As we have mentioned here more than once, the Israeli economy may not be in as great shape as our leaders have let on. Tonight’s surprise 50 basis point cut, bringing rates down to just 3%, indicates that even the Bank of Israel is worried about a potential economic slowdown or even a recession.

With analysts lowering their ‘09 growth forecasts, Fischer who has until last week remained unrealistically optimistic, appears to have thrown in the towel an admitted that things aren’t all that rosy, and is trying to add liquidity to the Israeli banking system to try and prevent the same type of credit crisis gripping the global banking system.

While I think the local economic slowdown will continue, this aggressive move by the Bank of Israel will help stem the damage to the economy that a prolonged recession could cause.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Without much fanfare or notice, the US dollar is continuing its strong turnaround against the Israeli Shekel. It wasn’t to long ago that the greenback fell, intraday, to 3.21 against the Shekel. Today the Dollar is up to over 3.58 against the Israeli currency.

Why? Some will point to continued Bank of Israel intervention in the forex market. It’s one thing to say that they can impact the market for a day or two. It’s quite another thing to say that they can continue to impact a currency for a few weeks continuously.

I think that a bit of rationale has come back to the market. There really was no reason that the Shekel was so strong. How could it be that when Iran tested their missiles a month or so ago, that the Shekel actually strengthened? The Iranians were testing missiles that could threaten Israel’s very existence, and the local currency got stronger? Hard to believe.

Additionally, with investors realizing that the US isn’t going out of business and the fact that recent economic data coming out of Israel shows the beginnings of a slowing currency, the market is in the midst of repricing the Shekel to bring it more in line to where it actually should be in relation to the USD.

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NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Aaron Katsman
IsraelNewsletter.com

In what could be seen as a sad reality, on the heels of today’s terror attack in the heart of Israel’s capital city of Jerusalem, the Israeli Shekel is rallying more than 1.5% against both the Euro and the US Dollar. It used to be that after a terror attack the Shekel would drop. Unfortunately, after years and years of living with terrorism, today’s attack which has left at least 4 innocent people dead and scores injured, has had no effect on the currency market. The shekel continues to be one of the strongest currencies in the world, even in the face of continued terrorism, missile attacks in the south, and the threat of some type of military conflict with Iran.

It’s a pretty sad state of affairs that we have become so anesthetized by terrorism that it makes virtually no impact in our lives.  We just continue on as if nothing has happened. Our thoughts and prayers are with the families of those that were killed, and we wish a speedy recovery to those injured.

Disclosure: Author’s fund has no position in any stock mentioned as of 7/02/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Aaron Katsman
IsraelNewsletter.com

BluePhoenix Solutions (Nasdaq: BPHX) a leading provider of value-driven legacy modernization solutions was absolutely pounded yesterday on the heels of a couple of analyst EPS downward revisions. The Israeli company saw its stock fall more than 30% as analysts viewed the strong Israeli shekel as impacting earnings.

As reported in the Tech Trader Daily: “Roth Capital’s Nathan Schneiderman notes that Blue Phoenix has nearly 30% of its headcount in Israel, vs. less than 10% of its revenue. He notes that the shekel has appreciated 5% against the dollar since the company provided guidance on May 1.”

“Craig-Hallum’s Jeff Van Rhee made a similar call this morning, lowering EPS estimates “to reflect currency and increasing macro challenges internationally.”

Both analysts lowered future earnings estimates. Schneiderman cut his estimates by about 7-8%. So why should the stock have gotten crushed by 30%? It’s not exactly like BluePhoenix has been soaring and investors are being brought down to earth. It’s not exactly a secret that the Shekel has been strong. I find it hard to believe that investors were “shocked” to see that currency issues would impact earnings. At IOI we have been speaking about this issue for months. In fact both analysts have new $15 price targets. Even pre-rout that was a 50% premium to where it was trading, now at under $7/share we have a target more than 100% above the current stock price.

I am certainly not saying to run out and buy the stock. I am saying something strange is at play here. They are basing their call for ‘09 on continued shekel strength and too much exposure to the financial sector. Have these analysts turned in forex traders? Are they predicting that the Shekel will rise for another full year? Neither one of these issues is new, so why are they only waking up now and dropping numbers? After all the Shekel has been surging higher for more than a year, and we all know that banks will probably chop some IT spending in order to cut costs.

Is this another case of analysts making a call after the fact? If so keep an eye on BluePhoenix, as it may potentially turn into a juicy contrarian play.

Disclosure: Author’s fund has a position in BPHX as of 6/20/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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