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"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Tuesday, November 18, 2008

Groping Through the Murk and Risk

The US is probably going to join the rest of the industrialized world in recession and all the bad news probably isn’t priced in yet. However, it would not be surprising to see a rally soon.

We’re approaching Thanksgiving. In 13 of the last 15 years the Dow has been up the week before Thanksgiving. Combined with the light volume around the Thanksgiving holiday – there’s an old saying on the Street, “never short a dull market” – we could see a powerful move to the upside before the Dow, the S&P 500 and the Nasdaq finally hold hands and jump off the next cliff.

And then there are commodities. Crude oil fell to the lowest closing price since January 2007 as Japan entered a recession for the first time since 2001. Meanwhile, China National Petroleum, that country’s largest petroleum producer, said demand has dropped “sharply.''

The collapse in crude and other commodities was accompanied by a rip-roaring rally in the U.S. dollar. But now here’s an interesting thing. The U.S. dollar has not been able to capitalize on its recent breakout – stalling at overhead resistance – and yet commodities continue to go lower. This shows that commodities are weak all on their own – they can’t blame all their troubles on the greenback.

The fact that the dollar broke out to the upside and is now consolidating those gains rather than taking off is perplexing, considering the bad news pouring in about other economies. There was bad news for the U.S.yesterday beyond the massive layoffs by Citigroup. The New York Federal Reserve Bank's Empire State Manufacturing Index fell 0.8 points to -25.43. That's the third consecutive month in negative territory and a record low in the seven-year history of the survey.

But bad economic news hasn’t dragged on the U.S. dollar previously, because the news from other economies is so much worse. Like I said, it’s puzzling. Well, if this were easy, everyone would be millionaires. Instead, we grope through a market that is murky with risk.

Here are some stories that I find interesting ...

Why the Energy Crisis Will Oulast the Credit Crisis
The International Energy Agency's annual World Energy Outlook, released on Wednesday, predicts that oil prices will start a steep climb soon, and by 2030 will settle around $120 a barrel — more than double this week's price — as producers face rocketing costs of equipment such as drills and rigs, and are forced into the increasingly expensive business of extracting oil from less accessible fields, many of them far out at sea. Added to that, the world economy continues to grow — albeit at a slower rate — which will likely accelerate again at some point in the coming years — prompting billions more people to drive cars and burn electricity at home during the next two decades.

Big Oil: We told you so
With prices sharply lower from the summer's highs, Big Oil's decision to hold off on new production now seems rather wise.

S&P Notes Surge In Defaults
A total of 85 companies defaulted on bond debt worth $284 billion through Nov. 11, according to Standard & Poor’s, which estimates that the default rate could increase to as much as 9.6% by October of 2009. The rise in defaults contrasts with last year, in which 22 companies defaulted, and 2006, in which there were 30 defaults.

The Six Unknowns That Are Roiling the Stock Market BusinessWeek asked stock market experts to identify the biggest unknowns facing investors. These factors will be crucial to clearing up a foggy outlook. Unfortunately, it could take months—if not years—to resolve them.

Nyrstar to Cut Zinc Output 28% at Belgian, Dutch Smelters to Conserve Cash Nyrstar NV, the world's largest zinc producer, will slash output of the metal at smelters in Belgium and the Netherlands by 28 percent and may extend cuts next year to reduce costs and debt.

China May Need to Offer Grain Export Rebates to Ease Glut, Researcher Says China may need to introduce rebates to boost grain shipments and ease a glut of wheat, rice and corn as a cut in export taxes announced last week won't be sufficient to have an impact, a commodity researcher said.
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