in a little liquidation in the oil and also the gold," said Frank Aburto, a broker at Rosenthal-Collins Group in New York.


Gold and oil frequently move in tandem as some investors trade commodities as a group and also as some dealers use the metal as a hedge against inflation when energy prices are high.

December delivery gold <GCZ6> fell $6.90 to $623.90 an ounce on the New York Mercantile Exchange's COMEX division, trading from $632.70 to $621 -- its lowest since Aug. 18.

Volumes were exceptionally thin due to summer vacations and a bank holiday in London, said dealers. Just ahead of the close, estimated turnover was a meager 22,000 lots.

A soft dollar lent minor support to gold, players said.

The dollar eased at the start of a busy week for economic data that could shed some light on U.S. interest rates beyond next month. The euro was up at $1.2793 <EUR> at midafternoon

Gold often has a tight inverse relationship with the dollar, as traders use it as an alternative to the currency.

Jon Nadler, an analyst with Kitco bullion dealers, said some traders seem reluctant to take on safe-haven gold positions on a hunch that the Iranian nuclear situation will not be forcefully addressed by the United States and its allies, despite a looming Thursday deadline.

"Precious metals markets remain subject to short-term cave-ins and (gold) could very well test the $600 area as the fresh offtake drivers of jewelry demand and additional investment demand remain wish-list items on the horizon," he said in a daily note.

Iran said on Sunday it would never stop uranium enrichment despite a looming U.N. deadline designed to ensure it cannot develop nuclear weapons.


The United States has threatened swift action on sanctions after Aug. 31 if Iran does not heed the U.N. demand. But analysts say divisions between major powers may delay any punitive measures.

Analysts pegged chart support in December gold at $620 and then at $610 with resistance at $650.

Investors on Tuesday will scrutinize the minutes of the Federal Reserve's Aug. 8 policy meeting for insight into why it left its funds rate at 5.25 percent after boosting it 17 straight times in two years to June.

U.S. August payrolls on Friday will also be closely eyed.

Spot gold <XAU> slid to $613.90/615.40 an ounce, from Friday's New York close at $621.50/3.00. There were no London bullion fixes on Monday, due to a UK public holiday.
Other precious metals fell with gold, though much of the action in silver and palladium was fueled by rollover out of the September contract into next-active December futures.

COMEX September silver <SIU6> closed 34.5 cents lower at $12.0250 an ounce, in a range of $12.4650 to $11.96. December <SIZ6> sank 35.0 cents to $12.1970.

Spot silver <XAG> fell to $12.00/12.10 from $12.33/43 at its last close. There was no London silver fix Monday.

In platinum, NYMEX October futures <PLV6> lost $5.30 to end at $1,227.70 an ounce. Spot platinum <XPT> dipped to $1,215/20.


September palladium <PAU6> fell $4.35 to $341.45 an ounce. December shed $4.15 to $347.75. Spot palladium <XPD> was at $340/345.

 

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The productivity watch
The nirvana of high growth and low inflation may be over, Daniel Gross writes in Fortune.
By Daniel Gross
August 22 2006: 5:35 AM EDT


(Fortune Magazine) -- At 2 p.m. on Aug. 8, the Federal Reserve declared a cease-fire in its long-running rate-hike campaign. A week later the government reported benign inflation figures for July: The producer price index rose a meager 0.1 percent, while the core consumer price index was up just 0.2 percent.

Investors and Fed watchers concluded that inflation is under control. And newly confident in the sound judgment of Federal Reserve chairman Ben Bernanke, they began spinning happy scenarios of a soft landing.


But less noticed on Aug. 8 was the first dissent of the Bernanke era: Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, voted for a 25-basis-point increase.

He may have been reacting to a bit of news released just days before - one that may indicate we're in for a bumpy macroeconomic ride. The Bureau of Labor Statistics reported that in the second quarter productivity growth came to a screeching halt, falling to 1.1 percent from 4.3 percent in the first quarter.

Perhaps even more ominous - since quarterly productivity numbers tend to jump around a lot - the Commerce Department in late July revised downward its estimates of productivity growth from 2003 to 2005.

Why does productivity matter? It measures an economy's ability to do more with the same amount of labor and is the best indicator of how fast it can grow without spurring inflation.

Until recently productivity growth was highly cyclical: It would rise sharply at the beginning of an expansion and then slow as labor markets tightened and workers demanded greater compensation. That changed in the 1990s. From the early 1970s until 1995, nonfarm business productivity growth averaged a meager 1.5 percent per year. But between 1995 and 2001, even as the 1990s-era expansion ripened, productivity grew at a remarkable rate: about 2.5 percent per year.

Former Federal Reserve chairman Alan Greenspan explained this anomaly by pointing to a virtuous cycle fueled by information technology. IT investments boosted productivity, which boosted corporate profits, which led to more IT investments, and so on, leading to a nirvana of high growth and low inflation.

This virtuous cycle survived the dot-com meltdown, as productivity growth remained strong in the post-2001 years. In June, speaking at his alma mater, MIT, Bernanke noted that research "suggests that the current productivity revival still has some legs."

Vicious reinforcement
But Bernanke may face a much different inflation vista than Greenspan did. In the 1990s, Europe, Asia, and America took turns growing strongly, so we never had a pervasive global push on prices, says Lakshman Achuthan, managing director of the Economic Cycle Research Institute. Now the world's largest economies have all been expanding for several years, which is pushing up prices for commodities. (Hello, inflation!)

If lower productivity and higher inflation amplify each other - as higher productivity and lower inflation did in the 1990s - we face the risk of a bizarro virtuous circle, says Achuthan: a vicious reinforcement, in which lower productivity drives inflation higher, which in turn drives productivity lower.

The most recent productivity release showed unit labor costs rose 4.2 percent in the second quarter of 2006, up from 2.5 percent in the first quarter.

"These are traditional markers of a cyclical inflation upswing," says Allen Sinai, chief global economist at Decision Economics.

Bernanke himself may be more concerned than he lets on. The Federal Open Market Committee's Delphic communiqué for June 29 contained this sentence: "Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained."

In the Aug. 8 missive, that reassuring statement was nowhere to be found.

From the September 4, 2006 issue

 

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PETER BRIMELOW
Focusing on a bull's bull
Commentary: Bob Brinker's Marketimer still thoughtfully bullish
By Peter Brimelow, MarketWatch
Last Update: 12:01 AM ET Aug 28, 2006


NEW YORK (MarketWatch) -- For a couple of years now, I've been in the habit of consulting three newsletters, Bob Brinker's Marketimer, Lawrence and Jesse Czelusta's Index Rx and Richard Band's Profitable Investing, that suddenly turned bullish early in 2003, despite a dramatic down day, catching what was pretty much the low (to date) of the post-millennium bear market. See March 13, 2003 column
It's some time since I focused on Brinker, always the most bullish of the three.
According to the Hulbert Financial Digest, Brinker's Marketimer is up only 4.64% over the past 12 months vs. 5.43% for the dividend-reinvested Dow Jones Wilshire 5000. Over the last 10 years, however, Marketimer gained 11.4% annualized vs. 9.4 percent annualized for the DJ Wilshire 5000. Which is why Mark Hulbert consistently consults Marketimer when reviewing what the best market timers are saying. See June 1, 2006 column
There's another risk in writing about Brinker. Many subscribers have never forgotten what they regard as a disastrous Brinker trade in 2000 and his subsequent cover-up. (In a special bulletin, but not in his model portfolio, Brinker suggested Nasdaq 100 Trust (QQQ : Nasdaq-100 Trust 1
News , chart, profile, more
Last: 38.61+0.29+0.76%

QQQ38.61, +0.29, +0.8%) , the Nasdaq 100 exchange-trade fund on the American Stock Exchange. So HFD did not count it - just as well, because it promptly collapsed. Avalanches of email attack any favorable mention of him. See Aug. 22, 2002 column
Heroically disregarding this risk, however, I can report that Brinker, although obviously bruised by the stock market stall this year, is still (thoughtfully) bullish.
His most recent letter -- despite his prominence on radio and television, Brinker still sticks to the traditional newsletter pattern of once-a-month mailings -- makes this clear: "We continue to believe that the 2006 closing low for the S&P 500 Index will be within a few percentage points of the 1250 level. We regard any weakness below that level as a buying opportunity for subscribers seeking to add to their equity holdings. So far, this has been a textbook correction process, and any further weakness in the 1,200-1,250 range will present an attractive entry point in our view ... we believe the S&P 500 Index will resume its uptrend following the completion of the 2006 correction process. Our minimum target range for the S$P 500 is 1,350 to 1,400, within a timeline of fourth-quarter 2006 to mid-2007. Any progress beyond that level will depend on the health of the Marketimer stock market timing model when our target price range is reached."
Brinker's reasons for his approach are logical if traditional. He writes that latest figures from the Index of Leading Economic Indicators "confirm our view that the U.S. economy is in the process of slowing down following the strong first-quarter rebound from the fourth-quarter post-Katrina fallout ... however, we do not believe the conditions are present that would lead to recession at this time."
Brinker methodically works through the S&P 500 and announces a revised earnings estimate, given what he sees as improved earnings prospects for the year, of $82. He says he's adopted a conservative price earnings estimate because of inflation fears of 16.5 to 17 times 2006 earnings. Hence his S&P 500 target of 1,350 to 1,400.
However, Brinker clearly does not regard inflation as a threat, and congratulates Federal Reserve chide Ben Bernanke for refusing to monetize oil-price increases: "We have always maintained that rising oil prices act as a tax on consumers, and are therefore counter-inflationary as they have a negative impact on consumer discretionary spending power."
Brinker remains fully invested. All of his model portfolios currently hold Dodge & Cox International Stock Fund (DODFX : Dodge & Cox Intl Stock

 

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AUGUST 24, 2006


The Week Ahead
By James Mehring


Vital Signs: A Soft Landing?
Economists expect a tepid rise in August payrolls, but wage gains should help consumers weather slower home price growth and higher gas prices. Also on tap: consumer confidence, personal income, and minutes from the Fed's Aug. 8 monetary policy meeting


Just how soft is the U.S. economy? The latest July data showing further deterioration in the housing market has elevated concerns about consumer spending and prospects for solid economic growth going forward. So far, the data outside of housing still look pretty good, but investors will be looking closely at next week's bevy of reports for any indications of a broader deterioration in conditions.

Tops among next week's reports will be the August employment figures. The consensus among economists queried by Action Economics is for a tepid increase in payrolls of 125,000. Even as hiring has cooled off in the past few months, wage growth continues to look quite strong. In July, average hourly earnings were up 3.8% from a year ago. The trend in wages would imply that the labor market remains tight, which is confirmed by a jobless rate below 5%. Indeed, more businesses say it is increasingly difficult to find much-needed high-skilled workers, which some economy watchers claim is one reason why hiring has slowed.

The strength in hourly wage growth is backed up in the monthly personal income figures. The yearly growth in wages and salaries was 6.9% in June. And both August hourly earnings and July personal income are expected to have grown at a solid clip. So even if hiring is softer, the gains in pay should help working consumers weather slower home price appreciation and higher gas prices. July figures on consumer spending are expected to look quite healthy.

Beyond jobs, many economists are counting on businesses to boost economic growth by ratcheting up investment spending. August factory activity indexes from the Institute for Supply Management and Chicago purchasing managers will shed light on whether companies are still investing.

The July durable goods report looked weak on the surface, with a 2.4% drop in new orders. However, beyond the volatile transportation industries, orders were up. July orders of computers and machinery were both quite strong. Also, orders for capital goods outside of the monthly ups and downs in aircraft bookings increased for the third month in a row, a sign that capital spending is offering plenty of support to overall economic growth this quarter.

Besides pouring over the new data to get a grasp of what lies ahead, the markets will also be taking a look back. Revisions to second-quarter gross domestic product come out on Aug. 30. The GDP numbers are likely to show the economy did better than first thought despite the dropoff in homebuilding -- certainly not a bad sign for future prospects.

The Federal Reserve also releases the minutes to its Aug. 8 monetary policy meeting. The report should garner a lot of attention due to the degree of uncertainty surrounding future monetary policy and Federal Reserve Bank of Chicago President Michael Moskow's hawkish remarks made on Aug. 24. Investors are concerned that even if the latest data show the economy is coming in for nothing worse than a soft landing, an overly aggressive Fed could do more damage than a weaker housing market


MEETING OF NOTE
Tuesday, Aug. 29, 1 p.m. EDT
Federal Reserve Bank of Dallas President Richard Fisher speaks at a community luncheon in San Antonio, Tex.

ICSC-UBS STORE SALES
Tuesday, Aug. 29, 7:45 a.m. EDT
This weekly tracking of retail sales, compiled by the International Council of Shopping Centers and UBS bank, will update buying activity for the period ending Aug. 26. Sales slipped 0.2% in the week ended Aug. 19, after holding steady in the prior period. Compared to a year ago, sales edged up to a yearly gain of 2.7%, from 2.6% for the week ended Aug. 12.

INSTINET REDBOOK RESEARCH STORE SALES
Tuesday, Aug. 29, 8:55 a.m. EDT
This weekly measure of retail activity will report on sales for the fourth and final fiscal week of August, ended Aug. 26. In the first three fiscal weeks of August, sales were up 0.3%, vs. the same period in July. During the month of July, sales were off 2.4% from the prior month.

CONSUMER CONFIDENCE INDEX
Tuesday, Aug. 29, 10 a.m. EDT
The Conference Board's August index of consumer confidence most likely slipped to 103.5. This follows a bigger than expected retreat in the University of Michigan's preliminary August consumer sentiment index.

In July, the confidence index improved to 106.5, from 105.4 in June. Both the current conditions and future expectations indexes posted small gains in July.

Back in July, consumers surveyed by the Conference Board felt a little better about business conditions and the labor market after expressing less optimism in June.

FOMC MINUTES
Tuesday, Aug. 29, 2 p.m. EDT
The Federal Reserve will release the minutes of the Open Market Committee meeting held on Aug. 8. The minutes will draw lots of attention as the Fed declined to lift interest rates for the first time in over two years. What's more, the August vote was not unanimous, with Federal Reserve Bank of Richmond President Jeffrey Lacker voting for another rise in rates.

Economists and investors will pour over the notes in order to handicap the Fed's next move in September. Some economists believe the economy will prove to be more resilient than the Fed's mid-year economic forecast lays out. If that's the case, the August pause would more than likely be just a pause.

At the same time, Fed futures contracts show some expectations of lower rates in early 2007. This splintered view among Fed watchers will heighten the attention paid to the minutes.

MEETING OF NOTE
Wednesday, Aug. 30, 9 a.m. EDT
Federal Reserve Bank of Dallas President Richard Fisher speaks at a real estate symposium in Dallas.

MORTGAGE APPLICATIONS
Wednesday, Aug. 30, 7 a.m. EDT
The Mortgage Bankers Association releases its numbers on mortgage application volume for both home buying and refinancing for the week ending Aug. 25. The purchase index inched a little lower, to 382.2, from 385.9 for the week of Aug. 11, and 388.9 in the previous period. The refi index moved up once again, hitting 1608.5, from 1587.5 in the week ended Aug. 11, and 1518.1 in the prior period.

Lower mortgage rates have spurred an increase in refi activity. The average 30-year fixed-rate mortgage fell to 6.38%, from 6.54% in the week ended Aug. 11.

The four-week moving average for the purchase index cooled to 383.3, from 385 in the week ended Aug. 11. The purchase index four-week average is now at the lowest level since November of 2003. The average for the refi index grew to 1532.8, from 1477 in the week ended Aug. 11.

GROSS DOMESTIC PRODUCT
Wednesday, Aug. 30, 8:30 a.m. EDT
The second look at economic growth for the second quarter of 2006, measured by real gross domestic product, is expected to be a little better than the initial 2.5%. In the first pass at second-quarter GDP, consumer spending was reported to have grown by a modest annual rate of 2.5%, while corporate spending on equipment and software fell by 1%.

Upward revisions should come in nonresidential investment and foreign trade. The June tally of private nonresidential construction was larger than the assumption used by the Bureau of Economic Analysis. Plus, the May and April levels were revised higher. The BEA assumed a June trade gap of nearly $72 billion in its initial pass. The actual trade gap in goods was $70.4 billion.

In the first quarter, the economy grew at an annual pace of 5.6%, the strongest since 2003. But first-quarter growth got a boost from post-Katrina rebuilding outlays and postponed consumer and business spending in the fourth quarter resulting from the rough hurricane season. In the fourth-quarter of 2005, the economy grew just 1.8%.

MEETING OF NOTE
Thursday, Aug. 31, 1 p.m. EDT
Federal Reserve Bank of St. Louis President William Poole speaks about the Fed before the Dyer County Chamber of Commerce in Dyersburg, Tenn.

JOBLESS CLAIMS
Thursday, Aug. 31, 8:30 a.m. EDT
Jobless claims were virtually unchanged at 313,000 in the week ended Aug. 19. During the previous week, initial claims stood at 314,000, down slightly from 316,000 for the week ended Aug. 5. The four-week moving average still ticked up to 315,250, from 311,750 for the week ended Aug. 12.

Continuing jobless claims for the week ended Aug. 12 edged down to 2.49 million, from 2.5 million in the prior week.

PERSONAL INCOME AND CONSUMER SPENDING
Thursday, Aug. 31, 8:30 a.m. EDT
Personal income probably grew at a healthy clip during July. In June, incomes grew by 0.6%, after a 0.4% rise in May, and a 0.7% jump in April. Compared to the same period a year ago, incomes in June were up 6.5%.

According to the Bureau of Economic Analysis, increases in wages and salaries are picking up, with the yearly pace reaching 6.9% in June, from 6.7% in May. The acceleration in compensation is helping to cushion the hit from higher energy prices.

July consumer spending is expected to have improved. Spending rose 0.4% in June, after a 0.6% gain in both May and April. The July result will get a favorable boost from improved auto sales. The July retail sales report also showed that sales outside of autos and gasoline looked good. The yearly growth in spending slowed to 6.2% in May, after reaching 6.8% in May.

The personal consumption expenditures (PCE) price index climbed 0.2% in June, after jumping 0.4% in May, 0.5% in April, and 0.4% in March. Excluding food and energy, prices grew 0.2% for a third straight period. Compared to the same month a year ago, the overall price index inched up to a pace of 3.5%, from 3.4% in May. The core index accelerated to a pace of 2.4%, from 2.2% in May and April.

MANUFACTURERS' SHIPMENTS, INVENTORIES, AND ORDERS
Thursday, Aug. 31, 10 a.m. EDT
Factory orders are expected to have posted a small gain in July, after growing 1.2% in June and 1.0% in May. Orders for durable goods were already reported to have fallen 2.4% for July, but excluding transportation, orders rose 0.5%.

In June, orders outside of transportation were up just 0.1%, as civilian aircraft orders climbed 6.8%. But the overall level was weighed down by a 0.7% fall in orders for nondurable goods.

Among the durable goods industries, orders for computers rebounded with a 3.7% gain and orders for fabricated metal products climbed 2.9%. And while orders for machinery fell 0.5%, there was a bright spot as industrial equipment orders rebounded with a 9.8% increase.

The level of unfilled orders kept climbing. In June, unfilled orders grew 1.6% and 1.4% when transportation goods were excluded. The upward climb in unfilled orders should keep manufacturers fairly busy in the coming months.

CHICAGO PURCHASING MANAGERS SURVEY
Thursday, Aug. 31, 10 a.m. EDT
The Chicago-area purchasing managers' August index of industrial activity probably edged a little lower. The index rebounded to 57.9% in July, after easing to 56.5% in June, from 61.5% in May.

The production index improved to 64.1% in July, from 54.6% in June. The new orders index rose to 60%, after dropping to 57.2% in June. However, only 25% of the region's manufacturers reported an increase in backlogged orders in July and the reading of 48.2% implies an overall decline for the month.

With manufacturers able to handle the increase in new orders and still pare down their backlogs, there was not much need to add workers. The employment index stood at 50.5% in July. The 50% level is the threshold between increases and decreases in payrolls.

HELP-WANTED INDEX
Thursday, Aug. 31, 10 a.m. EDT
The Conference Board releases its July index of help-wanted ads, based on ads culled from major newspapers across the nation. The main index held steady at 33 in June, after falling three straight months. The percentage of markets with a rising want-ad volume improved to 49%, from 27% in May. Once again, help-wanted ads fell during the three-month period through June in all nine of the U.S. regions.

The Conference Board's new online job ads index cooled down. The number of online jobs per 100 persons in the U.S. labor force eased to 1.55 in July, from 1.63 in June.

VEHICLE SALES
Friday, Sept. 1
Vehicle sales are expected to have moved up in July. According to WardsAuto.com, sales during August probably eased to an annualized rate of 16.6 million units. In July, sales accelerated to a pace of 17.1 million vehicles, from 16.1 million in both June and May.

Second-quarter vehicle sales slowed to a quarterly rate at about 16.3 million, down from the first-quarter level of 16.9 million. Outside of weak hurricane-effected sales in the fourth quarter, this latest period was the weakest since the first period of 2003.

EMPLOYMENT REPORT
Friday, Sept. 1, 8:30 a.m. EDT
Economists have lowered expectations yet again. The consensus forecast calls for an increase in payrolls of 125,000.

In July, 113,000 new jobs were created, while economists had expected a gain of 146,000. Payrolls rose by 124,000 in June, with the consensus forecast at 165,000.

So far this year, the average monthly rise in payrolls has been 140,000, compared to 165,000 in 2005. However, the 2005 tally was affected by weak hiring in September and October as the result of Hurricanes Katrina and Rita.

The August unemployment rate is expected to be 4.7%, after jumping to 4.8% in July from 4.6% in June. Average hourly wages are forecast to grow another 0.3%, and average weekly hours worked will likely hold at 33.9 hours.

Wages have been strengthened. Compared to a year ago, July wages were 3.8% larger, after a gain of 3.9% in June. The yearly pace of wage gains in June was the strongest in five years.

ISM SURVEY
Friday, Sept. 1, 10 a.m. EDT
The Institute for Supply Management's August factory activity index is expected to hold pretty steady. The July index turned higher, to 54.7%, after slipping to 53.8% in June, and 54.4% in May.

In July, the new orders and production indexes both rose. At the same time, the unfilled orders and export orders indexes indicated a slower pace of growth. The backlog orders index fell to 50.5%, from 54% in June. A reading below 50% would imply a decline in unfilled orders, so the July result indicate that manufacturers handled the increased level of new orders with little trouble.

CONSTRUCTION SPENDING
Friday, September 1, 10 a.m. EDT
July construction outlays were probably unchanged from the prior month. In June, spending was up 0.3% on a big 2.7% rise in private nonresidential sectors. The areas with the biggest gains included lodging and manufacturing. Increased factory activity has spurred a 34.7% rise from a year ago in construction outlays for new factories and other manufacturing facilities.

Meanwhile, the rapidly cooling housing market led to a 1% drop in private residential construction spending in June, the third straight monthly fall. Compared to last June, spending is down 0.1%. Both housing starts and sales of new homes fell in July, which points to further declines in construction spending in the private residential sector.

Government spending on construction rose 0.8% in June, after growing 1.6% in May. Public residential and nonresidential construction outlays grew in June.

CONSUMER SENTIMENT INDEX
Friday, September 1, 10 a.m. EDT
The University of Michigan's Survey Research Center will report its final reading of consumer sentiment for August. Economists see the final reading edging up ever so slightly, to 79, after the preliminary August reading retreated to 78.7, from a final July reading of 84.7 and 84.9 in June.

The first look at August consumer sentiment showed some erosion in optimism among upper-income respondents. Up until now, confidence has deteriorated primarily among lower-income consumers.

According to the University of Michigan, recent levels of consumer sentiment correspond to modest quarterly gains in real spending of around 2.5% annualized over the coming year. However, actual spending patterns have not tracked fluctuations in confidence very well over the past few years.

 

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Investment Strategy
by Jeffrey Saut
“Fed May Propose, But . . .?!”
“As every short seller says every morning, credit is contracting and asset values are falling. So, to avoid an old time financial panic, the authorities call off the bank examiners and the Fed eases by expanding the monetary base. Ergo, the Fed buys Treasury Bills with the money that didn’t exist before and credits this money to the accounts of the banks, or dealers, which sold the Bills. The banks have excess reserves and the economy revives as the life-giving oxygen of liquidity is pumped into it.

The ugly black fly in the scenario is that if the banks don’t make the loans, the new reserves lie fallow. And if the public, for whatever reason, choose to hold the currency rather than bank deposits, as the statistics say it is in fact doing, nothing happens. In other words, the Fed may propose, but the banks and the public will dispose. My nightmare is that this time there is no disposing, or at least not as much as is needed to arrest and reverse the cycle of asset deflation. The bankers are too demoralized by the remembrance of loans past and bank examiners present to lend, and the money supply actually declines, just like the days of yore . . .”

. . . Barton M. Biggs, Morgan Stanley & Co., 10/29/90

I found the above quote from Barton Biggs, venerable ex-strategist of the House of Morgan, as I cleaned out some old files in my office over the weekend. While many of Barton’s 1990 points seem to be a “stretch” in the current environment, his comments about “asset deflation” are right to point given the state of affairs in housing. Plainly, the appreciation in housing prices over the past few years, combined with the public’s ability to monetize that appreciation via Mortgage Equity Withdrawal (MEW), has been a large driver of GDP growth, as seen in the chart on page 3. Former Fed Chairman Paul Volcker even commented on it in February of 2005 when he stated, “Homeownership has become a vehicle for borrowing and leveraging as much as a source of financial security.” Manifestly, with much of the nation having extracted most of their home equity, the question becomes; with higher interest rates, rising housing inventories, and subsequently declining home prices, will the American consumer continue to spend and bolster the economy?

To answer that question one first needs to understand that the American consumer is a bifurcated group with the top 10% of wage earners doing just fine, while the bottom 50% wage earners are struggling under the burden of higher mortgage payments and $3.00 a gallon gasoline. As noted in a recent Federal Reserve survey:

The median family has about $3,800.00 in the bank, does not have a retirement account, has a home worth $160,000.00 with a mortgage of $95,000.00 (excluding MEW). No mutual funds or stocks/bonds. They jointly make $43,000.00 and struggle to pay off their $2,200.00 in credit card debt.

Ladies and gentlemen, since these are “median” figures it implies that 50% of Americans are in worse shape than the “median family!”

Anecdotally, it appears that an increasingly cash-strapped consumer is reining in his/her spending habits given the recent reports from numerous retailers and casual dinning chains. This mindset is also being seen in the consumer sentiment polls as the University of Michigan Consumer Confidence Index (UoM) fell to 78.7 in August from 84.7 (July), leaving consumers at their gloomiest levels since 1993 and more downbeat than they were following the attacks of 9/11! Equally disconcerting is the fact that the “current conditions” component of the UoM’s report slid to 100.8 (from 103.5), while the forward looking component collapsed to 64.5 from 72.5.

All of this is being reflected in a number of our proprietary consumer discretionary indicators. Interestingly, however, the increasing tendency of the consumer toward “cocooning” has turned our media sector indicators positive as “coach potatoes” stay at home to save money. This shift has potentially positive ramifications for names like News Corporation (NWS/$19.45), Time Warner (TWX/$16.42), Viacom (VIA/$36.36), and Lions Gate (LGF/$9.08), all of which are rated Outperform by our research correspondent Credit Suisse. We also think the recent terrorist events will cause further “cocooning” not only at the retail level, but the business level as well, which is why we like the teleconferencing stocks.

As for the stock market, the top performing sectors year-to-date have been Oil & Gas (+17.50%), Telecommunication (+15.86%), and Utilities (+8.99%), and we have been bullish on all three of these sectors. More recently, we have emphasized our sense that natural gas prices (not oil prices) were bottoming as we approach the winter heating season. To capitalize on that sense, we recommended Strong Buy-rated Ultra Petroleum (UPL/$53.98) for growth accounts, as well as the more conservative Chesapeake Energy’s (CHK/$32.32) 4.6%-yielding convertible preferred “D” shares (check conversion details).

As for trading accounts, we issued a trading “buy ‘em” recommendation on June 13th at the market “lows” (SPX/1222). We were not as bullish on the S&P 500’s (SPX/1295.09) subsequent downside retest of those lows in mid-July (at 1224) because our proprietary indicators were not nearly as oversold as they were in mid-June. Still, we have tended to favor the upside since June 13th, believing the markets would likely “shake off” negative news and work irregularly higher into the late-summer/early-fall timeframe. After Labor Day, however, we are cautious given our belief that the equity markets may decline into the typical four-year “cycle low” during the September/November timeframe, which should provide a pretty decent buy-point for investors.

In conclusion, we leave you with the following comments from the astute Churchill Management organization, which notes:

“We are in a high risk distribution phase. With the market lifting over the last couple of weeks, the big concern is whether the bull market is re-establishing itself. That would be confirmed if both the DOW and the breadth on the NYSE made new highs. Closing out the breadth divergence could extend the bull market but even if that were to happen, it would not dispute the fact that we are in a very high risk period. The number one technical reason is that we already had a breadth divergence. In the past, there have been two instances where a breadth divergence was closed after a bull market was more than two years old. One was in 1936 and the other in 1986. Both occurrences ultimately had another breadth divergence within a year and had a 50% (1937) and 41% (1987) decline afterwards. Other concerns we have include the weakening housing market, a discount rate equal to that in 2000, historically high valuations, and the fact that this [cyclical bull] market is currently almost four years old. The bottom line is that the risks are high and the big question is when we will get the cleanout necessary (typically a bear market) to set the stage for a low risk buying opportunity.”

The call for this week: We agree with the cautious approach suggested by the savvy folks at Churchill Management thinking that the question the markets are currently contemplating remains, “Is this just a mid-economic cycle slowdown, or something worse?” Clearly, what happens to real estate (REO) will play a HUGE role in answering that question. If REO stops its price slide, the “Fox Trot” economy (fast/fast economic figures followed by slow/slow figures) can extend for the foreseeable future as the economy regresses to a “muddling” environment. On the other hand, if REO continues to TANK in price, we ask you to consider the attendant chart conceived by the insightful David Rosenberg at Merrill Lynch (MER/$74.20) and reconstructed by us. Said chart is the National Association of Home Builders Index (NAHB) over-laid by the S&P 500 with a 12-month time-lag. We continue to trade and invest accordingly as we consider the question, “Is the FED pushing on a string?”


August 28, 2006

 

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Questo interessa f4f...

BuyWrite's Strategy for Higher Yields and Lower Volatility
Matt Moran, CBOE


In recent years many investors have turned their attention to investments with higher yields that could generate steady income and lower volatility for their portfolios.



One strategy that can generate higher yields is the buy-write strategy (also called a covered call) in which an investor buys a stock or a basket of stocks, and also sells call options that correspond to the stock or basket of stocks. This strategy can be used to enhance a portfolio’s risk-adjusted returns and reduce volatility at times when an investor is willing to forgo some upside potential in the event of a bull market in stocks.



For example, the CBOE DJIA BuyWrite Index (BXD) measures the performance of a hypothetical buy-write strategy based on a portfolio of the stocks included in the Dow Jones Industrial Average (“DJIA” or “Dow”) and options on the Dow. From October 31, 1997 through May 31, 2006, the annualized returns for the BXD were 7.0%, compared to 6.9% for the DJIA Total Return Index, with standard deviations of monthly returns of 11.8% for BXD and 15.7% for DJIA



Interest in the buy-write strategy grew after the development of buy-write benchmark indexes -- the Chicago Board Options Exchange (CBOE) has introduced five buy-write benchmark indexes with the ticker symbols BXD, BXM, BXN, BXR and BXY. The Australian Exchange and other non-U.S. exchanges also recently introduced buy-write benchmark indexes.



Interest in buy-writes also increased after the publication of studies by Duke University Professor Robert Whaley and by Ibbotson Associates research firm. Ibbotson published a case study on the BXM Index and the initial performance of the first money manager licensed to run strategies linked to a buy-write index. The study found that over the 16-year period studied: (1) the buy-write index had the best risk-adjusted performance of the major domestic and international equity-based indexes studied, (2) based on the historical data, when a 15% allocation of the buy-write index was added to a moderate portfolio, volatility was reduced by almost a full percentage point with almost no sacrifice of return, and (3) the risk-adjusted return for the buy-write strategy (as measured by the skew-adjusted Stutzer Index) was 38% higher than that of the S&P 500. The Ibbotson study did note that the Sharpe Ratios were 0.75 for the BXM Index and 0.53 for the S&P 500, but the study emphasized the use of the skew-adjusted Stutzer Index because of the negative skews for both the BXM (-1.25) and S&P 500 (-0.46) indexes. The BXM Index won the “Most Innovative Benchmark Index” at the 2004 SuperBowl of Indexing Conference.



The rest of this article focuses on the performance of the CBOE DJIA BuyWrite Index (BXD). The BXD Index was announced by CBOE in 2005 under an agreement with Dow Jones Indexes, and is based on prices of options on the Dow (options ticker symbol is DJX), traded at CBOE. The price of the DJX is 1/100 of the DJIA. The BXD is a passive total return index based on (1) buying a DJIA stock index portfolio, and (2) "writing" (or selling) the near-term DJX Index "covered" call option, generally on the third Friday of each month. The DJX call written will have about one month remaining to expiration, with an exercise price just above the prevailing index level (i.e., slightly out of the money). The DJX call is held until expiration and cash settled, at which time a new one-month, near-the-money call is written. DJX options began trading in October 1997. Data on daily BXD prices, from October 16, 1997, to the present, is available from options price quote vendors and at www.cboe.com/BXD .



Performance

Exhibit 1: From the October 1997 inception of the BXD price series through June 9, 2006, the BXD Index has risen about 70%

Exhibit 1








































Exhibit 2: For the period from October 31, 1997 through May 31, 2006, the annualized returns were 7.0% for the BXD and 6.9% for the DJIA Total Return Index, and the standard deviations of monthly returns were 11.8% for BXD and 15.7% for DJIA. During that time period, the BXD Index had attractive risk-adjusted returns when compared with four other benchmark indexes.



Exhibit 2




































A prudent investor might ask the questions – How could the BXD have slightly higher returns and significantly less volatility than the DJIA if the markets were efficiently priced? What are the sources of returns for the BXD Index?



A key finding of the Ibbotson study and earlier studies by Morgan Stanley (1990), Professors Schneeweis and Spurgin (2001), and Professor Whaley (2002) is that implied volatility often has been higher than realized volatility for index options. The index options were priced so that the sellers of the options received more options premium than the subsequent realized volatility would have indicated. This fact has helped boost risk-adjusted performance for buy-write strategies; if implied volatility had been at the same average level as realized volatility, then options sellers would have received lower option premium and achieved lower returns.



Another key source of returns is the fact that the BXD Index strategy is taking in options premium on the third Friday every month. In the past some options writers would sell three-month options four times a year. An options writer engaging a BXD strategy would have taken in options premium 12 times a year and would have taken more advantage of the time decay or theta of the options than an investor who sold four three-month options in a year. For the period from October 1997 through May 2006, an investor who had engaged in the hypothetical BXM strategy would have taken in options premiums at an average rate of 1.88% per month, or more than 22% per year. Exhibit 3 shows the options premiums that were generated on select Expiration Fridays. After 2002 the CBOE DJIA Volatility Index (VXD) has been at relatively low levels, but in mid-June 2006 the VXD did rise above 21 to its highest level in more than three years, and so there is potential for the BXD strategy in the near future to generate higher yields than it had in 2004 –2005.



Exhibit 3

BXD - Options Premium Received on Select Roll Fridays

Roll Fridays
Dow (DJX) Morning Price (near 10 a.m. CT)
Options Premium Received per BXD
Options Premium as a % of the Underlying
CBOE DJIA Volatility Index (VXD) - Daily Close

16-Aug-02
87.82
2.60
3.0%
30.06

20-Sep-02
79.27
2.70
3.4%
38.74

18-Oct-02
82.79
2.65
3.2%
35.63







17-Mar-06
112.62
1.39
1.2%
10.87

21-Apr-06
113.79
1.13
1.0%
10.69

19-May-06
110.94
1.36
1.2%
16.39





Investment Products

Investors interested in seeing the performance of Dow-based buy-write investment products could explore the following:

DBY - Morgan Stanley 8% Targeted Income Strategic Total Return Securities Exchangeable for a Cash Amount based on the CBOE DJIA BuyWrite Index.

DBZ - Morgan Stanley Strategic Total Return Securities Exchangeable for a Cash Amount Based on the CBOE DJIA BuyWrite Index.

BWR – Merrill Lynch 8% Monthly Income Strategic Return Notes Linked to the CBOE DJIA BuyWrite Index.

DPD - Dow 30 Premium & Dividend Income Fund, Inc.



Here are some caveats: Neither CBOE nor Dow Jones Indexes endorses the investment products. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Investors considering a BXD strategy are strongly urged to read the risk disclosures at www.cboe.com/BXD and any applicable prospectuses.



Conclusion

More than $20 billion has been invested in buy-write investment products in the last two years, and many investors seeking higher yields and lower volatility are expected to continue to explore the buy-write strategy.


http://www.researchmag.com/cms/research/breaking news/2006/08/23-cboe

 

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Tuesday August 29, 3:04 PM
China urged to step up to WTO plate
By Chris Buckley

BEIJING (Reuters) - The United States has asked Beijing to help rescue deadlocked WTO trade talks, the top U.S. trade official said on Tuesday, courting China as a potential ally whose economy has soared due to trade liberalization.

U.S. Trade Representative Susan Schwab said in Beijing that she had pressed China to help rescue the Doha round of global trade talks, which was suspended last month after key countries again failed to agree on how to cut tariffs and barriers.


China, she said, has benefited from joining the WTO in 2001 and now needed to show its commitment to trade liberalization by speaking up, rather than deferring to India and Brazil, the most vocal developing countries.

"China has as much of an interest in an open world trading system as any country in the world," she told reporters.

"My purpose here is to urge China to reflect that in its actions and rhetoric."

The World Trade Organization launched the Doha round nearly five years ago with the aim of boosting trade and fighting poverty in poor countries by lowering trade barriers. They are named after the Qatari capital where they started.

But the tortuous talks have broken down, with the European Union blaming the United States for not offering enough in farm goods tariff cuts. Deep tariff cuts proposed later by the United States were not matched by other countries.

Schwab, named as U.S. Trade Representative in April, has been attending a series of trade meetings in Asia, Brazil and Australia, seeking to shore up dwindling hopes for a breakthrough. She leaves Beijing on Tuesday.

"If the countries that really have a stake in the outcome of the Doha round would speak up and really articulate that, that would help in terms of the negotiating dynamic," she said.

China is the world's third-largest trading economy, behind the United States and European Union. In 2005 China's trade grew to $1.42 trillion, up 23.2 percent from a year earlier and nearly triple the figure in 2001, according to Chinese statistics.

But while Beijing has promoted itself as a "bridge" between developed and poor countries, it has avoided entanglement in the complex negotiations, reluctant to make new trade concessions.

When China joined the WTO, it accepted tariff cuts on farm goods that were deeper than many countries are now proposing. China's tariffs on farm goods now average about 15 percent.

Schwab said she had pressed Chinese commerce minister Bo Xilai on Monday to consider China's interests as a "trade powerhouse" and be willing to go beyond earlier commitments by opening its markets further.

"China needs to be prepared to contribute accordingly, and that means market access," she said.

"There is plenty of time for China to do significantly more than was in its accession agreement."

Bo told Schwab that China would "actively push for reviving the Doha negotiations," the Commerce Ministry said on its Web site (www.mofcom.gov.cn). But the statement made no mention of any specific initiatives from China.

Schwab also pressed Bo on trade complaints about intellectual property and market access. She said a potential rise of economic nationalism in China could undercut Beijing's implementation of World Trade Organization promises.

 

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Japan's Jobless Rate Falls as Growth Spurs Hiring (Update3)

By Jason Clenfield

Aug. 29 (Bloomberg) -- Japan's unemployment rate fell and the number of jobs available climbed to the highest in 14 years, laying the groundwork for a recovery in consumer spending that would prolong expansion in the world's second-largest economy.

The jobless rate dropped to 4.1 percent in July from 4.2 percent a month earlier, the statistics bureau said today in Tokyo. The result was in line with the median forecast of 42 economists surveyed by Bloomberg News.

Increased job security and wage gains have yet to persuade many Japanese to increase spending, after they endured three recessions since 1991. A separate report today showed purchases by households declined for a seventh month in July.

Japan's workers ``have been knocked around for 15 years,'' said Keng Siong Wong, senior economist at DBS Bank Ltd. in Singapore. ``They'll need two or three years of good numbers to convince them that things have turned around.''

The job-to-applicant ratio, which shows how many positions are available to a job seeker, rose to 1.09 in July, the highest since June 1992, the labor ministry said today in Tokyo. The result was in line with economists' forecasts. There have been more jobs than applicants for eight months, a fact economists say is the most important sign that the labor market is recovering.

`Very Strong Demand'

``The job-to-applicant ratio is the most accurate leading indicator of the employment picture,'' said Glenn Maguire, chief economist for Asia at Societe Generale in Hong Kong. ``It's almost as certain as death and taxes that the unemployment rate will continue to fall. There is very strong demand for labor.''

The yen strengthened to 116.89 per dollar at 11:34 a.m. in Tokyo, compared with 117.17 before the reports were released.

Japan's unemployment rate is the second-lowest among the Group of Seven economies, behind the United Kingdom's 3 percent and ahead of 4.8 percent in the U.S., according to Bloomberg data. Unemployment fell to an eight-year low of 4 percent in May.

Companies are hiring again after a decade-long bout of layoffs drove the jobless rate to 5.5 percent in April 2003 from 2 percent in February 1992. Suzuki Motor Corp., Japan's biggest maker of minicars, said this month it will build its first domestic factory since 1992 to keep up with competitors who are also expanding. The plant will employ 2,000 workers and be able to produce 240,000 vehicles.

Honda Motor Co. said in May it will build its first domestic assembly plant in more than 40 years. Mitsubishi Motors Corp., Japan's only unprofitable automaker, said Aug. 14 it will hire 600 workers to help build sport utility vehicles for export to markets including North America.

Job Advertisements

The wave of hiring among the country's automakers is part of a larger trend. The central bank's June survey of business confidence showed Japan's largest companies faced the most severe labor shortages since 1992.

The economy added 110,000 new jobs in July, the statistics bureau said. The jobless rate fell in 32 of Japan's 47 prefectures.

Japanese companies were more aggressive in advertising for workers in July, placing almost 9 percent more advertisements in print and on the Internet from a year earlier, according to the Association of Job Journals of Japan.

Economists including Soichi Okuda say the increased demand for workers should drive up wages and spur consumer spending.

``We're seeing further evidence that the sustained economic recovery is spurring demand for workers,'' said Okuda, chief economist at Sumitomo Research Institute in Tokyo. ``Wage growth is still slow but we're going to see more companies start to increase wages so there's no reason consumption will cool.''

Household Spending

Wages climbed in five of the past six months. Record summer bonuses fattened paychecks by 1 percent in June. Still, wage gains of 0.5 percent in the first six months of 2006 haven't been enough to fuel consumption.

Household spending fell 1.3 percent in July from a year earlier amid a prolonged summer rainy season, the statistics bureau said today. The result was worse than the 0.9 percent decline forecast by economists surveyed by Bloomberg News.

``Poor weather caused the weak demand in summer goods, which was the reason for slower spending,'' said Okuda. ``That wasn't a surprise so there's no need to be concerned.''

To contact the reporter on this story: Jason Clenfield in Tokyo at [email protected]