The Big Picture for the Week of December 5, 2004

The action gets weirder, doesn't it? The dollar gets progressively weaker, gold reacts by rocketing higher, oil does strange violent things and stocks net out kind of flat for the week.

Let's try to deconstruct some of these events.

First the dollar. With the action that took place with the ever tanking dollar, I am a little surprised there wasn't panic in the street, metaphorically speaking. Here's some numbers:

Dollar/Yen 102.9
Euro/Dollar 1.3460
Dollar/Swissi 1.1297
Pound/Dollar 1.9435

If you follow currencies you know that these are not good numbers. I have been concerned about the dollar weakness and what harm it may do to our markets for a while. Your know from past postings that I am invested in stocks and have some holdings that benefit from the dollar's weakness. For I all know the weak dollar will never cause a problem but I will not stop staying on top of this. It makes no sense to me that this won't be a real issue, but for now the market is content to whistle past this graveyard.

Gold is making highs every day. You won't be shocked that this is a direct function of the dollar decline. In addition to gold being priced in dollars, at some point the weak dollar may have an inflationary effect on goods imported into the States. Gold is an inflation hedge, remember. What is interesting to me is the lack of upward movement in the mining stocks. I wrote earlier this week for Motley Fool that I think there is money moving from the miners into the GLD ETF. I have to wonder if there will soon be a catch up rally in the miners. One thing about GLD is that it will trade right with gold, period. The miners however can lag and get ahead of the price of the metal as emotions impact trading, that is the miners can outperform the metal while GLD can not. Perhaps in a short while we see money flow back to the mining stocks because of this.

Bonds had a very wild week, but you wouldn't know by the net change for the week. I asked earlier in the week if the brutal selling that was going on in the bond market was maybe over done and whether we would later find out it was PIMCO unwinding some position. Well Friday's action showed that the selling was overdone but I never heard if it was one big seller or not.

I could write almost the same thing about oil this past week too. The selling is over done, I think, and should take back some of what was lost, but who knows?

Despite all the turmoil stocks are still in the uptrend that has been in place for weeks. As I write over and over, listen to the market. It makes sense to be cautious but it makes more sense to heed the market's message.