All those guys in their pinstriped suits went down to lower Manhattan today wondering if the market would recover from its worst week in 9 months. A few minutes into the trading session, there were probably more sighs of relief than pictures of Brad Pitt and Angelina Jolie in today's newspapers, as stocks took off right out of the gate and posted healthy, though uninspired gains early on.
The Brangelina episode notwithstanding, the stocksters were to be found mostly standing around, wondering still. Somewhere in the deep recesses of the collective brains of these Harvard whiz kids who populate the trading desks and exchange floors must be thoughts of rebellion. Thoughts that somehow tick up in the night and are pushed back into dreams, only to resurface just under the consciousness during the daytime speak of cashing out and buying a farm, or opening a franchise business out West, or maybe just dumping it all into a sailboat in the Florida keys.
Certainly, we all have these thoughts, about the day our annual investment income becomes greater than our yearly take-home pay, about retirement and lingering, lounging and Early Bird specials with the wife. But the market is cruel, or lately, has been. We've just endured the worst decade of returns on equities since the Great Depression, and some say the 2000s weren't even as good as the 1930s. Being that you'd have to have a pretty good memory and generally be over 90 today to accurately recall what the stock market was like during the depression, there aren't many opinions like that, though charts and history offer clues.
The last ten years were by no means anything even closely resembling a depression, though we did burst two bubbles - dotcom and housing - and suffer the downdraft afterwards on both. 2010 ought to be better, we believe, but we're still unsure. Besides, there are other ways to save and invest outside of stocks, aren't there?
Coin collectors have been having field days of late, such with the prices of gold and silver up so much. Art seems to still be appreciating in certain circles, and for the rest of us, there are always baseball cards, Barbie dolls and eBay. The answer is a resounding "yes," and more and more people are discovering a world outside of IBM, Apple and Microsoft.
Certainly, some people make money in stocks. Many small investors, lacking in patience, experience and wisdom, do, however, end up with losses, sometimes larger than they'd like. It is because of those who have tried and failed that I write about money, stocks, cash, commodities and such. There are other options. You just have to know the rules, and which of those can be broken or bent enough for you to make a small - or maybe sizable - fortune.
More on that tomorrow, when I discuss the creation of your own currency, but for today, stocks were slightly higher. Everybody's indexed portfolios show a profit. Good thing, too, because they've been losing for the past few days, but they didn't make much in the end, and participation (volume) was light, so cash still looks really, really good.
Dow 10,196.86, +23.88 (0.23%)
NASDAQ 2,210.80, +5.51 (0.25%)
S&P 500 1,096.78, +5.02 (0.46%)
NYSE Composite 7,073.13, +42.52 (0.60%)
Advancers were barely ahead of decliners, 3586-2954, with new highs surpassing new lows, 145-51.
NYSE Volume 5,164,265,500
NASDAQ Volume 2,148,828,000
Commodities rebounded, with oil up 72 cents, to $75.26, gold higher by $6.70, to $1,096.40, and silver gaining 19 cents per ounce, to close at $17.12. Commodities were the place to be on Monday. While stocks gave up most of their gains late in the day, precious metals held well, and could be setting up for some spirited buying, since souring on stocks is all the fashion this Winter.
Getting yourself away from stocks isn't a bad idea. Somebody reminded me of the old rule that says to subtract your age from 110, and the result will be the percentage of your investments that should be in stocks. The concept sounds reasonable enough, until you start asking questions.
Does that include my home? Let's say you have $100,000 equity built up and you're 55, and have another $100,000 in cash. Since your number would be 55% (110-55), you'd have to take out some of your home's equity to get your stock percentage up to the proper speed, so, I say, exclude your home from your investment ideas. The equity you have in your home, you earned, and you're going to keep it. Besides, we all need a place to live, so why put it at risk?
So, adding our caveat, you've got $100,000 in equity in your home, $100,000 in cash, $55,000 of it which should be in stocks, according to the formula. The rest, I suppose, would go into CDs or bonds or both. Still, 12 years from retirement (yes, it's 67 for this age group, thank you, congress), do you really want to put $55K into stocks, and which ones? Especially after the decade from hell we've just gone through, it sounds pretty risky.
But, hey, says your broker, it's only money.
Showing posts with label commodities. Show all posts
Showing posts with label commodities. Show all posts
Monday, January 25, 2010
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...
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...
Tuesday, February 3, 2009
Obama's PPT Working Group On the Job
The perks of the presidency are large.
One of them is that you have at your disposal, thanks to the "godfather of conservatism," Ronald Reagan, who, in his limited wisdom, created, by Executive Order 12631 -- Working Group on Financial Markets(otherwise known as the PPT, or Plunge Protection Team) to ostensibly put the nation's various stock exchanges under the control of top government operatives whenever necessary.
The presidency being largely a function of public relations, it seems that President Obama has finally gotten his guys together and instructed them to keep the market on an upward keel. All of the fingerprints are there: the subtle prodding, the 50-point spikes after 2:00 and 3:00 pm, the positive close. It's just so nice to be able to salve the wounds of fractured investors with a couple of nice gains.
Of course, it's merely a mirage, and a temporary one at that. Once again, I must invoke my status as Resident Genius, noting that the Dow (and by inference, the other major indices) cannot escape the clutches of pure market dynamics at the resistance line of 8149, the point at which the market must invariable submit. Today's pumping was likely some short-covering and market tinkering to keep the Dow above 8000, a key psychological level, but nothing more than that. In the long run, it's just another number on the way back down to the mid-7000s.
Being that my job is keeping track of these arcane, diabolical market assumptions, it's clear that the investment community (with the assistance of the Working Group) still has much work to do, now that the Dow has closed below our magic number 8 times since its invocation on December 1, 2008, and, with today's finish, for the fourth time in a row.
So, when your friends say smart things like, "How'd ya like the Dow today, huh?" You can even-more-smartly respond with the retort, "8149, kid, watch it," secure in the knowledge that any rally that doesn't reach that level is doomed, caught like a fly in a spider's web.
Besides, the bears have a secret weapon which will be unleashed on Friday morning. It's called the Non-farms payroll report, tracking the number of jobs lost in January (lots of them, like more than 500,000).
When the BLS releases that figure at 8:30 am, all the little knee-jerk relief rallies of this week will look like just so much noise because that's all they are. Lows must be retested and haven't been. Just getting within 400 points is not enough.
Dow 8,078.36, +141.53 (1.78%)
NASDAQ 1,516.30, +21.87 (1.46%)
S&P 500 838.50, +13.06 (1.58%)
NYSE Composite 5,268.00, +101.53 (1.97%
As for news flow, it was good early - Pending home sales improved 6.3% in December as eager buyers snatched up foreclosed homes, Merck (MRK) reported a strong 4th quarter - but soured late as automotive firms reported year-over-year sales declines for January: GM -51%, Ford -40%, Toyota -34%. It's not pretty in the auto dealer world. And it's not improving, either.
Citigroup says they're going to start loaning money again, which is really not news, or shouldn't be, since that's what banks are supposed to do, but they announced that they'll employ some $36 billion of the money the government GAVE them, for loans and securitizations of mortgages. Maybe they'll get it right this time, though any positive result from bank lending is still very much in doubt and a matter of severe speculation.
The trouble with unleashing loans across the landscape is that the lender still has no idea what the immediate future holds. No doubt, the honchos at Citi were prodded into making a public loan announcement by the Fed or Treasury or both, as the public has been outraged over the non-use of some $350 billion in TARP funds. Whether this round of lending will help Citigroup is a dodgy issue. Home prices are still falling and the economy is anything but stable. It's likely that this $36 billion to be lent is just a cover for the eventual break-up and bankruptcy of the once high-and-mighty Citi.
Market internals confirmed the move higher. Advancers beat back decliners, 3840-2624. New lows remained ahead of new highs, though the number of new lows decreased along with the gap, 250-24. Volume was nothing exciting, as low volume is becoming a semi-permanent feature of this sublimated market.
NYSE Volume 1,353,295,000
NASDAQ Volume 2,091,114,000
Commodities were mixed, if not mixed up. Oil for March delivery gained 70 cents, to $40.78. Natural gas slipped 4 cents to $4.51. It seems as though the home heating fuel folks missed their opportunity completely this winter. January was extremely cold, but prices barely budged. The Midwest and Northeast parts of the US are about to experience the other side of the coin, with warmer weather predicted for much of February.
Gold fell $14.70, to $892.50. Silver dipped 12 cents to $12.30. The precious metals are still the sweet spot in this market, especially silver, which is being suppressed in a variety of ways and is well below the traditional gold-silver ratio. Just as gold was the fair-haired boy of the previous five years, it may be silver's time to shine.
Midday, Tom Daschle withdrew his nomination for Secretary of Health and Human Services in a tax-related snafu.
Honestly, is that good news or bad? Probably a little of both. Maybe it's time to overhaul the tax code. Just a thought...
One of them is that you have at your disposal, thanks to the "godfather of conservatism," Ronald Reagan, who, in his limited wisdom, created, by Executive Order 12631 -- Working Group on Financial Markets(otherwise known as the PPT, or Plunge Protection Team) to ostensibly put the nation's various stock exchanges under the control of top government operatives whenever necessary.
The presidency being largely a function of public relations, it seems that President Obama has finally gotten his guys together and instructed them to keep the market on an upward keel. All of the fingerprints are there: the subtle prodding, the 50-point spikes after 2:00 and 3:00 pm, the positive close. It's just so nice to be able to salve the wounds of fractured investors with a couple of nice gains.
Of course, it's merely a mirage, and a temporary one at that. Once again, I must invoke my status as Resident Genius, noting that the Dow (and by inference, the other major indices) cannot escape the clutches of pure market dynamics at the resistance line of 8149, the point at which the market must invariable submit. Today's pumping was likely some short-covering and market tinkering to keep the Dow above 8000, a key psychological level, but nothing more than that. In the long run, it's just another number on the way back down to the mid-7000s.
Being that my job is keeping track of these arcane, diabolical market assumptions, it's clear that the investment community (with the assistance of the Working Group) still has much work to do, now that the Dow has closed below our magic number 8 times since its invocation on December 1, 2008, and, with today's finish, for the fourth time in a row.
So, when your friends say smart things like, "How'd ya like the Dow today, huh?" You can even-more-smartly respond with the retort, "8149, kid, watch it," secure in the knowledge that any rally that doesn't reach that level is doomed, caught like a fly in a spider's web.
Besides, the bears have a secret weapon which will be unleashed on Friday morning. It's called the Non-farms payroll report, tracking the number of jobs lost in January (lots of them, like more than 500,000).
When the BLS releases that figure at 8:30 am, all the little knee-jerk relief rallies of this week will look like just so much noise because that's all they are. Lows must be retested and haven't been. Just getting within 400 points is not enough.
Dow 8,078.36, +141.53 (1.78%)
NASDAQ 1,516.30, +21.87 (1.46%)
S&P 500 838.50, +13.06 (1.58%)
NYSE Composite 5,268.00, +101.53 (1.97%
As for news flow, it was good early - Pending home sales improved 6.3% in December as eager buyers snatched up foreclosed homes, Merck (MRK) reported a strong 4th quarter - but soured late as automotive firms reported year-over-year sales declines for January: GM -51%, Ford -40%, Toyota -34%. It's not pretty in the auto dealer world. And it's not improving, either.
Citigroup says they're going to start loaning money again, which is really not news, or shouldn't be, since that's what banks are supposed to do, but they announced that they'll employ some $36 billion of the money the government GAVE them, for loans and securitizations of mortgages. Maybe they'll get it right this time, though any positive result from bank lending is still very much in doubt and a matter of severe speculation.
The trouble with unleashing loans across the landscape is that the lender still has no idea what the immediate future holds. No doubt, the honchos at Citi were prodded into making a public loan announcement by the Fed or Treasury or both, as the public has been outraged over the non-use of some $350 billion in TARP funds. Whether this round of lending will help Citigroup is a dodgy issue. Home prices are still falling and the economy is anything but stable. It's likely that this $36 billion to be lent is just a cover for the eventual break-up and bankruptcy of the once high-and-mighty Citi.
Market internals confirmed the move higher. Advancers beat back decliners, 3840-2624. New lows remained ahead of new highs, though the number of new lows decreased along with the gap, 250-24. Volume was nothing exciting, as low volume is becoming a semi-permanent feature of this sublimated market.
NYSE Volume 1,353,295,000
NASDAQ Volume 2,091,114,000
Commodities were mixed, if not mixed up. Oil for March delivery gained 70 cents, to $40.78. Natural gas slipped 4 cents to $4.51. It seems as though the home heating fuel folks missed their opportunity completely this winter. January was extremely cold, but prices barely budged. The Midwest and Northeast parts of the US are about to experience the other side of the coin, with warmer weather predicted for much of February.
Gold fell $14.70, to $892.50. Silver dipped 12 cents to $12.30. The precious metals are still the sweet spot in this market, especially silver, which is being suppressed in a variety of ways and is well below the traditional gold-silver ratio. Just as gold was the fair-haired boy of the previous five years, it may be silver's time to shine.
Midday, Tom Daschle withdrew his nomination for Secretary of Health and Human Services in a tax-related snafu.
Honestly, is that good news or bad? Probably a little of both. Maybe it's time to overhaul the tax code. Just a thought...
Thursday, December 28, 2006
2007 Predictions (part 1)
With 2006 winding down, everybody's out with predictions for 2007, so I thought I would follow the crowd for a change and throw down a few of my own observations before the clock runs out.
Since there are two trading days remaining, I'm going to cut my predictions into two parts, covering currency, interest rates and commodities today and the stock markets, economic trends and some political observations tomorrow.
Taking a somewhat more cynical view of markets as opposed to some of the more supply/demand theorists, I'm presaging my prophecies with a couple of caveats: 1. The Democratically-controlled Congress will restore a sense of fairness and balance to the country as a whole while putting some pressure on the administration for fiscal restraint; 2. Our lame duck president will remain stubbornly in opposition to public opinion on Iraq and the faux war on terror and face calls for resignation or face impeachment as early as Spring. (For more on my views on impeachment, see my political blog.)
Currencies: Stabilizing dollar
After years and years of dollar depreciation, the tide may finally begin to roll out. The demise of the Dollar vs. the Euro is vividly revealed in this Euro to US$ chart.
Since reaching parity (1$ = 1EUR) late in 2002, it's been a pretty steady path of appreciation for the Euro at the Dollar's expense though the trend has definitely slowed since the peak in December 2004. It was at that point that the Fed hiked rates 25 basis points to 2.25% and the fifth consecutive rate increase, with the first in June, 2004, when the rate was finally moved off the 1% "emergency" rate to 1.25.
Since then, the Fed raised rates for a total of 17 consecutive meetings, the last of which was June 2006, when the FOMC finished their upwards adjustment at 5.25%, where it stands today.
So, there is no correlation between US interest rates and the value of the dollar versus foreign currencies.
Talk of the death of the dollar has been strong lately, however, but wildly overstated. The abrupt change by Iran - to price their oil in Euros rather than dollars - and the flight of some Gulf nations to ease their foreign reserves and investment funds partially out of US Dollars likely has more to do with politics than money, though the two are closely affiliated.
If the US isn't getting the message that meddling in the Middle east has reached its limit, maybe moving some money away from US investments may get our attention... at least that's what it looks like from afar.
Since we're reaching a double bottom in the Euro-Dollar trade, I expect the dollar to bounce between 1.33 and 1.18 in 2007, with the main triggers being our international relations and how well the Congress reigns in spending.
Interest Rates: Little change
The Fed is now 4 meetings into stand pat mode, fixing the Fed funds rate at a very fair 5.25% and that's not likely to change dramatically. The first half of 2007 may see some slowing of the economy and calls to ease rates, but the Fed will not see a recession looming and will choose to err on the side of prudence, keeping rates the same at least through June.
The June meeting may be the most propitious time for the Fed to make a move as the economy will look like it's stalling out, but with inflation not likely to be much of a concern in a slowing environment, raising rates will be pretty much out of the equation as well.
It's going to be a boring year to be an economist as we move politically and economically back to the center and further away from the radicalism of the previous six years.
Commodities: Lower prices good for all
In the commodities field, lower oil prices are going to keep the economy on an even keel. Oil prices have been going south generally for the past six months and the new political climate is likely to foment more declines in crude and gasoline.
There's a glut of goods and raw materials in the US and to a lesser extent worldwide and distribution will be a key. China will not be able to continue expanding at their breakneck pace as the developed nations will experience slow growth. The overriding factors of globalization and reduced demand for imports to the US should keep prices for functional commodities - copper, silver, zinc, oil, natural gas, coal and timber - somewhat in check.
There will be opportunities for reasonable gains both on the short and long sides, but these occasions will be short-lived. The overall trend will be lower with gold bottoming out in the $550-575 range, silver backing up to $10.75/oz. and copper easing to a more reasonable 2.15 per pound.
Another warm winter, courtesy of global warming, will contribute to keep oil below $60/bbl. for much of the year. A fall below $50 is not out of the question and stabilization in the $44-47 range is a distinct possibility by Fall.
The continued slowdown in the US housing market will be the main factor driving all commodity prices lower.
Tomorrow: Stocks, trends and politics.
Since there are two trading days remaining, I'm going to cut my predictions into two parts, covering currency, interest rates and commodities today and the stock markets, economic trends and some political observations tomorrow.
Taking a somewhat more cynical view of markets as opposed to some of the more supply/demand theorists, I'm presaging my prophecies with a couple of caveats: 1. The Democratically-controlled Congress will restore a sense of fairness and balance to the country as a whole while putting some pressure on the administration for fiscal restraint; 2. Our lame duck president will remain stubbornly in opposition to public opinion on Iraq and the faux war on terror and face calls for resignation or face impeachment as early as Spring. (For more on my views on impeachment, see my political blog.)
Currencies: Stabilizing dollar
After years and years of dollar depreciation, the tide may finally begin to roll out. The demise of the Dollar vs. the Euro is vividly revealed in this Euro to US$ chart.
Since reaching parity (1$ = 1EUR) late in 2002, it's been a pretty steady path of appreciation for the Euro at the Dollar's expense though the trend has definitely slowed since the peak in December 2004. It was at that point that the Fed hiked rates 25 basis points to 2.25% and the fifth consecutive rate increase, with the first in June, 2004, when the rate was finally moved off the 1% "emergency" rate to 1.25.
Since then, the Fed raised rates for a total of 17 consecutive meetings, the last of which was June 2006, when the FOMC finished their upwards adjustment at 5.25%, where it stands today.
So, there is no correlation between US interest rates and the value of the dollar versus foreign currencies.
Talk of the death of the dollar has been strong lately, however, but wildly overstated. The abrupt change by Iran - to price their oil in Euros rather than dollars - and the flight of some Gulf nations to ease their foreign reserves and investment funds partially out of US Dollars likely has more to do with politics than money, though the two are closely affiliated.
If the US isn't getting the message that meddling in the Middle east has reached its limit, maybe moving some money away from US investments may get our attention... at least that's what it looks like from afar.
Since we're reaching a double bottom in the Euro-Dollar trade, I expect the dollar to bounce between 1.33 and 1.18 in 2007, with the main triggers being our international relations and how well the Congress reigns in spending.
Interest Rates: Little change
The Fed is now 4 meetings into stand pat mode, fixing the Fed funds rate at a very fair 5.25% and that's not likely to change dramatically. The first half of 2007 may see some slowing of the economy and calls to ease rates, but the Fed will not see a recession looming and will choose to err on the side of prudence, keeping rates the same at least through June.
The June meeting may be the most propitious time for the Fed to make a move as the economy will look like it's stalling out, but with inflation not likely to be much of a concern in a slowing environment, raising rates will be pretty much out of the equation as well.
It's going to be a boring year to be an economist as we move politically and economically back to the center and further away from the radicalism of the previous six years.
Commodities: Lower prices good for all
In the commodities field, lower oil prices are going to keep the economy on an even keel. Oil prices have been going south generally for the past six months and the new political climate is likely to foment more declines in crude and gasoline.
There's a glut of goods and raw materials in the US and to a lesser extent worldwide and distribution will be a key. China will not be able to continue expanding at their breakneck pace as the developed nations will experience slow growth. The overriding factors of globalization and reduced demand for imports to the US should keep prices for functional commodities - copper, silver, zinc, oil, natural gas, coal and timber - somewhat in check.
There will be opportunities for reasonable gains both on the short and long sides, but these occasions will be short-lived. The overall trend will be lower with gold bottoming out in the $550-575 range, silver backing up to $10.75/oz. and copper easing to a more reasonable 2.15 per pound.
Another warm winter, courtesy of global warming, will contribute to keep oil below $60/bbl. for much of the year. A fall below $50 is not out of the question and stabilization in the $44-47 range is a distinct possibility by Fall.
The continued slowdown in the US housing market will be the main factor driving all commodity prices lower.
Tomorrow: Stocks, trends and politics.
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