The Economy: Straying From The 'Recovery' Script

Well, well, well… Mr. Economy is straying from the script that Wall Street has written for him, and investors are not thrilled with hisad-libbing. According to the original script, job growth would boomin November and Intel would announce a surprisingly large jump inquarterly revenues.

But Mr. Economy seems to have forgotten his lines; Job growth fizzled and Intel’s sales fell short of expectations. U.S. payrolls increased by only 57,000 in November, well shy of the 150,000 or so that mostWall Street economists had predicted.

Equally dispiriting was the fact that the manufacturing sector shedjobs for the 40th straight month. In all, not a great report. Overthe past four months, 328,000 net jobs have been created, "far fromwhat would be needed to indicate a robust improvement in labormarkets," says one analyst from Banc One Capital Markets.

Meanwhile, down in the trenches, Intel disappointed the legions of"bulled-up" tech stock investors by announcing only a modestimprovement in fourth quarter revenues. The world’s biggestcomputer-chip maker said sales would rise no more than 19% in thequarter. 19% growth isn’t too shabby, but it’s not the sort of number that inspires frenzied tech-stock buying, especially not tech stockslike Intel that have already doubled this year and sell for 40 timesearnings.

Since Mr. Economy is ad-libbing, Mr. Market has no choice but torewrite the script… So he ditches the scene where millions ofadoring investors carry him aloft through the NASDAQ 2000 and Dow10,000. Instead, the new, tragic storyline finds our beloved Mr.Market engaging in one fleeting kiss with Nasdaq 2,000, thensuffocating under a mound of sell orders.

The Nasdaq fell for the third week in three, losing 1.3% to 1,938.But the Dow Jones Industrial Average added about 1% to 9,863. Thedisappointing late-week economic indicators cannot claim all theresponsibility for the stock market’s lackluster performance.  Thecrippled US dollar must also shoulder part of the blame.  All weeklong, the dollar’s persistent weakness undermined the stock market’sattempts to rally. The greenback tumbled 1.4% to a new record lowagainst the euro of $1.217.

Meanwhile, the sadistic goldbugs delighted in the dollar’s agony. The yellow metal jumped nearly $10 on the week to $406.40, gold’s firstweekly close above $400 an ounce since March 1996.

So often have the editors of the Daily Reckoning cautioned againstowning dollars and suggested buying gold that the advice has become a kind of liturgy. Dollar-selling and gold-buying are articles offaith. Gold’s ascension above $400 an ounce, therefore, is almost areligious experience. $400 gold has arrived as prophesied, and thefaithful are exultant. The world’s one and only true currency isfinally overthrowing the false monetary idols like the U.S. dollar.

"Gold at around US$400 an ounce is probably fairly valued right now," says Pierre Lassonde, president of Newmont Mining Corp. "You are very likely to see its price trade around that for the next while, with aUS$50 an ounce band on either side of it,’ he said. But, he added,that’s just the beginning."

Lassonde predicts an epic gold bull market – the sort of bull marketthat most investors have never seen. It’s been more than threedecades since gold soared 2,200% from US$35 an ounce in 1971 to apeak of more than US$800 in the early 1980s.

Says the confident Lassonde: "Since gold hit US$250 an ounce in 2001, it is up 55%. We still have a long way to go. This is chapter two ofa 20-chapter book."

Stay tuned…

Eric Fry,
The Daily Reckoning

December 06-07, 2003

P.S. Recognizing some key psychological breakthroughs in themarket…  most notably the dollar’s fall through $1.20 and gold’srise…  your editors at The Daily Reckoning have set about creatinga series of "special reckoning" reports. The first will deal withprotecting your assets in the face of continued dollar weakness; thesecond some unique and telling guidance for the "Trade of theDecade". Watch this space…



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