« Foolishness in capital markets, Tues., September 13, 2005, 1:00 PM | Main | Lack of focus, Wed., September 14, 2005, 12:35 PM »

September 14, 2005

Uncertainty pushes Gold recovery, Wed., September 14, 2005, 9:54 AM

As per the Retail Sales Report released at 8:30am ET, Retail Sales ex-Autos were up +1.0 pct Month over Month, and everybody knows that this bump is from the price increase at the fuel pump last month. Including auto sales, the retail sales figure was down "2.1 pct M/M. That means that autos suffered significant double-digit declines (-12 pct). The retail store sales were also down, -0.3 pct. This is not a good economic report, and, After Katrina, it is likely to get worse for the Sept. report (due 10/14).


134a001.jpg


Also this morning, the Industrial Production report was released.

The data was less than impressive, with the consensus up +0.2, but the actual coming in at +0.1. There were claims that Katrina, which hit the New Orleans area on Monday August 29, hurt the national industrial production index by -0.3 pct. If that's true then the figures I suspect forthcoming for the current month will reflect an economic depression. Let's just take this with a grain of salt, and figure that for September there will be negative numbers for Industrial Production.

Besides the index of industrial production peaked 2Q04, and has been in decline since July 2004. This is the reason that industry groups like the Chemicals, for example, have not been doing well. In order to do well, certain groups like the steels and chemicals (Basic Materials sector) need a pick-up in the Industrial Production numbers.

So, with all the uncertainty in the air, traders are confused. As the number of deaths, the total financial costs, and the political bickering start to add up, it has been my expectation that the post-Katrina bump will peak and there will be a significant decline for most equity prices. I have already alluded to the Blame it on Katrina" phenomenon.


134a002.jpg

Gold Dec-05 contracts have returned above 453, now up to 453.70. The USD is significantly weaker this morning across the board. I think Gold and the USD have it about right.

At this minute, the Dow (+19) and NDQ (-7) opened mixed. I think Nasdaq has it right.

I suppose that tomorrow's report of the Consumer Price Index (CPI) could send further shocks into the equity market. Higher inflation means higher interest rates, which means a ratcheting down of PE multiples in programmed trading models, since earnings are discounted at a lower rate. All of which pushes equity prices lower.

p.s., it took fully five minutes to upload this simple blog item. I don't know what the problem is.

Posted by Posted by Bill Cara on September 14, 2005 09:54:24 AM | Category: Cara Today in the Market

Discourse

Hi Bill,

I am still having a tough time feeling the rhythm on gold, although my patience is paying some dividends. I would read the above news differently. In my mind, it would be more like - weak economic numbers implies that Fed will be slower to raise which lets inflation accelerate faster.....which means good news for gold.

The only thing that has become clearer over the past two months amid our inflation v. deflation debate - is that the inflationary cycle is clearly upon us - whether or not the government and commentators choose to acknolwedge it.

What is still extremely unclear is the speed and volatility with which expectations will change relative to equities, gold, oil, etc. as the different economic data shows.

Slowing growth may only be good for gold up to a point. If a true depression type environment hits us - I think the rush would be to cash and liquidity - not to commodities - as I think that gold would sell off with oil - at least to some point.

It is just tough to get proper bearings today. Similar to another readers' comments yesterday - I had been watching the September Put Options in BBY and was thinking of picking some up. I was so happy I hadn't when the stock ran to $50 a few days back, only to see the miss a day later and the stock crater. I think safety right now is sticking with what has been working re: gold, tech, and maybe some puts on the financial sector, but it is tough to sift through the spin to see the true trend. I appreciate your assistance in that respect and many others!

Regards,

Ben Green

Posted by: Soulek1 [TypeKey Profile Page] at September 14, 2005 12:02 PM [link]

Bill,

In addition to the great call on gold, (GG has been terrific the past several months), you ought to ring the bell on SNDK. A great call.
Barrons' ran an article featuring it this past week.
Regards,
Brent

Posted by: osky [TypeKey Profile Page] at September 15, 2005 4:38 PM [link]