Best Money

Treasury Prices Pull Back Slightly After Strong ISM Services Data For November

BY REUTERS

Posted 12/5/2006

Treasury debt prices slipped on Tuesday after an index of U.S. service sector activity unexpectedly rose, casting some doubt on the notion of an early 2007 interest-rate cut from the Federal Reserve.

The mild pullback came after a weeks-long bond market rally built on evidence of a slowing economy. The Institute for Supply Management’s November data went counter to that trend, delivering the strongest reading since May.

Reacting to the news, benchmark 10-year notes fell as much as 7/32 but were down just 5/32 in late trade, yielding 4.45%, up from 4.43% on Monday.

The ISM’s services index rose to 58.9 last month from 57.1 in October, above median estimates for a dip to 56.0.

The components were mixed, with prices paid climbing and employment hovering at a level signaling modest growth.

Anthony Chan, managing director and chief economist at JPMorgan Private Client Services, noted that the price component was disappointing for bond investors who are always wary of any signs of inflation, which erodes the value of their fixed returns.

Still, losses in Treasuries were fairly modest, as investors appeared unwilling to dismiss other evidence of softness in the economy just yet.

Signs of a weakening economy have multiplied recently, with noticeable slowing from the auto sector to consumer spending.

This had sparked speculation that the Fed could begin cutting interest rates in early 2007. That speculation has helped push bond yields to their lowest levels since January.

The ISM report put a damper on that prospect but by itself was not enough to rule out the possibility of looser monetary policy.

Two-year notes were flat and yielding 4.53%, having briefly hit an 11-month low of 4.48% earlier in the session.

Also on Tuesday, third-quarter unit labor costs were revised lower; this appeared to give the Federal Reserve room to start cutting rates without worrying about inflation.

However, the nonmanufacturing ISM data were more recent and held immediate sway with market participants.

Five-year notes slipped 2/32 for a yield of 4.39%, and the 30-year bond lost 14/32, offering a yield of 4.57%.

China 3G: The Great Inch Forward

The pieces of China’s slow-motion telecom reform are beginning to move into place, even if real progress is difficult to see.

With China Mobile and the fixed-line carriers building out TD-SCDMA “trial networks”, the National Audit Office has announced an investigation into the five leading carriers.

The NAO says the audit - the biggest ever into the telecom industry - is aimed at improving “operational efficiency” and competitiveness of the four listed carriers plus China Railcom.

However, many believe it is also linked to the planned industry reorganization by the State-owned Assets Supervision and Administration Commission (SASAC). Market speculation on a restructure prompted spikes in the telecom stocks in Hong Kong when news of the audit was confirmed.

SASAC sources have said they will begin work on restructuring the big four - China Mobile, China Telecom, China Netcom and China Unicom - in the final quarter.

The trigger has been the release of recent financial results that show China Mobile taking 61% of industry profit, and the continuing leakage of fixed-line voice to mobile.

However, not even SASAC is certain of the exact nature of the reforms, while it faces the difficult task of forcing rationalization on large and unwilling organizations. Hence the excitement generated by news of the large-scale audit.

The core problem is China Unicom’s slow-growing CDMA network. Unicom has rebuffed efforts by fixed-line carrier China Telecom to open up negotiations over the sale of the network, which could cost as much as 120 billion yuan ($15.6 billion).

Sources close to China Telecom says the company is “absolutely determined” to obtain a mobile license, the mainland press has reported. It has hired an international financial consultant to conduct due diligence on Unicom’s operations around the country.

Unicom last month took the unusual step of first contracting and then doubling its capital base. The carrier hasn’t explained why, but it is almost certainly in order to ward off a forced merger or asset sale.

Meanwhile, the other long-awaited step forward in the heavily-regulated carrier sector - the launch of TD-SCDMA service - looks set to be postponed because of a delay in both handset supply and network build-out.

China Mobile originally planned to complete its “trial network” build-out and start service in its ten target cities by the end of the month. However, the carrier and its vendor partners - chiefly ZTE, Datang Mobile and Siemens-Huawei JV TD Tech - have had difficulty acquiring cell sites, in particular in the larger cities such as Beijing and Shanghai.

One engineer involved in the build-out predicted it would take until the end of the year to complete, according to financial daily 21st Century Herald. He said the ample 2G coverage in large cities meant that many of the potential base station sites were already occupied. At the same time, residents were objecting to deployment because of environmental and health concerns.

The engineer said the delay in handsets was of even more of a concern. Products from Lenovo, ZTE and Datang and other handset vendors are now being tested, but because of the stringent requirements from the operators, the cycle from beta testing to commercial use is extremely short.

China Mobile has acknowledged that volume shipments of TD-SCDMA handsets are unlikely until April or May next year, according to sina.com.

Yo-ho-ho: Shipwreck company shareholders find treasure

Would you invest in a company so secretive it won’t say where it is carrying out operations or even where most of the “plant and equipment” included on the balance sheet are located?

Well, the trusting investors in shipwreck exploration company, Odyssey Marine Exploration, were well rewarded for their leaps of faith last Friday when the company http://www.guardian.co.uk/international/story/0,,2083282,00.html of gold and silver coins from a 400-year-old wreck codenamed Black Swan, thought to have sunk off the Scilly Isles.

Shares in the company rocketed more than 80% to $8.32 on the news, with more than 9m shares changing hands – around 10 times the daily average. It was a huge topping of icing for those trusting investors who have seen the stock price edge upwards from its 52 week low of $1.52 last June.

Friday’s announcement also coincided with the company’s annual meeting at a hotel in Tampa, Florida where some 60 investors heard the news which no doubt brushed aside concerns about the record $19m the company lost last year.

Several questions the company answered in a written document given to shareholders at the meeting concerned Odyssey’s secretive nature. For instance Odyssey wouldn’t say where its vessels were located nor would it even release the name of the latest wreck it had acquired.

On operational updates the company said: “We do understand that shipwreck exploration is fascinating and that shareholders and the general public want to share in the excitement as well as make informed investment decisions. However, for security, competitive and political reasons, we may not comment or disclose information on some projects until they are completed.”

In keeping with its secretive nature, Odyssey doesn’t like to publicize its whereabouts. Visitors to its anonymous two-storey office building near Tampa airport are greeted not with corporate signage but with a “Trespassers Will Be Prosecuted” sign and a bank of video cameras.

Odyssey is an oddity as it is the US shipwreck industry’s only publicly traded company. It went public on the Over-The Counter Bulletin Board market in 1997 and moved to the American Stock Exchange in 2003. That status as a public company, says Odyssey, means that its assessment of the value of its recent find has to be accurate or else it would fall foul of US securities laws.

“If we were to inflate the value of a find like that, we would be in serious trouble,” Laura Barton, vice president of communications, told reporters. There has been some scepticism about the precise value of the treasure trove - but Odyssey isn’t waiting around to debate the theoretical value of the haul and has launched a website http://www.blackswanshipwreck.com to sell the bounty.

The company on the whole makes its money from selling off coins and artifacts. It says it retrieved $75m worth of bounty from its previous last big find, the SS Republic which it salvaged off the US coast in 2003.

But to add another source of revenues and reiterate its claims to be an archeologically sensitive company it is opening an interactive exhibition next month called Shipwreck … Pirates and Treasure at Tampa’s Museum of Science and Industry.

For the future, investors will be hoping the next big find will be the HMS Sussex, which went down near Gibraltar in the 17th century and also has an estimated $500m worth of treasure on board. Odyssey has already signed a revenue-sharing deal with the British government and has formed a pact with the Spanish government about preserving the archeological integrity of the site.

That agreement did not stop Spanish officials murmuring over the weekend about whether Odyssey was stealing Spanish gold and silver in its latest find - although the identity of the ship in the Black Swan find is not known.

Those rumblings brought indignant responses on blogs from contributors who pointed out that Spain should have no claim to any treasure trove as the country plundered the likes of Peru and Bolivia for the precious metals to make its coins.

China says Doha Round trade talks at dead end due to US, EU - UPDATE

BEIJING (XFN-ASIA) - Commerce Minister Bo Xilai said the Doha Round of trade talks appear to be at a “dead end” because of the US and EU.

Speaking to reporters at a news conference, Bo said that the talks have addressed issues of concern to developed countries such as the protection of intellectual property rights, but he noted that progress has not been made on farm aid.

“Developing countries are most concerned about farm trade and services,” Bo said.

He added that it was developed countries such as the US and members of the EU that were impeding progress.

The talks under the World Trade Organization (WTO) were suspended last year amid a bitter dispute between Europe and the US over farm tariffs and subsidies.

Bo said China has already opened up much of its service sector to the outside world, adding that Beijing does not expect special treatment from the WTO.

“We do not expect to enjoy a free lunch at the WTO,” he said.

will.davies@afxasia.com

For more information and to contact AFX: www.afxnews.com and www.afxpress.com

Innovative Way Of Determining Stop Loss Levels

I was reading an article last week and the author’s method of determining his stop loss levels was new to me. I had never before heard or read anyone else who does it this way and that is why I’m posting this information. I’m not saying I’m going to adopt this method in my trading but it is certainly refreshing to get a different perspective.

The author, Derek Frey, uses the fibonacci sequence, specifically 8, 13, 21, 34, 55, and 89 as stop levels. For example, let’s say you are shorting the USD/JPY and you use normally use the previous high as your stop level plus five pips, in this case, 121.66. What the author does instead is to find the next closest Fibonacci number, which is 89, and would set his stop loss at 121.89. This is all open to trader discretion and depending on market conditions such as volatility, one could also use the second closest Fibonacci level in this case, which is 8, setting their stop at 122.08.

The entire article titled, “Using Stop Loss Orders to Determine When to Enter a Trader” is worth the read and can be found in the March 2007 issue of PitNews eMagazine. Unfortunately I can’t post the pdf here because that got me in trouble with Currency Trader Magazine a while back. You can obtain the entire issue for free by going to http://www.pitnews.com.