Thursday, July 13, 2006


'Headlines Signal Worse Case Scenario'

The Associated Press has the currency news. "The dollar rose slightly against the euro, but fell against the other major currencies Thursday after data showed a jump in the number of Americans filing new claims for jobless benefits. The euro bought $1.2692 in afternoon New York trading, down from $1.2699 in New York late Wednesday. The British pound rose to $1.8442 from $1.8343."

"The dollar fell to 115.33 yen from 115.52 yen as the Bank of Japan held a meeting that was expected to result in its first interest rate rise in nearly six years. In other trading, the dollar bought 1.2290 Swiss francs, down from 1.2337 late Wednesday, and 1.1296 Canadian dollars, down from 1.1348."

From USA Today. "Escalating tension in the Middle East sent oil prices near $77 a barrel. Many on Wall Street worried that the day's headlines signaled a worst-case scenario. Continued gains in energy prices could prompt the Federal Reserve to keep lifting interest rates to contain inflation, but the recent spate of downbeat earnings news suggested that economic growth was already moderating."

"Investors fear higher rates in a cooling economy could lead to a recession. 'At this point in the cycle, you have questions about how much inflation is rising, what the Fed will do and how much growth will slow,' said Scott Wren, senior equity strategist at A.G. Edwards."

From MarketWatch. "Gold futures closed higher Thursday, as escalating violence in the Middle East sent oil prices to record levels. Gold for August delivery closed up $3.20 at $654.40 an ounce on the New York Mercantile Exchange. The metal has gained 15.2% in the last month."

"Silver dropped 7 cents at $11.485 an ounce and platinum declined $3.60 at $1264.00 an ounce. Palladium rose $4.10 at $334.05 an ounce."

"'Record oil prices have failed to propel gold and the other precious metal through the highs seen yesterday, as dollar-driven profit taking continues to cap the market,' said James Moore of 'For now, traders seem happy using rallies to lock in profits,' Moore said. 'However, given the rather unstable political picture globally, further safe-haven driven price spikes can't be ruled out.'"

"'It seems that oil is destined to hit $80 before the end of July and maybe even higher should tensions erupt abruptly,' said Kevin Kerr, editor of a newsletter published by MarketWatch. Kitco's Jon Nadler said: 'Nobody wants global chaos, but how else can they currently look at the gold market but from the long side? If $76 or $80 oil is in the cards, then why not $680 or $700 gold?'"

And Reuters looks at the US consumer. "The U.S. leisure sector's recent spate of bad news could be an early warning of a wider deterioration of U.S. consumer confidence, which analysts fear could spread to other parts of the economy. 'Consumers are slowing down,' said Tim Conder, an analyst at A.G. Edwards. 'They've tapped their home-equity lines of credit. Rates have gone up. They're paying more at the gas pump. They're tapped out.'"

"On Thursday, Polaris Industries Inc., a leading U.S. builder of all-terrain vehicles, motorcycles and snowmobiles, said quarterly earnings fell 29 percent and cut its full-year revenue outlook, blaming higher interest rates and gas prices for weaker sales. The warning was the latest sign that highly leveraged U.S. consumers are pulling back from discretionary spending in the face of rising interest rates, higher energy prices and a slowing housing market."

"Earlier on Thursday, Fleetwood Enterprises, a maker of recreational vehicles, posted lower-than-expected earnings. And on Wednesday, Brunswick Corp., the world's largest maker of recreational boats, cut its yearly outlook. During a conference call with investors on Wednesday, Brunswick Chief Executive Dusty McCoy warned: 'We believe the marine business is not alone in experiencing weakness.'"

"Bob Simonson, an analyst at William Blair & Co., agreed and said the pullback by consumers was moving beyond the drop in demand for pricey adult toys like boats and RVs. 'We're on the verge of something that, if it isn't a recession, is going to feel like one when we're done,' Simonson said. 'It's going to spread like a cancer to other businesses. It's the most discretionary and higher-priced items that go first. They're the canary in the coal mine.'"

It makes sense that stocks are down. This is a worrying confluence of events. There are many signs of the consumer being 'tapped out,' all over the place.

A big question; what will a recession mean for the US$ and precious metals?
I suspect not what some here hope unless sustained erosion of the dollar continues. But the latter seems almost a thermodyanamic certitude.
Once the money is created, it doesn't just vanish. The stock market is losing money, not the people who are selling however. Where is the money going to go? I don't see how it won't go towards oil and PMs. How else can you secure your savings? For those who say in a bank CD or US Treasuries, look what is going on. As the housing bubble continues downward, banks are going to crumble. As it is, they have got to be losing their shorts with the yield curve the way it is. So much for borrowing short and lending long and turning a profit. How long will it take for PMs to separate from the rest? No one knows. I'd say that oil certainly is. Again, I'd buy it, but I'd only have paper denominated in US $. No thanks.
Checking the spot I see gold at $662 overseas. Momentum is definitely building, and the price of oil could easily go to $100.
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