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No Fear as Markets Bound Higher - Money Matters for 10/31/05 Don Bravo | 10/31/05
Nobody on Wall Street was the least bit worried about spooks or hobgoblins on Halloween Eve. Investors took their queue from Friday's massive advance to follow through with respectable gains on Friday.
Contributing to the glib mood on the Street was the rosy consumer spending report which included a mention that personal incomes grew by 1.7% in September and a $1.46 drop in oil, which brought the price of a barrel of light, sweet crude down below $60 for the first time in more than three months.
While you personally might not have gotten a raise in September, you also didn't get a nearly 1% cut in pay in August, also reported by the Labor Dept., last month. The personal income figures are largely assumed, always seasonally adjusted, often wrong and likely not indicative of anything, except one thing - if inflation is raging, as it is now, personal income almost certainly rises. If it doesn't, your standard of living is declining. And that has been happening, slowly, inexorably, especially over the last five years.
The move in oil is more important and a little suspicious. If you can locate a chart of oil prices (here's a good one), you'll note that oil has an upward trajectory since August until it peaked in September and since then has been trending lower. A similar pattern occurred in 2004. The suspicious part of it is that prices ratchet upwards during high demand periods and then come down. While that may, on the surface, appear to be nothing more than usual supply and demand, it begs the question as to just who is driving prices higher. Already armed with enough data to make the supply-demand scenario a moot point, it would make sense that these calculations are figured into the price, and, as such, should not be subject to wild swings due to seasonality.
Naturally, if you're manipulating the price of oil, you want it to coincide with the peak demand season for driving, which, of course, is summer. Gin up the price of crude, make the necessary adjustments in the retail prices of gas, and you get massive, record profits, which is exactly what the oil companies did.
Now, being in the home heating business as well, through their various refineries and pipelines of heating oil and natural gas, these same energy giants have to back off some during the winter as the double whammy of high gas prices and high home heating prices might, just might threaten the integrity of the entire economy. The social implications of energy pricing is probably best understood by oil company executives, and, as such, they're dropping the bid on light sweet crude for gasoline and raising it on natural gas and heating oil.
It's a nice business. You make money when people are out and about, driving their cars, and you make money when they're home keeping warm. Nice business - really, really nice. For them.
As for stocks, it's too early to tell whether the last two days are signs of a developing rally or just a bounce in the usual trade. While the new highs-lows has flipped once again, it will take more than a one or two day event to give us any real indication.
As oil was hammered today, so too gold and silver, especially silver, which has been bid up of late. Today's drop looks more like old fashioned profit taking, and I'd be very bullish at anything below $7.50 an ounce as there's a fairly solid floor right around $7.00. World demand is outstripping silver supply, and the long-term rally may still be in an early phase. The risk premium, as such, is, and has been, quite low.
Dow Jones: +37.30; 10,440.07 close
NYSE Advancers: 2490
Nasdaq Advancers: 2197
NYSE New Highs: 106
Nasdaq New Highs: 111
Gold: -7.90; 466.90 close
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