Monday, January 4, 2010

Galloping Out of the Gate, Stocks Make New Highs

Investors were eager to put their money into equities on the first trading day of the new year, though the overall gains were compromised by two factors: first, the closing figures were only fractionally higher (on a percentage basis) than that of December 30 of last year, prior to the sell-off which occurred on the 31st; second, volume was moderate, on the low side, significant of marginal participation. There is still a ton of money (literally and figuratively) sitting out this rally. Something on the order of $4 Trillion is still nesting in money market funds, t-bills or other low-yielding assets.

Not everyone has bought into the story which Wall Street is currently spinning: that stocks are safe - and sound - investments upon which one can rest his or her fortunes. Quite simply, there were too many people burned in the Fall of 2008 through the Spring of 2009. Many smaller investors were wiped out, never to return. Others have trimmed their holdings and curtailed all but the most basic trading activity.

Lower volume levels, as compared to the go-go years of the mid-00 decade, have become the new normal, and rightfully so. Stocks, like it or not, generally do not go up 50-60% in the course of 9 months, as they did from march of '09 to the present. Anyone buying in at these levels is certainly chasing, and bound to be burned.

Even though earnings reports for the 4th quarter are due out within days, nobody is expecting miracles. Corporations have trimmed expenses to the bone, spurring profits over the past two or three quarters, but investors seek top-line growth, revenue improvements, higher margins and expansion. They're not going to get them in this current round of reports, at least not to the extent which analysts are proposing.

Unemployment and housing remain the two sticking points for the US economy. Labor markets remain the tightest in decades. Home prices are still dropping in many areas of the country as more foreclosures hit the market. Those trends see no ends, and until they are resolved - unemployment below 8% and housing prices averaging up by 2-3% per year - the recovery in the USA is going to be muted at best. Add to the woes the mess federal government has created with the continuation of tax-and-spend-and-borrow policies and you get a common recipe for stagnation.

Dow 10,583.96, +155.91 (1.50%)
Nasdaq 2,308.42, +39.27 (1.73%)
S&P 500 1,132.99, +17.89 (1.60%)
NYSE Composite 7,326.74, +141.78 (1.97%)

Advancing issues soared past decliners, 5271-1356. New highs outpaced new lows, 693-83, not surprising, and a trend that will continue due to easy comparable highs from last year. As stated at the outset, volume was sluggish, or, for lack of a better term, normal.

NYSE Volume 4,526,077,000
Nasdaq Volume 1,955,813,625

Everything else in the universe was higher on the day, including just about all commodities. Oil gained a ridiculous $2.15, closing at $81.51, it's highest price in over a month. Gold rallied an astonishing $23.30, reaching $1,119.50. Silver soared by 60 cents, to $17.45.

Possibly the most absurd trade of the day, if not the year, is in natural gas, a commodity over which the US sits a 100-year supply. The odorous stuff, which can fuel anything from entire energy plants to kiddie cars, was up a whopping 31 cents, to $5.84, it's highest price in well over a year. six months ago, natural gas was trading under $3.00 per mmbtu. Considering the extraordinary amount of proven supplies, the price should be stable, near its bottom. As usual, however, the energy moguls have captured the market and control the price as they see fit, and, like oil, yesterday's price always seems too low to them.

American consumers have been squeezed dry by escalating prices in three areas: energy, health care and taxation. The government runs one of those areas, and has its hands firmly in the pockets of the other two. If anything can bring this country's economy to its knees, it just so happens to be our very own, greedy, inept, monstrously overgrown federal government. They are strangling the middle class into third-world status.

And they'll continue to do it tomorrow and the next day and the next...

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