February 5, 2004
Does A Leaked Jobs Report Presage A Deeper Gold Drop?

The theme since the last G7 meeting in Dubai – wherein G7 finance ministers called for more flexible exchange rates – has been that of a weakening U.S. dollar and strengthening gold. Whether or not this trend will continue into next week is uncertain. Rather, strength in the Yen/Euro versus the greenback may have reached a point wherein non US policy makers take a more aggressive stance against currency appreciation (in the case of Japan, which spent 7.15 trillion yen on currency-market intervention in January, one has to wonder how more aggressive a stance can be taken).

Needless to say, currency and gold traders are on edge ahead of tomorrows G7 meeting and Saturday’s communiqué/press conferences. Moreover, there are a host of other events that have, or will take place in the coming days which could have an impact on the financial markets.

-  Fed Bernanke said today that he was “pretty confident” the nation would soon see big numbers on employment, and also that deflation fears had receded "very substantially”. Mr. Bernanke’s comments had a noticeable impact on bonds.



- President Bush will appear on "Meet the Press" on Sunday.  Although possibly only a primer for Bush’s reelection run, the timing of the interview is nonetheless intriguing.  Why? Because it comes 1-day after a potentially crucial G7 meeting and 2-days after what is a highly anticipated employment report.

- To reiterate, a highly anticipated employment report is set to be released tomorrow morning.


That Bernanke is confident that strong jobs growth is coming and President Bush is doing an interview on Sunday leads to the speculation that the cat is out of the bag – or that Bush and Bernanke know that tomorrow’s employment report will show strong jobs growth.  Another less likely possibility is that the jobs report is worse than expected. If this is the case, Bush could be looking to do some damage control by appearing on TV on Sunday, and Bernanke – potentially out of the loop (not getting advance look at the employment data) -- could be simply warning that jobs growth is all that is holding the Fed back from hiking rates.

Suffice it to say, Bush wants to accentuate any positive report on jobs given how dismal the employment numbers have been over the last 3-years.  We will find out at 8:30 AM tomorrow is this is the reason why Bush is appear on Meet The Press.

As for gold, Euroland and Japan want a stronger dollar to lend support to exports (it is unlikely that the G7 communiqué will serve to subvert these obvious goals). Moreover, if the jobs report is strong and/or investors start believing that the U.S. is likely to raise interest rates sooner rather than later, a stronger dollar could become a reality in the near term. A strong dollar means weaker gold...

This is not to suggest that the gold bull is about to expire.  Rather, only that gold has had a spectacular run-up since the Dubai meeting in September (gold fixed at $379 leading into the last G7 meeting), and that if the currency markets absorb this weekends G7 statement in organized manner gold may sell off more in the near term.  Quite frankly, if those that are short the US dollar are covering Monday morning gold will drop. 

The excitement begins tomorrow at 8:30 AM.

Flashback: September 22, 2003:
Currency traders sold the U.S. dollar against every major currency Monday

February 3, 2004
The One That Got Away

Last weekend I went ice fishing. One measly pike and 48 hours later, I was left remembering the one that got away; the powerful fish that was hooked for a moment but was then suddenly gone.

Taser International was originally selected for the Watch List on December 26, 2002. At the time, Todd and I believed that the stock was worth monitoring because the company had weathered a series of financial setbacks well. The stock was trading at $4.11 on December 26, 2002 and following yesterday’s quarterly report the company’s shares were fetching $150 a share on Instinet. In other words, if you had purchased $27,401 worth of TASER stock on December 26, 2002 you would be holding more than $1 million this morning.

To say that Taser - which was never selected for the Wish List - does not occupy some of my thoughts would be a lie. Rather, and as silly as it is to pine over opportunities lost, rarely a week goes by when I don’t take a peek at how Taser’s stock price is performing. One of the only other company’s to ever have this effect on me was, and is, Fresh Del Monte. First mentioned in 2001 Wish List report (Dec 26, 2000), waiting for FDP’s share price to slide a few extra cents before purchasing has proven to be a mistake.




You may be wondering what any of this has to do with the markets today.  Well, with widespread speculative forces taking over the markets there are fewer potential Taser’s and Fresh Del Monte’s to be found (or potentially undervalued companies).  For that matter, it is also worth remembering that Taser’s stock price has not been mirroring the fundamental improvement in the company’s business (as impressive as this improvement has been). Rather, short squeeze after short squeeze has arrived because the company has not released any dire news lately -- short sellers continue to gamble and lose.

With yesterday’s rally in TASR (after the close), more short sellers could soon appear even as some existing shorts run for cover. In the case of Taser, and most stocks for that matter, the cycle is that of boom and bust, not of solid corporate performance followed up by sustainable and understandable stock market gains.

Waiting For The Pull Out From Stocks

Following nearly a full year of gains when will the great bust finally arrive? Not until nearly everyone believes that making unbelievable gains in the marketplace (3500%!) is easy…not until the herd concludes that the TASR’s simply have too much momentum behind them to ever falter. When this happens the bust will not be correlated to any corporate fundamentals, but to the death of idealism. To be sure, when Taser’s stock price falls it will fall exceptionally hard because misplaced stock price optimism can not perpetually trump the realities of financial performance (I do not have any investment position in TASR).

Once sitting in a cold hut with nary a nibble, it will not take today’s speculators long to realize that all they have caught is a pile of momentum stocks with dangerously high valuations.  What keeps them going today, however, is the lack of investment alternatives to stocks (i.e. sell bonds and money markets and chase stocks!), and the constant flood of missed opportunity stories.  It takes a great deal of stubbornness to watch every company you have researched rally strongly without trying to snag into what could be even more spectacular gains.

When I tossed that bony and tasteless pike back into the water I knew what I was giving up. However, and like the fish that got away, it is those companies that you never hook into that can sometimes occupy your thoughts.  Suffice it to say, eying missed opportunities is a pointless yet an unavoidable endeavor because we would all like to quickly turn $27,401 into $1 million.  And while it is the fear of losing $27,401 that turns you into a better investor in the long term, pointless short term reminiscences are difficult to avoid with stocks price running so hot.