FEBRUARY 7, 2005

Well the range in the S&P was about 4pts, 1200-1204. It doesn't get much tighter than that. Certainly not good for all those E-mini day traders. The action today was in the bonds and the gold shares. GLD the gold ETF, itself was only down the equivalent of $1.20. The gold shares however fell a lot more. Placer Dome 5%, NEM 2%, ABX 1 1/2%. The news was that the IMF was going to sell some gold to help the poor countries with their indebtedness and Mr Greenspan said some soothing things about how the current account deficit is going to get better. Those things certainly added a little push, but this is just a continuation of what we've been seeing. The dollar is correcting from oversold levels because our money market rates are going higher and theirs are not. Our economy is stronger and theirs is weakening. They did keep the heat on the Asian currencies over the weekend at the G-7 finance minister's meeting, saying they favor greater flexibility in exchange rates. Of course later in the the day China again balked at doing anything now. If and when China does widen their bands or floats, it will take a lot of pressure off the Euro and we could see it weaken significantly.

The action in bonds continue to mystify most people, much like they did last year. Just about everything that happened last year should have made bond yields go up. The Fed raised rates, the dollar fell, inflation went up, the economy strengthened, oil prices shot the moon, but still, yeilds did not rise. The question is, does foreign central bank buying account for everything. Someone certainly needs to buy long duration assets. One other thing could be at work that no one has mentioned. During the bubble everyone's asset mix got out of whack with historical experience. Bonds used to be a much larger portion of assets held by pension funds, insurance companies and other instiiutional investors than stocks. But during the bubble, stock weightings increased to levels never seen before. Those holders, need long duration assets and maybe the pendulum is swinging the other way. Last months payroll number wasn't that much different from this one and we did not get this kind of reaction.

Looks like a quiet week ahead. The big stuff is behind us, earnings are winding down, slow news week, volatility is low. The dollar will probably deep rising and oil could keep falling to provide catalysts for now.