Market Notes: Oil Reaches for the Sky, Gold Wavers and Consumer Sentiment Is Flat

Includes: GLD, USO
by: Carlos X. Alexandre

Thursday's expected quiet trading day didn’t provide any surprises, although in the data front, housing continues to leave a lot to be desired. Oil is reaching for the sky, especially with another large drop in inventories Wednesday that I believe is being misread. These are two huge drops in a row — for a total of –25 million barrels in the last 8 weeks — that have many believing that, economically speaking, we’re healing quickly and the reservoirs must be replenished. Having said that, the United Sates Oil Fund (USO) has room to run.

Gold is wavering around $1380 and not much is out there to make a case for either a rise or drop — SPDR Gold (GLD) stuck in neutral — apart from the continuing firmness in the dollar, coupled with a shift in trend for the Japanese Yen to positive (short and long-term). From a bird’s eye view, looks like the global markets are saying “Give me anything but Euros.” even in light of China stepping up to the plate, and stating that they will support the frail European currency. Actually, I’d rather own Euros than Yuan from a long-term perspective, but that’s another story.

U.S. Consumer sentiment is literally flat, and awfully low considering that Christmas is around the corner, while Consumer Spending was lower by 0.1% as compared to one year ago — and below forecasts that have been running higher for three months now. Will economists adjust their macro view?

Lastly, the Core PCE Price Index, one of Greenspan’s and the Fed’s favorite measures, is running at 0.8% for the last 12 months. No inflation to be found anywhere — and how frustrating is that?

CHAIRMAN GREENSPAN. Since we have now all agreed on 2 percent, my question is, what 2 percent? What is the appropriate inflation indicator that we should focus on, recognizing that it is not appropriately measured and has various biases. The consumer price index is flawed with respect to the biases that are in it on a continuing basis…Clearly…the PCE chain weighted index is unquestionably far superior as a measure of the real consumer inflation rate...

Partial transcript of the July 3 – 4, 1996 FOMC meeting

Both CPI and PCE are singing the same song. Thus, capital will flow to equities come 2011. More on that later.

Happy Holidays and a Fabulous New Year. I’ll see you in 2011.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.