Wednesday's Coffee - Market Wrap Up

Enjoy your fresh coffee with our summary and analysis of the market activity of the day and a medley of important information you should find useful.

OVERSEAS MARKETS

Well, the mainland Chinese market seems to have stabilized finally, until the next time the government tightens or some global event or U.S. data sets the wheels of volatility in motion again. The valuation of these shares makes them vulnerable to bad news. At the same time, there is an upside factor that is likely overlooked by most analysts. The growth of local Chinese brokerage houses within the immature markets of the mainland has been so strong that sales efforts aided by last year's stellar market performance record, and likely significant boiler room type operations, could drive Chinese shares again this year. Keep in mind, we feel this rise is driving the market towards a 1929 type crash for Chinese investors, with all the resulting effects that accompany that kind of tragedy, including business failures, suicides and economic setback. It's a hard thing to time perfectly, but I suspect there is a deadline for it, and that would be the day Iran is bombed. Remember our reasoning here; China is significantly dependent on Iranian oil, and this is why it continues to pursue partnerships with Russia and Iran.

Today, we presented an article that announces a planned trip of the Chinese president, Hu Jintao, to Russia. The trip is meant to further cement a new alliance between the two, for the purpose of balancing against the power of the United States. Pay close attention to how the sanction process progresses within the U.N. and the strategic decisions China makes. We wrote about this topic recently, making a point that we expect Russia and China to stand firmly against military action on Iran. This is why we expect Israel to do the bombing. And do you think Taiwan decided all of a sudden to become more vocal on independence all by itself? No, the U.S. needs some bargaining leverage. We will talk Taiwan down, if you step aside and let us bomb Iran. Okay, maybe we are going a little far on this one... The Shanghai and Shenzhen 300 Index rose 2.7% today, but in Hong Kong, the Hang Seng declined 0.73%.

Treasury Secretary Paulson arrives in China on Thursday, and he's likely to positively influence trading activity. On Friday, we find out the depth of the trade deficit, and how trade with China influenced it in January.

Paulson may have played a role in the stabilization of trade in Japan, but he left and the NIKKEI 225 fell 0.47%... I don't know about you, but I find myself watching CNBC Asia every night to get an idea of how Asian markets are fairing. Outside of China, the hot markets in Asia today were in Malaysia and the Philippines. The Kuala Lumpur Stock Exchange Composite Index climbed 2.3%, while the Philippine Stock Exchange PSEi Index climbed 3.0%.

Tomorrow, the European Central Bank will meet, and is expected to raise interest rates a quarter percentage point to 3.75%. Today, benchmarks in 15 of 18 Western European markets rose. The broad reaching DJ STOXX 50 edged up 0.24%, while the FTSE 100 rose 0.29%. The Bank of England will also meet tomorrow, but is anticipated to keep rates steady this time around. Also, the EU is holding a summit on economic issues with a focus on energy.

ECONOMIC DATA & ANALYSIS

In light of the expanding subprime problem, today supplied important credit news. January consumer credit was reported at $6.5 billion, far above the $5.0 billion that was anticipated, and higher than the $6.0 billion reported a month prior. Later in the day we found out that Fremont General Corporation's reason for announcing it would be divesting its subprime lending operations might not have been proactive creation of value, as was implied. In fact, the company was issued a cease and desist order by the FDIC to halt subprime lending activity due to a lack of proper risk management policies and procedures. Ha, good luck selling that unit now... When I was an analyst, this management team would not have helped to improve my opinion of the firm's stock...

The Fed released its beige book survey of regional economic indicators today. The report indicated little change in price pressures, while most regions showed modest economic growth, with a few regions reporting slower growth.

Mortgage applications rose 7.3% in the week ended March 2, 2007, fueled by a decrease in interest rates after last week's economic scare. Refinancing activity drove the increase, rising 15%.

STOCK SPECIFIC NEWS
Exxon Mobil held a meeting with analysts today, while earnings were reported by American Eagle, Saks, Men's Wearhouse, BJ's Wholesale Club, Coldwater Creek, Genesco, Martek Biosciences, Westwood One, K2 Inc. and Neenah Paper.

Tomorrow, major retailers will report chain-store sales for February, while several large retail firms report earnings. Expect reports from Costco, National Semiconductor, Urban Outfitters, Tech Data Corp., Quiksilver, Hovnanian Enterprise, Brown Shoe Co., Korn/Ferry International, Wind River Systems, Comtech Telecom, Analogic Corp., Fleetwood Enterprise and Blue Coat Systems.

(disclosure)