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October 23, 2006

Metallic Disconnect

Today was rather boring, with the only curiosity being the disconnect between miners and metals prices. With the PMs down about 2%, miners rallied about 1.3%. The gains were especially strong in my favorites, Newmont Mining and Pan American Silver. Despite quite a bit of digging, I could find no explanation for the disparity, so I remain puzzled. If anyone writes in with a concrete explanation for the disconnect, I will share it in tomorrow's post.

Wal-Mart announced plans to cut back capital spending and open fewer stores than previously planned over the next two years. Traders loved the news, sending WMT shares up 4%. It is not often that a company announces plan to slow their growth rate and gets rewarded for it, but in Wal-Mart's case, the plan is weighted more toward controlling capital spending than on curtailing store openings, so their bottom line could benefit. Nevertheless, in a bearish market environment, this news would have been spun the other way, so we receive yet another clue that optimism still reigns.

Retail shares in general were up strongly today. With the exception of Target, Wal-Mart's biggest competitor, the Wal-Mart announcement seems to be insignificant. The only explanation I have for the general strength in retail is that traders anticipate pleasant news from the retail sales reports due out this week. After all, if all news is good news, might as well buy early, right?

Given the Fed meeting on Wednesday, I expect markets to behave quite feebly tomorrow. The chances of the FOMC rocking the boat only two weeks before an election are so low, one wonders why they bother to gather at all.

Disclosure: Long NEM, PAAS; Long NEM Calls; Short NEM Puts


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