Thursday, October 8, 2009

Jobless Claims Drop; Gold, Retails Rock

Responding to positive September same-store sales data from a wide array of national retail chains in virtually every category and improving new unemployment claims figures, stocks rolled into positive territory at the open and remained there the entire session. Finishing well off the highs, possibly due to nervousness over the shaky success of a 30-year Treasury bond auction and other factors in the market, stocks nonetheless responded positively to solid economic news.

Following Wednesday's closing bell, Alcoa (AA) reported and that company's street beat gave the market strong footing from which to launch new gains.

The dollar-equity reverse trade remained well in place. Oil and gold were sharply higher. Demand for commodities is noticeably gaining momentum and prices are following.

Dow 9,786.87, +61.29 (0.63%)
NASDAQ 2,123.93, +13.60 (0.64%)
S&P 500 1,065.48, +7.90 (0.75%)
NYSE Composite 6,990.67, +78.02 (1.13%)

Internals were wildly positive for the 4th straight session. Advancing issues galloped ahead of decliners, 4285-2147. There were an extraordinary 672 new highs - the highest in over two years - and only 54 new lows. Volume was steady and in line with recent days.

NYSE Volume 5,833,707,500
NASDAQ Volume 2,425,962,750

Oil finished at $71.69, up $2.12. Gold set another record high at $1,056.30, a gain of $11.90. Silver continued to rally along, up 32 cents, to $17.82. The metals, in particular, are staging an enormous rally, being caught in the perfect storm of rising demand, competitive pressure, a general worldwide commodity boom and a declining dollar. Conditions are perfect for a parabolic move, or, pardon the expression, a bubble, though not soon, especially concerning the precious metals, whose values have been depressed for many years and are gaining as larger concerns unwind losing positions.

While it's difficult to imagine a world in which gold and equities could peacefully coexist for long, that's the current hand being dealt and it should be played. General economic conditions are improving in various locales around the globe and eventually will leak into American prosperity. There are simply too many embedded interests for stocks and the global economy not to survive and succeed, regardless of the brainless policies of politicians and other government numbskulls. The sheer amount of money that has been thrown at the problems confronting the American people and American business is enough to keep things humming for several more months, if not years.

Eventually, inflation will destroy all gains, unless you secure assets quickly, quietly and are in the proper allocations. The disruptions in the bond markets today may be worth watching. Yields on longer term debt instruments may have bottomed as of yesterday. Interest rates cannot remain this low - and they are exceedingly low - for more than another 4-6 months. Sooner or later, the Fed will act, and they are likely to be too late as is their habit. However, well-measured small incremental increases spread over time - not necessarily in a succession, another bad Fed habit - could keep the economy on an even keel once its stabilized, which likely date is sometime in early Spring, if not sooner. Until then, the bull market will proceed without much more than the occasional hiccup.

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