My Thoughts on the DJIA's 13,000 Mkt Milestone

To begin with, positive earnings & huge stock buybacks so far have managed to push the blue-chip index above 13,000 for the first time. The bulls were crushing the bears, literally. 25 of the 30 Dow stocks are higher. Meanwhile, bidding war for one of Europe's biggest banks also added to the upbeat mood. My banker friends in ABN AMRO should be happy.

The Fed's Beige Book report portrays a sluggish economy, but the market was shrugging off the conclusion of the Fed's report that its member banks were seeing "only modest or moderate expansions." Manufacturing is sluggish, and housing is weak, the report said. But Wall Street was cheered by the report's comment that "retail sales across the Districts were generally positive."

To me, it's all form without foundation. Housing remains in a secular bear market, & I believe it won't end soon. U.S. auto sales continue to sag with unemployment levels in that industry soaring. Do you know that, together, housing & automotive comprises about 18% of U.S. economy's output?

But let's suppose the market has already discounted the worst of the housing & the auto industry's woes. Well, there's more bearish data & it should raise investors' concerns. Corporate capital spending continues to decline since Q12007. This suggests that companies aren't positive on economic growth & future earnings. Instead, companies pour hundreds of billions of dollars into stock buybacks &, to a lesser extent, raise dividends to shareholders. In addition, I think the consumer looks increasingly fragile. Most retailers also looked like they are off their best highs already. The Conference Board's index of leading indicators dropped below its level of a year earlier, which is a very bearish signal since a negative reading has accurately predicted every recession since 1967. Finally, corporate earnings as measured by the S&P 500 Index have declined to the mid-single digits from double-digits just12 months earlier.

I hate to spoil the party, but I think this rally is mostly fluff. If you strip-out share buybacks & massive private equity trading from this market, we have a flat or down market in 2007. Period. The only positive trend for earnings remains a weak dollar, which is a boon for U.S. MNCs. Here is my forecast: Expect a brutal stock market correction this May or Sept 07. That happened, load-up on stocks again in late October. The worst time to be invested in the market is from May to September. Remember this, or forever hold your peace. And don't say I didn't say hor, for I said it here already.

FYI, May is just next week. Need I put up the picture of a bear again?

Market Today

In the U.S., the Dow Jones notched up triple-digit gains & went on to close above 13,000 for the first time ever! At the bell, the industrials index was 135 points higher at 13,089. The Nasdaq added 23 points to end the day at 2,547. And the S&P 500 also closed in positive territory, at 1,495, having gained 15 points.

In London, stocks ended the day in the blue as drug stock Shire & mortgage lender HBOS reported strong trading, & the good start on Wall Street boosted sentiment. The blue-chip FTSE 100 added 32 points to end the day at 6,461. On the Continent, the Paris CAC-40 hit a six-year closing high of 5,947, having added 61 points. In Frankfurt, the DAX-30 closed 72 points higher, at 7,343.

In Asia, investor sentiment was also boosted by the gains on Wall Street. The Nikkei rose 193 points to close at 17,429. And in Hong Kong, the Hang Seng jumped 274 points to close at 20,749. STI also ended well, added 44 points to close at 3,406.

Crude oil futures had fallen slightly to $65.67 a barrel today, whilst Brent spot was down to $67.86 in London.

Spot gold rose to $686.40 overnight, from $684.50 late in New York, as the higher oil price prompted buying. Silver had climbed to $13.81.

On currencies, the pound had risen to 2.0031 against the dollar this morning whilst the euro had climbed to 1.3642 against the dollar. Meanwhile, the dollar was up to 118.96 against the Japanese yen.

Bullish on Commodities

A strong global economy, and particularly intense demand from Asia, is playing a role in rising natural resource prices. But there are other forces at work, too. Let's look at a few:

In crude oil, Mexico's big oil field is tapping out! Drying! Tah-liao! From January 2006 through February 2007, Mexico's supergiant oil field, Cantarell, lost a staggering one-fifth of its production! And in March, Cantarell's production fell by another 5%! In fact, the Wall Street Journal reports that Cantarell is fading so fast that Mexico may become an oil importer within eight years. Mexico is U.S. second-biggest supplier of imported petroleum, below Canada and above Saudi Arabia, accounting for more than 11% of U.S. imports. The Americans could feel the squeeze very soon. More and more analysts are calling for $4-a-gallon gasoline this May!

For gold, production (supply) is falling around the world. It's falling in South Africa, the U.S., Australia, Peru, Russia and Canada! And that's despite more spending by miners and rising gold prices. Plus, investment demand is exploding! ETFs have made it easier than ever for U.S. investors to buy gold, and two gold ETFs just made their debut in India. I believe we're on the way to $750-an-ounce gold.

Then there's uranium, where supply just can't keep up with demand. In fact, some analysts say mine production won't catch up to demand until 2017! We're looking at a 10-year bull market in uranium, minimum. Maybe that's why the NYMEX recently signed an agreement to introduce uranium futures on its electronic platforms next month.

And I have no time to touch on copper yet, or steel, or silver. But bottom line is: For natural resource investors, the current market ambivalence is something to be aware of, but not something to worry about. If the U.S. economy keeps trucking along, and the U.S. dollar recovers, Americans will have more money to buy things, and thus commodities go up. And if America falters and Asia stays in the lead, commodities will still go up. Talk about a win-win situation, this is never a better one!

Dollar and Stock Decoupling

There's a major disconnect in the markets: the U.S. dollar is going down while U.S. stocks are going up. Some call it a decoupling; others dichotomy.
You know what? If the dollar was a stock, we'd be talking about a potential bankruptcy! Why is the dollar in the dumps?

The U.S. Fed is afraid to raise rates despite the fact inflation is well above its stated comfort zone; and because the housing market is still choked in the toilet. Meanwhile, both economic growth and inflation is surging overseas. So, foreign central banks are hiking interest rates. As a result, capital is migrating to foreign countries and away from the U.S. dollar.

That's pretty negative! And it begs the question: How can stocks be hitting new highs when the basic unit of trust in the American economy, the dollar, is careening into the gutter?

Well, if history is our guide, this shouldn't be happening! Take a look at the dollar vs. the S&P 500 index, you will see that the dollar and U.S. stocks used to trade in tandem. But no longer after 2003! It's interesting to see such a decoupling, among major asset classes in the same country — both of which are supposed to express some degree of confidence in that said country. For one, this decoupling is telling us relative to the value of the dollar, that stocks have NEVER been more expensive!

That is a pretty bearish view! Personally, I'm more sanguine when it comes to the U.S. because I think the world's largest economy has more resiliency than a lot of people realize. But here's the point: If you're invested solely in U.S. stocks and dollar-denominated investments, this is a crucial juncture, and it's actually not easy to say which direction things will head next. That's why I'm following the natural resources markets. Why?

Even if the U.S. falters, Asia can pick up the economic slack!

This is already happening, my friend. The TREMENDOUS demand we're seeing out of Asia for commodities of all types — energy, precious metals, uranium and more — combined with an ocean of global liquidity, is probably enough to keep commodity prices and commodity stocks humming along no matter what happens in the U.S.

Remember, I mentioned previously that commodity demand from Asia is enormous and growing. China is the world's #1 user of copper, steel and zinc, and she is becoming a bigger and bigger buyer of gold, silver and uranium. India is right up there, too. What's more, mining and materials stocks are in a M&A frenzy. The IMF's World Economic Outlook, which came out in April 2007, said the world economy should grow at a robust 4.9% in both 2007 and 2008. And it indicated that this rate should hold even if oil goes up to $75 per barrel!

One last thing to consider: Natural resources like gold and silver are priced in dollars. So as the dollar goes down, they usually go up! In other words, those with a more global perspective, as well as those who diversify their portfolio into precious metals could not only survive a bear market in the U.S., they could actually thrive!

Solve these Mysteries

Question 1
A man was found murdered on Sunday morning. His wife immediately called the police. The police questioned the wife and staff and got these alibis:
The Wife said she was sleeping.
The Cook was cooking breakfast.
The Gardener was picking vegetables.
The Maid was getting the mail.
The Butler was cleaning the closet.
The police instantly arrested the murderer. Who did it and how did they know?

Question 2
A man walks into his bathroom and shoots himself right between the eyes using a real gun with real bullets. He walks out alive, with no blood anywhere. And no, he didn't miss and he wasn't Superman or any other caped crusader.
How did he do this?

Question 3
If you touch me, you will die, but you can only live without me. I am a big part of your life, and will eventually be the only thing left. You will learn to embrace me finally and rest.
What am I?

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ANSWERS:

1. It was the Maid. She said she was getting the mail...There is no mail on Sunday!
2. He shot his reflection in the bathroom mirror.
3. Death

Why?

1. Why do they call bulidings buildings, when they're already finished? Shouldn't they be called builts?
2. Why are they called apartments, when they're all stuck together?
3. Why do sour cream have an expiry date?
4. The light went out, but where to?
5. Why do banks charge you a "non-sufficient funds fee" on money, when they already know you don't have?
6. Why do people go to Burger King and order a Double Whopper with Large Fries and insists on getting a Diet Coke?
7. Why is carrot more orange than orange?
8. When two planes almost collide, why do they called it a miss? It sounds like a near hit to me!!
9. How come abbreviated is such a long word?
10. How do "Keep off the grass" signs get where they are?
11. Why do scientists called it research, when they are actually looking for something new?
12. If vegetarians eat vegetables, what do humanitarians eat?

Greeks vs Italians

A Greek and an Italian were sitting down one day debating who had the superior culture.
The Greek says, "We have the Parthenon."
The Italian says, "We have the Coliseum."
The Greek says, "We had great mathematicians."
The Italian says, "We had the Roman Empire."
And so on and so on for hours, until finally the Greek lights up and says... "We invented sex."
The Italian nods slowly and thinks, then replies, "That is true -- but it was Italians who introduced it to women."