Dallas, TX
March 5, 2010, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Greece And Germany: Very Testy
What's Hot Today:
U.S. stock index futures were slightly higher ahead of the employment report on Friday.
  • Employment Situation 8:30 AM ET

  • Consumer Credit 3:00 PM ET
News For Thought

China's budget turns away from stimulus. According to The Wall Street Journal: "Beijing unveiled a conservative budget for 2010 that reinforces its gradual shift away from stimulus programs adopted during the crisis."

Arizona decision to close rest stops stirs public anger. According to The New York Times: "Arizona has the largest budget gap in the country when measured as a percentage of its overall budget, and the state Department of Transportation was $100 million in the red last fall when it decided to close 13 of the state’s 18 highway rest stops. But the move has unleashed a torrent of telephone calls and e-mail messages to state lawmakers, newspapers and the Department of Transportation deploring the lost toilets — one of the scores of small indignities among larger hardships that residents of embattled states face as governments scramble to shore up their finances."

Reversal of 9/11 trial ahead says paper. According to The Washington Post: "President Obama's advisers are nearing a recommendation that Khalid Sheik Mohammed, the self-proclaimed mastermind of the Sept. 11, 2001, attacks, be prosecuted in a military tribunal, administration officials said, a step that would reverse Attorney General Eric H. Holder Jr.'s plan to try him in civilian court in New York City."

The report added: "The president's advisers feel increasingly hemmed in by bipartisan opposition to a federal trial in New York and demands, mainly from Republicans, that Mohammed and his accused co-conspirators remain under military jurisdiction, officials said. While Obama has favored trying some terrorism suspects in civilian courts as a symbol of U.S. commitment to the rule of law, critics have said military tribunals are the appropriate venue for those accused of attacking the United States."

Here's the rub. Apparently, the reversal on the civilian trials is being used as leverage to get congressional funding for closing Guantanamo and bringing the terror suspects to a U.S. based institution. Politics, of course, always rules the day in Washington.

Greece And Germany: Very Testy
Next Few Days Could Set Tone For Currency Markets
The employment report will gather the headlines this morning, but the relationship between Greece and Germany is likely to give currency traders plenty of fodder for a good while.

Germany has been consistently playing hardball against Greece. And according to reports, the situation is about to get more contentious.

Greece Prime Minister George Papandreou is due to meet with German Chancellor Angela Merkel, but according to Reuters: "Germany has no intention of offering Greece a single cent in aid, Economy Minister Rainer Bruederle said just hours before Greek Prime Minister George Papandreou was due to land in Berlin." In fact, the finance minister was quoted as sayin gthat Germany "won't give a cent" to Greece. Germany's stance is that "Each EU state was responsible for its own affairs and Athens had to implement its austerity plan effectively."

The most interesting aspect of all of this is that there is little else being said. In fact, there aren't too many voices being raised, at least not very loudly, in favor of Greece. Greece, for its own, had a successful bond auction but had to pay higher interest rates than prevailing market rates.

More important, there is rising social unrest in Greece, with street demonstrations and reports of riots appearing on a nearly daily basis. Greece has put forth a set of austerity measures that have gained approval from the EU, but not from at least a vocal version of its population being led by labor unions.

According to Reuters: "Most Germans oppose the idea of taxpayers bailing out Greeks who they think have been living beyond their means for years."



Chart Courtesy of StockCharts.com


Meanwhile, the U.S. Dollar remains in consolidation mode. The most bullish aspect of the chart is that the U.S. Dollar index has remained above 80.

Conclusion

The employment report will gather the headlines. We expect better than expected numbers but we know that the number is impossible to predict.

The stock market has acted well all week, although that could be due to seasonal tendencies for money to come into the market in the first five days of the month.

Our point is that once the employment report fever clears, we'll be back to dealing with Washington and Greece. And the current gridlock, perhaps a prelude to a party reversal in the power structure in Washington, and Greece's hapless condition, are favorable for the dollar.

Indeed, we'll know soon enough.

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Market Moves - Stock Of The Day
Russell 2000 ETF (NYSE: IWM) Sneaks To New High
The Dow Jones Industrial Average gets the headlines, but in this market the small stocks, such as those in the Rusell 2000 ETF (NYSE: IWM) are getting all the glory.



Chart Courtesy of StockCharts.com




In a recent article in this space we noted that we seemed to be in a stealth bull market for small and midcap stocks. That was a few days ago, in the pre-employment report days of March.

As of March 5, the small stocks had moved slightly higher, and didn't seem to be giving any quarter to the large cap stocks which, although, also climbing, were still shy of making a new high from the March 2009 bottom in the stock market.

What we're seeing is a significant change in money flows, as money managers are putting more money into small stocks. There are two major reasons for this.

One is that small stocks have more growth potential than large stocks. And second, the dollar has strengthened, making it harder for large multinational companies to grow their earnings.

What makes this trend more important is that changes in trend in the dollar tend to remain in place for a long time. More interesting is that long term bull runs in small stocks can also last long periods of time.

What we're saying is that we may be in one of those periods where the current trend could be in place longer than many investors suspect.
 

 


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