FEBRUARY 3, 2005

Not a lot to comment on today from a macro point of view, as you know if you've been watching the markets today. The president of the EU central bank, Trichet did make comments today indicating he was going to maintain interest rates at six decade lows for awhile. With U.S. rates higher now and the Fed continuing to tighten, the dollar and gold were the big movers. The ECU fell .74 and gold fell $4.40. Nothing else moved.

On the economic front, chain store sales were good at 3.6% vs 2.7%. Jobless claims were down to 316m vs 327m. These good numbers were countered somewhat by factory orders coming in at .3% vs .5% consensus and the non-manufacturing ISM at 59.2 vs last months 63.9.

Tommorrow we get the jobs number and I must be the only one on the planet that thinks if payrolls show a really large increase that it won't be good for stocks. To me it means higher unit labor cost, lower profit margins and faster Fed tightening.

FEBRUARY 2, 2005

The range for the S&P was 1189-1195, but for most of the day more like 1190-1193. The day traders are not going to get rich on that. It was no better in bonds or gold or the dollar. Even oil was realitively subdued. It did close below 47.50 so I take that as a bullish omen for equities.

Oil has me puzzled in the short run. The chart looks like a head and shoulders, but the XLE has been making new highs and in the past it has led the commodity. Oil has been the most volatile of the markets lately and has the capacity to influence all the others. We are also in the period where we transition from the heating season to the driving season. Venezuela is rattling her sabre at us, threating to sell her U.S. assets and sell more oil to China. It has a lot of leeway. It can trade between 40-50 without breaking major support or resistance. In the long run, its a buy period. I think a great trade would be to buy the December 2008 futures contract on selloffs. It closed today at 40.02.

The markets need new catalysts. The dollar has sold off and bounced, gold has come off its highs and stabilzed. bonds have been steady, stocks sold off and have now retraced half of that. Interest rates have moved up but they are still low, growth has slowed but is still good, the budget deficit is large, but we are cutting it in half, the Iraq elections are over but the violence continues. I think a lolt of the blue chips fall into the category of having had pretty good earnings but uninspired guidance. The market reflects this. There is no crises of any kind, but nothing to get excited about either.

Tommorrow brings the retailers reports, jobless claims and factory orders. The U.S. consumer is the lynchpin of the world economy so it will be important to see how he did.

German retail sales fell sharply in December and have been falling on a YoY basis since July of 2003. German unemployment hit its highest level since December of 1998. These numbers should make for a lively debate at the G-7 finance ministers meeting this weekend. I wonder if China will criticize the EU the way they did us if pressure is brought to bear on them over their currency peg. As I have mentioned many times in the past Europe and Japan's economies are faltering. They can't seem to generate any internal demand and are totally relying on exports for the growth they have. That is why the dollar bounced and with the Fed raising rates I don't expect a renewed decline until our economy starts to serioulsy slow.

February 1,2005

Well it was all stocks today. Bonds, gold and the dollar we very quiet in comparison. In spite of a lower ISM manufacturing survey and oil above 47.50 for most ofthe day, it did finish at 47.20, lousy auto sales, stocks went on a tear. Volume was good at almost 1.7 bil shares, new highs picked up to 360 vs new lows of only 12, breadth was pretty good. In general you can't argue with the internals today. The market closed on its highs as well.

I thought with that background the market would have a tougher time. But the mergers, spinoffs, momentum and the rumor that GDP would be revised jup .5% in the next few days due to technical problems in accounting for Canadian trade accurately overcame all obstacles. It was a good day not great.

Tomorrow we get the oil inventories and of course the Fed raises rates a quarter. A few days ago I said I'm a seller of rallies with a stop at 1196 in the S&P. Tomorrow I think will provide a low risk opportunity to try the short side.

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.

January 27, 2005

Today was a non-event. Stocks, bonds, gold, oil had very nominal net changes. However, we have GDP tommorrow, three dow stocks report. OPEC meets this weekend, WMT sales on Saturday, Iraq elections, and the Fed meeting next week. Strap yourself in.

For the bulls, I paint this scenario. GDP comes in at 3.3% for the 4th quarter. It is just weak enough to make some pundits postulate that the Fed will slow down a little in their rate increases. The three Dow stocks that report- McDonalds, Procter and Gamble and Honeywell all report good results as expected and offer optimistic guidance. Walmart says their sales will be above the middle of their 2-4% range. OPEC meets and decides against any further production cuts. Iraq elects a government and the process is considered credible even though not perfect.

As a result, oil in electronic trading before Monday's open, drops $3. Stocks have an upside gap opening,up 100 on the dow. Stocks close on their highs up 165 for the day.

Do I believe the scenario above? Not really.Is it realistic and possible? I thicnk so. As Bruce Kovner, one of the best hedge fund managers ever, was once quoted as saying "One of the jobs of a good trader is to imagine alternative scenarios.

JANUARY 26, 2005

Very quiet day in stocks today. Second day of higher highs and lower lows. There was a lack of compelling news to provide a catalyst. Mortgage applications fell 4% and oil and gas inventories came in about as expected. Crude closed the day at about $49, so no great change there.

The Euro current a/c surplus came in at a surplus of 3.2 billion euros. The German business climate index jumped unexpectedly to 96.4 vs 96.2 in Dec, and the U.K. GDP came in at a stroger than expected 2.8%. All this helped the Euro close stronger at 130.78 up over a penny from yesterday. Gold followed up $4.50.

Bomds were fairly quiet, altough the two year note auction of 24 billion yeilded the highest rate sine May of 2002 at 3.245%.

Tommorrow I think we will have to look to earnings releases to provide a spark as I don't believe that durable goods or non-farm payroll numbers will have a lasting impact. Only six Dow stocks moved more that a half point and only UTX more than a point. After the last two months of last year I bet a lot of brokerage execs were looking for more of the same this year with more volatility and volume. Sorry. No wonder the New York Stock Exchange wants to increase trading hours.

JANUARY 25, 2005

We finally got a bounce today. It was an oversold rally. Breadth started out strong but finished the day only 57 issues ahead. A late rally by oil to 49.60 in the front contract cut the stock rally in half, as measured by the S&P.

Bonds did the oppisite and had an overbought selloff. The 20yr TIPS auction didn't really go that well, bid to cover was weak. Consumer confidence readings came in a little higher than expected.

Higher rates helped the dollar as well as Germany downgrading her growth prospects for the 3rd time in 9 months to 1.6% GDP. Dollar strength knocked gold down over $5.

Although, we've held the support, first time down that I've talked about the last few days, and we are above the weekly uptrend line that comes in at around 1150 on the S&P, I think the trading strategy should be to sell rallies, as long as oil is above 47.50, with 1200 as a stop.

It is going to be hard for gold stocks and gold to rally as the Fed raises rates and current levels of inflation are shrugged off. Better buying opportunities may lay down the road. I feel strongly though that as global economic activity weakens, central banks will be under enormous pressure to monetize the run-up in oil prices and to cheapen their currencies to protect their export markets . When they begin, it will be time to grab the shares and metals with both hands. That time is not yet here.

JANUARY 24, 2005

Another late day fade. The market closes right on its lows. Oil finished close to $49, more weak economic stats from Europe and Asia. Taiwan industrial production fell 0.9% and Italian retail sales fell 0.4%. Walmart stuck with their 2-4% SSS forecast. Next week will be the acid test. They ususally don't change it until the final week. The bond market had a nice little rally. The TLT Lehman 20yr bond index closed at a 52 week high. The buck and gold were pretty much unchanged.

You can blame it on a lot of things, but a let's not forget most of the things to worry about were around during the year-end rally. The Fed raising rates, the trade deficit, the budget deficit, Iraq elections, consumer debt, valuations, a housing bubble, the weak dollar were all part of the wall of worry the maket climbed in Nov and Dec.

I think what is driving both markets is oil. It closed at around $42 on the first trading day of the year, as opposed to $49 today. A lot of people at the end of the year thought at $42 it was on its way to the mid $30's. The economy was able to absorb high forties oil in 2004. I don't think it can absorb $50 oil with the Fed raising rates. The longer we stay above $47.50. The quicker and deeper will the economy slow down. Profits will follow. That is what the bond market is saying . $50 oil is certainly not good for the inflation indexes.

As I've mentioned before , we are in the 1160-1170 support range for the S&P. If we break down it will be because the market will be pricing in the coming economic and profit slowdown.European economic weakness and Fed tightening is preventing the dollar form weakening and providing support to the market. We were at 134.87 euro at the begining of the year and at 130.47 now. Stocks like a weaker dollar and we are not getting it.

January 21, 2004

Rick Santelli of CNBC fame said gold and silver were up because the dollar was down and not because oil was up as some others on the floor were postulating. Oh, but oil had a lot to do with it. We have seen this before. Oil up equals economic weakness, keeps the fed at bay both of which weaken the dollar , whcih helps the metals. Gold was up almost $5 and gold stocks also had a good day inspite of the beating the overall market took. The dollar fell almost a cent against the Euro. This oil dollar relationship seems to kick in when oil is over $47.50 a barrel. Similar to the stock market the dollar seems to ignore oil when we are under that level.

I thuink the catalyst for stocks getting hammered today was oil. The news from GE and UTX was good , but it was history. Oil getting within spitting distance of $50 was the new information, or at least the newer information. Saturday Walmart announces weekly sales trends and Friday we get GDP which could be lower than expected to due our huge trade deficit.. That will be what to watch next week along with oil prices and the technicals, as we are at critical support 1160-1170 in the S&P. Before the big election rally, 1160 was the high, tested in Jan, Feb, and Mar. and 1170 was the the first reaction closing low of the the fall rally. Finally, option expirations in the past have often marked either the high or low for the month.

January 20, 2005

Well the S&P closed below December's closing low and printed below the intraday low. This is an important support area going back to early November. The Philly Fed index droped by a large 12 points to 13.2. That is hardly conclusive. We have seen that movie before. In September it dropped from 29.2 to 15.9, but then bounced right back to 27.2 in October. I think the earnings so far have not been to bad, but the outlooks have been very gaurded. Tommorrow is expiration Friday, usually a very quiet day. Support around 1170 should hold. If it doesn't its worse than I thought. The nightmare scenario is that this weak guidance is followed up with weak fundamentals over the next few weeks, like the Philly Fed today.

Stocks were definetly the story today as the dollar, bonds and gold were all quiet.

We are somewhat oversold here. That can be cured by going sideways tommorrow or bouncing a little. We can then resume this slide next week if the news flow so dictates.

Personally, I'm expecting the economy to slow. I'm expecting it to slow because of the consumer. The consumer should be very close to trimming his sails. Studies have shown that the first reaction to unexpected expenses is to reduce savings, and if the increased expenses do not subside, retrenchment in spending commences. With gas prices stuck over $1.75 and winter heating bills coming due, the crunch should be coming soon. The retail index (RLX) has recently been at multi-year highs.. It now looks to me like it is rolling over. Stay tuned.

JANUARY 19, 2005

The biggest thing that struck me today, with the perspective of a few days off, is that we are still in the pattern of late day fades. Secondly the market is not acting well in the face of good news. The beige book was good, the CPI fell, jobless claims dropped, housing starts hit 2 mil and oil was lower. Third, the dollar is making new highs. The market seems to be looking past the current news and doesn't like what it sees ahead. As Michael Marcus, one of the great original Commodities Corp traders has said, the best trades are the one where you have the fundamental, technical, and market tone going for you. The fundamentals are good, but the technicals are not and neither is market tone.

The dollar keeps rising on the good fundamentals of the economy versus the the weakening economies of Europe and Japan as discussed on these pages before. Marc Faber in this week's Barron's has a theory that the dollar will go higher this year and that all asset prices will move inversely, stocks, bonds, commodities, gold, etc.

Bonds acted well today helped by the CPI and Beige book. There has been and continues to be a great debate about long rates in the coming year, because everyone was so wrong last year, looking for higher rates. Steve Roach, Morgan Stanley's Chief Global Economist put it best "Take yourself back a year ago :If you had known that the Fed would tighten by 125 basis points, that the US core inflation rate would essentially double, that crude oil prices would shoot up into the mid-$50 range, that the US economy would grow by nearly 4.5%, that America's twin deficits would soar, and that the dollar would come under renewed pressure, the bearish call for longer-term US interest rates would have been a no-brainer." The fact that they did not as he says "Hard as it may be to admit, this result basically turns the art of interest rate forecasting inside out" Its basically a debate between inflation-deflation and strong growth versus slow growth, something to get into more detail at another time.

Gold has stabilized around support.

JANUARY 13, 2205

A couple of days ago I said this market looked like it was in trouble, and today proved it. When oil broke through Monday's high around $47, I thought that would be the straw that broke the camel's back. However, the market just laid there until the last hour. Most of the internals now look awful. Market breadth is crumbling. It looks like January will be a down month. NASDAQ broke its December low. As I said before I think a lot of longs are trapped above, as it was a sharp and quick rally to end the year.

We are back to another pattern as well. The bond market takes higher oil as economy slowing and rallies, rather than fear the inflationary aspects of higher oil prices.

The dollar did not feel the knock-on effects of the lower rates and weaken like it has in the past. Perhaps because it got hit so hard yesterday, but also because the economy is getting very soft over there. Trichet, the ECB president said today inflation was moderating and consequently a rate hike is off the table. They left their rates unchanged as expected.

Over the years one of the most bullish and supportive stock market factors, has always been low long interest rates. Much more important that short rates. Get inflation under control so we can have lower long rates was always the mantra. Now we have them and we have these low long rates supporting stocks but these high oil prices are hurting stocks. The high oil prices are helping lower long rates. Did you see how well the interest sensitive homebuilders did today. Round and round we go.

This is my last post until Tuesday. Going to get out of this icebox and get some sun.

JANUARY 12, 2005

The biggest story today was the dollar. It fell about 150 pts ag the Euro.n A record 60 billion dollar trade deficit was to blame. This is truly incredible. Of course the weak dollar pushed gold up $3.90. Neither seemed to help gold stocks much, maybe because they had a nice bounce the last two days. A weak dollar has been and is good for stocks, until the Fed tries to prevent it with sharply higher rates. So perhaps it was partially respoonsible for the late day rally we got. You can't call it more than an oversold rally so far. Nothing seems to matter to bonds. They had a five year auction today, oil fell then rose $1.50 and the selloff in the aforementioned dollar, could not get them excited.

As I mentioned several days ago, Treasury wants a lower dollar to help correct the trade deficit, protect American jobs, and put pressure on europe to help them put pressure on China to revalue or better yet float the yuan. Finally today I saw that Bloomberg reported European Central Bank Chief Economist, Otmar Issing suggested yesterday that Asian nations must let their currencies strengthen to help shrink the U.S. trade deficit. Considering the awful relations we have had lately with our allies, this is big stuff. They are finally tired of taking all the heat. Now that the door has been opened, we should start hearing a lot more of this. Remember just recently when Chin a chided us that it is our problem and we should get our house in order. Its finally not just us whining. The flip side of this that I did hear reported on CNBC, is that today China reported a 33% increase in their exports, which widened their trade surplus in december to a record 11.1 billion. Finally, the U.S.-China Economic and Security Review Commission, a congressionally appointed panel released a report that estimates imports from China displaced 1.659 million jobs between 1989-2003 while exports generated only 199,000 additional U>S> jobs. All you stock, bond, gold and oil traders, this very likely will be the big issue of 2005.

JANUARY 11TH, 2005

This market looks like it's in real trouble. They are really pounding the SOX. Resource stocks, with the exception of oil are also getting hit pretty hard. It really feels like there are a lot of longs trapped above. I think that's why we haven't seen much of a bounce, too many sellers every time the market pops up. Well we are starting to get earnings disappointments, and warnings. The economic news flow so far this year has been ok and as long as in general it continues to reflect 3%+ growth, should not be a negative for the market. We may have to wait until earnings season is over before we get that sustained bounce. We do have oil as a wild card and from day to day it's volatility is amazing. Sometimes it runs the market and other days its ignored. It is the single most difficult thing to factor into day to day trading decisions.

Gold may have made a bottom here, but I don't think we will get a big upward move until the U.S. economy starts showing weakness again and the Euro starts another leg up. A weak economy is paradoxically good for gold because it weakens our currency, prevents or slows down any monetary tightening and in this new world of scarce commodities, lets inflation creep in. Gold closed 2003 at around $417 and 2004 at $438, so at todays close of $422 I feel we are in a support area. Gold will really start to move higher if reflation takes hold in Europe and they start to lower rates to combat economic weakness. Germany reported their industrial production for November fell 1.7% today. Alternatively, gold would rise if Europe experienced a sustained pick-up in inflation and was unable to raise rates to fight it due to economic weakness. So far inflation has been below 2 1/2% for the last 3 yrs. Their strong currency has helped mute higher oil and commodity prices.

JANUARY 10, 2005

Today we almost got a modest oversold bounce in the equitiy markets.Unfortunately, we gave up all the gains at the end of the day, once again. This pattern of late day weakness is most auspicious. The FX and bond markets were quiet today also. The dollar fell 28 pts against the Euro after a five day rally. That helped Gold and gold stocks bounce modestly after their recent selloff. Seems like everyone"s waiting for some earnings announcements to get things moving. The day traders must be having a tough time. A lot of one day wonders with no followthrough.

Since there is nothing real exciting today, let's talk about the big picture. Anyone reading the finacial press has come across the debate over our budget and current a/c deficits and what they mean for our economic future. First of all, the reason we're talking about them is they are the biggest they've ever been. Of course opinion varies widely about them. Some look at them as portending an economic armageddon and others like Dick Cheney say deficits don"t matter and Art Laffer says the current account deficits just shows we are a magnet for capital. As an aside , in another life, a group I used to be part of , used to have him come in on a regular basis to share his views. If nothing else, he is the most unconventional thinker I have ever come across.

Either this can go on or it can't. The budget deficit can surely get a little larger, if it couldn"t we would have trouble attracting bids at our autions and rates would be going up at a much faster rate. Our trade deficit can surely get bigger and probably will because of oil,after all we are 'THE' reserve currency. Some people proclaim what's wrong with them sending us all this good stuff and us sending them T-Bonds, its a virtous circle. For those chicken littles who are afraid that one day the buyers won't show up because the dollar is falling and they are taking a beating on their holdings, I say, they were taking a beating in the 70's when Japanese Yen were 360 to the dollar when the German mark was worth 25 cents. The dollar has been declining for decades. The central banks of G-10 don't manage their reserves for profit. Can you imagine the havoc they could reek if they did.The same cannot be said for smaller central banks. The U.S. has been the largest holder of gold in the world, when it was $35 and ounce $850 and back to $250. The Bank of China will manage its reserves to achieve the greatest amount of economic growth and jobs and security for its country. They will revalue by 2007 per their agreement, but they will be accumulating dollars for many years to come, as long as they continue to sell us stuff. Hopefully, not as much and hopefully they buy a lot more from us. A weak dollar is part of the solution to this problem.

As far as the budget deficit goes, even President Bush says he doesn't want to increase it further, and has a plan to cut it in half in four years. Good enough, lets say for the sake of argument, that problem has been licked. Although another terrorist attack or armed conflict somewhere else in the world would throw that up for grabs. That leaves the current account. If they will take more dollars and we will take more stuff, where will this end? I see two possibilities, either the world runs out of money to lend us or we run out money to buy. What I mean by the former is we are consuming 80% of the world's savings currently and there is an upward boundary there somewhere, or they may need more of their savings domestically, or they may stop saving so much and consume more. Regarding the latter, our ability to buy, well our savings rate is down to almost zero, our debt is at record highs, our ability to get more is impaired in a rising rate environment because the refi window is closed, our income growth is menial, as is our job growth. When our consumption hits a wall, as it must, the current a/c will shrink as it has in the past.

Next time lets look at the ramifications of the above on the markets.

JANUARY 6, 2005

Today we had more weak economic news from Europe. Their business consumer survey, French consumer confidence,German retail sales and UK services PMI all were down. These numbers again contributed to a higher dollar for the fifth consecutive day, the euro falling almost a cent. Following the dollars lead, Gold fell another $5 bucks. Bonds were again lackluster waiting for tommorrow's unemployment report which has been the big mover for that market in the past year. Natural gas reserves had a big draw today and OPEC cut crude production, sending oil up over $2 bucks. Neither a stronger dollar nor higher oil prices, nor a surge in initial unemployment claims could restrain stocks as they rallied strongly in what is being termed and oversold bounce. Cyclicals like Tyco and MMM particularly strong. Fed's Hoenig thinks the job number will be better.

Looks like the retail indexes have finally broken down, the RTH and RLX. One more downward thrust and the same could be said of the transports, housing and banks.
There was some talk today of higher delinquencies and late paymnets on credit card, home equity and mortgage payments.

Regarding tommorrows job number. There have been long periods where we have had a good economy and a lousy stock market and vice versa. So whats good for main street is not always good for wall street. The few good job numbers we had last year, I was disappointed by the markets response. So if we get a good number tommorrow don't be suprised if we get a muted response. More jobs could lead to faster rate hikes, lower productivity and profits, after all.

JANUARY 5,2005

Today was a pretty lackluster day. The economic stats, however continued to show strength in the U.S. in the form of strong auto sales, over 18mil units and the ISM Non-Mfg-Idx at a robust 63.1, whereas the Euro-Zone Services PMI was unchanged at a realitivley subdued 52.6.. True, the falling mortgage applications survey seems to coroborate the decline in new home sales we saw earlier. However none of these were market movers. The market is still repricing its overbought condition at year-end and grappling with the implications of weaker foreign economies and rate hikes at home

The President was pushing his tort reform pakage today. As you recall his election win kcik-started the rally that lasted into year-end. In my November missive I stated that I believed that the strong market reaction to his win , was strongly tied to his platform of tort reform, health care reform, and social security reform. they are all market friendly and very beneficial to big corporate and wall street. Much like most of his policies in his first term, they benefit everyone, but the big and rich most of all..

Now that the oil inventory figures are out of the way, the important news tommorrow will be intial claims for unemployment , possibly somewhat distorted by the holidays and of greater import, Walmarts guidance for same store sales in January. They have a though comparison.

JANUARY 4, 2005

READING THE NEWS THIS MORNING I CAME ACROSS TWO ITEMS THAT INTERESTED ME BUT DID NOT REGISTER IMMEDIATELY AS HAVING A SIGNIFICANT IMPACT ON TRADING TODAY. FIRST, GERMAN UNEMPLOYMENT HIT A 7YR HIGH. SECONDLY, FRENCH 3RD QTR GDP WAS REVISED DOWN TO ZERO . WATCHING THE MARKETS THIS MORNING IT FINALLY CLICKED. WHAT I THINK WE ARE SEEING IS THE BEGINING OF THE FIRST NEW MINI-TREND OF THE NEW YEAR PRECIPITATED BY THE TWO CATALYSTS MENTIONED ABOVE.

THE MARKETS ARE REACTING BY TAKING THE DOLLAR MUCH HIGHER, 200 POINTS AS I WRITE. ALSO THE COMMODITY STOCKS THAT HAD SO BENEFITED BY THE WEAK DOLLAR AND STRONG DEMAND, ARE DOWN ACROSS THE BOARD, ALUMINUM, COAL, STEEL , COPPER, NICKEL , PRECIOUS METALS ETC. THE WEAKER DOLLAR HAS BEEN GOOD FOR STOCKS IN GENERAL AND MULTIANATIONAL IN PARTICULAR, SO THIS MAY BE RETARDING EQUITIES IN THE FACE OF THE SUPPOSED MUTUAL FUND INFLOWS.THE SECTORS THAT BENIFITED MOST BY CHINESE DEMAND AND A WEAK DOLLAR ARE VERY MUCH RIPE FOR PROFIT TAKING, JUST LOOK AT THEIR CHARTS. THE DOLLAR WAS ALSO RIPE FOR A REVERSAL WITH EVERYONE LEANING AGAINST IT. OVER THE NEXT DAYS THE JOSTLING WILL BEGIN ON HOW LONG AND FAR THIS WILL CARRY.
THE IMPACT OF THE WEAK DOLLAR IS FINALLY STARTING TO SHOW UP IN EUROPE'S ECONOMIC STATISTIICS. THESE KINDS OF NUMBERS WILL PUT TREMENDOUS PRESSURE ON EUROPEAN POLITICANS . THAT IS EXACTLY WHAT THE U.S. TREASURY WANTS. IT PUTS PRESSURE ON THEM TO LOWER RATES, RESTRUCTURE THEIR ECONOMY, AND JOIN THE U.S. IN EXERTING PRESSURE ON CHINA TO REVALUE THEIR CURRENCY.

SO IT LOOKS LIKE WE ARE GOING TO REVERSE SOME OF WHAT WENT ON IN 2004. IN RETROSPECT I GUESS THIS SHOULD NOT BE MUCH OF A SURPRISE.

November 14, 2004

Another week, another rally. How long can this go on? I fear awhile longer. No money manager worth his salt can afford to be left behind. Every tick higher creates the fear of being left behind.
But why did the bull start running? Common wisdom says it was the fact that the uncertainty over the election was over and oil prices started coming down. This is more than a relief rally, and oil in the high forties is not something to go topsy turvy over. Indeed, I believe it was the election result, and the President's comments at his first press conference,that kicked off the vigours buying. Over the last couple of years, Bush has been very good for the markets.His policies have benefitted Wall Street over Main Street for quite some time. That is not meant to be a political statement, but rather and economic one. His tax cuts benefitted the wealthy to a much greater extent than the middle class, so did the changes in the estate taxes, and dividend
rules. Corporate profits as a percentage of GDP have rarely been higher. We've just come off four consecutive quarters of 20% plus profit growth. Corporate America has been a big beneficiary of the defense spending as we all know. Job growth has been sub par as well as the growth in wages. His second term, according to his outline, seems like more of the same, and thats great for Wall Street. Tort reform, which many believe will be his first prioity, will greatly benefit corporate profits, by limiting individual awards, at least over the short run. Health care reform, which attempts to shift more of the responsibilty for health care to the individual, to help create an ownership society, will help corporate america as well, as they will assume a larger role as government assumes a smaller one. Finally, social security reform, a partial privitization of the system, allowing for more investment into the market, I think speaks for itself. The Republicans increased their majority in both houses of Congress, so the likelihood that some of this stuff is going to happen has increased. That is my insight into why the market is in such a fever over the last two weeks.