JANUARY 31, 2005

Just about everything I laid out in my Thursday missive played out, except the Dow gaped up 80 instead of 100 points and it didn't build on its gains. The other thing that bothered me was the volume was light. Also, although oil did go down $3 it didn't stay down and finished at about $48.

Bonds and the dollar are mostly unchanged and gold fell $4.70. Gold doesn't like rising interest rates and especially the prospect of rates going to positive real rates from the negative real rates we have had. Gold and gold stocks need to see either more inflation or economic weakness to stop rising rates. Both of which I think we'll see, but not for a while.

Tommorrow Auto sales should really be lousy and the ISM index is expected to slip a little. If oil stays above $47.50 and the news is as stated above I fear the market will have tough sleding.

I was surprised today by the strength in the homebuilders. Although todays number on new home sales was just marginally lower, last month was revised down and mortgage application numbers have been trending down, inventories are building, but the stocks are making all time highs. I guess the bulls don't want to give up a good thing.

Finally, the comments about GDP being better than the headline number shows, because underlying demand is strong, consumption was up 4.6%, drive me to distraction. Yes we are sending more dollars to China for consumer goods and to the mideast for their oil, and this is supposed to be a good thing. Measuring the well being of an economy by how much it consumes is folly.