Being Street Smart December 03/04
by Sy Harding
December 03/04
A CONFUSION OF DATA!
World inventories of crude oil rose for the sixth week in a row, and the
weather remains warmer than usual creating lower demand for home heating
oil. As a result the price of crude oil, as high as $57 a barrel a few
weeks ago, continued to plunge this week, closing at $42.54 on Friday.
That good news, that shoppers may have more spending money going forward,
was enough to provide some underpinning for the market’s continuing
favorable season rally. However, the enthusiasm was tempered to a considerable
degree by rekindling of concerns about jobs, consumer confidence, and
the economic recovery.
While economists expected that consumer confidence, which was down sharply
over the summer, would recover in November, the Conference Board reported
this week that its Consumer Confidence Index declined again in November.
And retailers, led by WalMart, mostly reported same-store sales were dismal
in November, while Ford and General Motors reported their November sales
had slumped so seriously they will make production cuts over coming months.
Meanwhile, the report a month ago that 337,000 new jobs were created in
October, created a wave of optimism that the dismal employment picture
of the last few years had finally reversed. But on Friday, the Labor Department
reported that only 112,000 new jobs were created in November, half of
what economists had forecast. That there were any new jobs created at
all may seem like a positive. However, it takes at least 125,000 new jobs
per month just to keep even with the number of new entrants into the job
market from population growth.
November’s return to dismal jobs numbers prompted analysts to conclude
that the October numbers were a fluke, probably created by temporary workers
recruited for hurricane clean-up work in October, and partly by incorrect
tabulations. Even that healthy October number was revised downward to
307,000 on Friday.
It’s not good if concerns about jobs and consumer confidence return,
especially now in the important holiday shopping season on which many
retailers depend for a large percentage of their annual sales. The news
was enough to prompt several brokerage firms to issue downgrades for stocks
in the retail sector. In spite of the positive market, the sector declined
3% for the week, led by a decline of 4% in WalMart shares.
Meanwhile, the decline in the U.S. dollar continued to a still lower low
against international currencies, raising concerns about how much longer
foreign investors will continue to finance U.S. debt by buying and holding
U.S. bonds.
On the dollar, not to get too technical on you, but it is very extended
under its 20-week moving average, always an indication in the past that
it is intermediate-term oversold and overdue for a rally.
The gold sector was mixed. Gold bullion was up again for the week, but
its strength was not confirmed by the gold stocks. They closed down on
the week, perhaps a warning sign. A rally in the dollar from its oversold
condition would not be good for gold, which moves opposite to the dollar.
Bonds closed down for the week in spite of a one-day bounce on Friday.
Bonds rallied on Friday in response to the disappointing November jobs
numbers, apparently on hope that the economic recovery is again in question
and the Fed will not continue to raise interest rates. (When bond yields
go up their price goes down).
However, the Fed does not respond to one piece of data. Besides which,
although the 119,000 new jobs in November were a disappointment, jobs
have grown at an average of 183,000 per month over the last four months,
a considerable improvement over the 90,000 or so jobs created in June
and July. Ian Shepherdson, chief U.S. economist at High Frequency Economics
said in a research note to clients on Friday, “The numbers suggest
better news later, in the first quarter of next year.”
So, in spite of the disappointing November jobs numbers it is widely expected
the Fed will continue on its course of higher interest rates (to ward
off any increase in inflation, and perhaps to add some support to the
dollar).
Sy Harding is president of Asset Management Research Corp., publisher
of The Street Smart Report Online at
www.streetsmartreport.com and author of 1999’s Riding The Bear
– How To Prosper In the Coming Bear Market.