Second Shoe Drops
Today was a blockbuster day for market “in your face” numbers.
Stocks, Gold and Oil set their own tone for records. Let’s start with the commodities – they’re easier to talk about.
Gold hit $860, and thereby smashed through the $850 – ALL TIME HIGH – setting a new high for gold prices. When I predicted the break-through to a new high in 2008, I certainly didn’t expect it to crash through on the first trading day of the year. Okay gold bulls, where do you think this will go? I predicted $1000 this year. This could easily be $1200. What an exciting market.
Oil hit $100 today, and fell back slightly at the close. Another ALL TIME HIGH set today. What an amazing day. Naturally, this is really bad news for the majority of Americans who use energy – anybody out there who doesn’t?
Now for the more ominous news. The stock market crashed down 221 points today. Okay, I hear you say - “But we are in a sideways market, so isn’t this just a normal movement?” Yes, you are right. It is a normal sideways move. Or, is it? The first trading day of the year is one of the MOST optimistic trading days – historically speaking. When on those rare occasions, the market goes down on that day, it doesn’t really hold any good news for the rest of the year – or at least for the first 2 quarters of the year. So, get out of the way. My reading of today was that it portends a downward movement in stocks early in 2008. That’s a technical indication ONLY. However, if you look at the Fundaments, you will agree that you would expect stocks to go down in a recession. Today’s move doesn’t call for a recession; it only confirms what a lot of people are thinking about the economy.
BTW, what’s going on with Bonds? They soared (lower interest rates), and settled at 3.90% for the 10 Year. Oh, Oh. Another indication of that recession?
Today’s News.
The Institute for Supply Management’s report that its manufacturing index fell to 47.7 percent for December from 50.8 percent in November raised concerns that the economy could be slowing at a quicker pace than some investors had estimated. The reading below 50 signals economic contraction, whereas readings over 50 indicate expansion. Analysts had anticipated that manufacturing would expand modestly in December.
Here is what this means. It’s been a long time, about 3 quarters, since the manufacturing index was less than 50. That means that manufacturing in December declined (or contracted if you prefer). What does that remind you of? A recession? This is very bad news for the economy. The second shoe has dropped. This was VERY BAD NEWS. The first shoe was the jump in PPI and CPI last month. Remember that it scared the market, and the various markets moved dramatically? Guess what happened today?
Here are today’s closing numbers.
Dow Jones 30 Industrials – 13,044 (Down 221 points)
10 Year Treasury Bond – 3.90% (Down 0.13%)
Euro - $1.4718 – all currencies gained against the dollar today.
Gold $860 (Up $22) - A NEW HIGH
Oil $99.62 (Up. $3.62) - It hit $100 during the day, A NEW HIGH
Gasoline $2.57 (Up $0,09)
