Sunday, January 13, 2008

The Market so far in 2008

Last week was the third straight week of declines. So far in 2008, the Dow has lost 6.3%, the S&P 500 is down 5.6% and the Nasdaq has fallen 9.4% (its worst run in more than five years).

This means the market has given back all the gains made in 2007, and then some, in just 3 holiday shortened weeks.

The dollar continues to weaken further. No surprise there considering the twin deficits and the Federal Reserve easing interest rates while inflation is rising. Gold is just about the only investment (other than shorting the dollar or going long the euro) that was up since New Year's Day, and depending on what gold investment you hold, substantially up. It jumped over $10/oz the other day just as Bernanke was explaining the need to ease US interest rates and crank up the printing presses.

Oil, and oil stocks, are holding up fairly well considering the general tone of the market and that this is the time of year where refineries transition from heating oil to gasoline. Expect expensive gasoline this spring and summer driving season! Oil service stocks have been hammered recently and are a screaming BUY. Earnings season will be in full swing over the next 3-4 weeks, and expect the oil service companies to shine brightly (yet again). Day rates for some offshore rigs are running as high as $600,000/day. Natural gas has been very strong lately, which is interesting because this is the time of year natural gas inventories are perceived as being sufficient to supply the remaining winter demand. That said, the energy equivalent of nat gas has fallen way behind that of oil, and the relationship appears to be correcting itself despite inventory data.

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