Market WrapUp (12-03-03)

Financial Sense Online ^ | 12/3/03 | Mike Hartman

[arete]

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Today's WrapUp by Mike Hartman 12.03.2003  Mon   Tue   Wed   Thu   Fri   Archive

The Jury is Still Out

Stocks opened higher this morning in anticipation of a good report for the U.S. Service Sector and a positive report on productivity gains from the Labor Department. The Dow Jones Industrial Average moved about 60 points higher in the first half-hour since economists had forecast the ISM Services Index to come in with a reading of 64.5 following October’s reading of 64.7. The actual number was announced at 60.1 and the Dow sold-off about 30 points, only to recover and move higher once again. While the reading of 60.1 was below expectations, a number above 50 signifies expansion, which is positive for the economy moving forward. Service industries in the USA make up 85% of our Gross Domestic Product, so it’s critical to see continued expansion in this area.

The Labor Department announced today that non-farm productivity rose at a 9.4% annual rate in the third quarter, up from the 8.1% estimate given a month ago. The increased productivity drove unit labor costs down 5.8%, which is the fastest rate of decline in the last twenty years. Productivity gains are great for keeping a lid on rising consumer prices, but are hurting the employment picture. If companies can continue making more widgets (or servicing more widgets) with fewer employees, productivity will continue to improve. This has a deflationary effect on the economy, so it also implies that the Federal Reserve has plenty of time to keep interest rates at 45-year lows. We will have to wait until Friday to see how all of this translates to the employment data. As it stands, the Labor Department is expected to announce that the economy has added 150,000 jobs in November following the addition of 126,000 jobs in October. Productivity is a double-edged sword, especially if you are out there looking for a job. The positive interpretation of the data from a labor standpoint is simply that 9.4% productivity growth is unsustainable, therefore companies will need to add employees at some future date.

The economic reports proved positive for stocks, but investors decided to take profits late in the session. The Nasdaq actually poked through the magic 2,000 level today, but then got spanked for a nasty 40-point selling spree in the last two hours. At the closing bell the Dow Industrials gained 19 points to close at 9,873, the NASDAQ lost 19 points for a close of 1,960, and the S&P 500 closed slightly in the red at 1,064. The Dow Industrials have been working overtime to get a close above 9,900, so it will just have to wait for another day. This looks like the beginning of a flight to quality, away from small-cap stocks, back to the blue chips.

Economic Uncertainty

Money came out of U.S. Treasuries today as bonds sold-off with the positive economic reports, increasing the yield on the 10-year note to 4.41%. The U.S. dollar also dropped slightly in value again today with a reading of 89.6 on the U.S. Dollar Index with a euro costing $1.21. Today we have weakness in the dollar, weakness in the bond market, and now stocks are trying desperately to remain in positive territory. The simple answer to all of this says we are “not out of the woods” to unbridled economic expansion; the jury is still out. We have had some great economic stories to tell over the last few months, but will the expansion be sustained? Most market participants recognize that the recent positive reports have been the result of massive federal stimulus via deficit spending and low interest rates. Federal Reserve officials are still waiting for more signs that the recovery is going to stick.

In an interview last week, Federal Reserve Governor Edward Gramlich suggested that central bankers will wait for more signs of a sustainable expansion before changing interest rates or even their outlook on the economy. According to Mr. Gramlich, “For me personally, we have to see more evidence.” The Federal Reserve meets again on December 9^th, and there is a 100% consensus that they will leave rates unchanged.

We will just have to watch how things go through the holiday shopping season to see if the economic recovery is going to be sustainable. In my mind we will need to see large spending increases from business and an improvement in the employment picture to be certain the economy will gain some traction.

On the commodities front, grains were up across the board, beef and pork prices came down, energy prices moved higher especially natural gas, which added almost 3% to close at $5.74, crude oil added 30 cents to close at 31.08 per barrel ahead of OPEC’s announcement tomorrow regarding production quotas, and finally, gold and silver remain in a VERY narrow trading range with gold holding just above $400 per ounce and silver holding between $5.40 and $5.50 per ounce. In general I expect further weakness in the dollar which will continue to bolster commodity prices across the board. Why beat a dead horse with technology stocks at this point, when you can get a ride on the bull market in commodities?

Have a great evening!

Mike Hartman

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[arete]

Money came out of U.S. Treasuries today as bonds sold-off with the positive economic reports, increasing the yield on the 10-year note to 4.41%. The U.S. dollar also dropped slightly in value again today with a reading of 89.6 on the U.S. Dollar Index with a euro costing $1.21. Today we have weakness in the dollar, weakness in the bond market, and now stocks are trying desperately to remain in positive territory. The simple answer to all of this says we are “not out of the woods” to unbridled economic expansion; the jury is still out.

On the commodities front, grains were up across the board, beef and pork prices came down, energy prices moved higher especially natural gas, which added almost 3% to close at $5.74, crude oil added 30 cents to close at 31.08 per barrel ahead of OPEC’s announcement tomorrow regarding production quotas, and finally, gold and silver remain in a VERY narrow trading range with gold holding just above $400 per ounce and silver holding between $5.40 and $5.50 per ounce. In general I expect further weakness in the dollar which will continue to bolster commodity prices across the board.

And on the natural gas front, it is frosty cold here in Charleston. Now all we need is a big blast of Canadian air to send temp's into the teens in the NE. Yep, that ought to do it.

Richard W.

[imawit]

RICHARD ! ^$#%$#!$%#$*(&*&_)*(&*^%$^%$#!

Next time don’t tell me you’re thinking bout taking some profits. Look what you did to the HUI. Tell me you are or you aren’t !

And where are the NASDAQ weenies ? It gets to a 2yr high and there’s a sell off. Is this just manic irrational exuberance or what ?

Nothing changed, neither the technicals nor fundamentals. So what happened ? Must be a touch of manic irrational no confidence, huh ?

I’m tryin to get to 7 figures and the crew jumps ship. At least the DOW and bullion didn’t abandon.

I’ll give you guys tomorrow and Friday to get it back up !

[arete]

Market WrapUp is Delivered!

Today's Roger Arnold Show

Richard W.

[arete]

Well, I didn't take any profits today although I was within 5 cents of doing so on my MDG. The selling in the miners wasn't all that big. Not much volume and NEM and GG barely moved. Have to wait and see what happens tomorrow and Friday. Expect good employment numbers so there won't be any excuses for the Naz-duck not to break and hold 2000 -- unless retail sales (and this could be a big secret) aren't shaping up so good this shopping season.

Richard W.

[lelio]

Productivity gains are great for keeping a lid on rising consumer prices, but are hurting the employment picture. If companies can continue making more widgets (or servicing more widgets) with fewer employees, productivity will continue to improve.

Missing in this is that if you offshore all of your work you're massively driving up productivity per US employee, versus if you outsourced it to another company in the US (as they would have US workers).

[palmer]

The Naz seemed to be fragged down by loser stocks. Some speculative stocks broke support and some grossly overpriced ones took a hit. Telecomms and cyclicals did well. GM was very amusing, their pension plan stock has benefited from the current rally therefore their stock should be worth 5% more? Talk about circular logic.

[Cedric]

Snap-back rallies in Bear Markets last about one year. This one is, therefore, living on borrowed time. The fundamentals are good but the market action is mediocre-to-bad! Take heed! The technicals underlying this market are horrible. It's been losing momentum since July. Watch-out below! {Although we may have more spasmonic rally attempts before the big slide, the rally which just ended really had the feel of a last gasp attempt.}

[Orangedog]

Was that other thread an hour ago entertaining or what?! I did get a laugh out of the "serbian militia leaders" crack about the mug shots though.

[arete]

Was that other thread an hour ago entertaining or what?!

That is an old thread from March. Always Right pinged me to it to ask me where the depression was that I promised. I thought that it would be fun to revive it.

Richard W.

[dalereed]

"Always Right pinged me to it to ask me where the depression was that I promised"

I wish Greenspan would quit delaying it with his printing press because when his scam finally fails the depression that we are headed for is going to be deeper and longer the longer he delays the onset.

[Orangedog]

I loved the anger-management crowd ranting that "gold is never going back to 800, ever!"

[who knows what evil?]

Expect good employment numbers so there won't be any excuses for the Naz-duck not to break and hold 2000 -- unless retail sales (and this could be a big secret) aren't shaping up so good this shopping season.

Not sure about UPS and other shippers, but FedEx "holiday shipping patterns" are lagging behind schedule this year...not picking up quite as quickly as expected. Hmmmm...

[dalereed]

There was an article in the paper this morning that internet sales last weekend were 30% higher than a year ago. Shipping should also show a large increase, wonder who's playing with the figures?

[dalereed]

The Post Office isn't being swamped, I got an order of cigarettes from New Mexico today that I ordered on Monday which is quicker than usual.

[Soren]

I didn't notice that thread was old when I read it. One thing I did notice was that just about every post where I wasn't thinking "you moron" was by someone who hangs out on the wrapup thread.

[arete]

I wish Greenspan would quit delaying it with his printing press because when his scam finally fails the depression that we are headed for is going to be deeper and longer the longer he delays the onset.

As I have always said -- Greenspan sold out to the political rulers right after he uttered his last honest words, "irrational exuberence". I don't know if Bubba and Rubin threatened him, bought him off, or both, but he has only acted in the interests of the Washington and Wall Street elite ever since.

Beginning in March, Greenspan has been wildly pumping liquidity into the markets and keeping interest rates at historic lows. He could have let the system clear but that was not politically acceptable. Now, he has gone beyond the point of no return. He either inflates, or he dies. It isn't over yet by a long shot which is why PM's could continue doing well.

Richard W.

[dalereed]

"He either inflates, or he dies."

If the foreign holders of our treasuries bail there isn't enough printing presses in the world to keep him alive!

[arete]

I loved the anger-management crowd ranting that "gold is never going back to 800, ever!"

I've never understood why those guys are so angry about gold. It is intriguing. Where did they get such anger about it?

Richard W.

[arete]

If the foreign holders of our treasuries bail there isn't enough printing presses in the world to keep him alive!

Well, all the central planners are on board the same train to hell. Any foreign central banker who breaks ranks better not go for a walk in the park or a plane ride. My guess is that they have already decided to lock hands and if necessary, all walk over the cliff together. They are no different than Greenspan. Corrupted by the new era of one world everything.

Richard W.

[Orangedog]

I'll give them this much, they're consistent.