by Addison Wiggin & Ian Mathias
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Markets kick off the year with the biggest loss in history… details below
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Gold surges to new highs… could $850 be the new baseline?
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Oil climbs to three digits… why $100 was a joke, but $99 is no laughing matter
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The one currency in which oil prices are stable
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Butler and Williams on two new data points suggesting coming recession
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Plus, the latest from the Ron Paul camp… boycott Fox News?
The U.S. markets kicked off the new year in record style. The Dow fell 220 points — the biggest first-trading-day point drop in the history of the index and the worst percentage loss since 1983.
The bad juju in America then traveled abroad, where most markets in Asia and Europe posted sizable losses, as well. Stocks are overrated. But there’s always a bull market somewhere, as they say…
Gold, for example, surged to a new all-time high of $860 yesterday — one hour after our gold adviser Ed Bugos predicted a fresh breakout. The metal’s rise can be attributed to a weaker dollar, rising oil prices, the Fed minutes and the usual market malaise. More on all of that below… but for now, let’s just ogle the price chart:
Prices climbed all night and this morning in Asian trading, as high as $866 per ounce. The rally has a much stronger base than the $850 spike we saw way back in 1980… so this new high looks like it could be with us for a while.
And just as we were getting over the warm and fuzzies about gold… oil struck an all-time high price of $100… very briefly.
The goo climbed over $3 yesterday on a cornucopia of bullish news: Vigilantes in Nigeria, the world’s eighth largest oil exporter, attacked a police station. Bad weather sealed off a critical Mexican line of oil imports. And the dollar fell…
Yet it was little more than the will of one trader that pushed the price into the three-digit range. Only a single oil contract was purchased yesterday for a hundred bucks… a paper trade made on the floor of Nymex for one lot (1,000 barrels) of oil.
In other words, somebody was just looking to be the first guy to own $100 oil. We won’t be surprised when that ticket ends up on eBay. Despite the playful manner in which oil achieved $100, it’s found support at $99 ever since.
“The price of crude oil has risen in terms of these national currencies,” notes James Turk of goldmoney.com, “but remains essentially unchanged in terms of gold:
“Crude oil is not becoming more expensive; rather, the purchasing power of national currencies continues to diminish. In fact, the price of crude oil has remained essentially unchanged for decades, when measured in terms of gold.
“The price of crude oil in 2008 will remain more or less the same in terms of gold,” Turk predicts, “somewhere around 3 gold grams per barrel.”
The dollar index fell again yesterday…down to 75. The index has now lost all gains from its December rally, and the greenback is less than a point and a half away from a new all-time low.
The euro, by extension, is back up to $1.47. The loonie held its ground at $1 even, and the yen is looking stronger than usual at 109.
But curiously, the pound did not rally in dollar terms… and now trades for $1.97. We credit Chris Gaffney of EverBank for warning us last month that the pound was due for a smackdown… it’s lost 4 cents since he urged us to watch out for sterling.
The realm of the dismal scientists got a little more dismal yesterday, too. The Institute for Supply Management (ISM) report showed manufacturing in the U.S. is headed for a recession. In December, the ISM’s manufacturing index fell for the sixth month in a row, to 47.7 — its lowest score since April 2003.
“This report tells me,” comments Chuck Butler this morning, “and should tell the markets, that they can look for another Fed rate cut later this month. I learned in econ class that when the ISM hits a level of 45 for two consecutive months, it indicates a recession. I know that economists believe it is two consecutive quarters of negative growth… But I argue that point… And in 2001, I was bang on and months ahead of the economists’ call that a recession ‘had’ occurred.”
The Conference Board’s November Help-Wanted Advertising Index dropped to 21, from a revised 22 in October. That score is itself a new all-time low. Not since Eisenhower was president has the index come even close to this score.
“Part of the historical decline is due to the loss of newspaper advertising to the Internet,” writes government stats watchdog John Williams. “But such impact has been relatively small over the last year. November’s reading was down 27.6% from the year before, indicative of a severe deepening in the ongoing recession. Even allowing for the impact of Internet help-wanted services, the current weakness foreshadows what should become a regular decline in monthly payroll reporting, if reporting were honest.
“Collapsing October and November help-wanted advertising, surging new claims for unemployment insurance and sharp deterioration to recession-level and near-recession-level employment readings, respectively, for the manufacturing and nonmanufacturing November purchasing managers surveys… remain consistent with what should be declining payrolls and a rising unemployment rate.”
Meanwhile, in the Land of Nod, presidential candidates are expected to have spent over $50 million to win votes in tonight’s Iowa caucus. Looking at previous attendance records, that’s about $200 for every vote. Mitt Romney is rumored to have already spent $65 million of his own money to buy the Oval Office.
Ron Paul supporters are rumored to be selling/shorting News Corp. stock, because Rupert Murdoch failed to invite Dr. Paul to a Jan. 6 debate hosted by the New Hampshire Republican Party airing on Fox.
NWS stock was down over 2% yesterday… but when we checked, most other big media were getting pushed to the mat, too. CBS, for example, was down over 3%. But if you should choose to short Fox yourself, we wouldn’t mind terribly much.
“Are you really that naive?” a reader asks us in response to yesterday’s coverage of the “strong bolivar.”
“Chavez’s currency exchange has NOTHING to do with currency manipulation and/or improving confidence in the currency. He’s just following the other despicable dictators’ game book. Castro pulled the same dirty trick on unsuspecting Cubans when he exchanged the currency. It’s a way for the government to know how much money people have outside of the banking system.
“Venezuelans are being ripped off just as the Cubans were ripped off… but they’ll be just as happy as the Cubans… they’ll suck it to the rich and the middle class, and 99.9% of the population will be at a barely surviving standard of living… the 0.1% are the Chavezes and friends who have everything they need and more… and keep on building their foreign bank accounts (just like Fidel and company), in case they have to run away.”
The 5 responds: Yeah, we were using this little rhetorical device we like to call sarcasm. In short, we agree with you.
“I always read The 5 Min. with great interest,” writes another. “Keep up the good work! However, in listing the best performing stock markets for 2007 in the Jan. 2 issue, you forgot about an important market in Europe that in 2007 surpassed all of those you mentioned, and by a large margin.
“The Ukrainian stock market PFTS index rallied by 134.1% in 2007. While the ‘big guys’ do not cover it, there were good profits to be made. Given that you are smarter and more nimble minded than the ‘big guys,’ you might want to put up a correction. I have been investing in that market since its beginning in 1997, and the last several years were very, very good, including the 314% in 2005, all as measured by the most-used PFTS index in U.S. dollars.”
The 5: Nice. Makes us wonder how much the PFTS’s gains can be attributed to the falling dollar…
Addison Wiggin
The 5 Min. Forecast
P.S. We have just a few seats available in our Pink Sheets trading service, Bulletin Board Elite. Editor Greg Guenthner just posted the service’s first three-digit gain… an open position up 122% in four months. If you’ve been chomping at the bit to trade these little-known and potentially highflying stocks, now might be a good time to check ’em out.