Oil Pushes Higher

Few numbers have been released with as much fanfare and anticipation as last Friday’s Nonfarm Payrolls number. Is it any wonder that the number was pretty good? Are we surprised that economists across the board are hailing the addition of 162,000 jobs in March as definitive evidence that the economic recovery is picking up steam? 

Employment increased at the fastest rate since March 2007. And it wasn’t all Census workers, either. Government hiring accounted for 39,000 workers. That means private companies hired 123,000 people. 

Employment numbers will continue to look good, as Census hiring will continue into June. But we’re going to need to see continued solid growth from private sector employment.

Are We the World’s Dumbest People?

You probably remember when gasoline cost 48 cents a
gallon. It was in 1974 – not so long
ago, really.

Inflation adjusted for 2009 dollars, gas was never that
cheap though. It bottomed in 1999 at
about $1.40.

So I realize it sounds too good to be true to suggest that
you can buy gas for 48 cents today. With
most of us paying close to $3/gallon it’s just a ridiculous claim.

And of course, there is a catch. Consider it a small April Fools day
hoax.

Biotech Buyouts

I can imagine that a few people were waiting for President Obama to follow up his declaration that he was opening up the East Coast shelf for oil drilling with a hearty “April Fools!” but he didn’t.  

 

It’s for real.   

 

The decision to open up the East Coast shelf is sure to anger some people. Former Florida governor Jeb Bush was adamantly opposed to drilling off of Florida’s coast, even when his brother George pondered the idea. He felt that oil drilling might spoil Florida’s beaches and impact tourism.   

 

I don’t know how current governor Charlie Crist feels about offshore drilling, but there will be plenty of vocal opposition. Imagine the irony as both environmentalists and conservative politicians lambaste Obama for this decision to open up oil drilling! 

Biotech Buyouts

They say March comes in like a lion and goes out like a lamb. We’ll see about that. March started with a strong rally that’s added +50 points, or 4.4% to the S&P 500. That’s as good a monthly performance as you’ll find. Perhaps too good…   

 

Stocks have come so far, some are now wondering, what’s left? And after today’s ADP Employer Services employment report showed that private companies cut payrolls by 23,000 in March. That’s a far cry from the gain of 40,000 economists were expecting from this report. And it raises the fear that Friday’s release of the Labor Department’s Nonfarm Payroll report will come in far short of the expected 190,000 jobs growth.  

 

Of course, the government’s report will include census workers, so it’s likely to better than the ADP report. But still, the market is left waiting for jobs growth. 

Two Words and Two Charts That Can Make You Rich

When you have a trend that
continually manifests itself over a period of many years, in many different
markets, you can make low-risk investments when that trend is outside of its
normal range. There are about as many
mean-reversion trends as there are commodities, and I’ll examine many of them
as they become relevant, but for now, I’m going to focus on one of the easiest
to understand and potentially most profitable.

I’m talking about the
gold-silver ratio. The modern mean (ever
since the 1870s when the U.S.
government de-monetized silver and went to the gold standard) has been a ratio
of 55.

So, in modern history, it’s
taken 55 ounces of silver to buy one ounce of gold. Before that, the ratio was much lower – in the
16 range. That’s much closer to the
ratio of silver to gold in the earth’s crust – and as I’ll discuss in a minute,
it could revert to that ratio again.

The Two Kinds of Gold Investments

If you want to get rich from gold, the physical
bars and coins won’t ever do that for you. Physical gold is great as a store of value. That’s all. The best we can realistically hope for is that it will stay one step
ahead of inflation, and protect our principle. Physical gold has never, ever paid a dividend. There’s no compound interest. No cash-flow.

If you want to get rich, you have to stick your neck out a
little and buy stock in small gold companies. It’s said that only one gold venture in a thousand will ever get any
gold out of the ground – so it’s vitally important to buy the best of
breed. A junior gold company that can
actually mine gold and bring it to market can multiply gold’s gains many times
over.

Unfortunately, most junior gold companies go belly
up. And even worse: most of the
geologists and marketers in the junior gold business are glorified con-artists. They might not have any gold at all, but they
hope they can bump up the share price and sell their shares for a huge
payday. Or they’ll hope to cherry pick
some drilling results and sell their stake to a bigger mining outfit before
anyone’s the wiser. Mark Twain famously
said, “A gold mine is a hole in the ground with a liar standing next to it.”

Greece’s Debt Faux Pas

This morning, I find myself wondering how long investors can continue to support cash raising activities. That’s probably not the best way to pose the question. Perhaps after I set the stage, the question will make more sense. 

Yesterday, Greece started selling 7-year bonds to raise cash to cover its debt issues. The yield was to be 6%. But then, Greece got greedy and tried to drop some 12-year notes on the market.  

 

Now, Greece was warned not to try and add supply to its offering because the market wasn’t ready for it. So I don’t know what Greece was thinking when it decided to ignore this advice and float the 12-year notes. But Greece will pay the price. Nobody wanted the 12-year notes. Investors only bought about half of what was offered. That drove the yield on the 7-year notes to 6.3%. 

The GamePlan, II

Friday was a repeat of Thursday. Stocks made a nice move higher in the morning and then lost in the afternoon. This type of intra-day reversal often opens the door to the sellers to take stocks significantly lower. But that didn’t happen.   

 

Instead, we just saw the S&P 500 test the 1,165 support/resistance point two more times. This action suggests the rally still has some upside potential, even though it’s moved in practically a straight line since early February.   

 

Now that all parties appear to have agreed upon an aid package for Greece, it will start raising the $71 billion it needs to get through the year. Greece is selling 7-year notes at 6% interest.

Profit from the Oil Crack Spread

Today, I’m going to discuss one of the most elemental ways
that “they” hedge their bets, and how you can use it in your own portfolio to
profit every time.
First, there are a few important facts you should know about
crude oil and the petroleum products we get from it.
You might notice that spikes and dips at the gas pump
don’t necessarily track exactly with spikes and dips in the price of crude
oil. That’s because only half of all
crude oil gets turned into gasoline. The
other primary products are diesel fuel, jet fuel and heating oil.
As you might imagine, demand for different petroleum products
fluctuates seasonally. Heating oil
prices rise in the winter. You might
think that the southern hemisphere’s “winter” would even out the fluctuations,
but the northern hemisphere has 90% of the world’s population – so it’s the
northern winter that drives heating oil prices.

Oil is a Coiled Spring

Stocks were following the game plan nicely yesterday. The dollar was down against the euro, and stocks and commodities were rallying nicely.  

 

It all fell apart when European Central Bank president Jean-Claude Trichet called the inclusion of the IMF in the Greek bailout plan “very bad.”   

 

I see his point – this was a great opportunity for Europe to come together and handle the Greek debt matter in-house. Of course, we know Germany was resisting. And in the end, Germany got its way.