The Dow dipped 0.5%, while the S&P500 ended the holiday week about unchanged. The Morgan Stanley Cyclical index jumped 2.0%, increasing y-t-d gains to 13.6%. The Morgan Stanley Consumer index dipped 0.5%, reducing 2006 gains to 14.2%. The Transports were little changed, while the Utilities added 0.3%. The broader market was mostly higher. The small cap Russell 2000 gained 0.5% (up 17.7% y-t-d), and the S&P400 Mid-cap index rose 0.7% (up 10.0% y-t-d). The NASDAQ100 dipped 0.2%, and the Morgan Stanley High Tech index declined 0.3%. The Semiconductors fell 0.6%. The Street.com Internet Index gained 0.8% (up 20.8% y-t-d), and the NASDAQ Telecommunications index gained 0.8% (up 27.2% y-t-d). The Biotechs fell 1.8%. The Broker/dealers gained 2.1% (up 25.8% y-t-d), while the Banks declined 0.7% (up 9.3% y-t-d). With bullion up $17.25, the HUI Gold index jumped 6.4%.

Two-year government yields ended down 3 bps this week to 4.73%. Five- and 10-year Treasury yields fell 5 bps to 4.55%. Long-bond yields dropped 6 bps to 4.63%. The 2yr/10yr spread ended the week inverted 18 bps. The implied yield on 3-month December '07 Eurodollars declined 3.5 bps to 4.765%. Benchmark Fannie Mae MBS yields declined 3 bps to 5.69% (low since Jan. 24th), this week underperforming Treasuries. The spread on Fannie's 5 1/4% 2016 note ended the week one narrower to 32, and the spread on Freddie's 5 1/2% 2016 note one narrower to 32. The 10-year dollar swap spread declined 0.7 to 48.80 (low since Oct. 2005). Corporate bonds were somewhat on the defensive, with junk spreads widening about 15 bps.

November 22 - Bloomberg (Jeremy R. Cooke): "Benchmark borrowing rates on some maturities of municipal bonds fell so far this week amid a dearth of new sales and less-than-average trading in debt. Yields on high-grade municipal bonds due in 20 years slipped 1 basis point...to a three-year low of 4.10 percent, according to Municipal Market Advisors."

Investment grade issuers included UBS $3.7 billion.

November 22 - Bloomberg (Mark Pittman): "HCA Inc.'s $5.7 billion sale of below-investment-grade bonds has become the biggest bonanza for investors in at least three years. The securities rose as high as 104 cents on the dollar, cutting yields by 70 basis points since the Nov. 8 sale... The drop in yield is the biggest for new bonds of more than $1 billion since before 2003... HCA, the biggest U.S. hospital company, sold the securities at 100 cents on the dollar with yields higher than on its existing debt to make sure there was demand for the largest junk bond offering in 17 years. Proceeds will help pay for the $33 billion takeover of the...company by a group led by Kohlberg Kravis Roberts & Co."

Junk bond funds issuers this week included Lear $900 million.

International dollar debt issuers included Santander $3.0 billion, Kazkommerts $500 million, Ontario $1.0 billion, Shimao Property $600 million, MHP SA $250 million, Mystic RE $200 million, and Barbados $190 million.

Japanese 10-year "JGB" yields declined 5 bps this week to 1.65%. The Nikkei 225 index fell 2.7% (y-t-d down 2.3%). German 10-year bund yields dipped 3 bps to 3.69%. Emerging markets traded mostly higher. Brazil's benchmark dollar bond yields fell 5 bps to 6.07%. Brazil's Bovespa equities index gained 1.4% this week (up 24.8% y-t-d). The Mexican Bolsa rose another 2.2%, increasing 2006 gains to 39.3%. Mexico's 10-year $ yields declined 3 bps to 5.60%. The Russian RTS equities index declined 1% (up 53.1% y-t-d). India's Sensex equities index rose 2%, increasing 2006 gains to 45.8%. China's Shanghai Composite index surged 4%, increasing y-t-d gains to 76.6%.

This week, Freddie Mac posted 30-year fixed mortgage rates dropped 8 bps to 6.18%, down 10 bps from one year ago to the lowest rates since January. Fifteen-year fixed mortgage rates dipped 3 bps, to 5.91% (up 10 bps y-o-y). And one-year adjustable rates fell 4 bps to 5.49% (up 35 bps y-o-y). The Mortgage Bankers Association Purchase Applications Index dipped 2.8% this week. Purchase Applications were down 14.4% from one year ago, with dollar volume 13.5% lower. Refi applications fell 4.3%. The average new Purchase mortgage rose to $228,600 (down 5.5% y-o-y), and the average ARM jumped to $380,200 (up 4.8% y-o-y).

Bank Credit declined $9.6 billion last week to $8.165 TN. Year-to-date, Bank Credit has expanded $659 billion, or 9.9% annualized. Bank Credit inflated $727 billion, or 9.8%, over 52 weeks. For the week, Securities Credit dropped $8.2 billion. Loans & Leases this week dipped $1.2 billion, with a y-t-d gain of $501 billion (10.4% annualized). Commercial & Industrial (C&I) Loans have expanded at a 13.9% rate y-t-d and 13.8% over the past year. For the week, C&I loans declined $4.6 billion, and Real Estate loans fell $3.1 billion. Real Estate loans have expanded at a 14.4% rate y-t-d and were up 14.7% during the past 52 weeks. For the week, Consumer loans increased $3.7 billion, while Securities loans dropped $9.0 billion. Other loans increased $11.8 billion. On the liability side, (previous M3 component) Large Time Deposits expanded $12.7 billion.

M2 (narrow) "money" supply dropped $17.5 billion to $6.945 TN (week of 11/13). Year-to-date, narrow "money" has expanded $259 billion, or 4.4% annualized. Over 52 weeks, M2 has inflated $307 billion, or 4.6%. For the week, Currency added $0.2 billion, while Demand & Checkable Deposits dropped $16.7 billion. Savings Deposits declined $5.6 billion, while Small Denominated Deposits increased $2.5 billion. Retail Money Fund assets rose $2.1 billion.

Total Money Market Fund Assets, as reported by the Investment Company Institute, jumped $23.2 billion last week to $2.311 Trillion. Money Fund Assets have increased $254 billion y-t-d, or 13.7% annualized, with a one-year gain of $281 billion (13.8%). It is also worth noting that Money Fund Assets have expanded at a 22.7% rate over the past five months.

Total Commercial Paper declined $9.7 billion last week to $1.921 Trillion. Total CP is up $280 billion y-t-d, or 18.9% annualized, while having expanded $266 billion over the past 52 weeks (16.1%). Total CP has expanded at a 20% rate over the past five months.

Asset-backed Securities (ABS) issuance this week slowed to a respectable $19 billion. Year-to-date total ABS issuance of $667 billion (tallied by JPMorgan) is running about 7% below 2005's record pace, with 2006 Home Equity Loan ABS sales of $445 billion about 5% under comparable 2005. Also reported by JPMorgan, y-t-d US CDO (collateralized debt obligation) Issuance of $312 billion is running 80% ahead of 2005.

Fed Foreign Holdings of Treasury, Agency Debt rose $5.9 billion during the week to a record $1.710 Trillion (week of 11/22). "Custody" holdings were up $191 billion y-t-d, or 13.9% annualized, and $210 billion (14.0%) over the past 52 weeks. Federal Reserve Credit expanded $4.1 billion to $838.9 billion. Fed Credit is up $12.5 billion (1.7% annualized) y-t-d, while having expanded 4.0% ($32.4bn) over the past year.

International reserve assets (excluding gold) - as accumulated by Bloomberg's Alex Tanzi - were up $673 billion y-t-d (18.4% annualized) and $715 billion (17.8%) in the past year to a record $4.719 Trillion.

November 22 - Bloomberg (Bradley Cook): "Russia's foreign currency and gold reserves, the world's third largest, rose to a record $278.3 billion as of Nov. 15..."

Currency Watch:

November 20 - Bloomberg (Mark Tannenbaum and Michael McDonald): "John W. Henry, the billionaire owner of the Boston Red Sox, won't be savoring any memories from 2006... Henry runs a group of commodity trading advisers, a type of fund manager that buys and sells currency, bond or commodity futures on the Chicago Board of Trade and other exchanges. His John W. Henry & Co. $1.25 billion Strategic Allocation Program lost 12.5 percent this year and plunged 19.2 percent in 2005. The $70 billion managed by so-called CTAs returned 1.4 percent on average this year because of the steepest currency losses since 1994, said... researcher Daniel B. Stark & Co."

The dollar's languid bear market rally seemed to unravel this week, with the dollar index sinking 2% to 83.60, the lowest level since June 1. On the upside, the Swiss franc increased 2.8%, the Czech koruna 2.3%, the Swedish krona 2.3%, the Danish krone 2.1%, the Norwegian krone 2.1%, and the Euro 2.1%. On the downside, the Turkish lira declined 1.4%, the Uruguay peso 1.2%, the Mexican peso 0.7%, and the Brazilian real 0.5%.

Commodities Watch:

November 21 - Bloomberg (Pham-Duy Nguyen and Danielle Rossingh): "Platinum rose for a second day, touching a record in London, on concern supplies of the metal used in jewelry and car-exhaust systems will fail to satisfy demand for an eighth straight year... Platinum is up 33 percent this year, heading for a fifth annual gain, amid a rally in metals from gold to copper to zinc."

November 24 - Bloomberg (Chanyaporn Chanjaroen): "Nickel rose to its highest since at least 1987 on concern that supply will keep lagging behind demand after a French court ordered construction to stop at a $2.15 billion mine belonging to Cia. Vale do Rio Doce. Other industrial metals also gained in London."

Gold rose 2.8% to $638.95, and Silver surged 6.8% to $13.665. Copper jumped 4.8%, increasing y-t-d gains to 68%. January crude gained 93 cents to end the week at $59.90. December Unleaded Gasoline increased 3.8%, while December Natural Gas declined 2.7%. For the week, the CRB index gained 1.0% (down 6.9% y-t-d), and The Goldman Sachs Commodities Index (GSCI) added 0.8% (up 2.2% y-t-d).

Japan Watch:

November 22 - Bloomberg (Lily Nonomiya): "Japan's trade surplus narrowed more than expected as U.S. demand cooled... The trade surplus fell 24.8 percent to 614.7 billion yen ($5.2 billion) in October from a year earlier..."

China Watch:

November 24 - Bloomberg (Yanping Li): "The People's Bank of China...is focusing policy on withdrawing yuan from the economy after purchasing dollars, said Vice-Governor Wu Xiaoling. The current key monetary policy objective is so-called sterilization, Wu told a press conference... She said China's trade surplus is largely caused by manufacturers building factories in China and a stronger local currency may cause them to relocate to other Asian nations."

November 22 - Bloomberg (Philip Lagerkranser): "Profits at Chinese industrial companies accelerated in October for a seventh straight month... Combined net income surged 30.1 percent through October from a year earlier to 1.5 trillion yuan ($191 billion) after climbing 29.6 percent in the first nine months... Total sales jumped 26.1 percent to 24.7 trillion yuan... Profit growth has picked up even as the central bank raised interest rates twice this year..."

November 23 - Bloomberg (Yidi Zhao and Dingmin Zhang): "China's central bank said it must reduce the nation's savings, which make up about 45 percent of the economy, or double the global average, to spur domestic consumption and reduce the country's trade surplus."

November 21 - Bloomberg (Nipa Piboontanasawat): "Hong Kong's economic growth accelerated more than expected in the third quarter as consumers spent more and corporate investment climbed at the fastest pace in almost six years. Gross domestic product rose 6.8 percent from a year earlier after gaining a revised 5.5 percent in the previous three months..."

Asia Boom Watch:

November 23 - International Herald Tribune (Choe Sang-Hun): "The Bank of Korea...raised reserve requirements on banks for short-term deposits for the first time in almost 17 years. The move was aimed at curbing lending, which has helped send housing costs skyrocketing and contributed to a major political hurdle for President Roh Moo Hyun. From Dec. 23, financial institutions will be required to put aside 7 percent of their outstanding 'demand deposits'...the central bank said. The reserve ratio had been steady at 5 percent since February 1990."

November 22 - Bloomberg (Theresa Tang): "Taiwan's unemployment rate held at the lowest in more than five years last month... The seasonally adjusted jobless rate remained at 3.84 percent..."

November 23 - Bloomberg (Yidi Zhao and Dingmin Zhang): "Taiwan's economic growth unexpectedly accelerated last quarter. Gross domestic product rose 5.02 percent from a year earlier after climbing 4.57 percent in the second quarter..."

November 23 - Bloomberg (Stephanie Phang): "Malaysia's economy grew at the slowest pace in three quarters as manufacturing eased amid prospects of ebbing overseas demand for electronics. Malaysia's $131 billion economy expanded 5.8 percent in the third quarter from a year earlier after a revised gain of 6.2 percent in the previous three months..."

November 20 - Bloomberg (Shamim Adam and Chan Sue Ling): "Singapore's economy expanded less than expected in the third quarter and the government said growth may slow further... Southeast Asia's fourth-largest economy grew at an annual 5.7 percent pace, after expanding a revised 3.9 percent in the previous quarter..."

Unbalanced Global Economy Watch:

November 21 - Bloomberg (Rich Miller and Simon Kennedy): "More money in workers' pockets may mean less in some investors'. Accelerating wage growth around the world is making central bankers less willing to cut interest rates than some investors expect. The concern: The increasing labor costs may trigger a renewed rise in inflation even as energy prices abate. 'Wages are creeping up,' former Federal Reserve Chairman Paul Volcker told the Concord Coalition... When it comes to inflation, Volcker said, 'we're a little bit on the edge.' In the U.S., unit labor costs rose last quarter at the fastest pace in almost 25 years. Germany's largest steelmakers...are giving workers their biggest pay raise in more than 10 years. New Zealand wages increased at a record pace in the third quarter. There's more to come. The International Monetary Fund expects unit labor costs at manufacturers in advanced economies to chalk up their biggest increase in six years in 2007."

November 24 - Bloomberg (Theophilos Argitis): "The Canadian government, benefiting from the largest oil reserves outside of the Middle East, will try to use the revenue windfalls over the next 15 years to become the first Group of Seven nation to eliminate its net debt."

November 20 - Bloomberg (Craig Stirling): "Growth in M4, the broadest measure of U.K. money supply, stayed close to a 16-year high in October, indicating inflation pressures in Europe's second-biggest economy... M4, measuring currency in circulation and deposits at banks, increased 14 percent from a year earlier, after a 14.5 percent annual pace in September..."

November 23 - Bloomberg (John Fraher): "German business confidence unexpectedly rose in November, matching a 15-year high, on signs exports and investment spending will cushion the effect of Chancellor Angela Merkel's planned tax increase next year."

November 23 - Bloomberg (Gabriele Parussini): "Swiss employment rose the most in five years in the third quarter as companies hired more workers amid the fastest economic expansion since 2000."

November 21 - Bloomberg (Michael Heath): "Russia's average salary rose 13 percent this year as companies sought to retain employees amid an expanding economy, PricewaterhouseCoopers LLP said..."

Latin American Boom Watch:

November 23 - Bloomberg (Telma Marotto): "Brazil's unemployment rate fell to a nine-month low in October as companies hire more workers ahead of the holiday season. Unemployment in Brazil's six largest metropolitan areas declined to 9.8 percent..."

November 23 - Bloomberg (Heather Walsh): "Chile's economy expanded in the third quarter at the slowest pace since 2003, suggesting that the central bank may reduce lending rates next year. Gross domestic product expanded 2.9 percent last quarter..."

Central Banker Watch:

November 22 - Bloomberg (Radoslav Tomek and Gabi Thesing): "European Central Bank council member Klaus Liebscher said credit growth in the euro region is 'certainly a reason to be on the vigilant side,' signaling he's prepared to endorse higher interest rates. 'Credit-growth developments show the economy is picking up or is still robust,' Liebscher told reporters...adding that growth in credit and the supply of money supply are 'certainly a reason to be on the vigilant side.'"

Bubble Economy Watch:

November 21 - Financial Times (Deborah Brewster): "More than $1.3bn in works of art have been sold in the past two weeks during a record New York auction season that has pushed art prices to an all-time high... Experienced dealers and collectors were astonished by some of the prices paid at auctions held by Sotheby's, Christie's and Phillips, which pulled in twice the sum they did last year. The worldwide collecting boom shows no sign of slowing, with Russian, Asian and Middle Eastern collectors, along with hedge fund managers, providing a fresh pool of buyers. Michael Moses, a New York University academic whose Mei/Moses art index tracks market prices, said: 'The strength of the market is indicated not just by the high prices but by the breadth of the sales. This isn't just a few celebrity pieces. There is very broad strength throughout the market: 108 works just sold for more than $1m each ... It's not just a few hedge fund managers buying: it's the growth of the high net worth sector over the past five years, which has been dramatic.'"

November 22 - The Wall Street Journal (Gautam Naik): "A building boom under way in the U.S. hospital industry is sparking concern about economic and geographic disparities in health care. Much of the construction is occurring in fast-growing suburbs, as hospitals target the most affluent, insured patients who can afford to pay for top care. At the same time, many urban hospitals...are struggling financially, and scores have had to shut their doors. Propelled by low interest rates, the need to replace outdated facilities and the promise of future demand from an aging population, hospitals around the country have embarked on the biggest construction spree in half a century. Between 2000 and 2005, the hospital industry spent $100 billion to build new facilities and expand existing ones, almost double the amount spent in the previous five-year period... In 2005 alone, the spending hit $24 billion, a record. A further $200 billion will be invested over the next decade, according to the Robert Wood Johnson Foundation."

Real Estate Bubble Watch:

November 21 - National Association of Realtors on third-quarter U.S. home prices: "Conditions for home buyers improved during the third quarter as existing single-family home prices in many metropolitan areas experienced corrections... Total state existing-home sales, including single-family and condo, were at a seasonally adjusted annual rate of 6.27 million units in the third quarter, down 12.7 percent from a 7.18 million-unit pace in the third quarter of 2005 -- the second highest level on record, after a peak of 7.19 million in the second quarter of last year. Even with the overall decline, 10 states showed increases in sales activity from a year ago. Third-quarter metro area single-family home prices, examining changes in 148 metropolitan statistical areas, show 102 areas had price gains, including 21 metros with double-digit annual increases, and 45 areas experiencing price declines; one was unchanged."

November 21 - Florida Association of Realtors: "In third quarter 2006, Florida's housing sector continued to mirror the national trend, showing higher inventory levels of homes available for sale in many markets and a slowdown in sales. Statewide, sales of single-family existing homes totaled 43,395 during the three-month period, a decrease of 34 percent compared to...a year ago... The statewide existing-home median sales price remained stable at $247,900 in the third quarter; a year ago, it was $247,800."

November 20 - Bloomberg (Jody Shenn): "Defaults on adjustable-rate mortgages made this year to the riskiest borrowers and packaged into bonds surged 25 percent to the highest level for new loans in five years, Friedman Billings Ramsey Group Inc. said. The percentage of so-called sub-prime loans delinquent by 90 days or more, in foreclosure or turned into repossessed properties rose last month to 2.52 percent from 2.01 percent in September..."

M&A and Private-Equity Bubble Watch:

November 20 - Bloomberg (Julia Werdigier and Dana Cimilluca): "Mergers and acquisitions worldwide rose to a record $3.1 trillion as leveraged buyouts almost tripled, surpassing the previous high set in 2000 during the peak of the dot-com boom. 'M&A tends to follow the global cycle and there still may be about two years of growth ahead of us,' said Robert Jukes, an analyst at Credit Suisse... 'Conditions for M&A are nearly perfect.' Chief executive officers are spending more on takeovers as rising earnings and stock prices make it easier to finance purchases. LBO firms, flush with record-sized new funds, have announced $616 billion of acquisitions, up from $222 billion a year earlier..."

November 20 - Bloomberg (John Fraher): "Billionaire George Soros said there's a danger that a 'private-equity bubble' could burst, threatening the global financial system, Spiegel said, citing an interview. Soros said that private-equity firms are channeling excessive liquidity in the global economy into the financial markets and companies that they've taken over in order to achieve their annual growth targets..."

November 22 - Financial Times (Rebecca Bream): "The total value of mergers and acquisitions in the booming mining sector has exceeded $100bn so far this year, an industry record, and the wave of deals is expected to continue into 2007. This week's $26bn take-over bid by Freeport McMoRan...for Phelps Dodge, its larger rival, has pushed the total value of mining M&A deals in 2006 to about $113bn. Last year, deal-making activity totalled $57bn, while in 2004 there were $34.5bn of deals."

Financial Sphere Bubble Watch:

November 21 - Dow Jones: "U.S. third quarter bank earnings rose 8.6% from a year earlier to $37.6 billion, the second-highest quarterly total reported by the industry, the [FDIC] said... Increased loan loss provisions, reduced servicing income and lower trading revenue at big banks and thrifts kept earnings from setting a new record... Third quarter earnings were 1% lower than the second quarter's record high of $38.0 billion. The average return on assets fell to 1.29% in the third quarter from 1.34% in the second quarter and 1.31% in the third quarter of 2005."

Energy Boom and Crude Liquidity Watch:

November 21 - Financial Times (Leo Lewis): "The fragile economics of solar power could be thrown into jeopardy by a severe global shortage of the basic material used to convert the sun's rays into electricity. Industry experts warn that a worldwide shortage of poly-crystalline silicon will not ease in 2008, as some expect, but could continue for at least another five years. Solar projects will either have to be abandoned, or governments will have to pay billions of additional dollars in subsidies. The warning comes despite recent capacity expansion announcements at the world's largest poly-silicon producers... Average polysilicon prices, which have doubled in the past 20 months, are expected by some to rise by about 30 per cent over each of the next three years."

Speculator Watch:

November 21 - Dow Jones (Jesse Thomas): "Hedge funds are playing an increasingly important role in the robust trading volume growth at the Chicago Mercantile Exchange and Chicago Board of Trade, and the country's two largest futures exchanges are eager to further tap that huge investment pool. Futures offer a liquid market where hedge funds can easily place big trades, whether looking to profit from speculating or hedging risks. Chicago Mercantile Exchange Holdings Inc. and CBOT Holdings Inc., which plan to merge by mid-2007, have been key beneficiaries, collectively registering trading volume growth of 25% in the past year alone."