January 28, 2009

Global Market Comments for January 28, 2009
Featured Trades: (TM), (GM), (GDX), ($GOLD), (ABX), (NEM)

1) The Fed leaves interest rates unchanged, at close to zero. Like they were really going to make them negative? All they can do now is to accelerate quantitative easing measures by buying boatloads of home mortgage, credit card, car loan, and student loan backed CDO's. They can also talk, a lot.

2) Weekly crude inventories showed a build of 6.2 million barrels, more than double what was expected, knocking front month futures prices down $7 from yesterday's high. Severe storage shortages are now driving owners to keep the excess supplies in railroad tank cars.

3) Although the family only own 2% of the company, Toyota Motors (TM) has appointed Akio Toyoda as its new president, grandson of the founder. He takes the helm just as Toyota's production last year of nine million cars makes it the world's largest producer, a title General Motors (GM) held for 77 years. Toyota introduced its Corolla model in 1966 for $1,200 and eventually sold 32 million. The 36 MPG car now sells for $15,000.

4) Gold's upside breakout through $900 on big volume last week is creating a lot of chatter among the trading classes. Historically, investing in gold came at a big opportunity cost because it didn't pay interest or a dividend, and you had to pay the cost of storage and insurance. With short term Treasuries now yielding zero, this opportunity cost is now, well, zero. There is a new profusion of gold proxies trading on financial markets where you can open an account for free, eliminating all other costs. I found five listed gold futures contracts with 50 and 100 ounce specs, and six traded gold ETF's worth $32 billion, like the Market Vectors Gold Miners (GDX) traded on the NYSE. For the past year there has been a nearly perfect inverse correlation between gold and long Treasury bonds. Does this make it the new deflation play? No matter how inflationary the long term impact of Obama's programs may be, the fact is that everyone is staring at deflation on the plate in front of them right now. And let's face it. Investment in any other instrument, be it in stocks, bonds, commodities, currencies, and real estate, pretty much sucks right now. Finally, take a look at the charts for two leading gold stocks below for Barrick Gold (ABX) and Newmont Mining (NEM), and see how they anticipated the barbaric relic's recent up move. The only thing missing from the bull case for gold is a collapsing dollar. Could that be the next shoe to fall? Many believe that a retest of last year's all time high of $1,050/oz  is a chip shot, and a move to the inflation adjusted all time high of $1,500/oz is doable.

Barrick.png picture by sbronte

Newmont.png picture by sbronte