April 2006

If investors needed a wall of worry to climb, they've got one now. With oil prices again pushing $70 a barrel and Iran giving the finger to the world, worrying should come easy to market-watchers who are inclined to fret. To give the Iranians their due, they showed canny timing in announcing they have successfully enriched uranium. A day earlier President Bush had placed his ebbing political capital on the line, asserting that the solution to a recalcitrant Iran lies in negotiation, not bombs. Much as the civilized world wants to believe it, the Iranians have so far shown zero interest in hashing things out. The North Koreans have at least been willing to sit down at a table with the enemy, even if they haven't said much in the last fifty years. But Iran makes North Korea look like a model citizen of the world in comparison. Do Iranians perhaps think that as long as China and Russia are on their side, they can never be true pariahs? No matter. But if Russian and China are planning to suck up to the bad guys and bring them around, Jesse-Jackson style, they had better do it soon; otherwise the world could be forced to invoke Plan B: a dreadnought of�further indecisiveness?

So, the G-Men supposedly are at it again. Yesterday, they were spotted playing whack-a-mole with Comex gold when it poked its ugly little head above $600. Hey, give me a break! Where on earth do these conspiracy theories come from? Here's an e-mail message I received around mid-morning from a concerned subscriber:  'I find it strange that on both Friday and today, as the spot price approached $600, a selling wave hit the market -- and during COMEX hours, too. I've seen too much evidence from GATA about the gold-rigging schemes not to believe it. Seems to me this is another. The government has decided to 'make a stand' at the $600 price, and they'll be selling every time the spot price approaches this level. Wonder how long it'll take for them to 'throw in the towel?'' (Click on image to enlarge) And here I thought the conspirators threw in the towel at $300? If there was a good spot for covert agents of the world's bankrupt currency systems to take a stand, $300 (or $400, perhaps) would have been it, don't ya think? But $600? That's a little late in the game, especially considering that gold has just started to get noticed by the financial press. Even that troubadour of the status quo, James Cramer, has been touting the stuff on his daily vaudeville show. To me, at least, it feels like there is much, much more still to come, and that gold seems destined to break the $1,000 mark. When it finally happens, you can bet we won't be reading about a government plot to hold prices down. Rather, we'll see mining company CEOs on the cover of Forbes, Fortune, Business Week. And even then, it'll still be a few more years before we see the same guys in Vanity

A debt deflation is not merely likely for the U.S. economy but inevitable, and that is why I no longer debate the issue in this forum. If the inflationists don't 'get it' by now, they probably never will. However, the timing of economic Armageddon is another matter, and there is still room to argue whether Helicopter Ben will be able to delay its onslaught for a few more years. If you want to understand why he thinks he can ' thinks, in fact, that he will not merely postpone deflation but prevent it ' then I highly recommend Paul McCulley's superb essay at the Pimco site. It is the most insightful piece I have read concerning the new Fed chairman's thinking about the Japanese deflation. (Click on image to enlarge) As McCulley documents, Bernanke strongly believes that Japan needn't have suffered a deflation -- that the central bank could have nipped it in the bud with a double-barreled blast of fiscal and monetary stimulus. Perhaps. But it is worrisome that Bernanke evidently believes that a U.S. deflation would be much like Japan's, and that we could therefore head it off by administering essentially the same remedies but in bigger doses. It doesn't seem to have occurred to him that, fiscal stimulus aside, Japan had one thing going for it that we will not ' i.e., the U.S. consumer, with his insatiable appetite for imports. Bernanke should ask himself how Japan might have fared in dealing with inflation if Toyota and Honda had been in the parlous condition General Motors and Ford are in now; or if Japanese household savings growth had been negative, as it has been for some time in the U.S.; or if the Japanese economy had been wafting along on the vapors of a broad-based boom in residential real

Just when we were starting to get the hang of Wall Street's bad-news-is-good-news reflex, they change the rules! Yesterday's bad news was that March retail sales had fallen short of expectations, producing the weakest monthly increase in same-store receipts since November 2004. Now, there is no question that this is indeed bad news for an economy in which consumption has at times accounted for as much as 85% of GDP. So how did the stock market react? Well, the Dow gyrated nervously all day, but in the end the blue chip average finished down 23 points. Ordinarily we would have expected stocks to rise, since, as the thinking goes, signs of a weak economy are more likely elicit the sympathy and concern of Fed chairman Ben Bernanke. We all understand that Helicopter Ben, as he is known, is solely responsible for the performance of the U.S. economy, and it is his willingness to ease credit that determines not only the fate of each and every business in America, but your future prosperity and mine. Bernanke rules the Open Market Committee, and when he says 'Ease!' the members respond in unison, 'How low!?' But if investors can't play along with this game, pushing stocks higher when the news is 'bad,' they risk sending confusing signals to the Fed chairman and his lackeys. Fortunately, Wall Street will have another chance to get back into reverse gear today when employment figures for March are released. So let's get this straight, gang: If it turns out that employment was weaker than expected, act like that's something to celebrate. And if the numbers should come in strong, don't hold back on the fear. A good hour or two of hard selling, and you might even jolt the S&Ps from their month-long coma (see chart below).

A big news day yesterday, what with Gene Pitney's death in England and Katie Couric's move to CBS. Taken together, these ostensibly unrelated events serve to remind us of how much better the Today show might have been if Pitney had hosted it rather than Couric. Even in small doses, Couric's vaunted perkiness can be toxic, and a viewer with a hangover risks being blinded by her radioactive smile if exposed to it without polarized sunglasses. Pitney, on the other hand, doesn't look like the kind of guy who would try to smile his way to fame and fortune. But he sure could entertain. He was a great singer and songwriter, and even if he didn't make as much money in his entire lifetime as Couric will be make next year, Pitney's torchy brand of doo-wop will be around long after the infotainment diva's fun-house smile has become an icon of self-parody. In the meantime, the news media have succeeded in hyping NBC's 'search' for Couric's replacement as the most world-shaking event since Dan Rather's retirement. Their ultimate success at this game is of course assured as long as the network pays big enough bucks for its next anchor. Start her at, say, $8 million a year, and who's going to notice whether there's any real talent or substance behind the smile? Or perhaps the Q Score wizards will give us an unknown, the better to allow them to soft-peddle the new co-anchor's 'mystique' until we feel violated at the very mention of her name. 

The good news, for reasons aired here yesterday, is that gold looks like it's staging to blow past $600 and run up to at least $625 over the near term. The bad news is that it could pull crude oil quotes along with it. I proffer the chart below as evidence that this scenario may be about to occur. Although most technicians would regard Monday's high at 67.90 as a double top of sorts, the fact that it exceeded early February's peak at 67.89 by a single penny has bullish implications from a hidden-pivot perspective. Had the recent thrust gone no higher than 67.89, we would have gone along with conventional thinking, classifying the uptrend of the last two weeks as a failed rally and therefore part of a topping process. But the one-penny overshoot has left us with a bullish bias for the near to intermediate term, since it turned the A-B segment into an impulse leg that by definition is apt to produce yet another once the current correction has run its course. With pump prices already pushing $2.50 for a gallon of regular, this would be more bad news for the economy. It would also help to explain why the Dow Industrial have been having such trouble surpassing the 10350 trigger price, a feat whose very bullish implications for the stock market I discussed here a while back.

I'm back in my office after a somewhat relaxing week in the tropics, but it would appear that I didn't miss much. The new week began yesterday with a feeble attempt by Da Boyz to short-squeeze traders who went home on Friday expecting the world to end, as some traders always will. Fortunately, nothing of the sort occurred. In fact, the only disaster to make the headlines over the weekend involved some run-of-the-mill tornadoes in the southeast quadrant of the U.S. weather map. Meanwhile, Zacarias 'Zack' Moussaoui appeared headed for conviction, which should come as a relief to those who were concerned he might be able to plea-bargain the charges down to shoplifting, second degree battery or some such minor felony. The really good news was that gold futures were flirting with the $600 barrier. In a bulletin sent out just before I embarked on my return flight Monday morning, I said that the June contract's easy move through hidden-pivot resistance at 577.80 all but clinched a surge through $600. Some technicians expect a struggle there, but I'd say it's more likely to occur near 624.60, a hidden-pivot that, like all other upside resistance before it, is bound to give way. We're determined to catch a ride on this express train, so be sure to tune to the Inside Edition if you want to come along.

Three months after being abducted by religion-of-peace advocates, Jill Carroll has been released. According to the New York Times, the freelance reporter had 'kind words for her captors and says she was treated well.' Treated better the Daniel Pearl, for sure. Fortunately for those of us on the abductee side of the civilizational divide, fashions change, even among terrorists. Indeed, if Ms. Carroll had been kidnapped even a year ago, she might not have been returned to us in one piece, much less with the presence of mind to appreciate how very fortunate she was. Now, for better or worse, she and The Times have formed a bond with her captors that will color what we are told about her vigil in the weeks and months to come. Given the trauma that the woman has suffered, we shouldn't judge her too harshly if she turns up on Katie Couric's show dressed in a chador and urging us not to judge her would-be decapitators too harshly. Couric famously thrives on such interviews, and could probably turn Zacharias Moussouai into a sympathetic character in the space of a couple of commercial breaks. Did you know that Zack, as his childhood friends called him, could hit from both sides of the plate and once threw two no-hitters in a single season?.