It was Friday the 13th yesterday, but the US currency wasn’t at all spooked. While the US stock markets closed the week almost flat (Dow up 0.8%; S&P 500 down 0.05%), the US dollar had a roaring good time in the currency markets. The US dollar just clinched the biggest weekly gain against the Euro since 2005 and the biggest weekly rise against the Japanese yen since December 2004.

You could say that Bernanke’s speech on Tuesday initiated the strong turnaround in USD sentiment; he said that US economic risks have diminished and he’s paying attention to the weak dollar. Increasingly over the past few months, a weaker dollar seems to be negatively correlated with oil prices although whether a causal relationship exists between these two is another issue altogether. Many, including the US Federal Reserve, are worried that the dollar’s weakness has come to a point whereby its benefits are being outweighed by the negative ramifications in the current economic situation. Dollar weakness ain’t that sexy anymore.

For traders who are counting on a July rate hike from the ECB to boost the Euro in a sustained way, they may have to look elsewhere, for Trichet and other ECB members have said last week the market shouldn’t be expecting a series of increases from them. July’s hike could be a one-time event.

The Intelligent Portfolio is written as a broad overview of the key principles of modern portfolio theory and to demonstrate how investors can use portfolio theory effectively. The author, Christopher Jones, is the Chief Investment Officer at Financial Engines. Financial Engines has been a leading force in bringing portfolio analysis and Monte Carlo Simulation [MCS] to a broad retail audience. Mr. Jones has been with Financial Engines since its early days, and has worked closely with Dr, Bill Sharpe, Nobel Laureate in Economics and a founder of the firm.

Before going into the review (and in the spirit of full disclosure), I note that my company, Quantext, also produces Monte Carlo portfolio planning tools.

Herley Industries, Inc. (HRLY)

F3Q08 Earnings Call

WASHINGTON (Reuters) - Soaring gasoline prices helped drive up overall U.S. consumer prices during May by the fastest rate in six months, but core prices remained tame, a government report today showed. But 12-month core prices advanced 2.3% as expected (see chart above).

2008-06-13T17:09:12-04:00 Mark J. Perry

Mark J. Perry submits:

 

WASHINGTON (Reuters) - Soaring gasoline prices helped drive up overall U.S. consumer prices during May by the fastest rate in six months, but core prices remained tame, a government report today showed. But 12-month core prices advanced 2.3% as expected (see chart above).

Complete Story »

Mark J. Perry

At the Fed, Precedent Takes a Holiday

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These are strange days in the global capital and commodity markets. The macroeconomic terrain isn't quite familiar either. No wonder, then, that central banking isn't quite itself either.

The weird aura is second to none in these United States, where the Federal Reserve is battling, among other things, a bout of the unfamiliar and unusual. Two recent commentaries by observers from the dismal science offer a sampling of how life in the central banking trenches is something other than par for the course of late.

2008-06-13T16:58:04-04:00 James Picerno

James Picerno submits:

These are strange days in the global capital and commodity markets. The macroeconomic terrain isn't quite familiar either. No wonder, then, that central banking isn't quite itself either.

The weird aura is second to none in these United States, where the Federal Reserve is battling, among other things, a bout of the unfamiliar and unusual. Two recent commentaries by observers from the dismal science offer a sampling of how life in the central banking trenches is something other than par for the course of late.

Complete Story »

James Picerno

Online Retail Healthier Than Brick-and-Mortar

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By Jennifer Yousfi

Online retail sales continue to defy the economic downturn while their brick-and-mortar counterparts struggle. But while online sales continue to grow, the rate of growth is slowing.

2008-06-13T16:47:15-04:00 Money Morning

Money Morning submits:

By Jennifer Yousfi

Online retail sales continue to defy the economic downturn while their brick-and-mortar counterparts struggle. But while online sales continue to grow, the rate of growth is slowing.

Complete Story »

AMZN WMT Money Morning

Indicator Points to Higher Gas Prices - and 3 Potential Power Plays

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At Money Morning over the past six months, we’ve talked a great deal about oil and gasoline prices. We’ve offered our predictions about how high those prices were going, and have detailed a number of investment opportunities - chosen as much for their margins of safety as for their profit potential.

This time we’re going to detail three energy stocks with the potential for double-digit - or even triple-digit - profit gains. Admittedly, these are longer-shot, speculative plays. But we used a special energy indicator to help ferret out these energy plays.

2008-06-13T16:39:52-04:00 Keith Fitz-Gerald

Keith Fitz-Gerald submits:

At Money Morning over the past six months, we’ve talked a great deal about oil and gasoline prices. We’ve offered our predictions about how high those prices were going, and have detailed a number of investment opportunities - chosen as much for their margins of safety as for their profit potential.

This time we’re going to detail three energy stocks with the potential for double-digit - or even triple-digit - profit gains. Admittedly, these are longer-shot, speculative plays. But we used a special energy indicator to help ferret out these energy plays.

Complete Story »

WNR VLO HOC Keith Fitz-Gerald

Amazon Buying Borders? Don't Bet on It - Stiffel

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Earlier this week, the hedge fund manager William Ackerman of Pershing Square Capital Management floated the idea that the book retailer Borders Group (BGP) should consider selling itself to Amazon.com (AMZN). That would be certainly be a good thing for Ackerman, since Pershing Square owns about 30% of Borders. He compared the concept of Amazon-owned retailer stores to Apple’s successful move into bricks-and-mortar retailing.

But for a variety of reasons, this seems like a long shot idea. Scott Devitt, an analyst at Stifel Nicolaus, says bluntly, “not a chance.”

2008-06-13T16:13:26-04:00 Eric Savitz

Eric Savitz (Barron's) submits:

Earlier this week, the hedge fund manager William Ackerman of Pershing Square Capital Management floated the idea that the book retailer Borders Group (BGP) should consider selling itself to Amazon.com (AMZN). That would be certainly be a good thing for Ackerman, since Pershing Square owns about 30% of Borders. He compared the concept of Amazon-owned retailer stores to Apple’s successful move into bricks-and-mortar retailing.

But for a variety of reasons, this seems like a long shot idea. Scott Devitt, an analyst at Stifel Nicolaus, says bluntly, “not a chance.”

Complete Story »

AMZN BGP Eric Savitz

Timing the Rise of the Phoenix (and Markets)

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Despite my recent bearish tone, I am no permabear. In fact, I am waiting for signs of a market bottom in order to buy Phoenix stocks, a strategy that has yielded some eye-popping returns in the past. Here are some of the different indicators of market direction I am looking at in watching for signs of a market bottom and their current readings:

• Valuation - neutral/slightly bullish
• Investor psychology - bearish
• Economic - bullish
• Technical - waiting for a capitulation bottom

2008-06-13T16:02:48-04:00 Cam Hui

Cam Hui submits:

Despite my recent bearish tone, I am no permabear. In fact, I am waiting for signs of a market bottom in order to buy Phoenix stocks, a strategy that has yielded some eye-popping returns in the past. Here are some of the different indicators of market direction I am looking at in watching for signs of a market bottom and their current readings:

• Valuation - neutral/slightly bullish
• Investor psychology - bearish
• Economic - bullish
• Technical - waiting for a capitulation bottom

Complete Story »

DIA SPY QQQQ XLF VFH ITB XHB Cam Hui

Four Ways To Improve Microsoft

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There’s been plenty of speculation today about who Microsoft (MSFT) ought to buy now that its discussions with Yahoo (YHOO) have again come to a halt. I wrote a post earlier about the notion that they might buy AOL; but you can also imagine deals for Facebook, or Ask.com, or a zillion other Web properties.

In a research note today, Sid Parakh, an analyst at McAdams Wright Ragen in Seattle, came at the question of what Microsoft should do next with an entirely different approach. He addressed how Microsoft needs to change its whole approach to doing business.

2008-06-13T15:58:05-04:00 Eric Risley

Eric Risley submits:

There’s been plenty of speculation today about who Microsoft (MSFT) ought to buy now that its discussions with Yahoo (YHOO) have again come to a halt. I wrote a post earlier about the notion that they might buy AOL; but you can also imagine deals for Facebook, or Ask.com, or a zillion other Web properties.

In a research note today, Sid Parakh, an analyst at McAdams Wright Ragen in Seattle, came at the question of what Microsoft should do next with an entirely different approach. He addressed how Microsoft needs to change its whole approach to doing business.

Complete Story »

MSFT Eric Risley

Could the Euro and Dollar Share Reserve Currency Status?

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The conventional view of a reserve currency for the world is that there can only be one at any time. Before World War II, it was the pound, since then it's been the dollar, and pretty soon it'll be the euro.

As of 2006, roughly 65 percent of reserves held by foreign central banks were in dollars and 25 percent in euros. Harvard's Jeffrey Frankel and University of Wisconsin's Menzie Chinn think the euro could surpass the dollar by 2015.

But a problem with the one currency view is that there's never been great data on foreign reserve holdings prior to 1940. Now, Barry Eichengreen of UC Berkeley and Marc Flandreau of the National Political Science Foundation in France have dug central bank records from 17 countries covering 80 percent of global foreign exchange reserves for the period circa 1920-1939, a time during which it was assumed the pound was still the world's dominant reserve currency.

What they found was that the dollar surpassed the pound in the mid-1920's, but then the greenback lost its dominant position in the 1930's because of disastrous mismanagement of the US economy, the pair wrote in an April FT column.

What this means for today's world, argue the authors, is that unless the U.S. mismanages the economy again in the face of a falling dollar and credit problems, it's likely that the euro and dollar will share reserve currency status. And this would seem to make sense: Why would foreign central banks want to put all of their eggs in one basket?

For his part, Frankel agrees with this view.

2008-06-13T15:39:08-04:00 Zubin Jelveh

Zubin Jelveh submits:

The conventional view of a reserve currency for the world is that there can only be one at any time. Before World War II, it was the pound, since then it's been the dollar, and pretty soon it'll be the euro.

As of 2006, roughly 65 percent of reserves held by foreign central banks were in dollars and 25 percent in euros. Harvard's Jeffrey Frankel and University of Wisconsin's Menzie Chinn think the euro could surpass the dollar by 2015.

But a problem with the one currency view is that there's never been great data on foreign reserve holdings prior to 1940. Now, Barry Eichengreen of UC Berkeley and Marc Flandreau of the National Political Science Foundation in France have dug central bank records from 17 countries covering 80 percent of global foreign exchange reserves for the period circa 1920-1939, a time during which it was assumed the pound was still the world's dominant reserve currency.

What they found was that the dollar surpassed the pound in the mid-1920's, but then the greenback lost its dominant position in the 1930's because of disastrous mismanagement of the US economy, the pair wrote in an April FT column.

What this means for today's world, argue the authors, is that unless the U.S. mismanages the economy again in the face of a falling dollar and credit problems, it's likely that the euro and dollar will share reserve currency status. And this would seem to make sense: Why would foreign central banks want to put all of their eggs in one basket?

For his part, Frankel agrees with this view.

Complete Story »

UUP UDN ERE ERO FXE EU Zubin Jelveh

Friday's Options Update: WB, ZION, BAC, MRVL, GE, KO, LEH, CLX, AAPL, FITB, IGT

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Bad auguries are spreading like fungus in regional and super-regional banks this afternoon – despite a modest gain for the S&P in afternoon trading, and limited downside for the XLF (which tracks the broader financial sector), the Regional Bank HOLDRs Trust (XLF) set a fresh 52-week low today with its ominous dip below the $100 mark.

Wachovia (WB) – Option traders seemed to hold an especial sense of doom and enervation for Wachovia. Shares tumbled 8.7% to set a new 52-week low at $17.62, precipitated by this morning’s news out of  California savings & loan Downey Financial Corp (DSL) of a 9-fold rise in bad loans for the month of May. This apparently exacerbated concerns about the state of Wachovia’s own ARM exposure, which coupled with the sense of dire doldrums among all regional banks seems to have culminated in this ominous put activity. Implied volatility in all Wachovia options has spiked nearly 54% on the news – more than any other ticker on our platform – as the market now perceives twice as much risk to Wachovia’s share price over the next 30 days than they have shown historically. This hefty risk perception is playing out in fresh buying of out-of-the-money puts at the June 17.50 and July 15 put strikes.  

2008-06-13T14:53:17-04:00 Andrew Wilkinson

Bad auguries are spreading like fungus in regional and super-regional banks this afternoon – despite a modest gain for the S&P in afternoon trading, and limited downside for the XLF (which tracks the broader financial sector), the Regional Bank HOLDRs Trust (XLF) set a fresh 52-week low today with its ominous dip below the $100 mark.

Wachovia (WB) – Option traders seemed to hold an especial sense of doom and enervation for Wachovia. Shares tumbled 8.7% to set a new 52-week low at $17.62, precipitated by this morning’s news out of  California savings & loan Downey Financial Corp (DSL) of a 9-fold rise in bad loans for the month of May. This apparently exacerbated concerns about the state of Wachovia’s own ARM exposure, which coupled with the sense of dire doldrums among all regional banks seems to have culminated in this ominous put activity. Implied volatility in all Wachovia options has spiked nearly 54% on the news – more than any other ticker on our platform – as the market now perceives twice as much risk to Wachovia’s share price over the next 30 days than they have shown historically. This hefty risk perception is playing out in fresh buying of out-of-the-money puts at the June 17.50 and July 15 put strikes.  

Complete Story »

WB XLF DSL ZION BAC MRVL GE KO LEH CLX AAPL FITB IGT Andrew Wilkinson

Lehman: The Latest Short Story

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Lehman (LEH) executed a sudden management shake-up on Thursday, ousting its long-serving president and demoting its finance chief following a $2.8bn second-quarter loss that raised questions about its future as an independent investment bank, says the FT.

Here is the latest chart (click to enlarge) on Lehman. As you can see, the short interest is continuing to increase. The percentage of Lehman's Market Cap on Loan has now reached 16.74%, a record level.

2008-06-13T14:28:50-04:00 Jessica Johnson

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