February 18, 2003
Inflation Figures Could Be Key
The long weekend is over and nothing ‘exploded in a big way’ (see Arch Crawford’s prediction on Friday – Windows Media). This does not bode well for Mr. Crawford’s call to double up (to ‘full margin’) his short position on stocks last Friday, based upon what Crawford expected to be a terrible opening today.
What is interesting about Crawford is that the man sounds like a complete crackpot, yet he has been around since 1977, he appears regularly on CNBC, and everyone on Wall Street reads him.
Gold: Down but Not Out
To reiterate what has been said before, until people hoard gold no mania type rally in the metal is safe. Quite frankly, if there is money to be made by shaking out weak hands it will be made (many hands, partly fueled by a hike in NYMEX margin rates, have been shaken out since February 5, and many call options, written by gold’s biggest and brightest players, are now set to expire worthless).
Just two weeks ago many people considered $400 an ounce to be a certainty, $500 an ounce was a possibility, and some intelligent gurus were talking about $1800 an ounce on gold. By contrast, investors that previously read bullish forecasts with bated breath are today being informed that sky high price targets were not meant as near term targets, but as longer term speculations. Isn’t it amazing how euphoric long term price targets on gold always arrive in a timely manner (i.e. when the price of gold is rallying strongly)? Suffice it to say, ‘gold to the moon!’ commentaries are not as interesting today as they were yesterday…
What is not being talked about very much is the fact that if Iraqi tensions do not re-escalate gold may have already put in its high for the year.
This Week
Iraq tensions appear to have subsided for the moment. However, troops continue to be deployed to the Gulf and expectations of a war have not vanished, but have been merely pushed back.
Following better than expected ISM/Industrial Production numbers (Jan), the Philadelphia Fed could be an important report to keep an eye on this week. Is the manufacturing ‘recovery’ going to hold?
Additionally, producer and consumer price reports (Jan) should log a pick-up in inflation and could potentially reignite inflation worries. As for the ‘core’ numbers, which back out ‘volatile food/energy prices’, given that energy prices have not crashed lower – and are unlikely to crash lower in the near-term – it may be wise to ignore these numbers in favor of the basic numbers. To be sure, when General Mills raised prices by 2% yesterday due to rising wheat/energy prices the company did not include the statement ‘if we gain control of Iraqi oil we will begin to cut these prices lower’. GIS’s price increases could mark the beginning of a trend not the end...
In sum, pump-prices may catch all the headlines, but companies are by no means immune to rising energy prices.
|
|
|
All data and information within these pages is thought to be taken from reliable sources but there is no guarantee as such. All opinions expressed on this site are opinions and should not be regarded as investment advice.
Copyright © 2000-2002. FallStreet.com