Stocks Closed Up for the Week ending January 12, 2007

January 12, 2007
By Benjamin Train

U.S. stocks rose for a third straight day on Friday, helped by a rebound in energy prices and data showing surprisingly robust December retail sales.

Mergers and acquisitions, too, hit record levels. Corporate profits reached record levels. Real estate deals in New York City hit noteworthy records. And of course, so did derivatives.

Investors are upbeat as the major benchmarks move to new highs and, as a result, the bullish sentiment is keeping the VIX near the lower end of its range, said Frederic Ruffy, options analyst at Optionetics, an options education firm in Redwood City, California. "The stock market remains in the midst of a steady grind higher."

Crude oil rose from a 19-month low in New York after some traders said this week's drop in oil prices wasn't justified. Some analysts expect OPEC's members to cut production to stop prices from declining.

OPEC President Mohamed al-Hamli said yesterday's drop below $53 a barrel was ``unacceptable'' and urged members to comply with the cuts in output they had promised to make in November and in February.

``The supply sides are going to remain tight,'' said Greg Smith, the U.K. managing director of the investment advisers Fat Prophets U.K. Ltd. ``OPEC can be successful in getting that price up, certainly getting it back towards $60 a barrel.''

According to Gary Dorsch; "What initially triggered the drop was a surprise move by Saudi Arabia to slash the price of Arabian Light, its finest blend, by $1.75 /barrel to a $7.50 /barrel discount to West Texas Sweet, for its US customers, the deepest discount in 10-months."

Saudi Arabia also cut the price of Arab Light to Asian buyers by a more modest 10 cents and to European buyers by 20 cents from January. About half of the Saudi kingdom's 7 million bpd of crude exports move to Asia. But why did the Riyadh to decide to tip the delicate balance between fear and greed in the oil markets to the bearish camp, by slashing its US oil price by $1.75 / barrel on Jan 2nd?

Persian Gulf oil ministers have carefully avoided mentioning a target price for their oil, but Kuwaiti Energy Ministry Undersecretary Issa al-Oun said on Nov 14th, "The Gulf Cooperation Council states see oil prices between $55 and $60 a barrel as an acceptable level, but if they start to decline then there should be action." What is not known is whether al-Oun was referring to OPEC's reference crude basket price, which closed at $51.25 on Friday, or West Texas Sweet which trades at a higher price.

In Rotterdam, Russian Urals crude oil fell below $50 per barrel for the first time in eighteen months, and should slow the Kremlin's massive build-up of foreign currency reserves, which hit a record $299.2 billion in December. Russia has the world's largest foreign reserves outside of Asia, and its holdings have grown by more than 50% from a year ago on the back of higher base metal, gold, and crude oil prices. Earlier this year Russia said the share of US dollar in its FX reserve had been cut to 50% and that that of the Euros increased to 40%, with the rest in yen and sterling.

I expect heating oil and natural gas prices to rise next week due to colder climate conditions and inventory declines. Colder weather will reach the northeastern U.S. Jan. 17 through Jan. 21, according to the U.S. National Weather Service.

Working gas in storage was 3,025 Bcf as of Friday, January 5, 2007, according to EIA estimates. This represents a net decline of 49 Bcf from the previous week.

The Dow Jones industrial average hit another record high close and the Nasdaq Composite Index posted a fresh six-year high on Friday.

The Dow has risen six times this year, out of eight trading days, and the average daily move in the blue chip index has only been 35 points. The Nasdaq has risen seven days and the average daily move is about 16 points, Ruffy said.

Precious metals rose this week after reaching their boom prices last week. Precious metals prices manage to hold their ground! Gold closed at $625.40, Silver closed at $ 12.78 and platinum closed at $ 1,146.00. I believe the reason that that precious metal prices have risen is due to the rising Fed influence in borrowed funds to keep America running.

The Economist magazine figures that "Though there is no agreement on how to measure liquidity, using the global supply of dollars as a proxy," they estimate that "in the past four years it has risen by an annual average of 18%, probably the fastest pace ever." According to Richard Daughty, the total Fed Credit expanded another $7.3 billion to $859 billion last week and another $3 billion in actual cash was created. Loans & Leases increased $12.3 billion to a record $6.076 TN, with a 2006 gain of $621 billion (11.4%). Commercial & Industrial (C&I) Loans expanded 12.6% during the year. Bank Real Estate loans expanded 14.1% during 2006. Total CP has increased $344 billion, or 20.9%, over the past 52 weeks.

If this trend continues, I expect gold to top $850 this year.