OVERSEAS MARKETS
Well, it couldn’t last forever. Mainland Chinese shares finally had an off day, as the SHSE-SZSE 300 Index slipped 1.08%. The Hang Seng dipped as well, falling 0.94%, as the yuan appreciated against the dollar. This is a negative factor to Chinese exports, but is likely not the reason Chinese shares declined today. We think it was more likely on profit-taking. Chinese stocks may also have been impacted by President Bush’s vow to confront Iran on its meddling within Iraq. Iran is a key supplier of oil to China, and any potential conflict with America is likely to severely impact Chinese stocks, in my view.

Stocks in Thailand recovered some lost ground today, after Credit Suisse analysts, Stewart Paterson, Daryl Goh and Peggy Chan, authored a note to clients. The suggestion was that Thailand’s market offers value on a P/E basis compared to other stocks in the region, and that investment in those shares may thus offer protection from a regional disruption. Oh my God! This kind of analysis makes me crazy. Please listen carefully. Just because something is down and cheap, does not mean it cannot go lower and become cheaper! Also, when Thailand may be part of the reason for a regional disruption, it offers no protection against it! There is a darn good reason why Thailand is cheaper, and it is properly reflected in the country’s shares, in my view.

I believe analysts long Thailand may be rejoicing today, as the SET recovered 2.47%, but I advise investors to heed my warning. We have now had two examples from the new military installed government of poor economic policy setting. These are clear examples of protectionist policies that were better suited for a world twenty years in the past. I believe smart money will gradually find its way into other markets. Why invest in Thailand, when other, more predictable emerging market opportunities exist.

There were two bits of interesting data out of Europe and the United Kingdom today, greatly influencing trade in the region. The European Central Bank decided to keep rates steady, after increasing them six times since December of 2005. We believe economic growth and wage pressure will leave the ECB inclined to raise rates further in the first quarter of 2007. The DJ STOXX 50 increased 1.69%. Markets across Europe also likely benefited from strong weekly jobless claims in the United States and the severe decline in oil prices.

The FTSE 100 Index climbed a lesser 1.09%, after the Bank of England unexpectedly raised interest rates by 25 basis points. The CAC 40 and DAX were both up 1.89%.

ECONOMIC DATA & ANALYSIS
Weekly jobless claims for the week ended January 6th amounted to 299,000, well below the 320,000 consensus view of economists surveyed by Bloomberg. This level of first time unemployment filers marks the lowest point in five months. Also, it adds more confidence in last week’s report from the Labor Department that showed 167,000 jobs added in December, a level that was well above expectations.

The Senate Federal Budget Committee is scheduled to hold a hearing today on the long-term budget outlook. At the same time, the monthly federal budget report is expected to show a surplus of $22 billion, twice as much as the year earlier figure.

New York Federal Reserve President Timothy Geithner is on tap to speak about the global economy at the Council on Foreign Relations in New York. In breaking news, Boston Federal Reserve President Cathy Minehan announced her planned retirement for 2007.

COMMODITY MARKETS
Energy commodities are headlining today’s news, as crude tested $53 overnight and was recently trading down approximately 3.3%, to $52.25. OPEC’s president, Mohamed al-Hamli, urged members of the group to stick to their pledged quotas on production cuts. Signs are that only two-thirds of the amount of production cuts that were agreed upon have actually been implemented. Still, yesterday, crude oil inventory stocks showed a draw, while distillates sent the market collapsing after a unseasonable build in stocks due to warmer than normal weather in the U.S. and Europe. Heating oil is down about 2.2% today. Natural gas is 5.9% lower today, as warm weather impacts the demand/supply balance in that market as well.

STOCK SPECIFIC NEWS
General Mills provided its outlook for the second half of its fiscal year, and reaffirmed its earnings guidance. Despite its earnings guidance range falling below the analysts’ consensus view, GIS shares are higher by 1.3% today. Scheduled to report earnings on Thursday are M&T Bank, Magic Investment Corp., and Stride Rite Corporation.

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