Sorry for the lack of recent posts but I have been preoccupied with other things and actually everything has been going according to script. Stock have not been able to stand up to higher rates and higher oil as my previous posts have commented on. Oil was down over $2 today, so we have a chance for an oversold bounce as bonds rallied a bit as well. Should those two trends continue I think we will get the bounce. But how long it lasts and how far does it carry is the question. It will probably last 1-3 days and not carry past yesterday's highs, pretty weak. Get in the sell the rallies mode, because playing the bounces will be to hard.
The first sign of any economic weakness will see a bond rally, but I grant you it may be awhile before we see that. They are talking pretty good durable good figures for tommorrow. Yes the higher interest rates have helped the dollar and thereby hurt gold. That was to be expected around Fed time. The eurozone having a trade deficit, the first in 22 months I believe and weaker German business confidence gauges don't help either. But gold will be back and I think we are getting close to a buying zone again. Gold is now closer to where it ended 2003 than 2004. The dollar will also come under attack again. The economy is built on frail foundations. We are overextended militarily. We have large budget and trade deficits. We spend to much and save too little. We are overleveraged and underinvested. Our manufacturing base is down to 13% of our economy. Housing has peaked and may be in a bubble. For those who think none of these problems will ever come home to roost and that the piper will never have to be paid, think again.
Wednesday, March 23, 2005
Monday, March 14, 2005
MARCH 14, 2005
Things have finally changed. Higher oil prices used to cause fear of a weaker economy and the bond market would rally, the lower rates would weaken the dollar which would cause gold to rise. The weaker dollar and lower rates would ususally be good for stocks.
Recent comments from central banks on diversifying their reserves added to comments from Greenspan regarding a conundrum and losing money on rising rates finally got the bond markets attention and rates have been moving higher since. The rising rates have not helped the dollar nor hurt gold in its quest for a new high this year. Visions of central banks dumping dollars has taken precedence over everything else.
As I stated in my last post of 03/08,regarding the stock market, "a little bit higher oil and interest rates would tip the scales". In my post of February 18, I gave my formula for a simple rule of thumb, whereby any combination of oil and ten year yeild that equals and index of 10 is a sell signal for stocks. For example if the 10yr yield is 4.5 and oil is$55 it equals and index of 10. Oil touched 54.60 on March 8 and has traded around there ever since. Interest rates also started moving up on that day. It's no coincidence that that day also marked the high for stocks.
Recent comments from central banks on diversifying their reserves added to comments from Greenspan regarding a conundrum and losing money on rising rates finally got the bond markets attention and rates have been moving higher since. The rising rates have not helped the dollar nor hurt gold in its quest for a new high this year. Visions of central banks dumping dollars has taken precedence over everything else.
As I stated in my last post of 03/08,regarding the stock market, "a little bit higher oil and interest rates would tip the scales". In my post of February 18, I gave my formula for a simple rule of thumb, whereby any combination of oil and ten year yeild that equals and index of 10 is a sell signal for stocks. For example if the 10yr yield is 4.5 and oil is$55 it equals and index of 10. Oil touched 54.60 on March 8 and has traded around there ever since. Interest rates also started moving up on that day. It's no coincidence that that day also marked the high for stocks.
Tuesday, March 08, 2005
MARCH 8, 2005
The news today from euro central bankers talking about raising interest rates was a big deal. It took the euro up 1.35 pts to 133.41 and that helped gold tack on $5.60. You have to wonder what are they thinking. Their economies are staggering under their strong currency. Do they just want to shoot themselves in the foot with these kinds of comments? Remember the South Koreans comments on diversifying their reserves a week ago? They had to back pedal pretty quickly. It would not surprise me to see the same reaction here, in which case the euro and gold would give back some of todays gains. The long term trend of a lower dollar will still be intact even then. It won't be this trade figure but perhaps the next one, which, with the move in oil we had will be quite large and cause the euro to test its highs.
Stocks were down with the S&P falling 5.88, but considering oil touched $55, you have say that was a pretty good performance. Also, the bonds got hit pretty hard today. The long bond fell to 110 today driving the yield to 4.71. The excuse given was the CRB index led by copper moving to 24 yr highs at 312.65, reviving inflation worries. The coming 5 and 10 yr auctions also were a factor. We always liked to get prices down when we had to buy a bunch.
The market seems to sit still for long periods and then lurches up or down to sit again. Which way will the next lurch be. The market is so close to a new high, it doesn't want to give up easilly, but the combination of higher oil and interest rates has been lethal every time before. If these trends continue stocks are living on borrowed time. Sometimes the market has to see the whites of their eyes, i.e. actual damage from higher rates or commodities and sometimes it just takes a mild comment or event ala 1987. Whatever straw breaks the camels back this time, I don't think lies to far ahead. The stage is set. We are at multi-year highs, valuations are stretched, There has been little action to deal with the deficits. Bush's reform programs seem to be losing momentum. A little bit higher in oil and rates would tip the scales I think. There is the chance we could pull back from the brink once or twice before we go over though. I'm writing this late so excuse the typos.
Stocks were down with the S&P falling 5.88, but considering oil touched $55, you have say that was a pretty good performance. Also, the bonds got hit pretty hard today. The long bond fell to 110 today driving the yield to 4.71. The excuse given was the CRB index led by copper moving to 24 yr highs at 312.65, reviving inflation worries. The coming 5 and 10 yr auctions also were a factor. We always liked to get prices down when we had to buy a bunch.
The market seems to sit still for long periods and then lurches up or down to sit again. Which way will the next lurch be. The market is so close to a new high, it doesn't want to give up easilly, but the combination of higher oil and interest rates has been lethal every time before. If these trends continue stocks are living on borrowed time. Sometimes the market has to see the whites of their eyes, i.e. actual damage from higher rates or commodities and sometimes it just takes a mild comment or event ala 1987. Whatever straw breaks the camels back this time, I don't think lies to far ahead. The stage is set. We are at multi-year highs, valuations are stretched, There has been little action to deal with the deficits. Bush's reform programs seem to be losing momentum. A little bit higher in oil and rates would tip the scales I think. There is the chance we could pull back from the brink once or twice before we go over though. I'm writing this late so excuse the typos.
Wednesday, March 02, 2005
march 2, 2005
The market drops 175 points when oil went over $50. Today when it goes over $53 its a big yawn, the Dow loses 18 pts. What's up? I think it ties in to what Greenspan said today, words to the effect that the economy is growing reasonablly well and more importantly, that there are few signs of it weakening soon.
So far higher oil prices have shown up on a macro basis mainly in two places. The higher trade deficit and higher wholesale price indexes. True the higher inflation has led to higher short interest rates, but they are still so low that they don't seem to be influencing any buying decisions yet. We are still close to generational lows. In time or in price oil will start to show up in weaker economic stats. It may be already. We have had two months of weak auto sales, but we've bounced back before with higher incentives and thats what the market expects this time. New home sales have started to trend lower but from very high levels. With long rates still quite low no one is concerned here either. However, undeniably inventories of both homes and autos are higher than in quite some time. These two sectors are a big part of the economy. Final demand in 2004 grew at the strongest rate since 1999, 4%. When we start to see a slowdown in general merchandise sales the market will take notice. Tommorrow the retailers report Feb sales, and they should on balance be good. We are not there yet.
The S&P has closed at 1210 today, 1210 Yesterday, 1203 Friday and 1211 Thursday. It feels toppy and if it can't breakthrough soon it will fall of its own weight. It is ironic that it is up here in the first place because of higher oil stocks dragging the index higher and now is threatened by high oil prices. Stock groups like the trucker and retailers, restaurants that should be hurt by lower discretionary spending are not making new highs but they haven't totally capitualed yet either. The money flowing into oil stocks must be coming out of most other sectors without hurting any of them too much.
The dollar was higher today. It wants to go down due to our trade and budget deficits but our economy and interest rates are so much firmer than Euroland that we get these rallies. The ECB lowered growth forecasts today for 2005 and 2006.
Bonds did not do much today, but they have broken down and are nearing support levels.
They are important to watch from here. It closed today at 4.38%. If we go above 4.5% it will be a drag on stocks.
So far higher oil prices have shown up on a macro basis mainly in two places. The higher trade deficit and higher wholesale price indexes. True the higher inflation has led to higher short interest rates, but they are still so low that they don't seem to be influencing any buying decisions yet. We are still close to generational lows. In time or in price oil will start to show up in weaker economic stats. It may be already. We have had two months of weak auto sales, but we've bounced back before with higher incentives and thats what the market expects this time. New home sales have started to trend lower but from very high levels. With long rates still quite low no one is concerned here either. However, undeniably inventories of both homes and autos are higher than in quite some time. These two sectors are a big part of the economy. Final demand in 2004 grew at the strongest rate since 1999, 4%. When we start to see a slowdown in general merchandise sales the market will take notice. Tommorrow the retailers report Feb sales, and they should on balance be good. We are not there yet.
The S&P has closed at 1210 today, 1210 Yesterday, 1203 Friday and 1211 Thursday. It feels toppy and if it can't breakthrough soon it will fall of its own weight. It is ironic that it is up here in the first place because of higher oil stocks dragging the index higher and now is threatened by high oil prices. Stock groups like the trucker and retailers, restaurants that should be hurt by lower discretionary spending are not making new highs but they haven't totally capitualed yet either. The money flowing into oil stocks must be coming out of most other sectors without hurting any of them too much.
The dollar was higher today. It wants to go down due to our trade and budget deficits but our economy and interest rates are so much firmer than Euroland that we get these rallies. The ECB lowered growth forecasts today for 2005 and 2006.
Bonds did not do much today, but they have broken down and are nearing support levels.
They are important to watch from here. It closed today at 4.38%. If we go above 4.5% it will be a drag on stocks.
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