It has been about 2 weeks since my last post, and Punxatawney Phil's prediction that winter will persist hardly made it any easier to muster up the motivation to write something on this Friday afternoon. The gold option pit is quiet, and while it feels like we have done nothing but go up, today's 20 dollar sell off actually leaves us nearly unchanged on the week. The stock market has continued melting up, and today popped big in response to a far better than expected employment report. Let's not get into labor force size, or the fact that the Challenger jobs report was -50k for January... or the fact that no economists on the street were even close to this number. Because really, who cares. Lets just remember, its an election year, and we are sure to have plenty of treats served to us in the form of economic data.
If it were 1998, and a brilliant oracle came to you and said that there would be an enormous bubble in tech forthcoming a year or two away, what would you do. Would you wait until that bubble came to get short? Hopefully, you would do the intelligent thing and buy immediately, not wanting to miss the run-up to the bubble's eventual popping. Following a great January, we could choose to take our profits and rest on our laurels, but we know that in this election year, we will get more numbers like this. Whether it is real or not is inconsequential. With equity fund flows still at historically depressed levels, there is more money around to chase this rally. Soon mom and pop retail will hear about this American recovery story and jump on the bandwagon. Then, we can start talking about taking some of these longs off.
This morning's action was a real head-scratcher from a gold perspective. One would expect the employment numbers to be good for both gold and equities, as they have been trading more or less correlated. Why the breakdown? There was no serious technical failure (1763 was a big number which we did breach overnight following yesterdays failure to breakout past it), that would cause such a strong sell off, and fundamentally, nothing has changed. Talking to people on the floor, the best answer I heard was that the algorithms probably find equities relatively more attractive and sell commodities to finance the purchase of stocks. I continue to believe that the slow grind higher will continue, and that today's divergence between gold and stocks will be a one off scenario. I would like to have my money in equities over gold for the short term, but the risk (as we are now trading 1730 in gold) for both continues to be to the upside.
If there is one place I wouldn't want my money, it is on either side of the Superbowl line. The two teams match up well and the game is a real toss up. If the Pats are to win, their ability to drive quickly down the field means that they could win by 14 in a close game. In other words, the protection the Giants are getting with a two or three points is not the same kind of protection you were getting betting the Giants in the San Francisco game. The line on the over/under has moved down to 54.5. As counter intuitive as it might seem, I like the under. It is true that the Pats can put up points quickly, and their defense can give them up quickly. Still, I think Coughlin will look to establish the run, which should not be tough against the Pats D. If this is the case, longer drives for the Giants will help keep the score lower. If nothing else, seeing Pats fans happy makes me unhappy, so this Jets fan is rooting big for big blue. Go Giants!
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