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November 29, 2005

Gold Dawn

The spotlight for today's play was focused on a usual candidate, Google, but for unusual reasons. The company's shares sold off over $19, or about 4.5%, following a morning downgrade by Stanford Group. That a single downgrade from an investment bank whose relative size rates as "pesky" would alone knock down Google is unlikely. What is likely is that traders used the downgrade as a catalyst to unwind a very overbought stock.

In deference to Google, tech stocks slowly sold off throughout day after attempting an early rally. The reversal re-enforces my conviction that we will see a near-term sell-off in the markets. However, it's hard to say at this point whether such a sell-off will prove to be a consolidation for the bulls or the beginning of a party for the bears. The clue to such a distinction, I believe, will be the behavior of the dollar.

The homeys caught an early bid on the new home sales reports, which came in at a new record for October. A closer inspection of the report shows that the average sales price declined, and the early enthusiasm fizzled, leaving the group flat for the day. An interesting facet of the report is that the median sale price increased, meaning that the brunt of the average sale price decline was taken by the high-end builders. Toll Brothers, the superstar of high-end builders, shed 1.6% today.

I would be remiss without including gold in today's discussion. Our little yellow friend pierced the $500 per ounce mark for the first time since 1987. Many reports place "blame" for the gold price surge on increasing demand for jewelry in India and China. While I have no doubt that such demand is increasing as the citizens of those countries build wealth, I think a more pertinent factor is the subtle accumulation of gold by the governments of Russia, China, and several OPEC members, amoung others. Very slowly, central banks are positioning themselves to be less reliant on the continuously-devalued U.S. Dollar.

Disclosure: None


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