DealBreaking

DealBreaking: Two Short Weeks or One Long Weekend

DealBreakingfourthofjulyweek.jpgThis week is really two short weeks or just one long weekend. The markets will be open today, half of tomorrow and not at all on Wednesday. So get whatever work you need to do done today.
Today, the federal courts will hear the prosecution’s sneaky attempt to have the case against 16 former KPMG partners dismissed so that they can appeal the ruling and attempt to overturn the judges findings of constitutional violations. It is also the 10th anniversary of the crash of the Thai Baht. On Wednesday, Americans will honor the independence of our country by drinking fermented hops, grilling animal corpses and projecting explosives into the air. Long: oohs and ahs. On Thursday there will be some interest rate action from the heads of the European Central Bank and the Bank of England. We’ll save you the trouble of coming in to work that day and just say it now: interest rates are going up. Thursday also happens to be the 1 year anniversary of the death of former-Enron boss Ken Lay. Saturday is Robert Heinlein’s birthday.
We’re going to invite you contribute your Independence Week plans in comments below. Are you working? What days are you taking off?

The Federal Reserve left the fed funds rate unchanged at five and a quarter percent, noting that inflation rather than slower growth is still the primary concern. Bear Stearns agreed to pay up to $1.6 billion to bail out one of its troubled subprime mortgage loaded hedge funds. The SEC was said to have begun an inquiry into the funds’ troubles. The head of the Bear Stearns group with responsibility for the funds was replaced. UBS was formally charged by Massachusetts regulator with ‘hedge fund’ hotel charges. Blackstone’s share price slipped below Friday’s IPO price. Carl Icahn revealed that tried to short Blackstone’s stock.
The annual charity auction for lunch with Warren Buffett began. Rupert Murdoch reached a preliminary agreement with the board of Dow Jones & Company. Michael Moore was banned from the floor of the New York Stock Exchange. Robert Zoellick was named head of the World Bank. A court sentenced the founder of HealthSouth, Richard Scrushy, to almost seven years in prison. A phony departure email allegedly from a JP Morgan analyst made the rounds through Wall Street’s email inboxes.
A new phone from computer and music player maker Apple went on sale.

DealBreaking: Kremlinology For The Land Of The Free

DealBreaking.jpgThe lack of economic reports and earnings reports last week certainly didn’t leave Wall Street quiet. This week is full of government economic reports, as well as quarterly reports from several closely watched companies. Combined with pressure from a weird market schedule due to Independence Day falling on a Wednesday—and the plans of many people plan to take the entire week off—this should be, as they say at the movie theater, “action packed.”
Today the Dallas branch of the Federal Reserve releases its regional manufacturing-production index for June. This report is closely watched by traders and media groupies not so much because they care about what is happening to Texas manufacturers or even what it says about the shape of the economy. This is, instead, another way of trying to gauge what the Federal Reserve will do with interest rates. It’s the all-American version of Kremlinology. Halfway through the day, the the Treasury announces the results of its monthly two-year note auction.
On Tuesday, we’ll get new home sales data for May from the Commerce Department, someone or another releases “consumer confidence” survey results, and Richmond ‘s branch of the Fed releases it’s manufacturing report. More Kremlinology ensues. The Super market kings at Kroger, the top yachtsmen at Oracle and the running shoe rajas at Nike all release their earnings. We expect that these reports will show that people are still wearing shoes and buying groceries. They are probably still using databases as well. Remember to get your bids for the five-year T-Bill auction in by 1 PM.
The Wall Street Journal kicks off its conference, which is apparently too fancy of an event for DealBreaker to get an invitation. That’s okay, though, because shortly after we learned that we weren’t getting inside this thing, Blackstone’s Stephen Schwarzman cancelled. Good looking out, bro. Hank Paulson apparently didn’t get the memo, because he’s still scheduled to speak. The two big government reports will be the May Durable Goods report and the Chicago manufacturing index. Conagra releases its quarterly earnings report. Last year the company giant hooked itself on the opium of agribusiness, subsidized ethanol. So watch the earnings report to see how much money there is to be made when you have powerful friends in our nation’s capital.
Correction day hits on Thursday, when the Commerce Department releases its “this time we mean it” revision of GDP for the first quarter of this year. This is one of those “Wall Street versus America” reports: if growth is higher than expected, Wall Street will fear that the Federal Reserve will fear that inflation is getting out of control and hold off on cutting interest rates. We’ll also get to find out how more Midwest manufacturers did from the Kansas City Federales.
And, of course, Thursday is a very special day for the land of the free. The Federal Reserve’s Open Markets Committee—it’s main policymaking committee—holds its fourth meeting. Actually, the meeting starts on Wednesday. But on Thursday, the committee announces any change in monetary policy. Almost everyone assumes there will be no change. A change in any direction will basically make the markets do flips. Long ago someone once said that central planners have problems because they don’t have a price system to figure out how to price goods or how many shoes to manufacture for the proletariat. A few clever economists pointed out that the Kremlin could just look outside and see how long the lines at the shoe distributors were, and increase or decrease the next manufacturing orders based on Russians standing in the cold. This is more or less what Bernanke and friends are doing when the OMC meets, only with Americans and using numbers prepared by economists rather than windows and footprints in the snow.
At the end of the week the Kremlinology of the Federal Reserve will hit a crescendo when the Commerce Department releases its report on income and spending for June. Why do Fed watchers watch the Commerce Department report so closely? Try to pay attention. They watch for the Commerce report because they (correctly) believe that the Fed watches the report. If it shows income and spending accelerating, their will be a widespread assumption that the Fed will look at this as a sign of inflation. If it shows them slowing down, it might mean we’ll get a rate cut sometime before the Republicans (or whatever party has replaced them) retake the Senate in 2010 (the first midterm election under President Hillary Clinton, also known as 1994 for the twenty-first century).
Looking further ahead, next week is a bit quiet. At least on paper. But we said that about last week, so maybe you should expect turmoil. Senators are threatening to work through the holiday week to push through an immigration bill while most Americans are distracted by the flashing lights of Fourth of July fireworks., giving a strange new meanings to the quaint notion of American independence. On July 5th the nation will honor the passing of that titan of American business, Ken Lay. (Speaking of which, we need a Colorado correspondent to cover the first anniversary of Ken Lay’s death. Email us at [email protected] if you think you’re up to the task.)