Morning Call

0 CommentsMonday • November 9, 2009 • by alwaters

“Risk — If one has to jump a stream and knows how wide it is, he will not jump. If he doesn’t know how wide it is, he’ll jump and six times out of ten he’ll make it.”

Persian Proverbs

Morning Call
November 9, 2009

Gold Update

We see no reason for the current trend to change. Gold has acted more predictably than many other asset classes in the past several weeks. We test new highs, pull back slightly and then move to the next level. Remember that $2000 gold would bring the precious metal in line with its inflation adjusted price. That doesn’t even take into account the largest of institutions and sovereign nations are buying it up more than ever. Paper currencies will face a long and difficult road ahead and this will only add to gold’s luster well beyond the current rally.

What to Buy

All eyes are on gold once again. We should see some strong moves for drillers such as Diamond Offshore (DO) and Union Drilling (UDRL) with oil heading higher. The strongest buy, however, continues to be the miners. A slight pullback on Friday for Eldorado (EGO) and Jaguar Mining (JAG) make them a good buy as gold reaches record levels once again.

Market Outlook

After a lackluster Friday, the Dow is poised to open sharply higher this morning. Globally, stocks rose, sending the MSCI World Index higher for a fourth day, and commodities rallied after the Group of 20 nations agreed to maintain measures to boost economic growth. Australia has already raised its rates twice, and India is said to be looking at measures to withdraw stimulus, but the US, UK, EU, and Japan all formally stated that it’s too early to withdraw spending intended to revive growth. Treasuries slid as the U.S. prepared to sell a record $81 billion of 3-, 10- and 30-year debt this week. The yield on the 10-year note rose 2 basis points to 3.52 percent. The week’s sales begin today with $40 billion of three-year notes. The Treasury is scheduled to sell $25 billion of 10-year debt tomorrow and $16 billion of 30-year bonds on November 12.

The Obama healthcare overhaul passed a House vote by a narrow margin Saturday (220-215), setting up a debate in the Senate, where Democrats don’t enjoy the same broad majority, this week. The bill would cost $1.05T over a decade to provide health insurance to another 36 Million Americans. It requires most Americans to carry insurance and gives low income earners tax credits to help them pay for it. In an appearance Sunday, Obama said he is “absolutely confident” a healthcare bill will also pass through the Senate.

Stocks in Asia were somewhat mixed, with the Nikkei pulling out a modest gain and China’s Hang Seng rising by 1.73%. Trading within sectors in Asia was also very selective, with no clear winners among groups. Things are a little more clear in Europe this morning with the major indexes higher by an average of 1.5%. The banks are actually outperforming the markets and several tech stocks are also enjoying strong gains. Premarket trading in the US also shows positive movement in the financial sector as well.

Optimism has led to a strong day for commodities as well. Oil is up by more than a Dollar at $78 although natural gas is down slightly. Another strong start for gold this morning with a gain of more than $12 to new highs of $1109. The Dollar is up slightly against the Yen, but is sharply lower on the Euro and Pound this morning.

There will be no further economic numbers to sway the markets this morning. For earnings we will turn to Acadia Pharmaceuticals, Aspen Technology, Electronic Arts, Harvest Energy Trust, Liberty Media, MBIA, New Frontier Media, Priceline, Rockwell, and several others.
With a majority of central banks holding the line on interest rates and stimulus, investors have bought in to the news. The fear was that if the banks pull back too soon, we would see another dip in the global economy. The fact is, however, that History shows stocks have climbed 92 percent of the time in the six months before government borrowing costs began the biggest increases. In other words, despite the fact that investors have worried about rate hikes, it has been historically positive for stocks ahead of such a move. Investors are actually betting that U.S. Federal Reserve Chairman Ben S. Bernanke may start to increase borrowing costs in June, according to Fed funds futures prices. Traders assign a 54 percent chance of an increase to at least 0.5 percent at the end of the Federal Open Market Committee’s meeting on June 23, when the American economy is forecast to be in its fourth straight quarter of expansion. Whatever the case may be, it will be a critical decision when the time comes and the timing will essential. For today, we could see a 200 point day for the Dow once again.

Posted in: Morning Call: Daily Analysis of the Global Markets and Economy

Tagged with: bonds, economy, gold, oil, stocks