Gold Shines As Other Investments Dim On Jobs And Earnings

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Today it will be good to remember one portion of the famous passage that opens A Tale Of Two Cities by Charles Dickens:

“…It was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way.”

New job creation slowed appreciably in January. But more people were working for higher wages, which signals strength in the labor market and muffles pessimism about the economy in January.

The unemployment rate fell to 4.9%, from 5%, as more people joined the work force. That feature is discerned by looking at the participation rate, which tipped up to 62.7 form 62.6 percent. A key high point of the report was the 0.5% increase in average hourly wages, or a 2.5% gain year over year.

"I think it's a good number despite the headline. I think it raises more questions than it answers. If it [had been] a weak number, people would say it fits into the narrative of the last few weeks. I think this number changes the [weakness] narrative," said Jim Caron, fixed income portfolio manager with Morgan Stanley Investment Management.

The wrangling among hope and despair enthusiasts entails whether the Fed will be inclined to raise rates in light of the report’s wage increases in order to squelch inflation. Or will the Fed not raise rates because of the negative blip in hiring, and because of slowing or contraction in manufacturing and now in the service center?

All predictions say that the U.S. economy will pick up by Q2. Let the Fed be prudent and sit on their hands come March.

Meanwhile, gold roared again today, rising over $8.00 per ounce as of 3:30 PM in New York. Gold rose despite born-again strength in the U.S. dollar, which was up against the euro as well as the British pound around 0.60%. The greenback was also up against the yen, but less solidly.

The stronger dollar vs. the weaker currency basket pushed 10-year U.S. yields down and face price up although not enough to declare today’s bond activity as a full tilt toward haven seeking.

Crude oil was back to its old volatile tricks again today.

West Texas Intermediate fell 2.85% with Brent North Sea off 1.30%.

In turn, the shaky equities markets tumbled. Indexes were off everywhere except Hong Kong. The Nikkei ended off 6.00% for the week.

The DAX, CAC and FTSE did not like the U.S. labor report, but traders may have hastily sold off some questionable holdings in order not to hold them over the weekend.

A few sizable tremors rumbled through the NASDAQ/tech/biotech area and that brought the other indexes down. Again people were trying to take rickety strategies off the table for the sake of weekend peace of mind. (Who wants to watch the Super Bowl as your portfolio bursts into flame?)

Major tech players Amazon and Facebook were both off 5.5% while Apple fell 2.6%. A broad sampling of NASDAQ biotech companies – the NASDAQ Biotech ETF – was off over 4.00%.

Weak earnings – somewhat compounded by inaccurate forecasts by many companies regarding Q4 2015 – were as responsible as the confusing employment report. What is worse, as is human habit, forward guidance is now less generous, appearing downright pessimistic, so we have a sort of double whammy for the moment.

Citibank said the world’s economy is in a death spiral. Bank of America said we are still in the early stages of a secular bull market in equities.

Let’s give Dickens the last word: “It was the season of Light, it was the season of Darkness.”

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer