Friday Sep 22, 2006

Paris goodbye

Taipan Group's Dynamic Market Alert

-- Paris goodbye
-- The once and future rate hike

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Paris goodbye

by J. Christoph Amberger, Paris, France

Paris had a local specialty in store for me as I left for Charles de Gaulle airport. The taxi drivers are on strike. “No taxi available,” the receptionist at the Hotel Atala told me. “Use public transportation,” a canned voice told newly arrived tourists at the airport.

What an odd country. It is easier and relatively more expensive to dissolve a marriage than it is to dissolve an employment relationship. Which, combined with a centralist welfare state, ought to transport people into a blissful state of bovine contentment. After all, they don’t have to care about getting fired and they don’t have to care about providing for retirement.

But they’re not content. They’re just the same greedy, egotistical, money-grubbing batards they accuse the Great Anglo-Saxon Satan to be, going on strike as often every year as Americans take a vacation.

I somehow managed to get a cab driven by the global alternative to unionized labor... an immigrant with ambition or at least an eye for opportunity. And I couldn’t help pondering about what a different life people would live in the States if employment were guaranteed.

But actually, I had forgotten that something similar already exists, even in the States, in the government sector... and in the mass transit authorities. I landed at Baltimore-Washington International airport and headed for the Light Rail at the end of the international terminal. But trying to buy a ticket downtown was impossible. The ticket machines didn’t accept dollar bills and there was no change automat. And with the new safety regulations in place, coins are at the bottom of the suitcase...

Blaspheming loudly, I dragged my suitcase outside and did the American thing. I took a taxi.
Which, of course, was driven by a Russian immigrant.

The once and future rate hike

by Adam Lass

Anyone who didn’t see this coming wasn’t looking: The FOMC met Wednesday, and declared that they would do nothing for the second month in a row.

Then came the spin: the wags “paraphrased” the Fed’s statement (because, they explained, you are not ready for the unadulterated truth). They twisted, tweaked and adjusted it to claim that everything is rosy and sweet: oil is dropping, inflation is under control and the economy is softening but not retreating.

They are wrong.

This is directly from the Fed Governors’ post to www.federalreserve.gov: “Readings on core inflation have been elevated, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures.”

The governors hope that reduced oil prices will allow inflation pressures to moderate over time. However: “The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.”

Finally, the vote to do nothing once again was not unanimous. The chairman and vice chairman and eight voting committee members agreed that maybe they would get lucky about this inflation thing.

Federal Reserve Bank of Richmond, President Jeffrey M. Lacker, was less sanguine of our prospects and called for a 25-basis increase.

And why is it that so many folks are so fascinated by an arcane, unelected, quasigovernmental agency doing nothing? It’s not like Washington doesn’t offer dozens, if not hundreds of equally inactive apparatchiks to watch.

Because everyone knows this state of near Zen-like perfection can’t last.

There is not now and has never been a real perfect economy, with no growth, no inflation, ideal employment, ideal costs, etc.

Rather, we see an economy with severe troubles: GDP growth is stalled and is a mere rounding error away from the first step down the path to recession. To solve this, the White House would normally reduce taxes, and the Fed would normally reduce interest rates, thus inserting more cash into the system.

Neither is in a position to do this. The national budget is still reeling from the last round of tax reductions and a two-front war. And the Fed dawdled so long raising rates back to neutral after the last recession, it does not have the elbow room to do so again without moving the country into a hyperinflationary cycle.

In fact, (as I will inform watchers in tomorrow’s TFN News, available at: http://www.taipanfinancialnews.com), the Fed will, in all likelihood, be forced to do the one thing it dreads most come October: raise rates.

And I’m betting that rather than raise them another measly 25-basis points, and come out with yet another hawkish bias report, they attempt to kill the inflation beast once and for all, with a full 50-point bump, and let this house of cards fall where it may.

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Earnings Announcements for Wednesday, September 20, 2006

Brilliance China Automotive Holdings Ltd, and Jolly Hotels are releasing earnings.

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Unlock Dates for September 2006

9/20/06 – Clayton Holdings Inc is unlocking 7.5 million shares.
9/20/06 – Tim Hortons Inc is unlocking 29 million shares. 
9/27/06 – Himax Technologies is unlocking 52 million shares.

Keep an eye on Tim Hortons Inc. and Himax Technologies for significant sell-offs.  You may want to short shares or buy puts on these two positions.

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