Tuesday, February 22, 2005


The chart posted yesterday in regard to Texas Oil was well timed. This morning black gold is trading at over $49 per barrel.

Another well timed move was going long gold on Friday. The increase in the PPI and Greenspan's conundrum about the bond market made me realize that after a few weeks down it is time for gold to make another run. The XAU index is up 2.54% this morning. Not as tall as the energy index but at least it is moving big in the right direction. The Dow is down 55 points and the NASDAQ is down 14.

The indication given by the market is that US short interest rates are still low relative to inflation, the dollar is still too strong and even that long rates are high enough for now. The European community needs to stimulate their economies or the US needs to continue tightening short rates. With oil pushing high so early in the year, higher short US rates may be the best medicine.

One might make the argument that under the circumstances investors should raise cash levels. However, cash levels in the total economy are already quite high. On balance, stocks should do well even in the face of rising rates. The energy component of the S&P will pull it upward.