Inflation And Interest Rates

The bears’ futile attempts to take stock prices
lower have been good sport to watch. The first level of support on the
S&P 500 is 1,280. The S&P 500 has closed above that level every
day since January 12. That’s 8 straight days.

Even last week, when it looked like a correction
was looming — after stocks sold-off on the good news from Apple
IBM (NYSE:IBM) — the S&P 500 fell all the way to 1,271. But it didn’t
close there.

When Good is Bad

What happens when employment numbers improve and the
unemployment rate starts to fall? Is that the point that the Fed
announces an end to its monthly QE2 Treasury purchases?

Yesterday’s blowout ADP payroll number has raised
expectations for tomorrow’s Nonfarm Payroll number. The consensus
expectation was for a gain in the 130K-140K neighborhood. But now, in
light of the
ADP report, expectations have risen to the 150K-160K level.

IMF Completes Sale of $19 Billion Worth of Gold

Yesterday, the
International Monetary Fund quietly announced that it had completed the
sale of over 400 metric tonnes of gold to Central Banks and other giant

Thought it’s one of the biggest single sales of gold in world history, it
was largely ignored in the mainstream press.

Most remarkably, this record gold sale has had little effect on the price
of gold futures.

A Simple Explanation for Bond Yields

There are plenty of analysts and economists that
think QE2 is a bad idea. I’ve been one of them.

And even now, as economic data improves to the point
that GDP forecasts are moving higher, the Fed appears steadfast that the
economy needs more stimulus. The language in yesterday’s FOMC statement
was unchanged.

The inflationary risks of QE2 have been well
articulated by the anti-Fed crowd. And even though today’s CPI number
shows that inflation is not happening, it’s easy to interpret the rise in
bond yields as sign that inflation is right around the corner.

Obama’s Dividend Tax Relief

With President Obama extending the Bush-era tax cuts for at least two
more years, dividend investors can breathe a sigh of relief.

Taxes on dividends were slated to increase from today’s 15% rate up to as
high as 40% if the current tax rates were allowed to expire.

While some investors are waiting for the seal of approval from the United
States Congress to make the tax relief official, many dividend investors
are already taking advantage of the good news and are loading up on their
favorite dividend stocks.

Gold Breaks $1,400 on Jobs Numbers, China, and Europe

The strong gold bull market of 2010 resumed today with gold rising above

The spot price for gold was $1,413 as of 4:00 p.m. eastern time. Gold hit
all time highs in November then backed off as the dollar gained strength
primarily due to weakness in the euro. Today gold retraced back to over
$1,400 on labor department numbers showing anemic job creation and the
revelation of China’s gold import numbers.

The Labor department announced employers added only 39,000 jobs in
November, far below analyst expectations and the strong gains of 172,000 in
October. The overall unemployment number crept closer to 10% as it rose to
9.8% after months of holding at 9.6%.

Gold and other commodities priced in dollars have a tendency to rise in
value when the U.S. dollar falls relative to other currencies. Many
investors also consider it a

EU Bails Out Ireland; Pressure on U.S. Dollar Resumes

Ireland agreed to terms for a bailout over the weekend. And while the
U.S. dollar rallied today against the euro, investors should expect that
trend to reverse in the near future with the dollar continuing its long
term slide against major world currencies.

The European Union’s willingness to support indebted member nations is
bullish for the euro. Also, the Fed’s QE2 will continue to weigh on the
U.S. dollar.