Instead of snow over the next two days, Northern Massachusetts will be blessed with bone chilling arctic winds with wind chills into the negative single digits. At least it is not snow, but it is time to break out the scarf and the hand sized heat packs! Did I ever tell anyone that I hate the winter? No? I just did then.
Gold and Silver - Making It Hard to Stick to My Plan!
Gold and silver were rocket ships today! Stocks that I own are GG (up 8%), KGC (up 9.5%), and PAAS (up 6.5%). Those percentages are just today's gains! Sick I tell you. Due to the quick run, I am faced with the investor dilemma. I truly believe in a strong macro picture for gold and silver, but that kind of price run up is tough to leave on the table, especially when your entry point is on average up 70%. My own rule is to cash out when up over 50%. Tough spot to be in I know. So what am I going to do? I will do the dumb thing and watch almost all of today's gains go away over the next week and feel bad. Like I said, this site is a no no for specific investment advice! The market certainly makes you humble. What are the readers here doing with their positions? Post a comment and let us all know.
Speculation is Bad Unless It Is Good
Understand that I do not want to debate things like "peak oil" and global demand for crude. I instead want to use the price of oil as an example of hypocrisy in the markets. As you may have heard oil hit a record $100 a barrel today. Crazy stuff. From Yahoo Finance today:
Oil Futures Rise to $100 a Barrel
Wednesday January 2, 5:11 pm ET
By John Wilen, AP Business Writer
Crude Futures Hit Record $100 a Barrel on Supply Concerns After Violence Breaks Out in Nigeria
NEW YORK (AP) -- Crude oil prices briefly soared to $100 a barrel Wednesday for the first time, reaching that milestone amid an unshakeable view that global demand for oil and petroleum products will outstrip supplies.
Surging economies in China and India fed by oil and gasoline have sent prices soaring over the past year, while tensions in oil producing nations like Nigeria and Iran have increasingly made investors nervous and invited speculators to drive prices even higher.
Violence in Nigeria helped give crude the final push to $100. Bands of armed men invaded Port Harcourt, the center of Nigeria's oil industry Tuesday, attacking two police stations and raiding the lobby of a major hotel. Word that several Mexican oil export ports were closed due to rough weather added to the gains, as did a report that OPEC may not be able to meet its share of global oil demand by 2024.
Crude prices, which have flirted with $100 for months, have risen in recent days on supply concerns exacerbated by Turkish attacks on Kurdish rebels in northern Iraq and falling domestic inventories. However, post-holiday trading volumes were about 50 percent of normal Wednesday, meaning the price move was likely exaggerated by speculative buying.
"I would imagine the speculators are the biggest drivers today," said Phil Flynn, an analyst at Alaron Trading Corp., in Chicago.
It's hard to say whether prices would have risen as quickly on a normal trading day, Flynn said. While oil has soared on mounting supply concerns in recent months, speculators have often been cited as a reason for the swiftness of oil's climb.
Moreover, many of the concerns about supply disruptions have yet to materialize, but that hasn't stopped buyers from driving prices higher.
The Nigeria news does seem to be important here. Mideast tensions always play some role. Supply questions are real. I would say that oil has a realistic fundamental reason to climb higher going forward. With that said, let us compare and contrast how speculative buying in the oil markets fares next to, say, speculative buying in the stock market or housing markets.
Whenever I watch or read Larry Kudlow, he rails against the "speculative manipulation" of the oil prices by traders. CNBC loves to trot out commentators that bemoan the speculators pushing oil higher while they reiterate that oil will fall back to $50 a barrel any day now. Speculation is bad because it ignores fundamentals and causes an unrealistic market place for a product or service. On that I agree totally. Oil speculation, again just for argument, is bad because if the price of oil is artificially high, it hurts all of us.
Now, speculation in housing? That is all sugar baby. No problem there. Ignore all income to mortgage payment ratios? Check. Ignore any rental price comparison? Check. Force feed excess capital into the hands of folks that have no chance of ever repaying? Check. Speculation in housing is not only wonderful, but actively encouraged. Think of all the plans right now determined to reignite home price appreciation. Here speculation is great because it supposedly helps people. You can apply the same kinds of fundamental tests to Google or Amazon for a stock analogy.
I point this out to show that the mainstream media cannot even be intellectually consistent in their thinking. Rampant speculation is bad and tends to end badly. There is no such thing as "good" speculation. I wonder why they can find 20 guys that point out all the fundamental reasons why oil is overpriced, but they can only find maybe ONE guy that says housing is overpriced. I know this observation is clearly obvious, but I include it tonight because it annoys me.
ISM Index and the FED Minutes Sink Stocks?
The weaker than expected ISM number (fell to 47.7 percent for December from 50.8 percent in November) was widely credited with the falling market. While any reading under 50 implies economic contraction, the number bounces below 50 plenty of times. The FED minutes showed them to be the usual clueless bunch. They even had the term for the economic outlook going forward as "unusually uncertain". I mean, who can take that kind of stuff seriously? The FED is certain about one thing and that is interest rate cuts! In this unusually amorphous economic enigma, the FED will be ready to provide the usual one trick they think can help. The market move down today should be taken more as a warning from Wall Street to the FED to drop rates or else. No reasonable observer truly believes that the FED is in a box here with regards to fighting inflation. Anyone that says so is full of it.
Have a good night.