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As anticipated and forecasted, the BOE cut interest rates by 25bp to 5.25% and ECB left rates unchanged at 4%.

GBP:

At the moment, the Bank of England is more concerned that slowing growth will bring inflation below target and suggested that more rate cuts may loom on the horizon as long as economic data points to deteriorating conditions following the lead of the American counterparts. Similarly to the USD, the pound is heading towards a period of slowing growth and its time to short it.

EUR:
Even though interest rates remained unchanged, ECB President Jean-Claude Trichet appeared to soften his previous hawkish stance on rates, noting that risks to growth in the euro zone were on the rise. Analysts increasingly believe the ECB will have to cut rates later this year despite rising inflation. Trichet stressed multiple times that the risk to growth is to downside and uncertainty about market turmoil is usually high which triggered the massive sell-off of the EUR/USD. Look for a period of moderate rise in the EUR/USD but mainly trading within a narrow band pending further economic news but for the short-term, its good to go short as the momentum is favouring the down trend.

Trading:

• At the moment, there looks to be a relatively good amount of trading opportunities with the majority of the event driven news out of the way. At the moment, I am looking at a short on the EUR/JPY on the 1-hour downtrend and since its a Friday, 1-hr is perfect for an intraday trade with all the profit-taking that goes on during the mid-session of the NY open.

• Another trading setup is the EUR/GBP (my fav. pair) on the Daily charts forming a flag formation again and a break to the upside past the .7500 region would signal another buy opprtunity possibiy to at least the 0.7600 region.

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The Institute for Supply Management’s (ISM) non-manufacturing index, released Tuesday, plummeted to 41.9 from 54.4 in December as analysts fore casted a figure of 53. It was the steepest drop since the index was launched and the lowest reading since the aftermath of the Sept. 11, 2001, terrorist attack. A reading of less than 50 indicates a contraction of service activity, which accounts for about three quarters of the U.S. economy.  The sharp decline in the ISM index is significant because it suggests a recession could be worse than the relatively mild one experienced in 2001.  A remarkable 14 of 18 sectors ranging from insurers, restaurants, hospitals reported to the ISM stating activity shrank in January.

As a result, fed fund futures are pricing in a 74% chance of another 50bp cut next month.

…..

Not much going on again on the trading aspect and my previous sole lot on the EUR/GBP was exited early due to the rising strength in the GBP the last couple of days.  The exit point was @ 0.7460 which netted a profit +14 pips and the entire trade netted a total of +59 pips.

The opportunity to re-enter may very well occur very shortly however due to the event risks of interest rate statements from both parties; any entry should be delayed until Thursday.

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NEW YORK (Reuters) CNBC - Technology giant Microsoft Corp <MSFT.O> said on Friday that it had offered to acquire Internet media company Yahoo Inc <YHOO.O> for $44.6 billion in cash and stock.

Microsoft said it had offered to buy Yahoo for $31 per share, which it said represented a 62 percent premium above the company’s closing stock price on Nasdaq on Thursday.

“We have great respect for Yahoo, and together we can offer an increasingly exciting set of solutions for consumers, publishers and advertisers while becoming better positioned to compete in the online services market,” Microsoft Chief Executive Steve Ballmer said in a statement.

Yahoo was not immediately available for comment.

Microsoft said it had identified four areas that would generate at least $1 billion in annual synergies for the combined entity.

Yahoo shares rose 56 percent to $29.95 in premarket trading on Friday following the announcement. U.S. stock index futures also jumped after the news was released.

……

It looks like Microsoft is really on a roll here ever since the buying a piece of the social networking giant, Facebook, as it looks to keep up with eventual I.T. successor Google. But where’s the synergy? Yahoo has had much more success on the web than Microsoft, and Google increasingly looks to challenge Microsoft with online office apps. There’s search, too: the two companies combined would command 27% of the search market against Google’s 65%. And of course there’s advertising, where Google is also dominant and Yahoo is building out Panama.

Former CEO, Bill Gates, was not available at the time for questioning thus we will leave you with a classic photo of a provocative Gates doing the dirty deed with teh release of Windows 1.0.

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With all the hype recently about Goldman Sachs being the only major investment bank to avoid being stung in last year’s subprime mortgage fiasco and the record profits it rung up last year, bonus time was expected to be a time of good cheer for Goldman employees.

But, according to The New York Post, some were not so happy with their year-end stocking stuffers. The paper, citing “whispers”, said that some cost center employees, the back office operations, IT employees and such, were getting stiffed.

The firm’s chief executive, Lloyd C. Blankfein, was rewarded with a record $67.9 million bonus, while its co-presidents, Gary Cohn and Jon Winkelried, each received bonuses of about $40.5 million, up 58 percent from last year. And the bank also set aside 20.2 billion to pay employee wages, benefits and bonuses this year, a 23 percent increase from last year.

But cost center workers expecting 75 percent of their salary as a bonus, got only 15 percent, the newspaper said.

Link

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Bad bets on the U.S. subprime mortgage market, as shown countless times in the past few months, can be deadly—or at least markedly unpleasant—for hedge funds. Good bets? They can be unspeakably lucrative.

Small Cap managers that are up 10% this year are considered to be doing well. If that does not impress you, this will:

And no one, it seems, bets as well as John Paulson and his Paulson & Co.: The $4.5 billion Paulson Credit Opportunities Fund, set up last year for the express purpose of betting against subprime, is reportedly up a remarkable gross return of 690% and a net return, after fees, of 551% for the first 10 months of the year, according to a source close to the firm. The firm’s Credit Opportunities II fund has made a gross return of 410% and a net 328%.

Paulson’s assets under management have mushroomed from $6 billion in January to nearly $28 billion, and the firm is close to cracking the top 10 in hedge fund land, at least in AUM. It is hard to see their performance being much better. I am assuming they are number one, a remarkable feat for such a large fund.

He’s so confident that it’s going to get worse, he’s raising a new $5 billion fund.

Lets get the numbers straight: The company is a 9 person hedge fund and at the 2% assets under administration and 20% of returns valuation (and that’s conservative for a very well regarded HF manager like Paulson) that’s $3.82 billion they’re taking home in compensation this year alone.

Another prime example of a big shot hedge fund manager making exuberant amounts of dough points to Steve Cohen at SAC Capital Partners whom has a policy to keep 50% of gains plus a 3 percent management fee. Then again, he’s generated an average annual return of 43.5% since 1992 - which is astounding. Cohen’s personal compensation levels have been off the proverbial hook for years now. So much so that it’s actually funny to read:

2006 - $1.2 billion
2006 - $1.0 billion
2005 - $450 million
2004 - $428 million
2003 - $350 million

So, How do you stack up with the best and brightest?

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Paramount has become the newest movie studio to make efforts to compete with pirates by offering low-cost, legitimate DVDs in China. New movie titles will go on sale some two months after their theater debut in the US, and for only $3. Paramount will also be joining forces with an unlikely partner in order to combat piracy: competitor Warner Bros., which already has outlets set up in China to sell DVDs.

Time Warner (parent company to Warner Bros.) was the first to try to undercut Chinese movie pirates by selling cheap DVDs in mid-2006. It formed Warner China as a partnership between Warner Bros., China Film Group, and Hengdian Group to sell movies just days after theatrical release for rock-bottom prices: just 10 to 12 yuan (between $1.30 and $1.60). Warner was followed by Fox a few months later, which planned to mirror that strategy but at a higher price—about 20 to 25 yuan, which translates to about $3.

The problem with $3 is that it’s more than double the typical price for illicit street copies of the same movies. But Warner Bros. and Paramount, like Fox, hope that the premium won’t deter customers from buying if they know it’s a real, legal version. As Fox’s international home-entertainment manager Keith Feldman said last November, “It comes down to our ability as marketers to convince the Chinese consumer it’s worth spending the money.”

Both Warner Bros. and Paramount say that this will be the earliest release date and lowest price that their movies have ever been sold for, worldwide. And their reason for teaming up with one another is strategic: they are competing against piracy in China, not each other. The more legit movies that are available in one spot, the more attractive the outlets will become to prospective buyers. “We’re committed to developing a legitimate market in China, and having two more Hollywood studios gives us more critical mass,” Warner Bros. managing director of China distribution, Tony Vaughan, said in a news conference, according to the Associated Press.

Whatever the price, the studios have come to realize that without affordable offerings in China, they won’t make any sales, period. Even just selling a few thousand movies at $3 per disc will be better than nothing. Plus, it helps the studios bolster movie sales numbers, which will be equally important to them while DVD sales in the West continue to go flat.

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NEW YORK (CNNMoney.com) — General Motors, no stranger to hard times and red ink, still managed to shock Wednesday when it reported an operating loss more than 11 times larger than expected and a $39 billion charge that was among the biggest profit hits ever reported.

The nation’s No. 1 automaker, which was hit with a soft U.S. auto market and a two-day strike by the United Auto Workers union during the quarter, lost $1.6 billion, or $2.80 a share, excluding special items.

Among the problems hurting GM results was a $2.3 billion loss in the home loan business at GMAC due to problems from the meltdown in subprime mortgages. GM sold a majority of GMAC but still owns 49 percent of the lender.

In addition, GM took a huge charge in the quarter related to the writedown of tax credits for losses over the last three years.

That caused it to post a net loss of $39 billion, or $68.85 a share, for the third quarter, compared with the net loss of $147 million, or 26 cents a share, in the year-earlier period. Only a gain from the sale of the Allison Transmission unit stopped the loss from being worse.

In addition, the charge is significantly larger than the $12.4 billion net loss posted by GM for all of 2005 and 2006, when the company was hammered by falling shares and labor costs far in excess of its nonunion rivals. The company had net income of $953 million for the first six months of the year before hitting the problems in the third quarter.

Revenue from auto sales rose to $43.1 billion from $39.6 billion a year earlier. That topped First Call’s revenue forecast of $40.3 billion. The automaker sold a record 2.39 million cars and trucks worldwide in the quarter, enough to edge back in front of Toyota Motor in the race to be the world’s largest automaker in terms of vehicle sold.

Cliffnotes (for those lazy mofos): GM posted a huge $39 billion loss in the third quarter due to accounting charges, even as its global auto operations reported a profit sending shares to new lows.

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