Nicole Elliott on Currencies

Regular readers will know my respect for Nicole Elliott, technical analyst from Mizuho in the UK. She has a regular appearance on CNBC Europe on Tuesdays right before the European equity markets close. Today she gave an outlook of sorts for the currency markets to start 2005. Three of her favorite currencies are the New Zealand Dollar (Kiwi), British Pound, and the Euro. Her least favorite is the US Dollar. This ties in with what I have been writing about for a while. There is a demand problem for US dollars. This will act as a headwind for US equities. Not that US stocks can’t go higher, this is just an obstacle that will need be to overcome. To add some fundamental color to Nicole’s technical opinion, both the Pound and the Kiwi are high yielding currencies (that is interest rates are higher because of recent economic strength). This creates demand for those currencies. I believe that one of the reasons for strength in the Euro, which has not had much of an economic tailwind, is there are no real threats of serious changes to the economic landscape in Euroland. Growth is slow, unemployment is high but there is not anywhere near the uncertainty in Europe these days as in the US, so the Euro gets stronger against the dollar. Another cross rate that has had a lot of attention lately is the US Dollar/Swiss Franc which has the dollar close to nine year lows. There have been more Petro dollars available to invest because of the high price of oil. I think a lot of the dollar’s slide...

Update

I wanted to pass on a little news about this blog. Starting today the content that I post here will also be posted on a blog at PairsTrader.com. To be clear, I will post the same content to both sites. This gives me the opportunity to share what I know(insert your favorite heckel here) and my thoughts with a wider audience. I will post a market related article a little later...

Ireland

Over the weekend CBS Marketwatch had an article about investing in Ireland and what is going on in the Irish pro-business economy. I first read about Ireland as an investment theme about ten years ago in what is now the Bloomberg Markets magazine. Since that article the ISEQ has tripled, surviving a 33% hit when the US markets declined post bubble. The pro-business part of the story has been roughly the same all these years. The Irish government is openly trying to lure business by offering 12.5% tax rate, the lowest in Western Europe, and a 20% tax credit for research and development. You can read the article for more details. I have been on board with Ireland for a while, my clients and I own one of the Irish banks (some disclosure for those of you that like that sort of thing). There are not too many ways to invest in Ireland currently. There is no Irish iShare, nor could I find any index fund available to US investors. iShares does have a United Kingdom Fund (EWU), but it captures very little of Ireland. In just about every time period you can find Ireland has outperformed the UK which reiterates EWU as a poor proxy. There is one closed end fund called the New Irish Fund (IRL). According to ADR.com there are 17 Irish companies that trade as ADRs but only three of them trade on the NYSE. The New Irish fund trades at a 12.5% discount an offers a very small dividend but over the last 12 months it has returned more than 40% while the ISEQ...

Debunking the Microsoft Dividend

By now you no doubt have heard that Microsoft will be paying $3 per share in dividends to shareholders. Yahoo finance says there are about ten billion shares so $30 billion will be paid. This has created a buzz because a lot of market participants think that the $30 billion will be reinvested back into stocks. I’m gonna say I don’t think so, at least not to the extent that a lot of people are hoping for. About 46% of the shares are held by individuals. Thats a lot of odd lots and other positions under 200 shares. My point is that a lot of the $30 is going to be paid a few hundred dollars at a time. Most stock investors are not going to immediately buy $200, $300, or $400 of stock because of the commission expense. The dividend for those folks will likely end up in a money market for while. Bill Gates stands to get $3 billion for his dividend. Am I the only that thinks most of that money is going the various charities supported by his foundation? The institutional holders will reinvest the dividend, this will be in the neighborhood of $17 billion. I think a best case scenario might be $20 billion getting reinvested. I would not be surprised if specialists and market makers have already accumulated some inventory to meet demand. If that is correct that will take some of the steam out of the lift expected my some...